Prudential 2003 Annual Report Download - page 147

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PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
14. STOCK-BASED COMPENSATION (continued)
The following table summarizes information about the employee stock options outstanding and employee stock
options exercisable at December 31, 2003:
Options Outstanding Options Exercisable
Number
Outstanding
Weighted
Average
Remaining
Contractual Life
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Exercise
Price
Range of exercise prices:
$27.50 — $29.90 .......................................... 12,018,412 8.61 $28.72 4,258,559 $27.71
$30.49 — $36.55 .......................................... 8,761,826 8.60 33.58 3,165,691 33.58
$36.60 — $40.62 .......................................... 11,136 9.83 37.99 — —
Total .................................................... 20,791,374 8.61 $30.77 7,424,250 $30.21
Non-employee Stock Option Grants
The Company applies SFAS No. 123 in accordance with Emerging Issues Task Force Issue No. 96-18
“Accounting for Equity Instruments That Are Issued to Other Than Employees” and related interpretations in
accounting for its non-employee stock options.
Prior to January 1, 2003, the fair value of each option was estimated on the balance sheet date for nonvested
options and on the vesting date for vested options using a Black-Scholes option-pricing model. In 2003, the Company
implemented a binomial option-pricing model. The fair value of each option under the binomial model was estimated
on the balance sheet date for nonvested options and on the vesting date for any option vesting during 2003. The
weighted average assumptions used in the determination of the fair value of each option are as follows:
2003 2002 2001
Dividend yield .............................................................. 1.20% 1.30% 1%
Expected volatility .......................................................... 26.27% 35.60% 37%
Risk-free interest rate ........................................................ 2.47% 2.15% 4.07%
Expected life of stock option ................................................... 3.20 years 3.21 years 3.95 years
The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated
increases.
The compensation expense recognized for stock-based non-employee compensation awards was $5 million, $4
million and $270 thousand for the years ended December 31, 2003 and 2002, and the period December 18, 2001
through December 31, 2001, respectively.
Prudential Financial 2003 Annual Report 145