Union Pacific 2006 Annual Report Download - page 70

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expected life is based on historical and expected exercise behavior; and volatility is based on the historical
volatility of our stock price, over a time period that is consistent with the expected life of the option.
A summary of stock option activity during 2006 is presented below:
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(millions)
Outstanding at January 1, 2006 ........... 12,436,209 $59.41 N/A N/A
Granted .............................. 1,402,200 86.04 N/A N/A
Exercised ............................. (3,740,732) 56.39 N/A N/A
Forfeited or expired .................... (53,150) 65.64 N/A N/A
Outstanding at December 31, 2006 ........ 10,044,527 $64.22 6.0 yrs. $279
Vested or expected to vest
at December 31, 2006 ................. 10,001,242 $64.13 6.0 yrs. $279
Options exercisable at December 31, 2006 . . 8,601,677 $60.75 5.5 yrs. $269
Stock options are granted at market price on the date of grant, have ten-year contractual terms, and vest no
later than three years from the date of grant. None of the stock options outstanding at December 31, 2006 are
subject to performance or market-based vesting conditions.
At December 31, 2006, there was $22 million of unrecognized compensation expense related to nonvested
stock options, which is expected to be recognized over a weighted-average period of 1.8 years. Additional
information regarding stock option exercises appears in the table below:
Millions of Dollars 2006 2005 2004
Aggregate grant-date fair value of stock options vested [a] ..................... $26 $62 $36
Intrinsic value of stock options exercised ................................... 124 142 51
Cash received from option exercises ....................................... 177 296 102
Tax benefit realized from option exercises .................................. 44 55 17
[a] Stock options for executives granted in 2003 and 2002 included a reload feature. This reload feature allowed executives to exercise their options
using shares of Union Pacific Corporation common stock that they already owned and obtain a new grant of options with immediate vesting in
the amount of the shares used for exercise plus any shares withheld for tax purposes. The reload feature of these option grants could only be
exercised if the price of our common stock increased at least 20% from the price at the time of the reload grant. During the year ended
December 31, 2005, reload option grants represented $31 million of the aggregate grant-date fair value of stock options vested. There were no
reload options exercised during 2004. There were no reload option grants during 2006 as stock options exercised after January 1, 2006 are not
eligible for the reload feature.
Retention Awards – The fair value of retention awards is based on the market price of the stock at the grant date.
Changes in our retention awards during 2006 were as follows:
Shares
Weighted-Average
Grant-Date Fair Value
Nonvested at January 1, 2006 ..................................... 1,005,276 $58.88
Granted ...................................................... 328,150 86.04
Vested ....................................................... (539,453) 56.53
Forfeited ..................................................... (16,199) 71.21
Nonvested at December 31, 2006 .................................. 777,774 $71.72
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