15. Share-Based Compensation and Savings Plans
Share-Based Compensation Plans
We maintain stock incentive plans (collectively, the “Plans”) for the benefit of certain of our officers, directors and employees. At June 30, 2013, 30 million shares remain available for future issuances under the Cardinal Health, Inc. 2011 Long-Term Incentive Plan (“2011 LTIP”). The number of shares authorized for issuance under the 2011 LTIP will increase by shares that are not issued under outstanding equity awards. Under the 2011 LTIP's fungible share counting provisions, stock options are counted against the plan as one share for every share issued; awards other than stock options are counted against the plan as two and one-half shares for every share issued. This means that only 12 million shares could be issued under awards other than stock options while 30 million shares could be issued under stock options.
The following table provides total share-based compensation expense by type of award:
|
| | | | | | | | | | | |
(in millions) | 2013 | | 2012 | | 2011 |
Restricted share and share unit expense | $ | 60 |
| | $ | 55 |
| | $ | 52 |
|
Employee stock option expense | 23 |
| | 25 |
| | 26 |
|
Performance share unit expense | 10 |
| | 6 |
| | — |
|
Stock appreciation right (income)/expense | — |
| | (1 | ) | | 2 |
|
Total | $ | 93 |
| | $ | 85 |
| | $ | 80 |
|
The total tax benefit related to share-based compensation was $32 million, $31 million and $29 million for fiscal 2013, 2012 and 2011, respectively.
During fiscal 2013, certain share-based compensation awards were modified. The modifications resulted in incremental compensation cost of $3 million, $2 million of which is included in restructuring and employee severance in the consolidated statements of earnings. See Note 3 for information regarding our restructuring activities.
Stock Options
Employee stock options granted under the Plans generally vest in equal annual installments over three years and are exercisable for periods ranging from seven to ten years from the grant date. All employee stock options are exercisable at a price equal to the market value of the common shares underlying the option at the grant date and, when exercised, are issued out of treasury shares.
The following table summarizes all stock option transactions under the Plans:
|
| | | | | | |
(in millions, except per share amounts) | Stock Options | | Weighted-Average Exercise Price per Common Share |
Outstanding at June 30, 2011 | 23 |
| | $ | 37.02 |
|
Granted | 2 |
| | 41.58 |
|
Exercised | (2 | ) | | 30.26 |
|
Canceled and forfeited | (2 | ) | | 47.19 |
|
Outstanding at June 30, 2012 | 21 |
| | $ | 37.29 |
|
Granted | 3 |
| | 39.81 |
|
Exercised | (6 | ) | | 33.19 |
|
Canceled and forfeited | (3 | ) | | 46.91 |
|
Outstanding at June 30, 2013 | 15 |
| | $ | 36.97 |
|
Exercisable at June 30, 2013 | 10 |
| | $ | 36.20 |
|
The following tables provide additional data related to stock option activity:
|
| | | | | | | | | | | |
(in millions, except per share amounts) | 2013 | | 2012 | | 2011 |
Aggregate intrinsic value of outstanding options at period end | $ | 156 |
| | $ | 137 |
| | $ | 217 |
|
Aggregate intrinsic value of exercisable options at period end | 113 |
| | 84 |
| | 94 |
|
Aggregate intrinsic value of exercised options | 64 |
| | 27 |
| | 26 |
|
Cash received upon exercise | 121 |
| | 42 |
| | 63 |
|
Cash tax disbursements realized related to exercise | (19 | ) | | (4 | ) | | (14 | ) |
Total compensation cost, net of estimated forfeitures, related to unvested stock options not yet recognized, pre-tax | 22 |
| | 25 |
| | 29 |
|
Total fair value of shares vested during the year | 28 |
| | 26 |
| | 24 |
|
Weighted-average grant date fair value per stock option | 8.15 |
| | 9.26 |
| | 6.40 |
|
|
| | | | | |
(in years) | 2013 | | 2012 | | 2011 |
Weighted-average remaining contractual life of outstanding options | 4 | | 3 | | 4 |
Weighted-average remaining contractual life of exercisable options | 3 | | 2 | | 3 |
Weighted-average period over which stock option compensation cost is expected to be recognized | 2 | | 2 | | 2 |
Stock options are granted to our officers and certain employees. The fair values were estimated on the grant date using a lattice valuation model. We believe the lattice model provides reasonable estimates because it has the ability to take into account individual exercise patterns based on changes in our stock price and other variables, and it provides for a range of input assumptions, which are disclosed in the table below. The risk-free rate is based on the U.S. Treasury yield curve at the time of the grant. We analyzed historical data to estimate option exercise behaviors and employee terminations to be used within the lattice model. The expected life of the options granted was calculated from the option valuation model and represents the length of time in years that the options granted are expected to be outstanding. Expected volatilities are based on implied volatility from traded options on our common shares and historical volatility over a period of time commensurate with the contractual term of the option grant (up to ten years). The following table provides the range of assumptions used to estimate the fair value of stock options:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Risk-free interest rate | 1.1% | - | 1.3% | | 1.2% | - | 1.3% | | 1.2% | - | 1.7% |
Expected volatility | 29% | | 29% | | 27% | - | 32% |
Dividend yield | 2.1% | - | 2.5% | | 2.0% | - | 2.1% | | 2.2% | - | 2.5% |
Expected life in years | 6 | | 6 | | 5 |
Restricted Shares and Restricted Share Units
Restricted shares and restricted share units granted under the Plans generally vest in equal annual installments over three years. The fair value is determined by the grant date market price of our common shares. Restricted shares and restricted share units accrue dividends or cash dividend equivalents that are payable upon vesting of the awards.
