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PNC » Topics » O PTIONS I SSUED FOR N ATIONAL C ITY A CQUISITION

This excerpt taken from the PNC 10-K filed Mar 2, 2009.

OPTIONS ISSUED FOR NATIONAL CITY ACQUISITION

On December 31, 2008, in connection with the closing of the National City acquisition, we issued approximately 1.7 million PNC stock options upon conversion of all outstanding and unexercised National City options at that date. Of the total options issued, approximately 1.4 million were issued as nonqualified stock options, and the remaining 0.3 million were issued as incentive stock options. These PNC options carry generally the same terms and conditions as the original National City options. Per the merger agreement, all outstanding options were deemed fully vested at the acquisition date. Accordingly, no ongoing stock option expense will be recognized for these options. The purchase price consideration for the National City acquisition included approximately $2.0 million related to these options.


 

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Table of Contents

A summary of stock option activity follows:

 

Year ended December 31, 2008
In thousands, except
weighted-average data		   Shares     Weighted-
average
exercise
price		   Weighted-
average
remaining
contractual
life		   Aggregate
intrinsic
value

Outstanding, January 1

   14,326     $ 62.15      

Granted

   3,308       60.35      

Sterling acquisition

   325       63.94      

Exercised

   (3,175 )     55.11      

Cancelled

   (247 )     57.97      
             

Prior to National City acquisition

   14,537       63.39      

National City acquisition

   1,744       636.31      
             

Outstanding, December 31

   16,281     $ 124.75   5.6 years   $ 4,909

Vested and expected to vest, December 31 (a)

   15,971     $ 125.90   5.6 years   $ 4,909

Exercisable, December 31

   11,373     $ 151.03   4.3 years   $ 4,909
(a) Adjusted for estimated forfeitures on unvested options.

The weighted-average grant-date fair value of options granted in 2008, 2007 and 2006 was $7.27, $11.37 and $10.75 per option, respectively. To determine stock-based compensation expense under SFAS 123R, the grant-date fair value is applied to the options granted with a reduction made for estimated forfeitures.

At December 31, 2007 and 2006, options for 10,496,000 and 10,743,000 shares of common stock, respectively, were exercisable at a weighted-average price of $59.95 and $58.38, respectively. The total intrinsic value of options exercised during 2008, 2007 and 2006 was $59 million, $52 million and $111 million, respectively.

Cash received from option exercises under all Incentive Plans for 2008, 2007 and 2006 was approximately $167 million, $111 million and $233 million, respectively. The actual tax benefit realized for tax deduction purposes from option exercises under all Incentive Plans for 2008, 2007 and 2006 was approximately $58 million, $39 million and $82 million, respectively.

There were no options granted in excess of market value in 2008, 2007 or 2006. Shares of common stock available during the next year for the granting of options and other awards under the Incentive Plans were 36,307,172 at December 31, 2008. Total shares of PNC common stock authorized for future issuance under equity compensation plans totaled 37,842,957 shares at December 31, 2008, which includes shares available for issuance under the Incentive Plans, the Employee Stock Purchase Plan as described below, and a director plan.

During 2008, we issued approximately 3.1 million shares from treasury stock in connection with stock option exercise activity. As with past exercise activity, we intend to utilize treasury stock for future stock option exercises.

 

As permitted under SFAS 123R, we recognized compensation expense for stock options on a straight-line basis over the pro rata vesting period. Total compensation expense recognized related to PNC stock options in 2008 was $22 million compared with $29 million in 2007 and $31 million in 2006.

Awards granted to non-employee directors in 2008 and 2007 include 25,381 and 20,944 deferred stock units, respectively, awarded under the Outside Directors Deferred Stock Unit Plan. A deferred stock unit is a phantom share of our common stock, which requires liability accounting treatment under SFAS 123R until such awards are paid to the participants as cash. As there are no vesting or service requirements on these awards, total compensation expense is recognized in full on all awarded units on the date of grant.

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