|
|
 | | | |
- close
- close
- close
- close
These excerpts taken from the GIS 10-K filed Jul 11, 2008. Stock
Compensation Effective May 29, 2006, we
adopted SFAS 123R, which changed the accounting for
compensation expense associated with stock options, restricted
stock awards, and other forms of equity compensation. We elected
the modified prospective transition method as permitted by
SFAS 123R; accordingly, results from prior periods were not
restated. Under this method, stock-based compensation expense
for fiscal 2007 was $127.1 million, which included
amortization related to the remaining unvested portion of all
equity compensation awards granted prior to May 29, 2006,
based on the grant-date fair value estimated in accordance with
the original provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation”
(SFAS 123), and amortization related to all equity
compensation awards granted on or subsequent to May 29,
2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. The incremental effect on
net earnings in fiscal 2007 of our adoption of SFAS 123R
was $68.8 million of expense ($42.9 million
after-tax). All our stock compensation expense is recorded in
SG&A expense in the Consolidated Statements of Earnings.
Prior to May 29, 2006, we used the intrinsic value method
for measuring the cost of compensation paid in our common stock.
No compensation expense for stock options was recognized in our
Consolidated Statements of Earnings prior to fiscal 2007, as the
exercise price was equal to the market price of our stock at the
date of grant. Expense attributable to other types of
share-based awards was recognized in our results under
SFAS 123. The estimated weighted-average fair values of
stock options granted and the assumptions used for the
Black-Scholes option-pricing model were as follows:
The valuation of stock options is a significant accounting
estimate which requires us to use judgments and assumptions that
are likely to have a material impact on our financial
statements. Annually, we make predictive assumptions regarding
future stock price volatility, employee exercise behavior, and
dividend yield.
We estimate our future stock price volatility using the
historical volatility over the expected term of the option,
excluding time periods of volatility we believe a marketplace
participant would exclude in estimating our stock price
volatility. For the fiscal 2008 grants, we have excluded
historical volatility for fiscal 2002 and prior, primarily
because volatility driven by our acquisition of The
Table of Contents
Pillsbury Company in fiscal 2002 does not reflect what we
believe to be expected future volatility. We also have
considered, but did not use, implied volatility in our estimate,
because trading activity in options on our stock, especially
those with tenors of greater than 6 months, is insufficient
to provide a reliable measure of expected volatility. If all
other assumptions are held constant, a one percentage point
increase in our fiscal 2008 volatility assumption would increase
the grant-date fair value of our fiscal 2008 option awards by
4.3 percent.
For fiscal 2007 and all prior periods, our estimate of expected
stock price volatility is based on historical volatility
determined on a daily basis over the expected term of the
options. We considered but did not use implied volatility
because we believed historical volatility provided an
appropriate expectation for our volatility in the future.
Our expected term represents the period of time that options
granted are expected to be outstanding based on historical data
to estimate option exercise and employee termination within the
valuation model. Separate groups of employees have similar
historical exercise behavior and therefore were aggregated into
a single pool for valuation purposes. The weighted-average
expected term for all employee groups is presented in the table
above. An increase in the expected term by 1 year, leaving
all other assumptions constant, would change the grant date fair
value by significantly less than 1 percent. Our valuation
model assumes that dividends and our share price increase in
line with earnings, resulting in a constant dividend yield. The
risk-free interest rate for periods during the expected term of
the options is based on the U.S. Treasury zero-coupon yield
curve in effect at the time of grant.
To the extent that actual outcomes differ from our assumptions,
we are not required to true up grant-date fair value-based
expense to final intrinsic values. However, these differences
can impact the classification of cash tax benefits realized upon
exercise of stock options, as explained in the following two
paragraphs. Furthermore, historical data has a significant
bearing on our forward-looking assumptions. Significant
variances between actual and predicted experience could lead to
prospective revisions in our assumptions, which could then
significantly impact the year-over-year comparability of
stock-based compensation expense.
SFAS 123R also provides that any corporate income tax
benefit realized upon exercise or vesting of an award in excess
of that previously recognized in earnings (referred to as a
“windfall tax benefit”) is presented in the
Consolidated Statements of Cash Flows as a financing (rather
than an operating) cash flow. For fiscal 2008 and fiscal 2007,
the windfall tax benefits classified as financing cash flow were
$55.7 million and $73.1 million. The actual impact on
future years’ financing cash flow will depend, in part, on
the volume of employee stock option exercises during a
particular year and the relationship between the exercise-date
market value of the underlying stock and the original grant-date
fair value previously determined for financial reporting
purposes.
Realized windfall tax benefits are credited to additional
paid-in capital within the Consolidated Balance Sheet. Realized
shortfall tax benefits (amounts which are less than that
previously recognized in earnings) are first offset against the
cumulative balance of windfall tax benefits, if any, and then
charged directly to income tax expense, potentially resulting in
volatility in our consolidated effective income tax rate. We
calculated a cumulative amount of windfall tax benefits from
post-1995 fiscal years for the purpose of accounting for future
shortfall tax benefits and currently have sufficient cumulative
windfall tax benefits to absorb projected arising shortfalls,
such that we do not currently expect future earnings to be
affected by this provision. However, as employee stock option
exercise behavior is not within our control, it is possible that
materially different reported results could occur if different
assumptions or conditions were to prevail.
