Emerson 2008 Annual Report Download - page 54

A Powerful Force for Innovation [ 47 ]
The weighted-average grant-date fair value per share of options granted was $10.59, $9.31 and $8.80 for 2008, 2007
and 2006, respectively. The total intrinsic value of options exercised was $75, $53 and $74 in 2008, 2007 and 2006,
respectively. Cash received from option exercises under share option plans was $73, $60 and $89 and the actual tax
benet realized for the tax deductions from option exercises was $19, $14 and $6 for 2008, 2007 and 2006, 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 2008, 2007 and 2006 are as follows: risk-free interest rate
based on the U.S. Treasury yield of 4.1 percent, 4.6 percent and 4.4 percent; dividend yield of 2.0 percent, 2.4 percent
and 2.4 percent; and expected volatility based on historical volatility of 17 percent, 20 percent and 23 percent. The
expected life of an option is six years based on historical experience and expected exercise patterns in the future.

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. Performance share distributions
are made primarily in shares of common stock of the Company and partially in cash. Compensation cost is recognized
over the service period based on the number of awards expected to be ultimately earned. Performance share awards
are accounted for as liabilities in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment.” Compensation expense is adjusted at the end of each period to reect the change in the fair
value of the awards.
In 2008, as a result of the Company achieving certain performance objectives at the end of 2007 and the performance
of services by the employees, 4,647,888 rights to receive common shares vested and were distributed to participants
as follows: 2,693,922 issued in shares, 1,562,045 withheld for income taxes, 313,222 paid in cash and 78,699 deferred
by participants for future distribution. As of September 30, 2008, 5,008,800 rights to receive common shares (awarded
primarily in 2007) were outstanding, contingent upon achieving the Company’s performance objective through 2010
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 determined based on the average of the high and low prices of the Company’s stock
on the date of grant. Compensation cost is recognized over the applicable service period. In 2008, 668,554 shares of
restricted stock vested as a result of the fulllment of the applicable service periods and were distributed to partici-
pants as follows: 403,402 issued in shares and 265,152 withheld for income taxes. As of September 30, 2008, there
were 1,624,000 shares of restricted stock awards outstanding.
Changes in awards outstanding but not yet earned under the Incentive Shares Plans during the year ended
September 30, 2008, follow:
     A v e R A G e G R A n t d A t e 
(s h A R e s int h o u s A n d s )    s h A R e s f A i R v A l u e p e R s h A R e
Beginning of year 11,643 $35.99
Granted 355 $52.80
Earned/vested (5,316) $31.08
Canceled (49) $41.21
End of year 6,633 $40.79
The total fair value of shares earned/vested was $253, $5 and $123 under the Incentive Shares Plans of which $104,
$2 and $55 was paid in cash, primarily for tax withholding, in 2008, 2007 and 2006, respectively. As of September 30,
2008, approximately 16.0 million shares remained available for award under the Incentive Shares Plans.
Compensation cost for the Stock Option and Incentive Shares Plans was $82, $185 and $81, for 2008, 2007 and 2006,
respectively. The increase from 2006 to 2007 primarily reects the increase in Emerson’s stock price, as well as the
overlap of two performance share programs (awards made in 2004 for performance through 2007 and awards made
in 2007 for performance through 2010). The decrease from 2007 to 2008 reects the overlap of two performance
share programs in the prior year and the decrease in Emerson’s stock price in the current year. Total income tax benet
recognized in the income statement for these compensation arrangements during 2008, 2007 and 2006 were $21,
$55 and $22, respectively. As of September 30, 2008, there was $153 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
2.3 years.
In addition to the Stock Option and Incentive Shares Plans, the Company issued 21,612 shares of restricted stock in
2008 under the Restricted Stock Plan for Non-Management Directors and 0.4 million shares remained available for
issuance as of September 30, 2008.