RESMED INC Stock Compensation Disclosure
(16) Stock-based Employee Compensation
We measure the compensation expense of all stock-based awards at fair value on the grant date. We estimate the fair value of stock options and purchase rights granted under the ESPP using the Black-Scholes valuation model. The fair value of restricted stock units is equal to the market value of the underlying shares as determined at the grant date less the fair value of dividends that holders are not entitled to, during the vesting period. We recognize the fair value as compensation expense using the straight-line method over the service period for awards expected to vest.
We estimate the fair value of stock options granted under our stock option plans and purchase rights granted under the ESPP using the following assumptions:
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Fiscal Year Ended June 30, |
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2019 |
2018 |
2017 |
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Stock options: |
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Weighted average grant date fair value |
$ |
21.92 |
$ |
16.68 |
$ |
10.89 |
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Weighted average risk-free interest rate |
2.96% |
2.08% |
1.61% |
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Expected life in years |
4.9 |
4.9 |
4.9 |
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Dividend yield |
1.34% - 1.46% |
1.46% - 1.65% |
2.02% - 2.29% |
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Expected volatility |
23% |
23% |
25% |
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ESPP purchase rights: |
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Weighted average grant date fair value |
$ |
22.12 |
$ |
17.44 |
$ |
12.50 |
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Weighted average risk-free interest rate |
2.4% |
0.8% |
0.5% |
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Expected life in years |
6 months |
6 months |
6 months |
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Dividend yield |
1.40% - 1.47% |
1.47% - 1.92% |
1.92% - 2.27% |
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Expected volatility |
23% |
23% |
23% |
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During the fiscal years ended June 30, 2019 and June 30, 2018, we granted 139,000 and 167,000, performance restricted stock units (“PRSUs”), which contain a market condition, with the ultimate realizable number of PRSUs dependent on relative total stockholder return over a three-year period, up to a maximum amount to be issued under the award of 225% of the original grant. The weighted average grant date fair value of PRSUs granted during the fiscal years 2019 and 2018 was estimated at $98.23 and $76.20 per PRSU, respectively, using a Monte-Carlo simulation valuation model.
The following table summarizes the total stock-based compensation costs incurred and the associated tax benefit recognized during the years ended June 30, 2019, 2018 and 2017 (in thousands):
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2019 |
2018 |
2017 |
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Cost of sales - capitalized as part of inventory |
$ |
3,043 |
$ |
2,990 |
$ |
2,877 | |||
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Selling, general and administrative expenses |
42,700 | 39,754 | 37,096 | ||||||
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Research and development expenses |
6,330 | 5,668 | 5,952 | ||||||
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Stock-based compensation costs |
52,073 | 48,412 | 45,925 | ||||||
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Tax benefit |
(26,658) | (17,078) | (20,100) | ||||||
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Stock-based compensation costs, net of tax benefit |
$ |
25,415 |
$ |
31,334 |
$ |
25,825 | |||
Historical Timeline
| Fiscal Year | Filed | |
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| 2019 | Aug 8, 2019 | Showing above |
| 2018 | Aug 17, 2018 | |
| 2017 | Aug 4, 2017 | |
| 2016 | Aug 5, 2016 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.