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62
Method of Accounting and Our Assumptions
We account for our employee stock options under the fair value
method of accounting using a Black-Scholes valuation model to
measure stock-based compensation expense at the date of grant.
We adopted SFAS 123R,
Share-Based Payment
, under the
modified prospective method in the first quarter of 2006. We do
not expect our adoption of SFAS 123R to materially impact our
financial statements.
Our weighted-average Black-Scholes fair value assumptions include:
2005 2004 2003
Expected life 6 yrs. 6 yrs. 6 yrs.
Risk free interest rate 3.8% 3.3% 3.1%
Expected volatility 23% 26% 27%
Expected dividend yield 1.8% 1.8% 1.15%
Our Stock Option Activity(a)
2005 2004 2003
Options Average Price(b) Options Average Price(b) Options Average Price(b)
Outstanding at beginning of year 174,261 $40.05 198,173 $38.12 190,432 $36.45
Granted 12,328 53.82 14,137 47.47 41,630 39.89
Exercised (30,945) 35.40 (31,614) 30.57 (25,833) 26.74
Forfeited/expired (5,495) 43.31 (6,435) 43.82 (8,056) 43.56
Outstanding at end of year 150,149 42.03 174,261 40.05 198,173 38.12
Exercisable at end of year 89,652 40.52 94,643 36.41 97,663 32.56
Stock options outstanding and exercisable at December 31, 2005(a)
Options Outstanding Options Exercisable
Range of Exercise Price Options Average Price(b) Average Life(c) Options Average Price(b) Average Life(c)
$14.40 to $21.54 905 $20.01 3.56 yrs. 905 $20.01 3.56 yrs.
$23.00 to $33.75 14,559 30.46 3.07 14,398 30.50 3.05
$34.00 to $43.50 82,410 39.44 5.34 48,921 39.19 4.10
$43.75 to $56.75 52,275 49.77 7.17 25,428 49.48 6.09
150,149 42.03 5.67 89,652 40.52 4.45
(a) Options are in thousands and include options previously granted under Quaker plans. No additional options or shares may be granted under the Quaker plans.
(b) Weighted-average exercise price.
(c) Weighted-average contractual life remaining.
Our RSU Activity(a)
2005 2004
Average Average
Intrinsic Average Intrinsic Average
RSUs Value(b) Life(c) RSUs Value(b) Life(c)
Outstanding at beginning of year 2,922 $47.30 –$–
Granted 3,097 53.83 3,077 47.28
Converted (91) 48.73 (18) 47.25
Forfeited/expired (259) 50.51 (137) 47.25
Outstanding at end of year 5,669 50.70 1.8 yrs. 2,922 47.30 2.2 yrs.
(a) RSUs are in thousands.
(b) Weighted-average intrinsic value.
(c) Weighted-average contractual life remaining.
Other stock-based compensation data
Stock Options RSUs
2005 2004 2003 2005 2004
Weighted-average fair value of options granted $13.45 $12.04 $11.21
Total intrinsic value of options/RSUs exercised/converted(a) $632,603 $667,001 $466,719 $4,974 $914
Total intrinsic value of options/RSUs outstanding(a) $2,553,594 $2,062,153 $1,641,505 $334,931 $151,760
Total intrinsic value of options exercisable(a) $1,662,198 $1,464,926 $1,348,658
(a) In thousands.
At December 31, 2005, there was $315 million of total unrecognized compensation cost related to nonvested share-based
compensation grants. This unrecognized compensation is expected to be recognized over a weighted-average period of 1.6 years.