Aflac 2007 Annual Report Download - page 71

67
Annual Report for 2007
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, 2007,
approximately 22.6 million shares were available for future
grants under this plan, and the only performance-based
awards issued and outstanding were restricted stock awards.
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 in
connection with share-based awards for the periods ended
December 31.
(In millions, except for per-share amounts) 2007 2006 2005
Earnings from continuing operations $42 $35 $32
Earnings before income taxes 42 35 32
Net earnings 29 25 23
Net earnings per share:
Basic $ .06 $ .05 $ .05
Diluted .06 .05 .05
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
option model and represents the weighted-average period of
time that options granted are expected to be outstanding. We
base the risk-free interest rate on the Treasury note rate with a
term comparable to that of the estimated term of options.
The weighted-average fair value of options at their grant date
was $16.06 for 2007, compared with $15.28 for 2006 and
$13.40 in 2005. The following table presents the assumptions
used in valuing options granted during the years ended
December 31.
2007 2006 2005
Expected term (years) 7.4 6.7 6.6
Expected volatility 25.0% 28.0% 28.0%
Annual forfeiture rate .8 .8 .8
Risk-free interest rate 4.7 4.5 4.0
Dividend yield 1.3 1.1 1.1
The following table summarizes stock option activity.
Option Weighted-Average
(In thousands of shares) Shares Exercise Price Per Share
Outstanding at December 31, 2004 22,087 $ 23.86
Granted in 2005 2,107 41.01
Canceled in 2005 (230) 35.36
Exercised in 2005 (3,983) 14.50
Outstanding at December 31, 2005 19,981 27.40
Granted in 2006 2,456 45.08
Canceled in 2006 (90) 39.72
Exercised in 2006 (2,241) 18.61
Outstanding at December 31, 2006 20,106 30.48
Granted in 2007 1,244 49.35
Canceled in 2007 (133) 43.64
Exercised in 2007 (4,640) 20.94
Outstanding at December 31, 2007 16,577 $ 34.46
(In thousands of shares) 2007 2006 2005
Shares exercisable, end of year 12,653 16,094 14,603
The following table summarizes information about stock
options outstanding and exercisable at December 31, 2007.
(In thousands of shares) Options Outstanding Options Exercisable
Wgtd.-Avg. Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
$ 15.05 – $ 23.23 2,942 2.1 $ 21.77 2,942 $ 21.77
23.41 – 29.34 2,953 3.3 26.58 2,953 26.58
29.66 – 31.71 2,576 5.1 31.21 2,576 31.21
31.73 – 40.30 2,044 6.8 38.26 1,239 37.89
40.33 – 44.08 3,129 7.1 41.84 2,590 41.55
44.09 – 62.64 2,933 8.8 47.47 353 47.25
$ 15.05 – $ 62.64 16,577 5.5 $ 34.46 12,653 $ 31.15
As of December 31, 2007, the aggregate intrinsic value of
stock options outstanding was $467 million, with a weighted-
average remaining term of 5.5 years. The aggregate intrinsic
value of stock options exercisable at that same date was $398
million, with a weighted-average remaining term of 4.6 years.
The total intrinsic value of stock options exercised during the
year ended December 31, 2007, was $154 million, compared
with $62 million in 2006 and $114 million in 2005. We
received cash from the exercise of stock options in the
amount of $52 million in 2007, compared with $38 million in
2006 and $49 million in 2005. The tax benefit realized as a
result of stock option exercises was $51 million in 2007, $19
million in 2006 and $37 million in 2005.
The value of restricted stock awards is based on the fair
market value of our common stock at the date of grant. The
following table summarizes restricted stock activity during the
years ended December 31.