Emerson 2006 Annual Report Download - page 55

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The Company’s stock-based compensation plans include stock options and incentive shares.
            
The Company’s Stock Option Plans permit key ofcers and employees to purchase common stock at specied prices. Options are
granted at 100 percent of the market value of the Company’s common stock on the date of grant, generally vest one-third each year
and expire ten years from the date of grant. Compensation cost is recognized over the vesting period based on the number of options
expected to vest. At September 30, 2006, approximately 7.8 million options remained available for grant under these plans.
Changes in shares subject to option during the year ended September 30, 2006, follow:
    average  totalaverage
    exerciseprice  intrinsicvalueremaining
(sharesinthousands)   pershareshares ofawardscontractuallife
Beginning of year $54.44 9,859
Options granted $75.59 585
Options exercised $49.94 (2,434)
Options canceled $63.38 (106)
End of year $57.27 7,904 $210 5.3 years
Exercisable at year-end $54.04 5,876 $175 4.3 years
The weighted-average grant-date fair value per share of options granted was $17.59, $12.77 and $11.13 for 2006, 2005 and 2004,
respectively. The total intrinsic value of options exercised was $74, $26 and $22 in 2006, 2005 and 2004, respectively. Cash received
from option exercises under share option plans was $89, $50 and $37 and the actual tax benet realized for the tax deductions from
option exercises was $6, $4 and $2 for 2006, 2005 and 2004, respectively.
The fair value of each award is estimated on the grant date using the Black-Scholes option-pricing model. Weighted-average assump-
tions used in the Black-Scholes valuations for 2006, 2005 and 2004 are as follows: risk-free interest rate based on the U.S. Treasury
yield of 4.4 percent, 3.5 percent and 3.1 percent, dividend yield of 2.4 percent, 2.5 percent and 2.8 percent and expected volatility
based on historical volatility of 23 percent, 24 percent and 25 percent for 2006, 2005 and 2004, respectively. The expected life of an
option is based on historical experience and expected exercise patterns in the future. Expected lives were 6 years, 5 years and 5 years
for 2006, 2005 and 2004, respectively.
               
The Company’s Incentive Shares Plans include performance share awards, which involve the distribution of common stock to key
management personnel subject to certain conditions and restrictions. Compensation cost is recognized over the service period based
on the number of shares expected to be ultimately issued. Performance share awards are accounted for as liabilities in accordance
with FAS 123R. Compensation expense is adjusted at the end of each period to reect the change in the fair value of the awards.
In 2006, as a result of the Company achieving certain performance objectives at the end of 2005, 1,044,995 rights to receive common
shares vested and were distributed to participants as follows: 472,739 issued in shares, 345,987 withheld for income taxes, 205,043
paid in cash and 21,226 deferred by participants for future distribution. As of September 30, 2006, 2,364,630 rights to receive
common shares (awarded primarily in 2004) were outstanding, which are contingent upon accomplishing certain Company perfor-
mance objectives by 2007 and the performance of services by the employees.
The Company’s Incentive Shares Plans also include restricted stock awards, which involve the distribution of the Company’s common
stock to key management personnel subject to service periods ranging from three to ten years. The fair value of these awards is deter-
mined by the market price of the Company’s stock at the date of grant. Compensation cost is recognized over the applicable service
period. In 2006, 724,654 shares of restricted stock vested as a result of the fulllment of the applicable service periods and were
distributed to participants as follows: 500,887 issued in shares and 223,767 withheld for income taxes. As of September 30, 2006,
there were 1,033,777 shares of restricted stock awards outstanding.