Proctor and Gamble 2010 Annual Report Download - page 66

64 The Procter & Gamble Company Notes to Consolidated Financial Statements
Amounts in millions of dollars except per share amounts or as otherwise specified.
Lattice-based option valuation models incorporate ranges of assump-
tions for inputs and 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 termina-
tion patterns within the valuation model. The expected life 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,
2010, and activity during the year then ended is presented below:
Options in thousands Options
Weighted Avg.
Exercise Price
Weighted Avg.
Remaining
Contractual
Life in Years
Aggregate
Intrinsic Value
(in millions)
Outstanding,
beginning of year 357,317 $48.83
Granted 26,581 62.49
Exercised (17,147) 40.98
Canceled (1,780) 55.23
OUTSTANDING,
END OF YEAR 364,971 50.16 5.7 $3,999
EXERCISABLE 273,279 47.30 4.7 3,587
The weighted average grant-date fair value of options granted was
$13.47, $11.67 and $15.91 per share in 2010, 2009 and 2008,
respectively. The total intrinsic value of options exercised was $342,
$434 and $1,129 in 2010, 2009 and 2008, respectively. The total
grant-date fair value of options that vested during 2010, 2009 and
2008 was $563, $537 and $532, respectively. We have no specific
policy to repurchase common shares to mitigate the dilutive impact
of options; however, we have historically made adequate discretion-
ary purchases, based on cash availability, market trends and other
factors, to satisfy stock option exercise activity.
At June30, 2010, there was $474 of compensation cost that has not
yet been recognized related to stock awards. That cost is expected to
be recognized over a remaining weighted average period of 2 years.
Cash received from options exercised was $703, $639 and $1,837 in
2010, 2009 and 2008, respectively. The actual tax benefit realized for
the tax deductions from option exercises totaled $89, $146 and $318
in 2010, 2009 and 2008, respectively.
NOTE 8
POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK
OWNERSHIP PLAN
We offer various postretirement benefits to our employees.
Defined Contribution Retirement Plans
We have defined contribution plans which cover the majority of our
U.S. employees, as well as employees in certain other countries. These
plans are fully funded. We generally make contributions to participants’
accounts based on individual base salaries and years of service. Total
global defined contribution expense was $344, $364 and $290 in
2010, 2009 and 2008, respectively.
The primary U.S. defined contribution plan (the U.S. DC plan) comprises
the majority of the balances and expense for the Company’s defined
contribution plans. For the U.S. DC plan, the contribution rate is set
annually. Total contributions for this plan approximated 15% of total
participants’ annual wages and salaries in 2010, 2009 and 2008.
We maintain The Procter& Gamble Profit Sharing Trust (Trust) and
Employee Stock Ownership Plan (ESOP) to provide a portion of the
funding for the U.S. DC plan and other retiree benefits. Operating
details of the ESOP are provided at the end of this Note. The fair value
of the ESOP Series A shares allocated to participants reduces our
cash contribution required to fund the U.S. DC plan.
Defined Benefit Retirement Plans and Other Retiree Benefits
We offer defined benefit retirement pension plans to certain employees.
These benefits relate primarily to local plans outside the U.S. and,
to a lesser extent, plans assumed in previous acquisitions covering U.S.
employees.
We also provide certain other retiree benefits, primarily health care and
life insurance, for the majority of our U.S. employees who become
eligible for these benefits when they meet minimum age and service
requirements. Generally, the health care plans require cost sharing with
retirees and pay a stated percentage of expenses, reduced by deduct-
ibles and other coverages. These benefits are primarily funded by ESOP
Series B shares and certain other assets contributed by the Company.