CVS 2009 Annual Report Download - page 67

All grants under the ICP are awarded at fair market value on
the date of grant. The fair value of stock options is estimated
using the Black-Scholes Option Pricing Model and stock-based
compensation is recognized on a straight-line basis over the
requisite service period. Options granted prior to 2004 generally
become exercisable over a four-year period from the grant date
and expire ten years after the date of grant. Options granted
during and subsequent to fiscal 2004 generally become
exercisable over a three-year period from the grant date and
expire seven years after the date of grant. As of December 31,
2009, there were 42 million shares available for future grants
under the ICP.
Excess tax benefits of $19 million, $53 million and $98 million
were included in financing activities in the accompanying
consolidated statement of cash flow during 2009, 2008
and 2007, respectively. Cash received from stock options
exercised, which includes the ESPP, totaled $250 million,
$328 million and $553 million during 2009, 2008 and 2007,
respectively. The total intrinsic value of options exercised
was $104 million, $250 million and $642 million in 2009,
2008 and 2007, respectively.
The following table is a summary of the restricted share award activity under the ICP as of December 31:
2009 2008
Weighted Average Grant Weighted Average Grant
shares in thousands Shares Date Fair Value Shares Date Fair Value
Nonvested at beginning of year 83 $ 22.16 161 $ 22.40
Vested (83) 22.16 (67) 39.75
Forfeited – – (11) 18.75
Nonvested at end of year – $ – 83 $ 22.16
The following table is a summary of the restricted unit award activity under the ICP as of December 31:
2009 2008
Weighted Average Grant Weighted Average Grant
units in thousands Units Date Fair Value Units Date Fair Value
Nonvested at beginning of year 3,969 $ 32.08 2,915 $ 28.23
Granted 1,284 27.77 1,274 40.70
Vested (1,724) 26.70 (180) 38.96
Forfeited (182) 37.55 (40) 35.08
Nonvested at end of year 3,347 $ 32.90 3,969 $ 32.08
The fair value of each stock option is estimated using the
Black-Scholes Option Pricing Model based on the following
assumptions at the time of grant:
2009 2008 2007
Dividend yield (1) 1.07% 0.60% 0.69%
Expected volatility (2) 31.34% 22.98% 23.84%
Risk-free interest rate (3) 1.65% 2.28% 4.49%
Expected life (in years) (4) 4.3 4.3 5.1
Weighted Average grant
date fair value $ 7.20 $ 8.53 $ 8.29
(1) The dividend yield is based on annual dividends paid and the fair
market value of the Company’s stock at the grant date.
(2) The expected volatility is estimated using the Company’s historical
volatility over a period equal to the expected life of each option grant
after adjustments for infrequent events such as stock splits.
(3) The risk-free interest rate is selected based on yields from U.S. Treasury
zero-coupon issues with a remaining term equal to the expected term of
the options being valued.
(4) The expected life represents the number of years the options are
expected to be outstanding from grant date based on historical option
holder exercise experience.
As of December 31, 2009, unrecognized compensation
expense related to unvested options totaled $149 million,
which the Company expects to be recognized over a
weighted-average period of 1.74 years. After considering
anticipated forfeitures, the Company expects approximately
29 million of the unvested options to vest over the requisite
service period.
2009 Annual Report 63