Johnson & Johnson - Index

Johnson & Johnson - report - Index

years. All options are granted at the average of the high and low
prices of the Company’s common stock on the New York Stock
Exchange on the date of grant. Under the 2005 Long-Term Incentive
Plan, the Company may issue up to 260 million shares of
Common Stock. Shares available for future grants under the
2005 Long-Term Incentive Plan were 194.5 million at the end
of 2007.
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. 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 $11.67, $12.22
and $15.48 in 2007, 2006 and 2005, respectively. The fair value
was estimated based on the weighted average assumptions of:
2007 2006 2005
Risk-free rate 4.78% 4.60% 3.72%
Expected volatility 14.7% 19.6% 25.0%
Expected life 6.0 yrs 6.0 yrs 5.0 yrs
Dividend yield 2.50% 2.50% 1.93%
A summary of option activity under the Plan as of December 30,
2007, December 31, 2006 and January 1, 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 2, 2005 229,004 $48.62 $3,390
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 $2,031
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
The total intrinsic value of options exercised was $625.4 million,
$541.5 million and $664.0 million in 2007, 2006 and 2005,
respectively. The total unrecognized compensation cost was
$651.9 million as of December 30, 2007, $648.8 million as of
December 31, 2006 and $659.6 million as of January 1, 2006.
The weighted average period for this cost to be recognized was
1.01 years for 2007, 0.99 years for 2006 and 1.15 years for 2005.
The following table summarizes stock options outstanding
and exercisable at December 30, 2007:
(Shares in Thousands) Outstanding Exercisable
___________________________________________________ __________________
Average Average
Exercise Average Exercise Exercise
Price Range Options Life (1) Price Options Price
$ 3.62-$29.44 744 2.2 $20.57 744 $20.57
$30.55-$40.16 8,304 1.0 39.67 8,304 39.67
$40.98-$50.08 14,491 2.0 49.48 14,491 49.48
$50.39-$52.11 22,892 2.8 50.70 22,892 50.70
$52.20-$53.77 27,615 5.0 52.22 27,615 52.22
$53.93-$54.89 33,094 6.0 53.93 31,434 53.93
$55.01-$58.25 31,447 4.1 57.30 31,414 57.30
$58.34-$66.08 51,273 8.5 61.96 416 61.18
$66.18-$68.26 38,769 7.1 66.19 — —
228,629 5.6 $56.83 137,310 $52.33
(1) Average contractual life remaining in years.
Stock options exercisable at December 31, 2006 and January 1,
2006 were 131,077 at an average price of $50.23 and an average
life of 5.9 years, and 119,390 options at an average price of
$47.90 and an average life of 6.4 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.
A summary of share activity under the Plan as of
December 30, 2007:
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
The average fair value of the restricted share units granted was
$60.86 and $54.17 in 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 share units settled was $1.8 million
and $1.7 million in 2007 and 2006, respectively.
58 JOHNSON & JOHNSON 2007 ANNUAL REPORT