UPS 2014 Annual Report Download - page 114

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
102
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, 2014 5,212 $ 73.73
Exercised (1,620) 72.52
Granted 127 96.98
Forfeited / Expired (28) 72.82
Outstanding at December 31, 2014 3,691 $ 75.07 2.85 $ 133
Options Vested and Expected to Vest 3,691 $ 75.07 2.85 $ 133
Exercisable at December 31, 2014 3,356 $ 74.20 2.35 $ 124
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:
2014 2013 2012
Expected dividend yield 2.56% 2.75% 2.77%
Risk-free interest rate 2.40% 1.38% 1.63%
Expected life in years 7.5 7.5 7.5
Expected volatility 24.26% 24.85% 25.06%
Weighted average fair value of options granted $ 20.48 $ 15.50 $ 14.88
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 $85, $292 and $122 million during 2014, 2013 and 2012, respectively, from option holders resulting
from the exercise of stock options. The total intrinsic value of options exercised during 2014, 2013 and 2012 was $47, $92 and
$39 million, respectively. As of December 31, 2014, there was $1 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 2 months.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2014:
Options Outstanding Options Exercisable
Exercise Price Range
Shares
(in thousands)
Average Life
(in years)
Average
Exercise
Price
Shares
(in thousands)
Average
Exercise
Price
$50.01 - $70.00 264 4.85 $ 61.52 246 $ 61.11
$70.01 - $80.00 2,118 2.52 72.05 2,002 71.82
$80.01 - $90.00 1,182 2.30 81.17 1,081 81.00
$90.01 - $100.00 127 9.18 96.98 27 96.98
3,691 2.85 $ 75.07 3,356 $ 74.20
Discounted Employee Stock Purchase Plan
We maintain an employee stock purchase plan for all eligible employees. Under this plan, shares of UPS class A common
stock may be purchased at quarterly intervals at 95% of the NYSE closing price of UPS class B common stock on the last day
of each quarterly period. Employees purchased 0.9, 1.1 and 1.2 million shares at average prices of $95.67, $79.74 and $72.17
per share during 2014, 2013 and 2012, respectively. This plan is not considered to be compensatory, and therefore no
compensation cost is measured for the employees’ purchase rights.