Wells Fargo 2007 Annual Report Download - page 116

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113
Employee Stock Ownership Plan
Under the Wells Fargo & Company 401(k) Plan (the 401(k)
Plan), a defined contribution ESOP, the 401(k) Plan may
borrow money to purchase our common or preferred stock.
Since 1994, we have loaned money to the 401(k) Plan to
purchase shares of our ESOP Preferred Stock. As we release
and convert ESOP Preferred Stock into common shares, we
record compensation expense equal to the current market
price of the common shares. Dividends on the common shares
allocated as a result of the release and conversion of the ESOP
Preferred Stock reduce retained earnings and the shares are
considered outstanding for computing earnings per share.
Dividends on the unallocated ESOP Preferred Stock do not
reduce retained earnings, and the shares are not considered
to be common stock equivalents for computing earnings per
share. Loan principal and interest payments are made from
our contributions to the 401(k) Plan, along with dividends
paid on the ESOP Preferred Stock. With each principal and
interest payment, a portion of the ESOP Preferred Stock is
released and, after conversion of the ESOP Preferred Stock
into common shares, allocated to the 401(k) Plan participants.
The balance of ESOP shares, the dividends on allocated
shares of common stock and unreleased preferred shares
paid to the 401(k) Plan and the fair value of unearned ESOP
shares were:
Number Weighted-
average
grant-date
fair value
Nonvested at January 1, 2007 147,146 $29.53
Granted 27,360 34.76
Canceled or forfeited (27,586) 27.51
Vested (34,524) 27.20
Nonvested at December 31, 2007 112,396 32.01
Effective with the adoption of FAS 123(R), we changed
our method of estimating our volatility assumption. Prior
to 2006, we used a volatility based on historical stock price
changes. Effective January 1, 2006, we used a volatility
based on a combination of historical stock price changes
and implied volatilities of traded options as both volatilities
are relevant in estimating our expected volatility.
The following table presents the weighted-average per
share fair value of options granted and the assumptions
used, based on a Black-Scholes option valuation model.
The weighted-average grant-date fair value of RSRs
granted during 2006 was $33.90. At December 31, 2007,
there was $2 million of total unrecognized compensation
cost related to nonvested RSRs. The cost is expected to be
recognized over a weighted-average period of 3.0 years.
The total fair value of RSRs that vested during 2007 and
2006 was $1 million and $3 million, respectively.
A summary of the status of our RSRs at December 31,
2007, and changes during 2007 is in the following table:
Year ended December 31,
2007 2006 2005
Per share fair value of options granted:
Incentive Compensation Plans $4.03 $4.03 $3.75
Director Plans 4.05 4.67 3.13
Expected volatility 13.3% 15.9% 16.1%
Expected dividends 3.4 3.4 3.4
Expected term (in years) 4.2 4.3 4.4
Risk-free interest rate 4.6% 4.5% 4.0%
Deferred Compensation Plan for Independent Sales Agents
WF Deferred Compensation Holdings, Inc. is a wholly-
owned subsidiary of the Parent formed solely to sponsor
a deferred compensation plan for independent sales agents
who provide investment, financial and other qualifying
services for or with respect to participating affiliates. The
Nonqualified Deferred Compensation Plan for Independent
Contractors, which became effective January 1, 2002, allows
participants to defer all or part of their eligible compensation
payable to them by a participating affiliate. The Parent
has fully and unconditionally guaranteed the deferred
compensation obligations of WF Deferred Compensation
Holdings, Inc. under the plan.
(in millions, except shares) Shares outstanding
__________December 31,
2007 2006 2005
Allocated shares (common) 76,265,880 74,536,040 73,835,002
Unreleased shares (preferred) 449,804 383,804 325,463
Fair value of unearned ESOP shares $450 $384 $325
Dividends paid
Year ended December 31,
2007 2006 2005
Allocated shares (common) $88 $79 $71
Unreleased shares (preferred) 57 47 39