Proctor and Gamble 2008 Annual Report Download - page 69

NotestoConsolidatedFinancialStatements TheProcter&GambleCompany 67
Amountsinmillionsofdollarsexceptpershareamountsorasotherwisespecied.
Sharesinmillions;YearsendedJune30   2007 2006
Basicweightedaveragecommon
sharesoutstanding   3,159.0 3,054.9
Effectofdilutivesecurities
 Conversionofpreferredshares
(1) 149.6 154.1
 Exerciseofstockoptionsand
 otherunvestedequityawards
(2) 90.0 76.9

 3,398.6 3,285.9
(1)Despitebeingincludedcurrentlyindilutednetearningspercommonshare,theactual
conversiontocommonstockoccurspursuanttotherepaymentoftheESOPs’obligations
through2035.
(2)Approximately40millionin2008,41millionin2007and44millionin2006oftheCompany’s
outstandingstockoptionswerenotincludedinthedilutednetearningspersharecalculation
becausetodosowouldhavebeenantidilutive(i.e.,thetotalproceedsuponexercisewould
haveexceededthemarketvalueoftheunderlyingcommonshares).
NOT E 8

Wehavestock-basedcompensationplansunderwhichweannually
grantstockoptionandrestrictedstockawardstokeymanagersand
directors.Exercisepricesonoptionsgrantedhavebeenandcontinue
tobesetequaltothemarketpriceoftheunderlyingsharesonthe
dateofthegrant.Thekeymanagerstockoptionawardsgrantedsince
September2002arevestedafterthreeyearsandhavea10-yearlife.
ThekeymanagerstockoptionawardsgrantedfromJuly1998
throughAugust2002vestedafterthreeyearsandhavea15-yearlife.
Beginningin2008,keymanagersweregiventhealternativetoelect
upto50%ofthevalueoftheiroptionawardinrestrictedstockunits
(RSUs).KeymanagerRSUsarevestedandsettledinsharesofcommon
stockveyearsfromthegrantdate.Theawardsprovidedtothe
Company’sdirectorsareintheformofrestrictedstockandRSUs.In
additiontoourkeymanageranddirectorgrants,wemakeotherminor
stockoptionsandRSUgrantstoemployeesforwhichthetermsare
notsubstantiallydifferent.
Atotalof229millionsharesofcommonstockwereauthorizedfor
issuanceunderstock-basedcompensationplansapprovedbyshare-
holdersin2001and2003,ofwhich50millionremainavailablefor
grant.Anadditional20millionsharesofcommonstockavailablefor
issuanceunderaplanapprovedbyGilletteshareholdersin2004were
assumedbytheCompanyinconjunctionwiththeacquisitionofThe
GilletteCompanyinOctober2005.Atotalof12millionoftheseshares
remainavailableforgrantunderthisplan.Therewerealso5million
sharesavailableforgrantundertheFutureSharesPlanapprovedbythe
BoardofDirectorsin1997.ThisplanwasterminatedinOctober2007.
Totalstock-basedcompensationexpenseforstockoptiongrantswas
$522,$612and$526for2008,2007and2006,respectively.Thetotal
incometaxbenetrecognizedintheincomestatementforthese
stock-basedcompensationarrangementswas$141,$163and$140
for2008,2007and2006,respectively.Totalcompensationcostfor
restrictedstock,restrictedstockunitsandotherstock-basedgrants,
was$33,$56and$59in2008,2007and2006,respectively.
Incalculatingthecompensationexpenseforoptionsgranted,we
utilizeabinomiallattice-basedmodelforthevaluationofstockoption
grants.Assumptionsutilizedinthemodel,whichareevaluatedand
revised,asnecessary,toreectmarketconditionsandexperience,
wereasfollows:
YearsendedJune30   2007 2006
Interestrate   4.3–4.8% 4.5–4.7%
Weightedaverageinterestrate   4.5% 4.6%
Dividendyield   1.9% 1.9%
Expectedvolatility   16–20% 15–20%
Weightedaveragevolatility   19% 19%
Expectedlifeinyears   8.7 8.7
Becauselattice-basedoptionvaluationmodelsincorporaterangesof
assumptionsforinputs,thoserangesaredisclosedinthepreceding
table.Expectedvolatilitiesarebasedonacombinationofhistorical
volatilityofourstockandimpliedvolatilitiesofcalloptionsonourstock.
Weusehistoricaldatatoestimateoptionexerciseandemployee
terminationpatternswithinthevaluationmodel.Theexpectedterm
ofoptionsgrantedisderivedfromtheoutputoftheoptionvaluation
modelandrepresentstheaverageperiodoftimethatoptions
grantedareexpectedtobeoutstanding.Theinterestrateforperiods
withinthecontractuallifeoftheoptionsisbasedontheU.S.Treasury
yieldcurveineffectatthetimeofgrant.
AsummaryofoptionsoutstandingundertheplansasofJune30,2008,
andactivityduringtheyearthenendedispresentedbelow:
    WeightedAvg.
    Remaining Aggregate
   WeightedAvg. Contractual IntrinsicValue
Optionsinthousands Options ExercisePrice LifeinYears (inmillions)
Outstanding,
beginningofyear  
Granted  
Exercised  
Canceled  

   
   
Theweightedaveragegrant-datefairvalueofoptionsgrantedwas
$15.91,$17.29and$16.30persharein2008,2007and2006,
respectively.Thetotalintrinsicvalueofoptionsexercisedwas$1,129,
$894and$815in2008,2007and2006,respectively.Thetotal
grant-datefairvalueofoptionsthatvestedduring2008,2007and
2006was$532,$552and$388,respectively.Wehavenospecic
policytorepurchasecommonsharestomitigatethedilutiveimpact
ofoptions;however,wehavehistoricallymadeadequatediscretionary
purchases,basedoncashavailability,markettrendsandotherfactors,
tosatisfystockoptionexerciseactivity.