UPS 2013 Annual Report Download - page 111

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
99
The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant. The
weighted-average grant date fair value of Restricted Units granted during 2013, 2012 and 2011 was $80.18, and $77.21 and
$69.53, respectively. The total fair value of Restricted Units vested was $510, $627 and $557 million in 2013, 2012 and 2011,
respectively. As of December 31, 2013, there was $506 million of total unrecognized compensation cost related to nonvested
Restricted Units. That cost is expected to be recognized over a weighted average period of three years.
Nonqualified Stock Options
We maintain fixed stock option plans, under which options are granted to purchase shares of UPS class A common stock.
Stock options granted in connection with the Incentive Compensation Plan must have an exercise price at least equal to the
NYSE closing price of UPS class B common stock on the date the option is granted.
Executive officers and certain senior managers annually receive non-qualified stock options of which the value is
determined as a percentage of salary. Options granted generally vest over a five year period with approximately 20% of the
award vesting at each anniversary date of the grant. All options granted are subject to earlier cancellation or vesting under
certain conditions. Option holders may exercise their options via the tender of cash or class A common stock, and new class A
shares are issued upon exercise. Options granted to eligible employees will be granted annually during the first quarter of each
year.
The following is an analysis of options to purchase shares of class A common stock issued and outstanding:
Shares
(in thousands)
Weighted
Average
Exercise
Price
Weighted Average Remaining
Contractual Term
(in years) Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2013 10,595 $ 72.04
Exercised (5,524) 70.85
Granted 178 82.93
Forfeited / Expired (37) 63.34
Outstanding at December 31, 2013 5,212 $ 73.73 3.00 $ 163
Options Vested and Expected to Vest 5,212 $ 73.73 3.00 $ 163
Exercisable at December 31, 2013 4,759 $ 73.52 2.53 $ 150
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The weighted average
assumptions used, by year, and the calculated weighted average fair values of options, are as follows:
2013 2012 2011
Expected dividend yield 2.75% 2.77% 2.77%
Risk-free interest rate 1.38% 1.63% 2.90%
Expected life in years 7.5 7.5 7.5
Expected volatility 24.85% 25.06% 24.26%
Weighted average fair value of options granted $ 15.50 $ 14.88 $ 15.92
Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded
options. The expected dividend yield is based on the recent historical dividend yields for our stock, taking into account changes
in dividend policy. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The
expected life represents an estimate of the period of time options are expected to remain outstanding, and we have relied upon a
combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the
grants, and an index of peer companies with similar grant characteristics in estimating this variable.
We received cash of $292, $122 and $92 million during 2013, 2012 and 2011, respectively, from option holders resulting
from the exercise of stock options. The total intrinsic value of options exercised during 2013, 2012 and 2011 was $92, $39 and
$31 million, respectively. As of December 31, 2013, there was $2 million of total unrecognized compensation cost related to
nonvested options. That cost is expected to be recognized over a weighted average period of 3 years and 4 months.