Capital One 2003 Annual Report Download - page 98

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The fair value of the options granted during 2003, 2002 and 2001 was estimated at the date of grant using a
Black-Scholes option-pricing model with the weighted average assumptions described below:
For the Years Ended December 31
Assumptions 2003 2002 2001
Dividend yield .24% .25% .19%
Volatility factors of expected market price of stock 54% 55% 50%
Risk-free interest rate 3.25% 3.15% 4.15%
Expected option lives (in years) 5.0 5.0 8.5
The following table summarizes information about options outstanding as of December 31, 2003:
Options Outstanding Options Exercisable
Range of
Exercise Prices
Number
Outstanding
(000s)
Weighted-Average
Remaining
Contractual Life
Weighted-Average
Exercise Price
Per Share
Number
Exercisable
(000s)
Weighted-Average
Exercise Price
Per Share
$4.31-$6.46 98 1.1 years $ 6.10 98 $ 6.10
$6.47-$9.70 211 1.9 7.99 211 7.99
$9.71-$14.56 4,954 1.8 9.95 4,954 9.95
$14.57-$21.85 1,319 4.0 16.13 1,319 16.13
$21.86-$32.79 842 6.2 31.65 639 31.61
$32.80-$49.20 27,587 7.6 44.32 14,156 43.62
$49.21-$73.82 9,636 6.7 57.37 2,539 57.88
$73.83-$76.37 7 5.7 76.37 7 76.37
The Company recognized $29.4 million, $22.0 million and $113.5 million of tax benefits from the exercise of
stock options by its associates during 2003, 2002 and 2001, respectively.
The Company granted 3.1 million and 2.5 million restricted stock awards with a weighted average grant date
value of $56.07 and $34.58 per share for 2003 and 2002, respectively. Restrictions generally expire in three years
from the date of grant. The compensation cost that has been charged against income for the Company’s restricted
stock awards was $40.7 million and $27.7 million for 2003 and 2002, respectively.
2003 CEO Grant
In December 2003, the Company’s Board of Directors approved a compensation package for the Company’s
Chief Executive Officer (CEO). This package was comprised of stock options and incentive stock. 360,000
options were granted at the fair market value at the date of grant and will vest in one-third increments over three
years. The amount of incentive stock issued will be based on the Company’s three year cumulative earnings per
share growth compared to the earnings per share growth of a peer group that includes thirty-three companies. The
number of shares will be determined at the end of the three year period; the CEO will receive the shares, if any,
on March 31, 2007. If Capital One stockholders approve a new employee stock incentive plan permitting the
issuance of restricted stock units prior to March 31, 2007, then the CEO will instead receive an equal number of
restricted stock units that will vest and become payable on January 1 following the CEO’s retirement or other
departure from employment with Capital One. The target amount for the incentive stock issuance is 236,940
shares but could vary from a minimum amount of zero to the maximum amount of 355,410 shares. Compensation
expense was recorded for the options and incentive stock in accordance with SFAS 123.
Accelerated Vesting Option Grants
EntrepreneurGrant V
In October 2001, the Company’s Board of Directors approved a stock options grant to senior management
(“EntrepreneurGrant V”). This grant was composed of 6,502,318 options to certain key managers (including
3,535,000 performance-based options to the Company’s Chief Executive Officer (“CEO”) and Chief Operating
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