Stock Compensation Effective May 29, 2006, we adopted SFAS 123R, which changed the accounting for compensation expense associated with stock options, restricted stock awards, and other forms of equity compensation. We elected the modified prospective transition method as permitted by SFAS 123R; accordingly, results from prior periods were not restated. Under this method, stock-based compensation expense for fiscal 2007 was $127.1 million, which included amortization related to the remaining unvested portion of all equity compensation awards granted prior to May 29, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), and amortization related to all equity compensation awards granted on or subsequent to May 29, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The incremental effect on net earnings in fiscal 2007 of our adoption of SFAS 123R was $68.8 million of expense ($42.9 million after-tax). All our stock compensation expense is recorded in SG&A expense in the Consolidated Statements of Earnings. Prior to May 29, 2006, we used the intrinsic value method for measuring the cost of compensation paid in our common stock. No compensation expense for stock options was recognized in our Consolidated Statements of Earnings prior to fiscal 2007, as the exercise price was equal to the market price of our stock at the date of grant. Expense attributable to other types of share-based awards was recognized in our results under SFAS 123. The estimated weighted-average fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
The valuation of stock options is a significant accounting estimate which requires us to use judgments and assumptions that are likely to have a material impact on our financial statements. Annually, we make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. For the fiscal 2008 grants, we have excluded historical volatility for fiscal 2002 and prior, primarily because volatility driven by our acquisition of The
Table of ContentsPillsbury Company in fiscal 2002 does not reflect what we believe to be expected future volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. If all other assumptions are held constant, a one percentage point increase in our fiscal 2008 volatility assumption would increase the grant-date fair value of our fiscal 2008 option awards by 4.3 percent. For fiscal 2007 and all prior periods, our estimate of expected stock price volatility is based on historical volatility determined on a daily basis over the expected term of the options. We considered but did not use implied volatility because we believed historical volatility provided an appropriate expectation for our volatility in the future. Our expected term represents the period of time that options granted are expected to be outstanding based on historical data to estimate option exercise and employee termination within the valuation model. Separate groups of employees have similar historical exercise behavior and therefore were aggregated into a single pool for valuation purposes. The weighted-average expected term for all employee groups is presented in the table above. An increase in the expected term by 1 year, leaving all other assumptions constant, would change the grant date fair value by significantly less than 1 percent. Our valuation model assumes that dividends and our share price increase in line with earnings, resulting in a constant dividend yield. The risk-free interest rate for periods during the expected term of the options is based on the U.S. Treasury zero-coupon yield curve in effect at the time of grant. To the extent that actual outcomes differ from our assumptions, we are not required to true up grant-date fair value-based expense to final intrinsic values. However, these differences can impact the classification of cash tax benefits realized upon exercise of stock options, as explained in the following two paragraphs. Furthermore, historical data has a significant bearing on our forward-looking assumptions. Significant variances between actual and predicted experience could lead to prospective revisions in our assumptions, which could then significantly impact the year-over-year comparability of stock-based compensation expense. SFAS 123R also provides that any corporate income tax benefit realized upon exercise or vesting of an award in excess of that previously recognized in earnings (referred to as a “windfall tax benefit”) is presented in the Consolidated Statements of Cash Flows as a financing (rather than an operating) cash flow. For fiscal 2008 and fiscal 2007, the windfall tax benefits classified as financing cash flow were $55.7 million and $73.1 million. The actual impact on future years’ financing cash flow will depend, in part, on the volume of employee stock option exercises during a particular year and the relationship between the exercise-date market value of the underlying stock and the original grant-date fair value previously determined for financial reporting purposes. Realized windfall tax benefits are credited to additional paid-in capital within the Consolidated Balance Sheet. Realized shortfall tax benefits (amounts which are less than that previously recognized in earnings) are first offset against the cumulative balance of windfall tax benefits, if any, and then charged directly to income tax expense, potentially resulting in volatility in our consolidated effective income tax rate. We calculated a cumulative amount of windfall tax benefits from post-1995 fiscal years for the purpose of accounting for future shortfall tax benefits and currently have sufficient cumulative windfall tax benefits to absorb projected arising shortfalls, such that we do not currently expect future earnings to be affected by this provision. However, as employee stock option exercise behavior is not within our control, it is possible that materially different reported results could occur if different assumptions or conditions were to prevail. This excerpt taken from the GIS 10-Q filed Mar 20, 2008. Stock Compensation We have various stock-based compensation programs under which awards, including stock options, restricted stock, and restricted stock units, may be granted to employees and non-employee directors. Stock option grants are made at 100 percent of the fair market value of our stock at the date of grant. These awards generally vest over four years and have a ten-year and one-month term. The expense recorded in our Consolidated Financial Statements is based on the fair value of the awards. We estimate the fair value of each option on the grant date using the Black-Scholes option-pricing model, which requires us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. For the fiscal 2008 grants, we have excluded historical volatility for fiscal 2002 and prior, primarily because volatility driven by the acquisition of Pillsbury does not reflect what we believe to be expected future volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting the other valuation assumptions is explained on pages 58 and 59 in our Annual Report on Form 10-K for the fiscal year ended May 27, 2007. This excerpt taken from the GIS 10-Q filed Dec 19, 2007. Stock Compensation We have various stock-based compensation programs under which awards, including stock options, restricted stock, and restricted stock units, may be granted to employees and non-employee directors. Stock option grants are made at 100 percent of the fair market value of our stock at the date of grant. These awards generally vest over four years and have a ten-year and one-month term. The expense recorded in our Consolidated Financial Statements is based on the fair value of the awards. We estimate the fair value of each option on the grant date using the Black-Scholes option-pricing model, which requires us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. For the fiscal 2008 grants, we have excluded historical volatility for fiscal 2002 and prior, primarily because volatility driven by the acquisition of Pillsbury does not reflect what we believe to be expected future volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting the other valuation assumptions is explained on pages 58 and 59 in our Annual Report on Form 10-K for the fiscal year ended May 27, 2007. | EXCERPTS ON THIS PAGE:
RELATED TOPICS for GIS: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||
