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C » Topics » Notes to 2005 Option Grants Table

This excerpt taken from the C DEF 14A filed Mar 14, 2006.

Notes to 2005 Option Grants Table

 

(A) The total options outstanding at the end of 2005 for each covered executive is shown as “Number of Shares Underlying Unexercised Options at 2005 Year-End” in the table “2005 Aggregated Option Exercises and Year-End Option Values” below.

 

(B) Reload options are not new discretionary grants by Citigroup; rather the issuance results from rights that were granted to the option holder as part of the initial option grant.

 

(C) The “Grant Date Present Value” numbers in the table were derived by application of a variation of the binomial option pricing model. Until 2004, Citigroup had used a variation of the Black-Scholes option pricing model to calculate the Grant Date Present Values. In order to be consistent with the method used for pricing stock options in its financial statements, Citigroup calculates the Grant Date Present Values in its proxy statement using the binomial option pricing model. The following assumptions were used in employing the model.

 

•   Stock price volatility was based on historical volatilities on traded Citigroup options.

 

•   The risk-free interest rate for each option grant was the interpolated market yield on the date of grant on a Treasury bill with a term identical to the estimated option life, as reported by the Federal Reserve.

 

•   The dividend yield was based on historical Citigroup dividends.

 

•   Exercise was estimated from historical employee exercise decisions and found to be a function of vesting, gain on exercise, and time-to-maturity.

 

•   For reload options, which vest six months after the date of grant, the average estimated holding period was approximately three years and four months.

 

•   The values arrived at through the binomial model were discounted by 25% to reflect the reduction in value as measured by the estimated cost of protection of the options for senior management due to the holding requirements of the stock ownership commitment.

 

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