Emerson 2013 Annual Report Download - page 52

50 Emerson > 2013 Annual Report
Changes in shares subject to option during the year ended September 30, 2013 follow:
average total average
exercise price intrinsic value remaining
(shares in thousands) per share shares of awards life (years)
Beginning of year $44.75 14,603
Options granted $51.70 639
Options exercised $37.89 (3,377)
Options canceled $49.74 (191)
End of year $47.03 11,674 $205 5.6
Exercisable at year end $45.80 9,038 $170 5.0
The weighted-average grant date fair value per option was $10.12, $7.53 and $11.00 for 2013, 2012 and 2011,
respectively. Cash received for option exercises was $104 in 2013, $42 in 2012 and $65 in 2011. The total intrinsic value
of options exercised was $66, $38 and $49 in 2013, 2012 and 2011, respectively, and the actual tax benefit realized by the
Company from tax deductions related to option exercises was $7, $11 and $16, respectively.
The grant date fair value of options is estimated using the Black-Scholes option-pricing model. The weighted-average
assumptions used in valuations for 2013, 2012 and 2011 follow: risk-free interest rate, based on U.S. Treasury yields,
1.2 percent, 1.3 percent and 1.9 percent; dividend yield, 3.2 percent, 3.7 percent and 2.6 percent; and expected volatility,
based on historical volatility, 28 percent, 27 percent and 25 percent. The expected life of each option awarded 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 shares awards which distribute the value of common stock
to key management employees subject to certain operating performance conditions and other restrictions. Distribution
is primarily in shares of common stock and partially in cash. Compensation expense for performance shares is recognized
over the service period based on the number of shares ultimately expected to be earned. Performance shares 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 of September 30, 2013, 5,201,866 performance shares awarded primarily in 2010 were outstanding and contingent
on the Company achieving its performance objectives and the provision of service by the employees. The objectives for
these shares were met at the 93 percent level at the end of 2013, or 4,837,739 shares. Of these, 2,902,647 shares will be
distributed in early 2014 while 1,935,092 shares remain subject to employees providing one additional year of service.
Additionally, 5,118,500 performance shares awarded in 2013 are outstanding and contingent on the Company achieving
its performance objectives through 2016 and the provision of service by the employees. As a result of the Company
achieving its performance objectives at the 96 percent level at the end of 2010 for performance shares awarded primarily
in 2007, and employees providing an additional year of service, rights to receive 4,777,248 common shares vested and
were distributed to participants in 2011 as follows: 2,841,534 issued as shares, 1,661,045 withheld for income taxes and
the value of 274,669 paid in cash.
Incentive shares plans also include restricted stock awards, which involve distribution of common stock to key
management 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. In
2013, 390,000 shares of restricted stock vested as a result of participants fulfilling the applicable service requirements.
Consequently, 231,983 shares were issued while 158,017 shares were withheld for income taxes in accordance with
minimum withholding requirements. As of September 30, 2013, there were 1,275,000 shares of unvested restricted
stock outstanding.
Changes in shares outstanding but not yet earned under the incentive shares plans during the year ended September 30,
2013 follow:
average grant date
(shares in thousands) shares fair value per share
Beginning of year 6,799 $39.55
Granted 5,532 $48.25
Earned/vested (390) $33.15
Canceled (710) $42.75
End of year 11,231 $43.86