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Share-Based Compensation Plans And Other Incentive Plans
12 Months Ended
Dec. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation Plans and Other Incentive Plans
Share-Based Compensation Plans and Other Incentive Plans
Stock Options, Stock Appreciation Rights and Employee Stock Purchase Plan
The Company grants options to acquire shares of common stock to certain employees and to existing option holders of acquired companies in connection with the merging of option plans following an acquisition. Each option granted and stock appreciation right has an exercise price of no less than 100% of the fair market value of the common stock on the date of the grant. The awards have a contractual life of five to ten years and vest over two to four years. Stock options and stock appreciation rights assumed or replaced with comparable stock options or stock appreciation rights in conjunction with a change in control of the Company only become exercisable if the holder is also involuntarily terminated (for a reason other than cause) or quits for good reason within 24 months of a change in control.
The employee stock purchase plan allows eligible participants to purchase shares of the Company’s common stock through payroll deductions of up to 20% of eligible compensation on an after-tax basis. Plan participants cannot purchase more than $25,000 of stock in any calendar year. The price an employee pays per share is 85% of the lower of the fair market value of the Company’s stock on the close of the first trading day or last trading day of the purchase period. The plan has two purchase periods, the first one from October 1 through March 31 and the second one from April 1 through September 30. For the years ended December 31, 2012, 2011 and 2010, employees purchased 1.4 million, 2.2 million and 2.7 million shares, respectively, at purchase prices of $34.52 and $42.96, $30.56 and $35.61, and $41.79 and $42.00, respectively.
The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model. The weighted-average estimated fair value of employee stock options granted during 2012, 2011 and 2010 was $9.60, $13.25 and $21.43, respectively, using the following weighted-average assumptions:
 
2012
 
2011
 
2010
Expected volatility
24.0
%
 
28.8
%
 
41.7
%
Risk-free interest rate
0.8
%
 
2.1
%
 
2.1
%
Dividend yield
2.2
%
 
0.0
%
 
0.0
%
Expected life (years)
6.1

 
6.0

 
6.1


The Company uses the implied volatility for traded options on the Company’s stock as the expected volatility assumption required in the Black-Scholes model. The selection of the implied volatility approach was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that implied volatility is more representative of future stock price trends than historical volatility.
The risk-free interest rate assumption is based upon the average daily closing rates during the year for U.S. Treasury notes that have a life which approximates the expected life of the option. The dividend yield assumption is based on the Company’s future expectation of dividend payouts. The expected life of employee stock options represents the average of the contractual term of the options and the weighted-average vesting period for all option tranches.
The Company has applied forfeiture rates, estimated based on historical data, of 13%-50% to the option fair values calculated by the Black-Scholes option pricing model. These estimated forfeiture rates are applied to grants based on their remaining vesting term and may be revised in subsequent periods if actual forfeitures differ from these estimates.
Stock option activity was as follows (in thousands, except exercise price and employee data): 
 
2012
 
2011
 
2010
Years ended December 31
Shares
Subject to
Options
 
Wtd. Avg.
Exercise
Price
 
Shares
Subject to
Options
 
Wtd. Avg.
Exercise
Price
 
Shares
Subject to
Options
 
Wtd. Avg.
Exercise
Price
Options outstanding at January 1
15,729

 
$
63

 
19,614

 
$
81

 
23,061

 
$
84

Options granted
1,286

 
51

 
3,155

 
39

 
1,630

 
50

Options exercised
(2,831
)
 
29

 
(4,475
)
 
27

 
(1,559
)
 
42

Adjustments to options outstanding to reflect Motorola Mobility distribution

 

 
7,756

 
39

 

 

Options terminated, cancelled or expired
(1,052
)
 
60

 
(10,321
)
 
59

 
(3,518
)
 
104

Options outstanding at December 31
13,132

 
70

 
15,729

 
63

 
19,614

 
81

Options exercisable at December 31
9,242

 
81

 
11,184

 
74

 
12,429

 
99

Approx. number of employees granted options
115

 
 
 
270

 
 
 
529

 
 
At December 31, 2012, the Company had $30 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock option plans and the employee stock purchase plan that will be recognized over the weighted average period of approximately two years. Cash received from stock option exercises and the employee stock purchase plan was $133 million, $192 million and $179 million for the years ended December 31, 2012, 2011 and 2010, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $59 million, $73 million and $17 million, respectively. The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2012 was $170 million and $118 million, respectively, based on a December 31, 2012 stock price of $55.68 per share.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2012 (in thousands, except exercise price and years):
 
Options Outstanding
 
Options
Exercisable
Exercise price range
No. of
options
 
Wtd. avg.
Exercise
Price
 
Wtd. avg.
contractual
life (in yrs.)
 
