Emerson 2014 Annual Report Download - page 53

2014 Emerson > 49
(14) Stock-Based Compensation
The Company’s stock-based compensation plans include stock options, performance shares, restricted stock and
restricted stock units. Although the Company has discretion, shares distributed under these plans are issued from
treasury stock.
STOCK OPTIONS
The Company’s stock option plans permit key officers and employees to purchase common stock at specified prices,
which are equal to 100 percent of the closing market price of the Company’s stock on the date of grant. Options
generally vest one-third in each of the three years subsequent to grant and expire 10 years from the date of grant.
Compensation expense is recognized ratably over the vesting period based on the number of options expected to
vest. As of September 30, 2014, 14.4 million options were available for grant under the plans.
Changes in shares subject to options during the year ended September 30, 2014 follow:
weighted-aVerage total aVerage
exercise price intrinsic Value remaining
(shares in thousands) per share shares of awards life (years)
Beginning of year $47.03 11,674
Options granted $65.07 4,931
Options exercised $41.29 (2,420)
Options canceled $59.09 (277)
End of year $54.19 13,908 $130 6.4
Exercisable at year end $48.51 8,407 $120 4.7
The weighted-average grant date fair value per option was $14.83, $10.12 and $7.53 in 2014, 2013 and 2012,
respectively. Cash received for option exercises was $77 in 2014, $104 in 2013 and $42 in 2012. The total intrinsic
value of options exercised in 2014, 2013 and 2012 was $61, $66 and $38, respectively, while the tax benefit realized
by the Company from tax deductions related to option exercises was $14, $7 and $11, respectively.
The grant date fair value of options is estimated using the Black-Scholes option-pricing model. The weighted-
average assumptions used in valuations for 2014, 2013 and 2012 are: risk-free interest rate, based on U.S. Treasury
yields, 2.0 percent, 1.2 percent and 1.3 percent; dividend yield, 2.6 percent, 3.2 percent and 3.7 percent; and
expected volatility, based on historical volatility, 28 percent, 28 percent and 27 percent. The expected life of each
option awarded is seven years based on historical experience and expected future exercise patterns.
PERFORMANCE SHARES, RESTRICTED STOCK AND RESTRICTED STOCK UNITS
The Company’s incentive shares plans include performance shares awards which distribute the value of common
stock to key management employees subject to certain operating performance conditions and other restrictions.
The form of distribution is primarily shares of common stock with a portion in cash. Compensation expense for
performance shares is recognized over the service period based on the number of shares ultimately expected to
be earned. Performance shares awards are accounted for as liabilities in accordance with ASC 718, Compensation –
Stock Compensation, with compensation expense adjusted at the end of each reporting period to reflect the change
in fair value of the awards.
As of September 30, 2013, the Company achieved the performance objectives at the 93 percent level for
performance shares awarded primarily in 2010, resulting in the rights to 4,837,739 common shares vesting and
becoming available for distribution. Of these, 2,902,647 shares were distributed in early 2014 as follows: 1,582,608
issued as shares, 1,125,122 withheld for income taxes, and the value of 194,917 paid in cash. The remaining
1,920,398 shares were distributed at the end of 2014 to employees who provided one additional year of service as
follows: 1,199,535 issued as shares, 704,495 withheld for income taxes, and the value of 16,368 paid in cash. There
were 14,694 shares canceled and not distributed. As of September 30, 2014, the rights to receive a maximum of
5,866,840 common shares awarded primarily in 2013 were outstanding, contingent on the Company achieving its
performance objectives through 2016 and the provision of additional service by employees.