Medtronic 2014 Annual Report Download - page 111

Download and view the complete annual report

Please find page 111 of the 2014 Medtronic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 147

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147

Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
In fiscal year 2014, the Company granted stock awards under the Medtronic, Inc. 2013 Stock Award and Incentive Plan (2013
Plan) and the Medtronic, Inc. 2008 Stock Award and Incentive Plan (2008 Plan). The 2013 Plan was approved by the
Company’s shareholders in August 2013. The 2008 Plan was approved by the Company’s shareholders in August 2008 and
amended by shareholders in August 2009. The 2013 and 2008 Plans provide for the grant of non-qualified and incentive stock
options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other stock and cash-based
awards. Upon adoption of the 2013 Plan, the Company no longer grants awards from any prior plan. As of April 25, 2014, there
were approximately 70 million shares available for future grants under the 2013 Plan.
Stock Options Stock option awards are granted at the exercise price equal to the closing price of the Company’s common
stock on the grant date. The majority of the Company’s stock option awards are non-qualified stock options with a 10-year life
and a 4-year ratable vesting term. In fiscal year 2014, the Company granted stock options under the 2013 Plan and the 2008
Plan.
Restricted Stock Awards Restricted stock and restricted stock units (collectively referred to as restricted stock awards) are
granted to officers and key employees. Restricted stock awards are subject to forfeiture if employment terminates prior to the
lapse of the restrictions. The Company grants restricted stock awards that typically cliff vest after four years. Restricted stock
awards are expensed over the vesting period. The Company also grants shares of performance-based restricted stock awards that
typically cliff vest after three years only if the Company has also achieved certain performance objectives. Performance awards
are expensed over the performance period based on the probability of achieving the performance objectives. Shares of restricted
stock are considered issued and outstanding shares of the Company at the grant date and have the same dividend and voting
rights as other shares of common stock. Restricted stock units are not considered issued or outstanding common stock of the
Company. Dividend equivalent units are accumulated on restricted stock units during the vesting period. In fiscal year 2014, the
Company granted restricted stock units under the 2013 Plan and the 2008 Plan. As of April 25, 2014, all restricted stock awards
outstanding were restricted stock units.
Employees Stock Purchase Plan The Medtronic, Inc. 2005 Employees Stock Purchase Plan (ESPP) allows participating
employees to purchase shares of the Company’s common stock at a discount through payroll deductions. Employees can
contribute up to the lesser of 10 percent of their wages or the statutory limit under the U.S. Internal Revenue Code toward the
purchase of the Company’s common stock at 85 percent of its market value at the end of the calendar quarter purchase period.
Employees purchased 2 million shares at an average price of $47.32 per share in the fiscal year ended April 25, 2014. As of
April 25, 2014, plan participants have had approximately $6 million withheld to purchase Company common stock at 85 percent
of its market value on June 30, 2014, the last trading day before the end of the calendar quarter purchase period. At April 25,
2014, approximately 6 million shares of common stock were available for future purchase under the ESPP.
Valuation Assumptions The Company uses the Black-Scholes option pricing model (Black-Scholes model) to determine the
fair value of stock options as of the grant date. The fair value of stock options under the Black-Scholes model requires
management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates,
volatility of the Company’s stock price, and expected dividends.
The expense recognized for shares purchased under the Company’s ESPP is equal to the 15 percent discount the employee
receives at the end of the calendar quarter purchase period. The expense recognized for restricted stock awards is equal to the
grant date fair value, which is equal to the closing stock price on the date of grant.
The following table provides the weighted average fair value of options granted to employees and the related assumptions used
in the Black-Scholes model:
Fiscal Year
2014 2013 2012
Weighted average fair value of options granted $ 12.00 $ 7.42 $ 6.88
Assumptions used:
Expected life (years)(a) 6.40 6.50 6.40
Risk-free interest rate(b) 1.88% 0.94% 1.82%
Volatility(c) 25.20% 26.22% 25.97%
Dividend yield(d) 2.02% 2.64% 2.78%
103