Johnson and Johnson 2008 Annual Report Download - page 56

The Company settles employee stock option exercises with
treasury shares. Treasury shares are replenished throughout the
year for the number of shares used to settle employee stock
option exercises.
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. 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. His-
torical 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 $7.66, $11.67 and
$12.22 in 2008, 2007 and 2006, respectively. The fair value was
estimated based on the weighted average assumptions of:
2008 2007 2006
Risk-free rate 2.97% 4.78% 4.60%
Expected volatility 15.0% 14.7% 19.6%
Expected life 6.0 yrs 6.0 yrs 6.0 yrs
Dividend yield 2.90% 2.50% 2.50%
Asummary of option activity under the Plan as of December 28,
2008, December 30, 2007 and December 31, 2006 and changes
during the years ending on those dates is presented below:
Aggregate
Weighted Intrinsic
Outstanding Average Value
(Shares in Thousands) Shares Exercise Price (Dollars in Millions)
Shares at January 1, 2006 248,542 $53.05 $2,031
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 $2,788
Options granted 26,789 65.61
Options exercised (33,224) 45.92
Options canceled/forfeited (7,863) 63.00
Shares at December 30, 2007 228,629 56.83 $2,411
Options granted 22,428 61.80
Options exercised (30,033) 50.27
Options canceled/forfeited (5,525) 61.90
Shares at December 28, 2008 215,499 $58.14 $ 597
The total intrinsic value of options exercised was $506 million,
$625 million and $542 million in 2008, 2007 and 2006, respec-
tively. The total unrecognized compensation cost was $632 million
as of December 28, 2008, $652 million as of December 30, 2007
and $649 million as of December 31, 2006. The weighted average
period for this cost to be recognized was 1.06 years, 1.01 years and
0.99 yearsfor 2008, 2007 and 2006, respectively.
The following table summarizes stock options outstanding and
exercisable at December 28, 2008:
(Shares in Thousands) Outstanding Exercisable
_______________________________________________________ __________________
Average Average
Exercise Average Exercise Exercise
Price Range Options Life(1) Price Options Price
$ 3.62-$29.07 325 1.5 $18.00 325 $18.00
$31.27-$40.08 349 0.9 35.22 349 35.22
$40.98-$50.08 11,263 1.1 49.61 11,263 49.61
$50.50-$52.11 19,600 1.8 50.70 19,600 50.70
$52.20-$53.77 23,759 4.1 52.22 23,759 52.22
$53.93-$54.89 27,992 5.0 53.93 27,992 53.93
$55.01-$58.25 27,803 3.1 57.30 27,775 57.30
$58.34-$66.08 69,136 8.0 61.90 815 62.76
$66.18-$68.37 35,272 6.1 66.20 33,084 66.19
215,499 5.3 $58.14 144,962 $56.25
(1) Average contractual life remaining in years.
Stock options exercisable at December 30, 2007 and December 31,
2006 were 137,310 at an average price of $52.33 and an average
life of 5.6 years and 131,077 at an average price of $50.23 and an
average life of 5.9 years, respectively.
RESTRICTED SHARE UNITS
The Company grants restricted share 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.
Asummary of shareactivityunder the Plan as of
December 28, 2008:
Outstanding
(Shares in Thousands) Shares
Shares at January 1, 2006 111
Shares granted 7,320
Shares issued (33)
Shares canceled/forfeited (513)
Shares at December 31, 2006 6,885
Shares granted 8,029
Shares issued (33)
Shares canceled/forfeited (1,220)
Shares at December 30, 2007 13,661
Shares granted 10,105
Shares issued (40)
Shares canceled/forfeited (1,468)
Shares at December 28, 2008 22,258
The average fair value of the restricted share units granted was
$56.70, $60.86 and $54.17 in 2008, 2007 and 2006, respectively,
using the fair market value at the date of grant. The fair value of
restricted share units was discounted for dividends, which are not
paid on the restricted share units during the vesting period. The fair
value of restricted shareunits settled was $2.5 million, $1.8 million
and $1.7million in 2008, 2007 and 2006, respectively.
54 JOHNSON & JOHNSON 2008 ANNUAL REPORT