HCA Holdings 2011 Annual Report Download - page 123

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HCA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 2 — SHARE-BASED COMPENSATION (Continued)
Rollover Options (Continued)
stock option grants. Pursuant to the rollover option agreement, 49,408,100 prerecapitalization HCA stock options
were converted into 10,294,500 Rollover Options, of which 2,825,100 are outstanding and exercisable at
December 31, 2011.
Stock Option Activity
The fair value of each stock option award is estimated on the grant date, using option valuation models and
the weighted average assumptions indicated in the following table. Awards under the Stock Incentive Plan
generally vest based on continued employment and based upon achievement of certain financial and Investor
return targets. Each grant is valued as a single award with an expected term equal to the average expected term of
the component vesting tranches. We use historical option exercise behavior data and other factors to estimate the
expected term of the options. The expected term of the option is limited by the contractual term, and employee
post-vesting termination behavior is incorporated in the historical option exercise behavior data. Compensation
cost is recognized on the straight-line attribution method. The straight-line attribution method requires that total
compensation expense recognized must at least equal the vested portion of the grant-date fair value. The
expected volatility is derived using historical stock price information of certain peer group companies for a
period of time equal to the expected option term. The risk-free interest rate is the approximate yield on United
States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an
estimate of the number of years an option will be held before it is exercised.
2011 2010 2009
Risk-free interest rate .............................................. 0.89% 2.07% 1.45%
Expected volatility ................................................ 41% 35% 35%
Expected life, in years ............................................. 555
Expected dividend yield ............................................ ———
Information regarding stock option activity during 2011, 2010 and 2009 is summarized below (share
amounts in thousands):
Stock
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(dollars in millions)
Options outstanding, December 31, 2008 ............ 47,906 $ 9.99
Granted .................................... 8,045 19.70
Exercised ................................... (2,278) 3.81
Cancelled ................................... (1,756) 11.56
Options outstanding, December 31, 2009 ............ 51,917 11.72
Granted .................................... 964 15.73
Exercised ................................... (1,726) 4.06
Cancelled ................................... (629) 7.96
Options outstanding, December 31, 2010 ............ 50,526 8.58
Granted .................................... 1,288 23.35
Exercised ................................... (5,044) 6.31
Cancelled ................................... (458) 5.88
Options outstanding, December 31, 2011 ............ 46,312 9.26 5.6 years $595
Options exercisable, December 31, 2011 ............ 33,548 $ 9.74 5.4 years $414
F-18