Share-Based Payment Best Practice Series ESO Valuation Disclosure - Dow 30 for FY2010
Expected Contractual Expected Vesting ESO Fair Exercise Forfeiture Valuation Granted Interest Dividend
Symbol Company Name HQ Auditor Volatility Term (y) Term (y) Period (y) Value ($) Multiple Rate Model (millions) Rate Yield Comments
AA Alcoa Inc. NY PwC 51.00% 10 5.6 3 4.67 1.35 4.00% Lattice SOEF 9.000 3.62% 1.10% Exp Vola range 47-51%; Exer Multiple based on hist avg; Int Rate range 0.14-3.62% 
AXP American Express Company NY PwC 41.00% 10 6.2 4 14.11     BSM 3.205 2.80% 1.80% Exp Vola based on hist and implied vola
BA The Boeing Company IL Deloitte 31.50% 10 6.0 3 15.70 Black-Scholes 6.080 2.90% 3.00% Exp Vola based on hist and implied vola; Exp Term SAB 110
BAC Bank of America Corporation NC PwC - - - - - - - - - - -  
CAT Caterpillar Inc. IL PwC 36.40% 10 7.0 3 22.31 Lattice SOEF 7.556 3.61% 2.30% Exp Vola range 35.2-51.8%; Int Rate range 0.32-3.61%; Exp Term b/o hist data
CSCO Cisco Systems, Inc. CA PwC 30.50% 10 5.1 4 6.50     Lattice SOEF 4.000 2.30% 0.00% Skewness 0.2, Kurtosis 4.1; Exp Vola based on implied vola of 2 yr traded option
CVX Chevron Corporation CA PwC 30.80% 10 6.1 3 16.28 Black-Scholes 15.454 2.90% 3.90% Exp Vola based on hist vola; Exp Term based on hist exer and post-vest cancellation
DD E.I. du Pont de Nemours and Co DE PwC 32.44% 7 5.3 3 6.44     Black-Scholes 6.378 2.60% 4.90% Exp Vola based on hist daily vola; Exp Term is based on hist experience
DIS The Walt Disney Company CA PwC 32.00% 10 - 4 9.43 1.40 2.50% Lattice SOEF 12.000 3.50% 1.41% Exp Vola based on hist and implied vola
GE General Electric Company CT KPMG 35.00% 10 6.9 5 4.11     Black-Scholes 105.227 2.90% 3.90% Exp Vola based on hist and implied vola; Dividend Yield based on 5-year hist avg
HD The Home Depot, Inc. GA KPMG 26.40% 10 5.0 4 6.70 Black-Scholes 3.723 3.10% 2.90% Market Condition Performance Price Target options also granted
HPQ Hewlett-Packard Company CA E&Y 30.00% 8 5.1 4 13.33     Black-Scholes 11.939 2.06% 0.68% Expected Vola based on implied (ESO), hist (TSR); Exp Term based on hist data
IBM International Business Machines NY PwC - - - - - - - - - - -
INTC Intel Corporation CA E&Y 28.00% 7 4.9 4 4.82     Black-Scholes 20.200 2.50% 2.70% Exp Vola based on implied vola; Exp Term based on simplified method
JNJ Johnson & Johnson NJ PwC 17.40% 10 6.0 4 8.03 Black-Scholes 13.996 2.78% 3.30% Exp Vola 4-yr daily hist vola, 5-week avg implied vola of 2-yr opts; Exp Term hist exp
JPM JP Morgan Chase & Co. NY PwC 37.00% 10 6.4 5 12.27     Black-Scholes - 3.89% 3.13% Exp Vola based on implied vola; Exp Term hist exp; Exp Div based on hist yields
KFT Kraft Foods Inc. IL PwC 19.86% 10 6.0 3 3.69 Black-Scholes 18.077 2.82% 4.14% Exp Vola based on hist vola; Exp Term based on simplified method
KO The Coca-Cola Company GA E&Y 20.00% 10 6.0 4 9.39     BSM 23.000 3.00% 2.90% Exp Vola based on hist and implied vola; Exp Term based on hist exer behavior
MCD McDonald's Corporation IL E&Y 22.10% 10 6.2 4 9.90 Closed-Form 4.500 2.80% 3.50% Exp Vola based on hist vola; Exp Term based on historical trends
MMM 3M Company MN PwC 25.70% 10 6.0 3 16.50     Black-Scholes 5.788 2.80% 2.50% Exp Vola avg of hist vola (1-yr, rolling, exp life) and implied vola
MRK Merck & Co., Inc. NJ PwC 33.70% 10 6.8 3 7.99 Black-Scholes 7.508 2.80% 4.10% Exp Vola based on hist and implied vola; Contractual Term range 7-10 yrs
MSFT Microsoft Corporation WA Deloitte - - - - - - - - - - - ESPP and Performance Condition stock awards issued, no ESOs granted
PFE Pfizer Inc. NY KPMG 26.85% 10 6.3 3 3.25 BSM 70.327 2.87% 4.00% Exp Vola uses hist and implied vola; Exp Term uses hist exer and post-vest forf
PG The Procter & Gamble Company OH Deloitte 18.00% 10 8.8 3 13.47     Lattice SOEF 26.581 3.70% 2.20% Exp Vola range 15-20%; Int Rate range 0.3-4.0%; Exercise behavior based on hist
T AT&T Inc. TX E&Y 15.75% 10 7.0 3 1.34 Black-Scholes 4.00 3.06% 6.61% Exp Term based on historical exercise experience
TRV The Travelers Companies, Inc. NY KPMG 28.40% 10 6.0 3 11.94     Black-Scholes 2.687 2.71% 2.58% Exp Vola range 28.3-29.1%; Int Rate range 1.68-2.71%; Exp Div range $1.32-1.44
UTX United Technologies Corporation CT PwC 25.00% 10 7.9 3 17.86 Binomial Lattice 0.529 4.00% 2.70% Exp Vola range 24-28%; Exp Term range 7.4-7.9 years; Int Rate range 0.1-4%
VZ Verizon Communications Inc. NY E&Y - - - - - - - - - - - No ESOs since 2004; Restricted Stock Units and Performance Stock Units
WMT Wal-Mart Stores, Inc. AR E&Y 17.10% 10 6.1 5 12.53 BSM 1.921 1.80% 2.30% Exp Vola based on hist vola; Exp Term based on hist exercise and expiration activity
XOM Exxon Mobil Corporation TX PwC 28.50% - 2.5 - -     Monte Carlo 12.393 0.90% 3.00% Monte Carlo simulation, suboptimal exercise factor, hist and implied vola
Average Calculations 28.48% 9.7 6.0 3.6 15.8 2.87% 2.91%
Minimum 15.75% 7.0 2.5 3.0 0.90% 0.00%
Maximum 51.00% 10.0 8.8 5.0 4.00% 6.61%
Source: Company 10-K Reports for FY2010
Prepared by: Peter Goodall and Adam Gitzes
Date: September 6, 2011
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