Emerson 2012 Annual Report Download - page 52

50 | 2012 Annual Report
At September 30, 2012 and 2011, respectively, net current deferred tax assets were $377 and $400, and net noncur-
rent deferred tax liabilities were $487 and $668. Total income taxes paid were approximately $1,300, $1,030 and
$890 in 2012, 2011 and 2010, respectively. Approximately half of the $237 net operating losses and tax credits can
be carried forward indefinitely, while the remainder expire over varying periods.
(14) Stock-Based Compensation
The Company’s stock-based compensation plans include stock options, performance shares, restricted stock and
restricted stock units. Although the Company has discretion, shares distributed under these plans are issued from
treasury stock.
STOCK OPTIONS
The Company’s stock option plans permit key officers and employees to purchase common stock at specified prices.
Awards from the 2011 plan were granted at 100 percent of the closing market price of the Company’s common stock
on the date of grant, while prior awards were granted at 100 percent of the average of the high and low market prices
on the date of grant. Options generally vest one-third each year and expire 10 years from the date of grant. Compen-
sation expense is recognized ratably over the vesting period based on the number of options expected to vest. As of
September 30, 2012, 19.7 million options were available for grant under the plans.
Changes in shares subject to option during the year ended September 30, 2012 follow:
aVerage total aVerage
exercise price intrinsic Value remaining
(shares in thousands) per share shares oF awards liFe (years)
Beginning of year $43.16 15,952
Options granted $44.03 945
Options exercised $29.62 (1,844)
Options canceled $49.08 (450)
End of year $44.75 14,603 $93 6.0
Exercisable at year end $42.34 10,540 $87 5.1
The weighted-average grant date fair value per option was $7.53, $11.00 and $8.51 for 2012, 2011 and 2010, respec-
tively. Cash received for option exercises was $42 in 2012, $65 in 2011 and $53 in 2010. The total intrinsic value of
options exercised was $38, $49 and $59 in 2012, 2011 and 2010, respectively, and the actual tax benefit realized from
tax deductions related to option exercises was $11, $16 and $4, respectively.
The grant date fair value of options is estimated using the Black-Scholes option-pricing model. Weighted-average
assumptions used in valuations for 2012, 2011 and 2010 follow: risk-free interest rate, based on U.S. Treasury yields,
1.3 percent, 1.9 percent and 3.0 percent; dividend yields, 3.7 percent, 2.6 percent and 3.2 percent; and expected
volatility, based on historical volatility, 27 percent, 25 percent and 25 percent. The expected life of an option is 7 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 employees 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 reporting period to reflect the change in fair value of the awards.
As a result of the Company achieving the performance objective at the end of 2010 for performance shares primarily
awarded in 2007, and employees providing an additional year of service, 4,777,248 rights to receive common shares
vested and were distributed to participants in 2011 as follows: 2,841,534 issued in shares, 1,661,045 withheld for
income taxes and 274,669 paid in cash. As of September 30, 2012 and 2011, 5,273,566 and 5,367,146 rights to receive
common shares (awarded primarily in 2010) were outstanding, contingent on the Company achieving the perfor-
mance objective through 2013 plus 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 employees subject to cliff vesting at the end of service periods ranging from three to ten years. The fair value
of restricted stock awards is determined based on the average of the high and low market prices of the Company’s
common stock on the date of grant, with compensation expense recognized ratably over the applicable service period.