Black & Decker 2014 Annual Report Download - page 95

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81
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 3, 2015, there were 155,521,628 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 Option Valuation Assumptions: 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 4 years from the date of grant.
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 5.25 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 a
seven 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 stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The
following weighted average assumptions were used to value grants made in 2014, 2013 and 2012.
2014 2013 2012
Average expected volatility .................................................................. 27.0% 35.0% 35.6%
Dividend yield ...................................................................................... 2.2% 2.5% 2.8%
Risk-free interest rate............................................................................ 1.8% 1.6% 0.8%
Expected term ....................................................................................... 5.3 years 5.3 years 5.5 years
Fair value per option............................................................................. $ 19.98 $ 20.70 $ 17.47
Weighted average vesting period.......................................................... 2.8 years 2.8 years 2.3 years
Stock Options:
The number of stock options and weighted-average exercise prices are as follows:
2014 2013 2012
Options Price Options Price Options Price
Outstanding, beginning of year............... 7,429,262 $ 61.69 9,056,493 $ 56.90 10,444,660 $ 52.47
Granted ................................................... 983,750 95.18 961,250 79.72 1,106,075 70.66
Exercised................................................. (953,940) 54.02 (2,414,697) 50.75 (2,258,598) 43.07
Forfeited.................................................. (134,991) 85.01 (173,784) 80.97 (235,644) 68.48
Outstanding, end of year......................... 7,324,081 $ 67.01 7,429,262 $ 61.69 9,056,493 $ 56.90
Exercisable, end of year.......................... 5,146,400 $ 59.81 5,310,381 $ 57.10 5,515,617 $ 52.97
At January 3, 2015, the range of exercise prices on outstanding stock options was $30.03 to $95.18. Stock option expense was
$16.5 million, $21.4 million and $26.6 million for the years ended January 3, 2015, December 28, 2013 and December 29,
2012, respectively. At January 3, 2015, the Company had $29.2 million of unrecognized pre-tax compensation expense for
stock options. This expense will be recognized over the remaining vesting periods which are 2.7 years on a weighted average
basis.
During 2014, the Company received $51.5 million in cash from the exercise of stock options. The related tax benefit from the
exercise of these options is $10.6 million. During 2014, 2013 and 2012, the total intrinsic value of options exercised was $33.7
million, $72.0 million and $69.1 million, respectively. When options are exercised, the related shares are issued from treasury
stock.