Charles Schwab 2008 Annual Report Download - page 82

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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)
- 68 -
Information on stock options granted and exercised during the years is presented below:
Year Ended December 31, 2008 2007 2006
Weighted-average fair value of options granted per share $ 7.94 $ 7.06 $ 5.43
Cash received from options exercised $ 131 $ 414 $ 252
Tax benefit realized on options exercised $ 48 $ 97 $ 57
Aggregate intrinsic value of options exercised $ 127 $ 244 $ 149
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 and their expected life were as follows:
2008 2007 2006
Weighted-average expected dividend yield .51% .46% .46%
Weighted-average expected volatility 44% 35% 29%
Weighted-average risk-free interest rate 3.9% 4.2% 4.7%
Expected life (in years) 2.7 – 5.0 2.8 – 7.2 2.5 – 5.8
Restricted Stock Plans
The Company’s stock incentive plans provide for granting restricted stock awards to employees, officers, and directors.
Restricted stock awards 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 is
based on the market price of the Company’s stock on the date of grant and is generally amortized to restricted stock expense
on a straight-line basis over the requisite service period. The total fair value of the restricted stock awards (including awards
held by employees of discontinued operations in 2007 and 2006) that vested during each of the years 2008, 2007, and 2006
was $41 million, $96 million, and $55 million, respectively.
The Company’s restricted stock awards activity is summarized below:
Weighted-
Average Grant
Number Date Fair Value
of Shares per Share
Outstanding at December 31, 2007 5 $ 18.29
Granted 2 $ 19.66
Vested (2) $ 16.44
Forfeited - $ -
Outstanding at December 31, 2008 5 $ 19.64
Employee Stock Purchase Plan
Under the Company’s Employee Stock Purchase Plan (ESPP), eligible employees can purchase shares of CSC’s common
stock using amounts withheld through payroll deductions subject to limitations. Payroll deductions are accumulated during six
month offering periods that start each year on February 1st and August 1st. The purchase price for each share of common stock