Black & Decker 2014 Annual Report Download - page 96

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ASC 718, “Compensation — Stock Compensation,” requires the benefit arising from tax deductions in excess of recognized
compensation cost to be classified as a financing cash flow. To quantify the recognized compensation cost on which the excess
tax benefit is computed, both actual compensation expense recorded and pro-forma compensation cost reported in disclosures
are considered. An excess tax benefit is generated on the extent to which the actual gain, or spread, an optionee receives upon
exercise of an option exceeds the fair value determined at the grant date; that excess spread over the fair value of the option
times the applicable tax rate represents the excess tax benefit. In 2014, 2013 and 2012, the Company reported $7.3 million,
$15.2 million and $15.1 million, respectively, of excess tax benefits as a financing cash flow within the proceeds from issuance
of common stock caption.
Outstanding and exercisable stock option information at January 3, 2015 follows:
Outstanding Stock Options Exercisable Stock Options
Exercise Price Ranges Options
Weighted-
average
Remaining
Contractual Life
Weighted-
average
Exercise Price Options
Weighted-
average
Remaining
Contractual Life
Weighted-
average
Exercise Price
$35.00 and below ..................... 495,698 2.11 $ 30.78 495,698 2.11 $ 30.78
$35.01 — 50.00........................ 260,943 4.09 48.60 260,943 4.09 48.60
$50.01 — higher....................... 6,567,440 6.32 70.48 4,389,759 4.97 63.75
7,324,081 5.95 $ 67.01 5,146,400 4.65 $ 59.81
Compensation cost for new grants is recognized on a straight-line basis over the vesting period. The expense for retirement
eligible employees (those aged 55 and over and with 10 or more years of service) is recognized by the date they become
retirement eligible, as such employees may retain their options for the 10 year contractual term in the event they retire prior to
the end of the vesting period stipulated in the grant.
Employee Stock Purchase Plan:
The Employee Stock Purchase Plan (“ESPP”) enables eligible employees in the United States and Canada to subscribe at any
time to purchase shares of common stock on a monthly basis at the lower of 85.0% of the fair market value of the shares on the
grant date ($77.16 per share for fiscal year 2014 purchases) or 85.0% of the fair market value of the shares on the last business
day of each month. A maximum of 6,000,000 shares are authorized for subscription. During 2014, 2013 and 2012, 128,144
shares, 172,259 shares and 222,123 shares respectively, were issued under the plan at average prices of $71.69, $58.59, and
$49.15 per share, respectively and the intrinsic value of the ESPP purchases was $1.9 million, $3.7 million and $4.7 million,
respectively. For 2014, the Company received $9.2 million in cash from ESPP purchases, and there is no related tax benefit.
The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. ESPP compensation cost is
recognized ratably over the one-year term based on actual employee stock purchases under the plan. The fair value of the
employees’ purchase rights under the ESPP was estimated using the following assumptions for 2014, 2013 and 2012,
respectively: dividend yield of 2.5%, 2.5% and 2.4%; expected volatility of 25.0%, 28.0% and 34.0%; risk-free interest rates of
0.1% for all three years; and expected lives of one year. The weighted average fair value of those purchase rights granted in
2014, 2013 and 2012 was $17.10, $24.07 and $25.23, respectively. Total compensation expense recognized for ESPP amounted
to $2.1 million for 2014, $4.3 million for 2013, and $5.5 million for 2012.
Restricted Share Units and Awards:
Compensation cost for restricted share units and awards, including restricted shares granted to French employees in lieu of
RSU’s, (collectively “RSU’s”) granted to employees is recognized ratably over the vesting term, which varies but is generally
4 years. RSU grants totaled 559,955 shares, 368,059 shares and 445,958 shares in 2014, 2013 and 2012, respectively. The
weighted-average grant date fair value of RSU’s granted in 2014, 2013 and 2012 was $93.67, $80.68 and $70.30 per share,
respectively.
Total compensation expense recognized for RSU’s amounted to $26.0 million, $32.6 million and $34.8 million, in 2014, 2013
and 2012 respectively. The actual tax benefit received in the period the shares were delivered was $12.6 million. The excess
tax benefit recognized was $3.5 million, $4.9 million, and $3.7 million in 2014, 2013 and 2012, respectively. As of January 3,
2015, unrecognized compensation expense for RSU’s amounted to $66.7 million and this cost will be recognized over a
weighted-average period of 3.7 years.