Aflac 2006 Annual Report Download - page 69

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9. SHAREHOLDERS’ EQUITY
The following table is a reconciliation of the number of shares
of the Company’s common stock for the years ended
December 31.
(In thousands of shares) 2006 2005 2004
Common stock - issued:
Balance, beginning of year 654,522 652,628 651,554
Exercise of stock options 1,193 1,894 1,074
Balance, end of year 655,715 654,522 652,628
Treasury stock:
Balance, beginning of year 155,628 149,020 141,662
Purchases of treasury stock:
Open market 10,265 10,000 10,061
Other 55 245 44
Dispositions of treasury stock:
Shares issued to AFL Stock Plan (1,461) (1,476) (1,585)
Exercise of stock options (1,240) (2,127) (1,160)
Other (82) (34) (2)
Balance, end of year 163,165 155,628 149,020
Shares outstanding, end of year 492,550 498,894 503,608
We exclude outstanding share-based awards from the
calculation of weighted-average shares used in the
computation of basic earnings per share. Stock options to
purchase approximately 1.8 million shares, on a weighted-
average basis, as of December 31, 2006, were considered to be
anti-dilutive and were excluded from the calculation of diluted
earnings per share, compared with 2.5 million in 2005, and 1.1
million in 2004. The weighted-average shares used in
calculating earnings per share for the years ended December
31 were as follows:
(In thousands of shares) 2006 2005 2004
Average outstanding shares used for
calculating basic EPS 495,614 500,939 507,333
Dilutive effect of share-based awards 6,213 6,765 9,088
Average outstanding shares used for
calculating diluted EPS 501,827 507,704 516,421
Share Repurchase Program: In 2004, the board of directors
authorized the purchase of up to 30 million shares of our
common stock. In 2006, the board of directors authorized the
purchase of an additional 30 million shares of our common
stock. As of December 31, 2006, approximately 37 million
shares were available for purchase under our share repurchase
programs.
Voting Rights: In accordance with the Parent Company’s
articles of incorporation, shares of common stock are generally
entitled to one vote per share until they have been held by the
same beneficial owner for a continuous period of 48 months,
at which time they become entitled to 10 votes per share.
10. SHARE-BASED TRANSACTIONS
The Company has two long-term incentive compensation
plans. The first is a stock option plan, which allows grants for
incentive stock options (ISOs) to employees and non-
qualifying stock options (NQSOs) to employees and non-
employee directors. The options have a term of 10 years and
generally vest after three years. The strike price of options
granted under this plan is equal to the fair market value of a
share of our common stock at the date of grant. At December
31, 2006, approximately 26 thousand shares were available for
future grants under this plan.
The second long-term incentive compensation plan allows
awards to Company employees for ISOs, NQSOs, restricted
stock, restricted stock units, and stock appreciation rights.
Non-employee directors are eligible for grants of NQSOs,
restricted stock, and stock appreciation rights. Generally, the
awards vest based upon time-based conditions or time-and-
performance-based conditions. Performance-based vesting
conditions generally include the attainment of goals related to
Company financial performance. As of December 31, 2006,
the only performance-based awards issued and outstanding
were restricted stock awards. As of December 31, 2006,
approximately 24 million shares were available for future
grants under this plan.
Share-based awards granted to U.S.-based grantees are settled
upon exercise with authorized but unissued Company stock,
while those issued to Japan-based grantees are settled upon
exercise with treasury shares.
The following table presents the expense recognized as a
result of applying the provisions of SFAS 123R for the periods
ended December 31.
(In millions, except for per-share amounts) 2006 2005 2004
Earnings from continuing operations $35 $32 $34
Earnings before income taxes 35 32 34
Net earnings 25 23 33
Net earnings per share:
Basic $ .05 $ .05 $ .07
Diluted .05 .05 .07
We estimate the fair value of each stock option granted using
the Black-Scholes-Merton multiple option approach. Expected
volatility is based on historical periods generally
commensurate with the estimated term of options. We use
historical data to estimate option exercise and termination
patterns within the model. Separate groups of employees that
have similar historical exercise patterns are stratified and
considered separately for valuation purposes. The expected
term of options granted is derived from the output of our