Johnson and Johnson 2013 Annual Report Download - page 56

17. Common Stock, Stock Option Plans and Stock Compensation Agreements
At December 29, 2013, the Company had 3 stock-based compensation plans. The shares outstanding are for contracts
under the Company’s 2000 Stock Option Plan, the 2005 Long-Term Incentive Plan and the 2012 Long-Term Incentive
Plan. The 2005 Long-Term Incentive Plan expired April 26, 2012. All options and restricted shares granted subsequent to
that date were under the 2012 Long-Term Incentive Plan. Under the 2012 Long-Term Incentive Plan, the Company may
issue up to 650 million shares of common stock, plus any shares canceled, expired, forfeited, or not issued from the 2005
Long-Term Incentive Plan subsequent to April 26, 2012. Shares available for future grants under the 2012 Long-Term
Incentive Plan were 583 million at the end of 2013.
The compensation cost that has been charged against income for these plans was $728 million, $662 million and $621
million for 2013, 2012 and 2011, respectively. The total income tax benefit recognized in the income statement for share-
based compensation costs was $243 million, $220 million and $207 million for 2013, 2012 and 2011, respectively. The
total unrecognized compensation cost was $636 million, $565 million and $562 million for 2013, 2012 and 2011,
respectively. The weighted average period for this cost to be recognized was 1.26 years, 1.02 years and 0.97 years for
2013, 2012, and 2011, respectively. Share-based compensation costs capitalized as part of inventory were insignificant
in all periods.
The Company settles employee benefit equity issuances with treasury shares. Previously, treasury shares were replenished
throughout the year for the number of shares used to settle employee benefit equity issuances. However, pursuant to the
accelerated stock repurchase agreements in connection with the acquisition of Synthes, Inc., the Company did not make
any purchases of common stock on the open market during the fiscal first and second quarters of 2013. Upon settlement
of the accelerated stock repurchase agreements in the fiscal third quarter of 2013, the Company resumed common stock
purchases.
Stock Options
Stock options expire 10 years from the date of grant and vest over service periods that range from 6 months to 4 years. All
options are granted at the average of the high and low prices of the Company’s Common Stock on the New York Stock
Exchange on the date of grant.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model
that uses the assumptions noted in the following table. Expected volatility represents a blended rate of 4-year daily
historical average volatility rate, and a 5-week average implied volatility rate based on at-the-money traded Johnson &
Johnson options with a life of 2 years. Historical data is used to determine the expected life of the option. The risk-free rate
was based on the U.S. Treasury yield curve in effect at the time of grant.
The average fair value of options granted was $4.88, $6.39 and $7.47, in 2013, 2012 and 2011, respectively. The fair
value was estimated based on the weighted average assumptions of:
2013 2012 2011
Risk-free rate 1.01% 1.06% 2.41%
Expected volatility 14.04% 18.38% 18.20%
Expected life (in years) 6.0 6.0 6.0
Dividend yield 3.40% 3.60% 3.60%
46 •Johnson & Johnson 2013 Annual Report