US Bank 2009 Annual Report Download - page 106

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Stock Option Awards
The following is a summary of stock options outstanding and exercised under various stock options plans of the Company:
Year Ended December 31
Stock
Options/Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(In millions)
2009
Number outstanding at beginning of period . . . . . . . . . . . . . . . . 82,293,011 $29.08
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,316,237 12.04
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,085,328) 19.98
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,144,451) 28.33
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . 88,379,469 $26.49 6.1 $(352)
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . 50,538,048 $27.52 4.5 $(253)
2008
Number outstanding at beginning of period . . . . . . . . . . . . . . . . 91,211,464 $27.22
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,464,085 32.19
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,528,238) 25.27
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,854,300) 31.94
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . 82,293,011 $29.08 6.0 $(335)
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . 43,787,801 $26.11 4.0 $ (48)
2007
Number outstanding at beginning of period . . . . . . . . . . . . . . . . 97,052,221 $25.42
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,810,737 35.81
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,595,906) 23.66
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,055,588) 30.59
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . 91,211,464 $27.22 4.9 $ 413
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . 62,701,270 $24.82 3.5 $ 434
(a) Options cancelled includes both non-vested (i.e., forfeitures) and vested options.
(b) Outstanding options include stock-based awards that may be forfeited in future periods. The impact of the estimated forfeitures is reflected in compensation expense.
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:
2009 2008 2007
Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.39 $3.55 $5.38
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8% 3.4% 4.7%
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2% 4.8% 4.3%
Stock volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 .19 .20
Expected life of options (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.0 5.0
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) 2009 2008 2007
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $74 $ 67 $ 61
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 262 192
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 651 400
Tax benefit realized from options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 99 73
104 U.S. BANCORP