Fifth Third Bank 2004 Annual Report Download - page 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 55
2004 2003 2002
Options (shares in thousands) Shares
Average
Option Price Shares
Average
Option Price Shares
Average
Option Price
Outstanding at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 40,727 $44.40 39,030 $41.85 36,735 $36.27
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,248) 25.41 (3,843) 27.25 (3,736) 30.73
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,422) 58.07 (958) 58.61 (533) 53.97
Granted (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,105 19.81 6,498 51.88 6,564 67.68
Outstanding at December 31 . . . . . . . . . . . . . . . . . . . . . . . 36,162 $45.31 40,727 $44.40 39,030 $41.85
Exercisable at December 31 . . . . . . . . . . . . . . . . . . . . . . . . 30,912 $43.57 30,574 $40.46 29,935 $36.96
(a) 2004 options granted include 1,021 options assumed as part of the Franklin Financial acquisition completed on June 11, 2004. These options were granted under a Franklin
Financial plan assumed by the Bancorp.
2004 2003 2002
Stock Appreciation Rights (shares in thousands) Shares
Average
Grant Price Shares
Average
Grant Price Shares
Average
Grant Price
Outstanding at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . — $ — ————
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ——————
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187) 54.40 ————
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,716 54.37 ————
Outstanding at December 31 . . . . . . . . . . . . . . . . . . . . . . . 3,529 $54.37 ————
Exercisable at December 31 . . . . . . . . . . . . . . . . . . . . . . . . 1 $54.40 ————
Stock-based awards are eligible for issuance under the Bancorp’s
Incentive Compensation Plan to key employees and directors of
the Bancorp and its subsidiaries. The Incentive Stock Compensa-
tion Plan was approved by shareholders on March 23, 2004. The
plan authorized the issuance of up to 20 million shares as equity
compensation, in addition to those shares available for issuance
under the predecessor plan, the 1998 Long Term Incentive Stock
Plan. During 2004, the Bancorp utilized all shares remaining under
the predecessor plan. Options and SARs are issued at fair market
value at the date of grant, have up to ten-year terms and vest and
become fully exercisable at the end of three or four years of contin-
ued employment. Currently, all SARs outstanding are to be settled
with stock. Restricted stock grants vest after four years of continued
employment and include dividend and voting rights. The Bancorp
applies the fair value provisions of SFAS No. 123 in accounting for
stock-based compensation plans. Under SFAS No. 123, the Bancorp
recognizes compensation expense for the fair value of stock-based
awards issued over their vesting period. Stock-based compensation
expense was $87 million, $110 million and $128 million for the
years ended December 31, 2004, 2003 and 2002, respectively. The
exercise price of the Bancorp’s stock option grants equals the market
price of the underlying stock on the date of grant. A summary of
stock-based award activity during the years ended December 31:
The Bancorp has historically emphasized employee stock owner-
ship. Accordingly, the Bancorp encourages further ownership
through granting stock-based compensation to approximately
24% of its employees, including approximately 5,000 offi cers.
Based on total stock-based awards outstanding and shares remain-
ing for future grants under the Incentive Compensation Plan, the
Bancorp’s total overhang is approximately 11%. The following table
provides detail of the number of shares to be issued upon exercise
of outstanding stock-based awards and remaining shares available
for future issuance under all of the Bancorp’s equity compensation
plans, as of December 31, 2004:
18. STOCK-BASED COMPENSATION
Plan Category (in thousands)
Number of Shares to Be
Issued Upon Exercise
Weighted-Average
Exercise Price
Shares Available for
Future Issuance (a)
Equity compensation plans approved by shareholders:
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,442 $46.40 (b)
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596 (c) (b)
Performance units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (d) (c) (b)
Stock appreciation rights (“SARs”) . . . . . . . . . . . . . . . . . . . . . . . (e) (e) (b)
Equity compensation plans not approved by shareholders:
Employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . 764(f)
Total (g) 34,038 $46.40 20,413(h)
(a) Excludes shares to be issued upon exercise of outstanding awards.
(b) Under the Incentive Compensation Plan, 20.0 million shares of stock were authorized for issuance as nonqualifi ed and incentive stock options, SARs, restricted stock and
restricted stock units, performance shares and performance units and stock awards. As of December 31, 2004, 19.1 million shares remain available for future issuance.
(c) Not applicable
(d) The number of shares to be issued is dependent upon the Bancorp achieving certain predefi ned performance targets and ranges from zero shares to approximately 98 thousand
shares, dependent on relative performance.
(e) During 2004, approximately 3.7 million SARs were granted at a weighted-average grant price of $54.37. The number of shares to be issued upon exercise will be determined
at exercise based on the difference between the grant price and the market price at the date of exercise.
(f) Represents remaining shares of Fifth Third common stock under the Bancorp’s 1993 Stock Purchase Plan, as amended and restated.
(g) Excludes 2.7 million outstanding options awarded under plans assumed by the Bancorp in connection with certain mergers and acquisitions. The Bancorp has not made any
awards under these plans and will make no additional awards under these plans. The weighted-average exercise price of the outstanding options is $31.92 per share.
(h) Includes .5 million shares issuable relating to deferred stock compensation plans.