United Healthcare 2008 Annual Report Download - page 90

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UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Stock Options and SARs
Stock options and SARs generally vest ratably over four to six years and may be exercised up to 10 years from
the date of grant. Stock option and SAR activity for the year ended December 31, 2008 is summarized in the
table below:
Shares
Weighted-
Average Exercise
Price
Weighted-Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
(in thousands) (in years) (in millions)
Outstanding at Beginning of Period .......... 160,653 $34
Granted ................................ 15,055 34
Exercised .............................. (16,335) 13
Forfeited ............................... (8,621) 49
Outstanding at End of Period ............... 150,752 $36 5.1 $547
Exercisable at End of Period ............... 109,568 $32 4.0 $545
To determine compensation expense related to the Company’s stock options and SARs, the fair value of each
award is estimated on the date of grant using an option-pricing model. For purposes of estimating the fair value
of the Company’s employee stock option and SAR grants, the Company uses a binomial model. The principal
assumptions the Company used in applying the option-pricing models were as follows:
2008 2007 2006
Risk Free Interest Rate .................................... 2.2% - 3.4% 3.8% - 5.2% 4.1% - 5.2%
Expected Volatility ....................................... 29.5% 24.2% 26.0%
Expected Dividend Yield .................................. 0.1% 0.1% 0.1%
Forfeiture Rate .......................................... 5.0% 5.0% 5.0%
Expected Life in Years .................................... 4.3 4.1 4.1
The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are
based on the implied volatilities from traded options on the Company’s common stock and the historical
volatility of the Company’s common stock. The Company uses historical data to estimate option and SAR
exercises and forfeitures within the valuation model. The expected lives of options and SARs granted represents
the period of time that the awards granted are expected to be outstanding based on historical exercise patterns.
The weighted-average grant date fair value of stock options and SARs granted for 2008, 2007 and 2006 was $9
per share, $14 per share and $11 per share, respectively. The total intrinsic value of stock options and SARs
exercised during 2008, 2007 and 2006 was $244 million, $1.1 billion and $753 million, respectively.
Restricted Shares
Restricted shares generally vest ratably over two to five years. Compensation expense related to restricted shares
is determined based upon the fair value of each award on the date of grant. Restricted share activity for year
ended December 31, 2008 is summarized in the table below:
(shares in thousands) Shares
Weighted-
Average Grant
Date Fair Value
Nonvested at Beginning of Period ............................................ 738 $59
Granted ................................................................. 6,024 34
Vested .................................................................. (311) 55
Forfeited ................................................................ (169) 41
Nonvested at End of Period ................................................. 6,282 $36
80