Proctor and Gamble 2006 Annual Report Download - page 57

Millions of dollars except per share amounts or otherwise specified.
Notes to Consolidated Financial Statements The Procter &Gamble Company and Subsidiaries 55
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
period of time that options granted are expected to be outstanding.
The interest rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant.
In connection with the Gillette acquisition, we issued 70 million fully
vested Procter &Gamble stock options valued at $1.22 billion to current
and former Gillette employees in exchange for fully vested Gillette
stock options. We also issued 9 million unvested Procter &Gamble
stock options valued at $102 in exchange for Gillette stock options
that were not yet vested as of the acquisition date. Vesting terms
and option lives are not substantially different from our key manager
option grants.
A summary of options under the plans as of June 30, 2006 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 287,183 $41.07
Issued in Gillette
acquisition 79,447 41.36
Granted 33,904 59.97
Exercised (36,623) 32.54
Canceled (1,559) 55.38
OUTSTANDING,
END OF YEAR 362,352 43.71 7.3 $4,472
EXERCISABLE 252,689 39.04 5.7 4,196
The weighted average grant-date fair value of options granted was
$16.30, $14.34 and $12.50 per share in 2006, 2005 and 2004,
respectively. The total intrinsic value of options exercised was $815,
$526 and $537 in 2006, 2005 and 2004, respectively. The total grant-
date fair value of options that vested during 2006, 2005 and 2004
was $388, $532 and $620, respectively. We have no specific 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.
At June 30, 2006, there was $647 of compensation cost that has
not yet been recognized related to nonvested stock-based awards.
That cost is expected to be recognized over a remaining weighted
average period of 1.9 years.
Cash received from options exercised was $1,229, $455 and $555 in
2006, 2005 and 2004, respectively. The actual tax benefit realized for
the tax deductions from option exercises totaled $242, $149 and $161
in 2006, 2005 and 2004, respectively.
NOTE 9
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. For
the primary U.S. defined contribution plan, the contribution rate is set
annually. Total contributions for this plan approximated 15% of total
participants‘ annual wages and salaries in 2006, 2005 and 2004.
We maintain The Procter &Gamble Profit Sharing Trust (Trust) and
Employee Stock Ownership Plan (ESOP) to provide a portion of the
funding for the primary U.S. defined contribution plan, as well as 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 primary
U.S. defined contribution plan. Total defined contribution expense,
which is largely composed of the primary U.S. defined contribution plan,
was $249, $215 and $286 in 2006, 2005 and 2004, respectively.
Defined Benefit Retirement Plans and Other Retiree Benefits
We offer defined benefit pension plans to certain employees. These
benefits relate primarily to local plans outside the U.S., and to a lesser
extent, plans assumed in the Gillette acquisition 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
deductibles and other coverages. These benefits are primarily funded
by ESOP Series B shares as well as certain other assets contributed by
the Company.