Johnson and Johnson 2014 Annual Report Download - page 56

16. Rental Expense and Lease Commitments
Rentals of space, vehicles, manufacturing equipment and office and data processing equipment under operating leases
were approximately $341 million, $363 million and $375 million in 2014, 2013 and 2012, respectively.
The approximate minimum rental payments required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year at December 28, 2014 are:
(Dollars in Millions)
2015 2016 2017 2018 2019
After
2019 Total
$200 157 111 80 66 77 691
Commitments under capital leases are not significant.
17. Common Stock, Stock Option Plans and Stock Compensation Agreements
At December 28, 2014, the Company had 3 stock-based compensation plans. The shares outstanding are for contracts
under the Company’s 2000 Stock Option Plan, the 2005 Long-Term Incentive Plan and the 2012 Long-Term Incentive
Plan. The 2005 Long-Term Incentive Plan expired April 26, 2012. All options and restricted shares granted subsequent to
that date were under the 2012 Long-Term Incentive Plan. Under the 2012 Long-Term Incentive Plan, the Company may
issue up to 650 million shares of common stock, plus any shares canceled, expired, forfeited, or not issued from the 2005
Long-Term Incentive Plan subsequent to April 26, 2012. Shares available for future grants under the 2012 Long-Term
Incentive Plan were 530 million at the end of 2014.
The compensation cost that has been charged against income for these plans was $792 million, $728 million and $662
million for 2014, 2013 and 2012, respectively. The total income tax benefit recognized in the income statement for
share-based compensation costs was $259 million, $243 million and $220 million for 2014, 2013 and 2012,
respectively. The total unrecognized compensation cost was $722 million, $636 million and $565 million for 2014, 2013
and 2012, respectively. The weighted average period for this cost to be recognized was 1.18 years, 1.26 years and 1.02
years for 2014, 2013, and 2012, respectively. Share-based compensation costs capitalized as part of inventory were
insignificant in all periods.
The Company settles employee benefit equity issuances with treasury shares. Treasury shares are replenished throughout
the year for the number of shares used to settle employee benefit equity issuances.
Stock Options
Stock options expire 10 years from the date of grant and vest over service periods that range from 6 months to 4 years. All
options are granted at the average of the high and low prices of the Company’s Common Stock on the New York Stock
Exchange on the date of grant.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model
that uses the assumptions noted in the following table. Expected volatility represents a blended rate of 4-year daily
historical average volatility rate, and a 5-week average implied volatility rate based on at-the-money traded Johnson &
Johnson options with a life of 2 years. Historical data is used to determine the expected life of the option. The risk-free rate
was based on the U.S. Treasury yield curve in effect at the time of grant.
The average fair value of options granted was $8.42, $4.88 and $6.39, in 2014, 2013 and 2012, respectively. The fair
value was estimated based on the weighted average assumptions of:
2014 2013 2012
Risk-free rate 1.87% 1.01% 1.06%
Expected volatility 14.60% 14.04% 18.38%
Expected life (in years) 6.0 6.0 6.0
Dividend yield 3.10% 3.40% 3.60%
46 •Johnson & Johnson 2014 Annual Report