Charles Schwab 2010 Annual Report Download - page 96

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THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
Information on stock options granted and exercised is presented below:
Management uses a binomial option pricing model to estimate the fair value of options granted. The binomial model takes into
account the contractual term of the stock option, expected volatility, dividend yield, and risk-free interest rate. Expected volatility is
based on the implied volatility of publicly-traded options on CSC’s stock. Dividend yield is based on the average historical CSC
dividend yield. The risk-free interest rate is based on the yield of a U.S. Treasury zero-coupon issue with a remaining term equal to
the contractual term of the option. Management uses historical option exercise data, which includes employee termination data to
estimate the probability of future option exercises. Management uses the Black-Scholes model to solve for the expected life of options
valued with the binomial model presented below. The assumptions used to value the Company’s options granted during the years
presented and their expected lives were as follows:
Restricted Stock Plans
Year Ended December 31, 2010 2009 2008
Wei
g
hted-avera
g
e fair value of o
p
tions
g
ranted
p
er share
$ 5.36
$ 6.42
$ 7.94
Cash received from options exercised
$ 35
$ 53
$131
Tax benefit realized on o
p
tions exercised
$ 5
$ 8
$48
A
gg
re
g
ate intrinsic value of o
p
tions exercised
$ 17
$ 25
$127
Year Ended December 31, 2010 2009 2008
Wei
g
hted-avera
g
e ex
p
ected dividend
y
ield
.71%
.58%
.51%
Wei
g
hted-avera
g
e ex
p
ected volatilit
y
35%
52%
44%
Wei
g
hted-avera
g
e ris
k
-free interest rate
2.8%
3.0%
3.9%
Ex
p
ected life (in
y
ears)
3.0
–
5.9
1.4
–
5.3
2.7
–
5.0
The Company’s stock incentive plans provide for granting restricted stock awards and restricted stock units to employees, officers,
and directors. Restricted stock units are awards that entitle the holder to receive shares of CSC’s common stock following a vesting
period.
Restricted stock awards and units are restricted from transfer or sale and generally vest annually over a three- to four-year period, but
some vest based upon the Company achieving certain financial or other measures. The fair value of restricted stock awards and units
is based on the market price of the Company’s stock on the date of grant. The grant date fair value is amortized to compensation
expense on a straight-line basis over the requisite service period. The total fair value of the restricted stock awards and units that
vested during each of the years 2010, 2009, and 2008 was $27 million, $28 million, and $41 million, respectively.
The Company’s restricted stock awards and units activity is summarized below:
-77 -
Restricted Stock Awards Restricted Stock Units
Number
of Shares
Weighted-
Average Grant
Date Fair Value
per Share
Number
of Units
Weighted-
Average Grant
Date Fair Value
per Unit
Outstandin
g
at December 31, 2009
3 $ 19.95
2
$17.28
Granted
—
$
—
3
$ 15.48
Vested
(2)
$19.41
(1)
$17.28
Forfeited
—
$
—
—
$
—
Outstandin
g
at December 31, 2010
1
$20.49
4
$16.04