Capital One 2008 Annual Report Download - page 134

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The following table provides the number of reserved common shares and the number of common shares available for future issuance
for the Companys active stock-based compensation plan as of December 31, 2008, 2007 and 2006. No shares are currently reserved
in the 1999 Non-Employee Directors Stock Incentive Plan and the ability to issue grants from that plan will terminate on April 28,
2009. The ability to issue grants from other plans was terminated in 2004.
Available For Issuance
Plan Name
Shares
Reserved
2008 2007 2006
2004 Stock Incentive Plan .........................................................................
.
20,000,000 4,505,558 7,862,529 12,287,294
1999 Non-Employee Directors Stock Incentive Plan ................................
.
825,000

98,121 134,600
Generally the exercise price of stock options, or value of restricted stock awards, will equal the fair market value of the Companys
stock on the date of grant. The maximum contractual term for options is ten years, and option vesting is determined at the time of
grant. The vesting for most options is 331/3 percent per year beginning with the first anniversary of the grant date. For restricted stock,
the vesting is usually 25 percent on the first and second anniversaries of the grant date and 50 percent on the third anniversary date or
three years from the date of grant.
The Company also issues cash equity units which are recorded as liabilities as expense is recognized. Cash equity units are not issued
out of the Companys stock-based compensation plans because they are settled with a cash payment for each unit vested equal to the
fair market value of the Companys stock on the vesting date. Cash equity units vest 25 percent on the first and second anniversaries
of the grant date and 50 percent on the third anniversary date or three years from the date of grant.
The Company recognizes compensation expense on a straight line basis over the entire awards vesting period for any awards with
graded vesting. Total compensation expense recognized for share based compensation during the years 2008, 2007 and 2006 was
$112.2 million, $230.0 million and $211.1 million, respectively. The total income tax benefit recognized in the consolidated statement
of income for share based compensation arrangements during the years 2008, 2007 and 2006 was $39.3 million, $80.5 million and
$73.9 million, respectively.
Stock option expense is based on per option fair values, estimated at the grant date using a Black-Scholes option-pricing model. The
fair value of options granted during 2008, 2007 and 2006 was estimated using the weighted average assumptions summarized below:
Assumptions
2008 2007 2006
Dividend yield (1)........................................................................................................................................ 3.20% 1.53% .13%
Volatility factors of stocks expected market price................................................................................... 28% 27% 29%
Average risk-free interest rate................................................................................................................... 2.89% 4.05% 4.68%
Expected option lives (in years)................................................................................................................ 5.0
4.5 4.5
(1) In 2008, the Company paid dividends at the rate of $1.50 per share. Previously, the Company paid dividends at the rate of $0.11
per share
A summary of option activity under the plans as of December 31, 2008, and changes during the year then ended is presented below:
Options
(thousands)
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(millions)
Outstanding January 1, 2008.............................................................................. 25,504 $ 58.90
Granted..................................................................................................... 3,243 48.91
Exercised .................................................................................................. (1,921) 37.25
Cancelled.................................................................................................. (2,999) 59.03
Outstanding December 31, 2008........................................................................ 23,827 $ 59.18 4.9 years $ 2.2
Exercisable December 31, 2008......................................................................... 15,971 $ 57.60 3.2 years $ 2.2
At December 31, 2008, the number, weighted average exercise price, aggregate intrinsic value and weighted average remaining
contractual terms of options vested and expected to vest approximate amounts for options outstanding. The weighted-average fair
value of options granted during the years 2008, 2007 and 2006 was $9.94, $16.31 and $26.94, respectively. Cash proceeds from the
exercise of stock options were $71.4 million, $224.1 million and $182.3 million for 2008, 2007 and 2006, respectively. Tax benefits
realized from the exercise of stock options were $9.4 million for 2008. The total intrinsic value of options exercised during the years
2008, 2007 and 2006 was $27.0 million, $174.4 million, and $143.1 million, respectively.