Dow Chemical 2014 Annual Report Download - page 145

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The Company uses a lattice-based option valuation model to estimate the fair value of stock options, the Black-Scholes option
valuation model for subscriptions to purchase shares under the ESPP and Monte Carlo simulation for the market portion of
performance deferred stock awards. The weighted-average assumptions used to calculate total stock-based compensation are
included in the following table:
Weighted-Average Assumptions 2014 2013 2012
Dividend yield 3.08% 3.89% 3.34%
Expected volatility 28.11% 29.93% 38.39%
Risk-free interest rate 1.11% 1.08% 0.95%
Expected life of stock options granted during period (years) 7.7 7.8 7.6
Life of Employee Stock Purchase Plan (months) 6 5 6
The dividend yield assumption for 2014 was equal to the dividend yield on the grant date, which for stock options was the most
recent quarterly dividend declared at the grant date of $0.37 per share and for the ESPP was the first quarter dividend payment
of $0.32 per share. The dividend yield assumption for 2013 was equal to the dividend yield on the grant date, which reflected
the most recent quarterly dividend payment of $0.32 per share. The dividend yield assumption for 2012 was based on a
10 percent/90 percent blend of the Company’s current declared dividend as a percentage of the stock price on the grant date and
a 10-year dividend yield average. The expected volatility assumption was based on an equal weighting of the historical daily
volatility and current implied volatility from exchange-traded options for the contractual term of the options. The risk-free
interest rate was based on the weighted-average of U.S. Treasury strip rates over the contractual term of the options. The
expected life of stock options granted was based on an analysis of historical exercise patterns.
Employee Stock Purchase Plan
On February 9, 2012, the Board of Directors authorized The Dow Chemical Company 2012 Employee Stock Purchase Plan
which was approved by stockholders at the Company’s annual meeting on May 10, 2012. Under the 2014 annual offering, most
employees were eligible to purchase shares of common stock of the Company valued at up to 10 percent of their annual base
salary. The value is determined using the plan price multiplied by the number of shares subscribed to by the employee. The plan
price of the stock is set at an amount equal to: the lower of at least 85 percent of the fair market value (closing price) of the
common stock on a date, or the average fair market value (closing price) of the common stock over a period, in each case,
specified by the plan administrator.
Employee Stock Purchase Plan 2014
Shares in thousands Shares
Exercise
Price
Outstanding at January 1, 2014 — —
Granted 3,634 $ 38.13
Exercised (3,615) $ 38.13
Forfeited/Expired (3) $ 38.13
Outstanding and exercisable at December 31, 2014 16 $ 38.13
Additional Information about Employee Stock Purchase Plan
In millions, except per share amounts 2014 2013 2012
Weighted-average fair value per share of purchase rights granted $ 5.45 $ 7.20 $ 8.32
Total compensation expense for ESPP $ 20 $ 60 $ 79
Related tax benefit $ 7 $ 22 $ 29
Total amount of cash received from the exercise of purchase rights $ 138 $ 198 $ 166
Total intrinsic value of purchase rights exercised (1) $ 42 $ 68 $ 41
Related tax benefit $ 15 $ 25 $ 15
(1) Difference between the market price at exercise and the price paid by the employee to exercise the purchase rights.