No. of
options
 
Wtd. avg.
Exercise
Price
Under $30
3,099

 
$
26
 
7
 
2,617

 
$
26

$30-$40
3,728

 
38
 
7
 
2,064

 
37

$41-$50
620

 
45
 
8
 
246

 
44

$51-$60
1,377

 
52
 
9
 
7

 
54

$61-$70
836

 
67
 
2
 
836

 
67

$71-$80
255

 
74
 
4
 
255

 
74

$81 and over
3,217

 
161
 
2
 
3,217

 
161

 
13,132

 
 
 
 
 
9,242

 
 

As of December 31, 2012, the weighted average contractual life for options outstanding and exercisable was five and four years, respectively.
Restricted Stock and Restricted Stock Units
Restricted stock (“RS”) and restricted stock unit (“RSU”) grants consist of shares or the rights to shares of the Company’s common stock which are awarded to employees and non-employee directors. The grants are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee. Shares of RS and RSUs assumed or replaced with comparable shares of RS or RSUs in conjunction with a change in control will only have the restrictions lapse if the holder is also involuntarily terminated (for a reason other than cause) or quits for good reason within 24 months of a change in control.
Restricted stock and restricted stock unit activity was as follows (in thousands, except fair value and employee data): 
 
2012
 
2011
 
2010
Years ended December 31
RS and RSU
 
Wtd. Avg.
Grant
Date Fair
Value
 
RS and RSU
 
Wtd Avg.
Grant
Date Fair
Value
 
RS and RSU
 
Wtd Avg.
Grant
Date Fair
Value
RS and RSU outstanding at January 1
8,990

 
$
40

 
9,559

 
$
51

 
8,061

 
$
55

Granted
1,657

 
49

 
5,150

 
44

 
4,772

 
49

Adjustments to RSUs outstanding to reflect Motorola Mobility distribution

 

 
3,638

 
20

 

 

Vested
(3,845
)
 
41

 
(3,230
)
 
31

 
(2,407
)
 
58

Terminated or canceled
(503
)
 
33

 
(6,127
)
 
44

 
(867
)
 
56

RS and RSU outstanding at December 31
6,299

 
41

 
8,990

 
40

 
9,559

 
51

Approx. number of employees granted RSUs
2,355

 
 
 
12,351

 
 
 
29,973

 
 

At December 31, 2012, the Company had unrecognized compensation expense related to RS and RSUs of $144 million, net of estimated forfeitures, expected to be recognized over the weighted average period of approximately two years. The total fair value of RS and RSU shares vested during the years ended December 31, 2012, 2011 and 2010 was $144 million, $146 million and $114 million, respectively. The aggregate fair value of outstanding RSUs as of December 31, 2012 was $351 million. Pursuant to the completion of the distribution of Motorola Mobility on January 4, 2011, approximately 3.8 million unvested RSUs held by the employees of Motorola Mobility were cancelled. Upon the completed divestiture of certain assets of the Networks business on April 29, 2011, approximately 1.4 million unvested RSUs were cancelled.
Total Share-Based Compensation Expense
Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plans, RS and RSUs was as follows: 
Years ended December 31
2012
 
2011
 
2010
Share-based compensation expense included in:
 
 
 
 
 
Costs of sales
$
25

 
$
20

 
$
19

Selling, general and administrative expenses
112

 
112

 
82

Research and development expenditures
47

 
36

 
43

Share-based compensation expense included in Operating earnings
184

 
168

 
144

Tax benefit
62

 
51

 
43

Share-based compensation expense, net of tax
$
122

 
$
117

 
$
101

Decrease in basic earnings per share
$
(0.42
)
 
$
(0.34
)
 
$
(0.30
)
Decrease in diluted earnings per share
$
(0.41
)
 
$
(0.34
)
 
$
(0.30
)
Share-based compensation expense in discontinued operations
$

 
$
13

 
$
164


At December 31, 2012 and 2011, 22.2 million shares and 23.7 million shares, respectively, were available for future share-based award grants under the current share-based compensation plan, covering all equity awards to employees and non-employee directors.
Motorola Solutions Incentive Plans
The Company's incentive plans provide eligible employees with an annual payment, calculated as a percentage of an employee’s eligible earnings, in the year after the close of the current calendar year if specified business goals and individual performance targets are met. The expense for awards under this incentive plan for the years ended December 31, 2012, 2011 and 2010 was $201 million, $203 million and $201 million, respectively.
Long-Range Incentive Plan
The Long-Range Incentive Plan (“LRIP”) rewards participating elected officers for the Company’s achievement of specified business goals during the period, based on two performance objectives measured over three-year cycles. The expense for LRIP (net of the reversals of previously recognized reserves) for the years ended December 31, 2012, 2011 and 2010 was $12 million, $3 million and $11 million, respectively.