The following table summarizes all transactions related to restricted shares and restricted share units under the Plans:
|
| | | | | | |
(in millions, except per share amounts) | Shares | | Weighted-Average Grant Date Fair Value per Share |
Nonvested at June 30, 2011 | 4 |
| | $ | 31.31 |
|
Granted | 2 |
| | 41.67 |
|
Vested | (2 | ) | | 32.50 |
|
Canceled and forfeited | — |
| | — |
|
Nonvested at June 30, 2012 | 4 |
| | $ | 35.46 |
|
Granted | 2 |
| | 40.02 |
|
Vested | (2 | ) | | 33.41 |
|
Canceled and forfeited | (1 | ) | | 38.84 |
|
Nonvested at June 30, 2013 | 3 |
| | $ | 38.74 |
|
The following table provides additional data related to restricted share and restricted share unit activity:
|
| | | | | | | | | | | |
(in millions) | 2013 | | 2012 | | 2011 |
Total compensation cost, net of estimated forfeitures, related to nonvested restricted share and share unit awards not yet recognized, pre-tax | $ | 67 |
| | $ | 67 |
| | $ | 56 |
|
Weighted-average period over which restricted share and share unit cost is expected to be recognized (in years) | 2 |
| | 2 |
| | 2 |
|
Total fair value of shares vested during the year | $ | 60 |
| | $ | 54 |
| | $ | 54 |
|
Performance Share Units
Performance share units vest over two-year and three-year performance periods based on achievement of specific performance goals. Based on the extent to which the targets are achieved, vested shares may range from zero to 200 percent of the target award amount. The fair value of performance share units is determined by the grant date market price of our common shares and the compensation expense associated with nonvested performance share units is dependent on our periodic assessment of the probability of the targets being achieved and our estimate of the number of shares that will ultimately be issued. Performance share units accrue cash dividend equivalents that are payable upon vesting of the awards.
The following table summarizes all transactions related to performance share units under the Plans (based on target award amounts):
|
| | | | | | |
(in millions, except per share amounts) | Performance Share Units | | Weighted-Average Grant Date Fair Value per Share |
Nonvested at June 30, 2011 | — |
| | $ | — |
|
Granted | 1 |
| | 42.60 |
|
Vested | — |
| | — |
|
Canceled and forfeited | — |
| | — |
|
Nonvested at June 30, 2012 | 1 |
| | $ | 42.60 |
|
Granted (1) | — |
| | — |
|
Vested | — |
| | — |
|
Canceled and forfeited | — |
| | — |
|
Nonvested at June 30, 2013 | 1 |
| | $ | 41.37 |
|
| |
(1) | During fiscal 2013, 350 thousand performance share units were granted at target at a weighted-average fair value of $39.81. |
The following table provides additional data related to performance share unit activity:
|
| | | | | | | |
(in millions) | 2013 | | 2012 |
Total compensation cost, net of estimated forfeitures, related to nonvested performance share units not yet recognized, pre-tax | $ | 12 |
| | $ | 12 |
|
Weighted-average period over which performance share unit cost is expected to be recognized (in years) | 2 |
| | 2 |
|
Employee Retirement Savings Plans
Substantially all of our domestic non-union employees are eligible to be enrolled in our company-sponsored contributory retirement savings plans, which include features under Section 401(k) of the Internal Revenue Code of 1986, as amended, and provide for matching and profit sharing contributions by us. Our contributions to the plans are determined by the Board of Directors subject to certain minimum requirements as specified in the plans. The total expense for our employee retirement savings plans was $68 million, $53 million and $70 million for fiscal 2013, 2012 and 2011, respectively.
