Waste Management 2014 Annual Report Download - page 203

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We account for our employee stock options under the fair value method of accounting using a Black-
Scholes methodology to measure stock option expense at the date of grant. The weighted average grant-date fair
value of stock options granted during the years ended December 31, 2014, 2013 and 2012 was $4.55, $4.26 and
$4.66, respectively. The fair value of the stock options at the date of grant is amortized to expense over the
vesting period less expected forfeitures, except for stock options granted to retirement-eligible employees, for
which expense is accelerated over the period that the recipient becomes retirement-eligible. The following table
presents the weighted average assumptions used to value employee stock options granted during the years ended
December 31 under the Black-Scholes valuation model:
2014 2013 2012
Expected option life ............................ 4.8years 5.4 years 5.5 years
Expected volatility ............................. 18.4% 21.8% 24.2%
Expected dividend yield ......................... 3.6% 4.0% 4.1%
Risk-free interest rate ........................... 1.6% 1.0% 1.1%
The Company bases its expected option life on the expected exercise and termination behavior of its
optionees and an appropriate model of the Company’s future stock price. The expected volatility assumption is
derived from the historical volatility of the Company’s common stock over the most recent period commensurate
with the estimated expected life of the Company’s stock options, combined with other relevant factors including
implied volatility in market-traded options on the Company’s stock. The dividend yield is the annual rate of
dividends per share over the exercise price of the option as of the grant date.
For the years ended December 31, 2014, 2013 and 2012 we recognized $59 million, $54 million and $22
million, respectively, of compensation expense associated with RSU, PSU and stock option awards as a
component of “Selling, general and administrative” expenses in our Consolidated Statement of Operations. Our
“Provision for income taxes” for the years ended December 31, 2014, 2013 and 2012 includes related deferred
income tax benefits of $23 million, $21 million and $9 million, respectively. We have not capitalized any equity-
based compensation costs during the years ended December 31, 2014, 2013 and 2012.
Compensation expense recognized in 2014 increased when compared to 2013, in part due to the increase in
expected payout of our PSUs. Compensation expense recognized in 2013 increased when compared to 2012, in
part due to the payout of PSUs granted in 2010, which was approved in 2013. Expense associated with these
awards had been reversed in 2012 when it no longer appeared probable that threshold performance would be
achieved. As of December 31, 2014 we estimate that a total of approximately $46 million of currently
unrecognized compensation expense will be recognized over a weighted average period of 1.4 years for unvested
RSU, PSU and stock option awards issued and outstanding.
Non-Employee Director Plan
Our non-employee directors currently receive annual grants of shares of our common stock, generally
payable in two equal installments, under the Incentive Plans described above.
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