RBS 2003 Annual Report Download - page 197
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195
Annual Report and Accounts 2003
Notes on the accounts
If the compensation cost for the schemes had been determined based on the fair value at the grant dates consistent with the
fair value method of SFAS 123, net income and earnings per share as adjusted to include stock compensation would have
been as shown below:
2003 2002 2001
£m £m £m
Net income under US GAAP:
As reported 2,564 3,108 2,062
Adjusted to include stock compensation 2,503 2,978 1,942
Basic earnings per share under US GAAP:
As reported 87.5p 107.9p 74.7p
Adjusted to include stock compensation 85.4p 103.4p 70.3p
Diluted earnings per share under US GAAP:
As reported 86.8p 106.3p 73.2p
Adjusted to include stock compensation 84.8p 101.8p 68.9p
The fair value of each option has been estimated as at the grant date using a Black-Scholes option pricing model using the following
assumptions:
2003 2002 2001
Risk free interest rate 3.6%– 4.6% 4.7%– 4.9% 5.0%
Volatility based on historical data 29% 43% 42%
Dividend yield 2.9%– 4.1% 2.4%–2.9% 1.9% – 2.2%
Expected lives of options granted under:
Employee savings scheme 3, 5 and 7 years 3, 5 and 7 years 3, 5 and 7 years
Executive scheme 3 to 10 years 3 to 10 years 3 to 10 years
Option 2000 scheme 3 years 3 years 3 years
The following table summarises fair values of options issued in each year:
2003 2002 2001
Exercise price Fair value Life Exercise price Fair value Life Exercise price Fair value Life
£ £ Years £ £ Years £ £ Years
Executive scheme (1) 13.48 2.91 3 -10 18.10 6.54 3 -10 17.14 6.40 3 -10
Savings scheme
3 year 13.07 4.64 3 12.35 5.58 3 13.64 6.47 3
5 year 13.07 5.15 5 12.35 6.33 5 13.64 7.48 5
7 year 13.07 5.48 7 12.35 6.76 7 13.64 8.15 7
Option 2000 scheme 15.90 2.91 3 18.41 5.44 3 15.63 4.63 3
Note:
(1) For the purposes of calculating a fair value on executive scheme options, an option life of 5 years, being the mid-point on the 10 year option, has been assumed.
Historical exercise trends have not been used as these are not felt to be indicative of future trends given changes to the scheme rules and participants in the scheme.