Emerson 2005 Annual Report Download - page 58

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The weighted-average grant-date fair value per share of options granted was $12.77, $11.13 and $8.13 for 2005, 2004 and 2003,
respectively. The total intrinsic value of options exercised was $26, $22 and $7 in 2005, 2004 and 2003, respectively. Cash received from
option exercises under share option plans was $50, $37 and $13 and the actual tax benefit realized for the tax deductions from option
exercises was $4, $2 and $1 for 2005, 2004 and 2003, respectively.
The fair value of each award is estimated on the grant date using the Black-Scholes option-pricing model. Weighted-average assumptions
used in the Black-Scholes valuations for 2005, 2004 and 2003 are as follows: risk-free interest rate based on the five-year U.S. Treasury yield
of 3.5 percent, 3.1 percent and 2.8 percent, dividend yield of 2.5 percent, 2.8 percent and 3.4 percent and expected volatility based on
five-year historical volatility of 24 percent, 25 percent and 25 percent for 2005, 2004 and 2003, respectively. The expected life based on
historical experience was five years for options.
Incentive Shares
The Company’s Incentive Share 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 reflect the change in the fair value of the awards.
As of September 30, 2005, 3,443,855 rights to receive common shares were outstanding, which are contingent upon accomplishing
certain Company performance objectives and the performance of services by the employees. A total of 1,044,995 of these rights (awarded
primarily in 2001) will be issued primarily in shares of common stock of the Company and paid partially in cash in early 2006 as a result of
achieving certain objectives at the end of 2005. The remaining 2,398,860 rights (awarded primarily in 2004) are contingent upon achieving
certain Company performance objectives by 2007 and the performance of services by the employees.
The Company’s Incentive Share 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 determined
by the market price of the Company’s stock at the date of grant. Compensation cost is recognized over the applicable service period.
As of September 30, 2005, there were 1,583,431 shares of restricted stock awards outstanding, including 724,654 shares which will be
distributed in early 2006.
Changes in awards outstanding but not yet earned under the Incentive Share Plans during the year ended September 30, 2005, follow:
Average Grant Date
(shares in thousands) Shares Fair Value Per Share
Beginning of year 4,949 $62.54
Granted 223 $64.95
Earned/vested (86) $32.07
Canceled (59) $63.20
End of year 5,027 $63.16
The total fair value of shares earned/vested was $5, $24 and $5 under the Incentive Share Plans of which $2, $9 and $2 was paid in cash,
primarily for tax withholding, in 2005, 2004 and 2003, respectively. As of September 30, 2005, approximately 0.8 million shares remained
available for award under the Incentive Share Plans.
In addition to the stock option and incentive share plans, the Company issued 11,070 shares of restricted stock in 2005 under the
Restricted Stock Plan for Non-Management Directors and 0.2 million shares remained available for issuance as of September 30, 2005.
Compensation cost for the stock option and incentive share plans was $100, $66 and $28 for 2005, 2004 and 2003, respectively.
Total income tax benefit recognized in the income statement for these compensation arrangements during 2005, 2004 and 2003 were
$33, $22 and $9, respectively. As of September 30, 2005, there was $149 of total unrecognized compensation cost related to nonvested
awards granted under these plans, which is expected to be recognized over a weighted-average period of 2.4 years.
(15) COMMON STOCK
At September 30, 2005, 22,535,924 shares of common stock were reserved, primarily for issuance under the Company’s stock-based
compensation plans. During 2005, 10,035,300 treasury shares were acquired and 1,258,317 treasury shares were issued.
Approximately 1.2 million preferred shares are reserved for issuance under a Preferred Stock Purchase Rights Plan. Under certain conditions
involving the acquisition of or an offer for 20 percent or more of the Company’s common stock, all holders of Rights, except an acquiring
entity, would be entitled (i) to purchase, at an exercise price of $260, common stock of the Company or an acquiring entity with a value
twice the exercise price, or (ii) at the option of the Board, to exchange each Right for one share of common stock. The Rights remain in
existence until November 1, 2008, unless earlier redeemed (at one-half cent per Right), exercised or exchanged under the terms of the plan.