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60 JOHNSON & JOHNSON 2006 ANNUAL REPORT
The total intrinsic value of options exercised was $541.5 million, $664.0 million and $663.2 million in 2006, 2005, and 2004 respec-
tively. The total unrecognized compensation cost was $648.8 million as of December 31, 2006, $659.6 million as of January 1, 2006
and $587.5 million as of January 2, 2005. The weighted average period for this cost to be recognized was 0.99 years for 2006,
1.15 years for 2005, and 1.12 years for 2004.
The following table summarizes stock options outstanding and exercisable at December 31, 2006:
(Shares in Thousands)Outstanding Exercisable
____________________________________________________
_____________________________________________________
___________________________________
Average Average
Exercise Average Exercise Exercise
Price Range Options Life(1)PriceOptions Price
$3.62-$29.88 1,827 2.7 $21.23 1,827 $21.23
$30.07-$40.16 18,916 1.5 36.48 18,914 36.48
$40.98-$50.08 17,441 3.1 49.36 17,364 49.36
$50.11-$52.11 26,309 3.8 50.70 26,309 50.70
$52.20-$53.89 32,343 6.0 52.22 30,659 52.22
$53.93-$54.89 40,172 7.1 53.94 517 54.40
$55.01-$58.25 35,249 5.1 57.30 34,997 57.30
$58.34-$66.08 28,637 9.0 58.54 490 60.85
$66.18-$68.26 42,033 8.1 66.19 — —
242,927 5.9 $54.57 131,077 $50.23
(1)Average contractual life remaining in years
Stock options exercisable at January 1, 2006 and January 2,
2005 were 119,390 at an average price of $47.90 and an average
life of 6.4 years, and 100,488 options at an average price of
$41.26 and an average life of 6.4 years, respectively.
RESTRICTED STOCK UNITS
The Company grants restricted stock units with a vesting period of
three years. The Company settles employee stock issuance with
treasury shares. Treasury shares are replenished throughout the
year for the number of shares used for employee stock issuances.
A summary of stock activity under the Plan as of
December 31, 2006:
Outstanding
(Shares in Thousands)Shares
Shares at January 1, 2006 111
Stock granted 7,320
Stock issued (33)
Stock canceled/forfeited (513)
Shares at December 31, 2006 6,885
The average fair value of the restricted stock units granted during
2006 was $54.17, using the fair market value at the date of grant.
The fair value of restricted stock units was discounted for dividends,
which are not paid on the restricted stock units during the vesting
period. The fair value of shares issued during 2006 was $1.7 million.
The fair value of each option award was estimated on the date
of grant using the Black-Scholes option valuation model that uses
the assumptions noted in the following table. Starting in 2006,
expected volatility represents a blended rate of 4-year daily
historical average volatility rate, and a 5-week average implied
volatility rate based on at-the-money traded Johnson & Johnson
options with a life of 2 years. Prior to 2006, expected volatility
was based on 5-year weekly historical volatility rate. Historical
data is used to determine the expected life of the option. The
risk-free rate was based on the U.S. Treasury yield curve in effect
at the time of grant.
The average fair value of options granted was $12.22 in
2006, $15.48 in 2005, and $13.11 in 2004. The fair value was
estimated based on the weighted average assumptions of:
2006 2005 2004
Risk-free rate 4.60% 3.72% 3.15%
Expected volatility19.6% 25.0% 27.0%
Expected life6.0 yrs 5.0 yrs 5.0 yrs
Dividend yield 2.50% 1.93% 1.76%
A summary of option activity under the Plan as of December 31,
2006, January 1, 2006, and January 2, 2005 and changes during
the years ending on those dates is presented below:
Weighted Aggregate
Outstanding AverageIntrinsic
(Shares in Thousands)Shares Exercise Price Value
Shares at December 28, 2003213,949 $45.37
Options granted 47,815 53.94
Options exercised (24,066) 28.50
Options canceled/forfeited (8,694) 53.77
Shares at January 2, 2005 229,004 48.62 $3,390,159
Options granted 47,556 66.16
Options exercised (21,733) 34.19
Options canceled/forfeited (6,285) 55.84
Shares at January 1, 2006 248,542 53.05 $2,030,879
Options granted 28,962 58.38
Options exercised (26,152) 42.80
Options canceled/forfeited (8,425) 59.33
Shares at December 31, 2006 242,927 $54.57 $2,787,725