Union Pacific 2009 Annual Report Download - page 66

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66
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the dividend
yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date
of grant; the expected life is based on historical and expected exercise behavior; and volatility is based on
the historical volatility of our stock price over the expected life of the option.
A summary of stock option activity during 2009 is presented below:
Shares
(thous.)
Weighted
-
Averag
e
Exercise Pric
e
Weighted-Average
Remainin
g
Contractual Term
Aggregat
e
Intrinsic Valu
e
(millions)
Outstanding at January 1, 2009 11,983 $ 40.81 5.6 yrs. $ 108
Granted 1,865 47.28 N/A
N
/
A
Exercised (1,130) 34.86 N/A
N
/
A
Forfeited or expired (19) 57.06 N/A
N
/
A
Outstanding at December 31, 2009 12,699 $ 42.27 5.5 yrs. $ 275
Vested or expected to vest 12,599 $ 42.19 5.5 yrs. $ 274
at December 31, 2009
Options exercisable at December 31, 2009 9,385 $ 38.84 4.4 yrs. $ 235
Stock options are granted at the closing 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, 2009 are subject to performance or market-based vesting conditions.
At December 31, 2009, 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 1.2 years.
Additional information regarding stock option exercises appears in the table below:
Millions of Dollars 2009 2008 2007
Intrinsic value of stock options exercised $ 29 $ 169 $ 208
Cash received from option exercises 39 83 132
Treasury shares repurchased for employee payroll taxes (8
)
(28) (61)
Tax benefit realized from option exercises 11 63 78
Aggregate grant-date fair value of stock options vested 29 21 11
Retention Awards – The fair value of retention awards is based on the closing price of the stock on the
grant date. Dividends and dividend equivalents are paid to participants during the vesting periods.