Medtronic 2013 Annual Report Download - page 112

75732me_10K.indd 97 6/25/13 6:39 PM
Table of Contents
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
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 and amended by shareholders in August 2009. The 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 26, 2013, there were approximately 29 million shares available for
future grants under the 2008 Plan.
Stock Options Stock option awards are granted at the exercise price 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 4-
year ratable vesting term. In fiscal year 2013, 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 awards 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 2013, the Company granted
restricted stock units under the 2008 Plan. As of April 26, 2013, all restricted stock awards outstanding were restricted stock units.
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 $36.11 per share in the fiscal year ended April 26, 2013. As of April 26, 2013, plan participants have
had approximately $6 million withheld to purchase Company common stock at 85 percent of its market value on June 28, 2013,
the last trading day before the end of the calendar quarter purchase period. At April 26, 2013, approximately 8 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.
94