Emerson 2010 Annual Report Download - page 53

2010 Annual Report
51
The grant date fair value of each option is estimated using the Black-Scholes option-pricing model. Weighted-average
assumptions used in the Black-Scholes valuations for 2010, 2009 and 2008 are as follows: risk-free interest rate based
on the U.S. Treasury yield of 3.0 percent, 2.4 percent and 4.1 percent; dividend yield of 3.2 percent, 4.2 percent and
2.0 percent; and expected volatility based on historical volatility of 25 percent, 22 percent and 17 percent. The
expected life of an option is seven years based on historical experience and expected future exercise patterns.
PERFORMANCE SHARES, RESTRICTED STOCK AND RESTRICTED STOCK UNITS
The Company’s incentive shares plans include performance share awards which distribute the value of common stock
to key management personnel subject to certain operating performance conditions and other restrictions. Distribu-
tion is primarily in shares of common stock and partially in cash. Compensation expense is recognized over the service
period based on the number of awards expected to be ultimately earned. Performance share awards are accounted for
as liabilities in accordance with ASC 718, Compensation – Stock Compensation, with compensation expense adjusted at
the end of each period to reflect the change in fair value of the awards.
As of September 30, 2010, 10,060,964 performance shares were outstanding, which are contingent on accomplishing
the Company’s performance objective and the provision of service by the employees. The objective for 4,786,464
performance shares awarded primarily in 2007 was met at the 96 percent performance level at the end of 2010. Of
these, the value of 2,871,878 shares will be distributed in early 2011 while the value of 1,914,586 shares remains
subject to the employees providing one additional year of service. The remaining 5,274,500 performance shares
(primarily awarded in 2010) are contingent on achieving the Company’s performance objective through 2013 and the
provision of service by the employees.
Incentive shares plans also include restricted stock awards, which involve distribution of common stock to key manage-
ment personnel subject to cliff vesting at the end of service periods ranging from three to 10 years. The fair value of
these awards is determined based on the average of the high and low price of the Company’s common stock on the
date of grant, with compensation expense recognized ratably over the applicable service period. In 2010, 260,000
shares of restricted stock vested as a result of participants fulfilling the applicable service requirements and, accord-
ingly, 157,388 shares were issued while 102,612 shares were withheld for income taxes in accordance with minimum
withholding requirements. The Company also performed a one-time conversion of outstanding Avocent stock
awards in conjunction with the acquisition and during 2010, 685,755 of these shares vested, with 467,452 Emerson
shares issued and 218,303 shares withheld for taxes in accordance with minimum withholding requirements. As of
September 30, 2010, there were 2,222,379 non-vested shares of restricted stock outstanding, including 254,379 shares
related to the one-time Avocent conversion.
Changes in awards outstanding but not yet earned under the incentive shares plans during the year ended
September 30, 2010 follow:
average grant date
(shares in thousands) shares fair value per share
Beginning of year 6,969 $40.59
Granted 6,730 $39.12
Earned/vested (946) $40.27
Canceled (470) $41.08
End of year 12,283 $39.76
The total fair value of shares vested under the incentive shares plans was $42, $3 and $253, respectively, in 2010,
2009 and 2008, of which $15, $1 and $104, respectively, was paid in cash, primarily for tax withholding. As of
September 30, 2010, approximately 10 million shares remained available for award under the incentive shares plans.
Total compensation expense for the stock option and incentive shares plans was $217, $54 and $82, for 2010, 2009
and 2008, respectively. The increase from 2009 to 2010 reflects overlap of two performance share programs during the
year (2007 awards for performance through 2010 and 2010 awards for performance through 2013) and a higher stock
price in the current year. The decrease from 2008 to 2009 reflects no performance share program overlap in 2009
and expense accrual at a lower overall performance percentage. Income tax benefits recognized in the income state-
ment for these compensation arrangements during 2010, 2009 and 2008 were $65, $13 and $21, respectively. As of
September 30, 2010, there was $270 of total unrecognized compensation cost related to non-vested awards granted
under these plans, which is expected to be recognized over a weighted-average period of 2.4 years.
In addition to the stock option and incentive shares plans, in 2010 the Company awarded 25,610 shares of restricted
stock and 5,122 restricted stock units under the restricted stock plan for non-management directors. As of
September 30, 2010, 338,122 shares remained available for issuance under this plan.