US Bank 2008 Annual Report Download - page 100

Download and view the complete annual report

Please find page 100 of the 2008 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Stock-based compensation expense is based on the estimated fair value of the award at the date of grant or modification. The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, requiring the
use of subjective assumptions. Because employee stock options have characteristics that differ from those of traded options,
including vesting provisions and trading limitations that impact their liquidity, the determined value used to measure
compensation expense may vary from their actual fair value. The following table includes the weighted average estimated fair
value and assumptions utilized by the Company for newly issued grants:
2008 2007 2006
Estimated fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.55 $5.38 $6.26
Risk-free interest rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4% 4.7% 4.3%
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8% 4.3% 4.0%
Stock volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 .20 .28
Expected life of options (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 5.0 5.4
Expected stock volatility is based on several factors
including the historical volatility of the Company’s stock,
implied volatility determined from traded options and other
factors. The Company uses historical data to estimate option
exercises and employee terminations to estimate the
expected life of options. The risk-free interest rate for the
expected life of the options is based on the U.S. Treasury
yield curve in effect on the date of grant. The expected
dividend yield is based on the Company’s expected dividend
yield over the life of the options.
The following summarizes certain stock option activity of the Company:
(Dollars in Millions) 2008 2007 2006
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67 $61 $81
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 192 346
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651 400 885
Tax benefit realized from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 73 131
To satisfy option exercises, the Company predominantly uses treasury stock.
Additional information regarding stock options outstanding as of December 31, 2008, is as follows:
Range of Exercise Prices Shares
Weighted-
Average
Remaining
Contractual
Life (Years)
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price
Outstanding Options Exercisable Options
$12.67 – $15.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,199 1.6 $13.30 122,199 $13.30
$15.01 – $20.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,562,059 2.7 18.87 5,457,249 18.86
$20.01 – $25.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,096,773 3.0 22.13 15,015,763 22.13
$25.01 – $30.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,022,906 4.9 29.24 13,293,189 29.06
$30.01 – $35.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,602,858 8.1 31.76 6,959,566 30.74
$35.01 – $37.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,886,216 7.9 36.06 2,939,835 36.05
82,293,011 6.0 $29.08 43,787,801 $26.11
RESTRICTED STOCK AWARDS
A summary of the status of the Company’s restricted shares of stock is presented below:
Year Ended December 31 Shares
Weighted-
Average Grant-
Date Fair Value Shares
Weighted-
Average Grant-
Date Fair Value Shares
Weighted-
Average Grant-
Date Fair Value
2008 2007 2006
Nonvested Shares
Outstanding at beginning of period. . . . . 2,368,085 $31.45 2,919,901 $27.32 2,644,171 $26.73
Granted . . . . . . . . . . . . . . . . . . . . . 1,132,239 32.24 952,878 35.69 1,040,201 30.22
Vested . . . . . . . . . . . . . . . . . . . . . . (958,729) 29.78 (1,292,748) 25.31 (493,730) 28.91
Cancelled . . . . . . . . . . . . . . . . . . . . (121,060) 32.69 (211,946) 31.05 (270,741) 29.75
Outstanding at end of period. . . . . . . . . 2,420,535 $32.42 2,368,085 $31.45 2,919,901 $27.32
The total fair value of shares vested was $29 million,
$45 million, and $15 million for 2008, 2007 and 2006,
respectively.
Stock-based compensation expense was $85 million,
$77 million and $101 million for 2008, 2007 and 2006,
respectively. On an after-tax basis, stock-based compensation
98 U.S. BANCORP