GIS » Topics » Stock-based Compensation Expense for Stock Options

This excerpt taken from the GIS 10-Q filed Apr 3, 2006.

Stock-based Compensation Expense for Stock Options

We use the intrinsic value method for measuring the cost of compensation paid in shares of our common stock. This method defines our cost as the excess of the stock’s market value at the time of the grant over the amount that the employee is required to pay. Our stock option plans require that the employee’s payment (i.e., exercise price) be the market value as of the grant date. The following table illustrates the pro forma effect on net earnings and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation using the Black-Scholes option-pricing model.

13 Weeks Ended
39 Weeks Ended
In Millions, except per share data Feb. 26,
2006
Feb. 27,
2005
Feb. 26,
2006
Feb. 27,
2005

Net earnings, as reported     $ 246   $ 230   $ 868   $ 780  
      Add: Stock-based employee compensation  
        expense included in reported net  
        earnings, net of related tax effects     8    7     22    17  
      Deduct: Total stock-based employee  
        compensation expense determined under  
        fair value based method for all  
        awards, net of related tax effects     (12 )  (19 )   (37 )  (47 )

      Pro forma net earnings   $ 242   $ 218   $ 853   $ 750  

Earnings per share:  
         Basic – as reported   $ .69   $ .63   $ 2.42   $ 2.10  
         Basic – pro forma   $ .68   $ .60   $ 2.38   $ 2.02  
         Diluted – as reported   $ .68   $ .58   $ 2.29   $ 1.94  
         Diluted – pro forma   $ .66   $ .55   $ 2.24   $ 1.87  


These amounts reflect the expensing of share awards made to retirement-eligible employees over the expected vesting period of the award. SFAS 123(R), “Share-Based Payment,” when adopted, will require the expensing of future awards over the period to retirement eligibility, if less than the vesting period. Future share-based compensation amounts may differ from the pro forma amounts presented based on that change as well as any changes in the number of options granted or their fair values.

The weighted average fair values at grant date of the options granted were estimated as $9.00 in the third quarter and $8.04 for the first thirty-nine weeks of fiscal 2006, and $8.33 in the third quarter and $8.53 for the first thirty-nine weeks of fiscal 2005, using the Black-Scholes option-pricing model.


Page 5



This excerpt taken from the GIS 10-Q filed Jan 6, 2006.

Stock-based Compensation Expense for Stock Options

We use the intrinsic value method for measuring the cost of compensation paid in shares of our common stock. This method defines our cost as the excess of the stock’s market value at the time of the grant over the amount that the employee is required to pay. Our stock option plans require that the employee’s payment (i.e., exercise price) be the market value as of the grant date. The following table illustrates the pro forma effect on net earnings and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation using the Black-Scholes option-pricing model.

13 Weeks Ended 26 Weeks Ended
 

In Millions, except per share data Nov. 27,
2005
Nov. 28,
2004
Nov. 27,
2005
Nov. 28,
2004

Net earnings, as reported     $ 370   $ 367   $ 622   $ 550  
      Add:   Stock-based employee compensation  
        expense included in reported net  
        earnings, net of related tax effects     7    5     14    10  
      Deduct:   Total stock-based employee  
        compensation expense determined under  
        fair value based method for all  
        awards, net of related tax effects     (13 )  (14 )   (25 )  (28 )

      Pro forma net earnings   $ 364   $ 358   $ 611   $ 532  

Earnings per share:  
         Basic – as reported   $ 1.04   $ .99   $ 1.73   $ 1.47  
         Basic – pro forma   $ 1.03   $ .97   $ 1.70   $ 1.42  
         Diluted – as reported   $ .97   $ .92   $ 1.60   $ 1.36  
         Diluted – pro forma   $ .96   $ .89   $ 1.57   $ 1.32  


These amounts reflect the expensing of share awards made to retirement-eligible employees over the expected vesting period of the award. SFAS 123(R), “Share-Based Payment,” when adopted, will require the expensing of future awards over the period to retirement eligibility, if less than the vesting period. Future share-based compensation amounts may differ from the pro forma amounts presented based on that change as well as any changes in the number of options granted or their fair values.

The weighted average fair values at grant date of the options granted were estimated as $7.82 in the second quarter and first half of fiscal 2006, and $7.62 in the second quarter and first half of fiscal 2005, using the Black-Scholes option-pricing model.


Page 5



This excerpt taken from the GIS 10-Q filed Oct 3, 2005.

Stock-based Compensation Expense for Stock Options

We use the intrinsic value method for measuring the cost of compensation paid in shares of our common stock. This method defines our cost as the excess of the stock’s market value at the time of the grant over the amount that the employee is required to pay. Our stock option plans require that the employee’s payment (i.e., exercise price) be the market value as of the grant date. The following table illustrates the pro forma effect on net earnings and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation using the Black-Scholes option-pricing model.

13 Weeks Ended
In Millions, except per share data Aug. 28,
2005
Aug. 29,
2004

Net earnings, as reported     $ 252   $ 183  
      Add: Stock-based employee compensation  
        expense included in reported net  
        earnings, net of related tax effects     7    5  
      Deduct: Total stock-based employee 
        compensation expense determined under
        fair value based method for all
        awards, net of related tax effects     (12 )  (14 )

      Pro forma net earnings   $ 247   $ 174  

Earnings per share:
         Basic – as reported   $ .69   $ .48  
         Basic – pro forma   $ .68   $ .46  
         Diluted – as reported   $ .64   $ .45  
         Diluted – pro forma   $ .62   $ .43  


These amounts reflect the expensing of share awards made to retirement-eligible employees over the expected vesting period of the award. SFAS 123(R), when adopted, will require the expensing of future awards over the period to retirement eligibility, if less than the vesting period. Future share-based compensation amounts may differ from the pro forma amounts presented based on that change as well as any changes in the number of options granted or their fair values.

No options were granted in the first quarters of fiscal 2006 or fiscal 2005.


Page 5



This excerpt taken from the GIS 10-Q filed Jan 6, 2005.

Stock-based Compensation Expense for Stock Options

We use the intrinsic value method for measuring the cost of compensation paid in Company common stock. This method defines our cost as the excess of the stock’s market value at the time of the grant over the amount that the employee is required to pay. Our stock option plans require that the employee’s payment (i.e., exercise price) be the market value as of the grant date. The following table illustrates the pro forma effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

13 Weeks Ended
26 Weeks Ended
In Millions, except per share data
Nov. 28,
2004

Nov. 23,
2003

Nov. 28,
2004

Nov. 23,
2003

Net earnings, as reported     $ 367   $ 308   $ 550   $ 535  
 
      Add: Stock-based employee compensation  
        expense included in reported net  
        earnings, net of related tax effects    5    4    10    7  
 
      Deduct: Total stock-based employee  
        compensation expense determined under  
        fair value based method for all  
        awards, net of related tax effects    (14 )  (15 )  (28 )  (29 )




      Pro forma net earnings   $ 358   $ 297   $ 532   $ 513  




Earnings per share:  
         Basic – as reported   $ .99   $ .82   $ 1.47   $ 1.44  
         Basic – pro forma   $ .97   $ .79   $ 1.42   $ 1.38  
 
         Diluted – as reported   $ .97   $ .81   $ 1.44   $ 1.40  
         Diluted – pro forma   $ .95   $ .78   $ 1.39   $ 1.34  





The weighted average fair values at grant date of the options granted were estimated as $7.62 and $8.93, in the second quarter and first half fiscal 2005, and the second quarter and first half fiscal 2004, respectively, using the Black-Scholes option-pricing model.


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