Black & Decker 2010 Annual Report Download - page 107

outstanding shares of common stock which the independent directors have deemed to be fair and in the best
interest of the Company), provision will be made so that each holder of a right (other than a holder who is a
14.9%-or-more shareowner) shall thereafter have the right to receive, upon exercise thereof, common stock (or,
in certain circumstances, cash, property or other securities of the Company) having a market value equal to
two times the exercise price of the right. At January 1, 2011, there were 166,347,430 outstanding rights.
STOCK-BASED COMPENSATION PLANS — The Company has stock-based compensation plans for
salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary
grants of stock options, restricted stock units, and other stock-based awards.
The plans are generally administered by the Compensation and Organization Committee of the Board of
Directors, consisting of non-employee directors.
Stock Options: Stock options are granted at the fair market value of the Company’s stock on the date of
grant and have a 10-year term. Generally, stock option grants vest ratably over four years from the date of
grant.
One million options were granted in conjunction with the Merger. These options will cliff vest on the third
anniversary of the Merger. The fair value of each stock option was estimated on the date of grant using the
Black-Scholes option pricing model. Assumptions used for the Black-Scholes valuation of these options were:
Stock price .................................................................. $ 57.50
Option price.................................................................. $ 57.50
Average expected volatility ....................................................... 30%
Dividend yield ................................................................ 2.3%
Risk-free interest rate ........................................................... 3.3%
Expected term ................................................................ 7years
Fair value per option ........................................................... $ 16.34
The following describes how certain assumptions affecting the estimated fair value of stock options are
determined: the dividend yield is computed as the annualized dividend rate at the date of grant divided by the
strike price of the stock option; expected volatility is based on an average of the market implied volatility and
historical volatility for the 5 year expected life; the risk-free interest rate is based on U.S. Treasury securities
with maturities equal to the expected life of the option; and an eight percent forfeiture rate is assumed. The
Company uses historical data in order to estimate forfeitures and holding period behavior for valuation
purposes.
The fair value of other stock option grants made during the year was also estimated on the date of grant using
the Black-Scholes option pricing model. The following weighted average assumptions used for grants in 2010,
2009 and 2008, respectively: dividend yield of 2.1%, 2.8% and 3.8%; expected volatility of 32.7%, 32.8% and
45.0%; and risk-free interest rates of 2.2%, 2.2% and 1.8%. An expected life of 5.5 years was used in 2010
and an expected life of 5 years was used in both 2009 and 2008. Also, a weighted average vesting period of
2.5 years was used in 2010, 2.4 years in 2009 and 2.0 years in 2008. The weighted average fair value of stock
options granted in 2010, 2009 and 2008 was $17.00, $11.48 and $9.25, respectively.
Refer to Note E, Merger and Acquisitions, for discussion of the valuation of the options assumed from the
Merger.
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