Motorola 2012 Annual Report Download - page 87

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Defined Contribution Plan
The Company and certain subsidiaries have various defined contribution plans, in which all eligible employees may
participate. In the U.S., the 401(k) plan is a contributory plan. Matching contributions are based upon the amount of the
employees’ contributions. After temporarily suspending all matching contributions, effective July 1, 2010, the Company
reinstated matching contributions and provides a dollar for dollar (100%) match on the first 4% of employee contributions. The
maximum matching contribution for 2010 was pro-rated to account for the number of months remaining after the reinstatement.
The Company’s expenses for material defined contribution plans for the years ended December 31, 2012, 2011 and 2010 were
$42 million, $48 million and $23 million, respectively.
Beginning January 1, 2012, the Company may make an additional discretionary 401(k) plan matching contribution to
eligible employees. For the year ended December 31, 2012, the Company made no discretionary matching contributions.
8. 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.