Medtronic 2012 Annual Report Download - page 117

Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
100
Stock awards are granted under the Medtronic, Inc. 2008 Stock Award and Incentive Plan (2008 Plan).
The 2008 Plan was approved by the Company’s shareholders in August 2008 which was amended by
shareholders in August 2009. This 2008 Plan provides for the grant of non-qualified and incentive stock
options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other
stock and cash-based awards. As of April 27, 2012, there were approximately 40 million shares available for
future grants under the 2008 Plan.
Stock Options Stock option awards are granted at exercise prices equal to the closing price of the
Company’s common stock on the grant date. The majority of the Company’s stock option awards are non-
qualified stock options with a 10-year life and a four-year ratable vesting term. In fiscal year 2012, the
Company granted stock options under the 2008 Plan.
Restricted Stock Awards Restricted stock and restricted stock units (collectively referred to as
restricted stock awards) are granted to officers and key employees. Restricted stock awards are subject to
forfeiture if employment terminates prior to the lapse of the restrictions. The Company grants restricted
stock awards that typically cliff vest after four years. Restricted stock awards are expensed over the vesting
period. The Company also grants shares of performance-based restricted stock that typically cliff vest after
three years only if the Company has also achieved certain performance objectives. Performance awards are
expensed over the performance period based on the probability of achieving the performance objectives.
Shares of restricted stock are considered issued and outstanding shares of the Company at the grant date
and have the same dividend and voting rights as other shares of common stock. Restricted stock units are
not considered issued or outstanding common stock of the Company. Dividend equivalent units are
accumulated on restricted stock units during the vesting period. In fiscal year 2012, the Company granted
restricted stock awards under the 2008 Plan.
Employee Stock Purchase Plan The Medtronic, Inc. 2005 Employee Stock Purchase Plan (ESPP)
allows participating employees to purchase shares of the Company’s common stock at a discount through
payroll deductions. Employees can contribute up to the lesser of 10 percent of their wages or the statutory
limit under the U.S. Internal Revenue Code toward the purchase of the Company’s common stock at
85 percent of its market value at the end of the calendar quarter purchase period. Employees purchased
2 million shares at an average price of $31.40 per share in the fiscal year ended April 27, 2012. As of April 27,
2012, plan participants have had approximately $5 million withheld to purchase Company common stock
at 85 percent of its market value on June 29, 2012, the last trading day before the end of the calendar quarter
purchase period. At April 27, 2012, approximately 10 million shares of common stock were available for
future purchase under the ESPP.
Valuation Assumptions The Company uses the Black-Scholes option pricing model (Black-Scholes
model) to determine the fair value of stock options as of the grant date. The fair value of stock options
under the Black-Scholes model requires management to make assumptions regarding projected
employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price,
and expected dividends.
The expense recognized for shares purchased under the Company’s ESPP is equal to the 15 percent
discount the employee receives at the end of the calendar quarter purchase period. The expense recognized
for restricted stock awards is equal to the grant date fair value, which is equal to the closing stock price on
the date of grant.