GE 2008 Annual Report Download - page 88

86 ge 2008 annual report
notes to consolidated financial statements
OTHER STOCK-BASED COMPENSATION
Weighted
Weighted average
average remaining Aggregate
Shares grant date contractual intrinsic value
(In thousands) fair value term (In years) (In millions)
RSUs outstanding at
January 1, 2008 37,129 $33.48
Granted 10,794 28.74
Vested (9,445) 31.34
Forfeited (1,995) 34.61
RSUs outstanding at
December 31, 2008 36,483 $32.57 2.9 $591
RSUs expected to vest 33,239 $32.61 2.8 $538
The fair value of each restricted stock unit is the market price of
our stock on the date of grant. The weighted average grant date
fair value of RSUs granted during 2008, 2007 and 2006 was $28.74,
$38.84 and $33.95, respectively. The total intrinsic value of RSUs
vested during 2008, 2007 and 2006 amounted to $274 million,
$181 million and $132 million, respectively. As of December 31,
2008, there was $687 million of total unrecognized compensation
cost related to nonvested RSUs. That cost is expected to be rec-
ognized over a weighted average period of two years, of which
approximately $205 million is expected to be recognized in 2009.
As of December 31, 2008, 1.1 million PSUs with a weighted
average remaining contractual term of two years, an aggregate
intrinsic value of $17 million and $10 million of unrecognized
compensation cost were outstanding.
Other share-based compensation expense recognized in net
earnings amounted to $155 million, $173 million and $130 million
in 2008, 2007 and 2006, respectively. The total income tax benefit
recognized in earnings for all share-based compensation arrange-
ments amounted to $106 million, $118 million and $117 million
in 2008, 2007 and 2006, respectively.
When stock options are exercised and restricted stock vests,
the difference between the assumed tax benefit and the actual
tax benefit must be recognized in our financial statements. In
circumstances in which the actual tax benefit is lower than the
estimated tax benefit, SFAS 123(R) requires that difference to be
recorded in equity, to the extent there are sufficient accumulated
excess tax benefits, as defined by the standard. At December 31,
2008, our accumulated excess tax benefits are sufficient to absorb
any future differences between actual and estimated tax benefits
for all of our outstanding option and restricted stock grants.
Note 25.
Supplemental Cash Flows Information
Changes in operating assets and liabilities are net of acquisitions
and dispositions of principal businesses.
Amounts reported in the “Payments for principal businesses
purchased” line in the Statement of Cash Flows is net of cash
acquired and included debt assumed and immediately repaid in
acquisitions.
STOCK OPTION ACTIVITY
Weighted
Weighted average
average remaining Aggregate
Shares grant date contractual intrinsic value
(In thousands) fair value term (In years) (In millions)
Outstanding at
January 1, 2008 213,382 $36.68
Granted 25,317 28.21
Exercised (13,271) 26.62
Forfeited (2,831) 35.18
Expired (7,090) 37.40
Outstanding at
December 31, 2008 215,507 $36.30 4.4 $ —
Exercisable at
December 31, 2008 162,288 $37.59 3.0 $ —
Options expected
to vest 47,092 $32.45 8.5 $ —
We measure the fair value of each stock option grant at the date
of grant using a Black-Scholes option pricing model. The weighted
average grant-date fair value of options granted during 2008,
2007 and 2006 was $5.26, $9.28 and $7.99, respectively. The
following assumptions were used in arriving at the fair value of
options granted during 2008, 2007 and 2006, respectively: risk-
free interest rates of 3.4%, 4.2% and 4.8%; dividend yields of
4.4%, 2.9% and 2.9%; expected volatility of 27%, 25% and 24%;
and expected lives of six years and nine months, six years and
ten months, and six years and two months. Risk-free interest rates
reflect the yield on zero-coupon U.S. Treasury securities. Expected
dividend yields presume a set dividend rate. For stock options
granted in the fourth quarter of 2008, we used a historical five-
year average for the dividend yield. Expected volatilities are based
on implied volatilities from traded options and historical volatility
of our stock. The expected option lives are based on our historical
experience of employee exercise behavior.
The total intrinsic value of options exercised during 2008, 2007
and 2006 amounted to $45 million, $375 million and $587 million,
respectively. As of December 31, 2008, there was $251 million
of total unrecognized compensation cost related to nonvested
options. That cost is expected to be recognized over a weighted
average period of two years, of which approximately $84 million
is expected to be recognized in 2009.
Stock option expense recognized in net earnings amounted
to $69 million in both 2008 and 2007, and $96 million in 2006.
Cash received from option exercises during 2008, 2007 and 2006
was $353 million, $747 million and $622 million, respectively. The
tax benefit realized from stock options exercised during 2008,
2007 and 2006 was $15 million, $131 million and $203 million,
respectively.