United Healthcare 2009 Annual Report Download - page 86

Download and view the complete annual report

Please find page 86 of the 2009 United Healthcare annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 137

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137

UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (ESPP) is intended to enhance employee commitment to the
goals of the Company, by providing a means of achieving stock ownership at advantageous terms to eligible
employees of the Company. Eligible employees are allowed to purchase the Company’s stock at a discounted
price, which is 85% of the lower market price of the Company’s common stock at the beginning or at the end of
the six-month purchase period. During 2009, 2008 and 2007, 3.7 million shares, 2.9 million shares and
1.9 million shares of common stock, respectively, were purchased under the ESPP. The compensation expense is
included in the compensation expense amounts recognized and discussed below. As of December 31, 2009, there
were 9.3 million shares of common stock available for issuance under the ESPP.
Share-Based Compensation Recognition
The Company recognizes compensation expense for share-based awards, including stock options, SARs and
restricted shares, on a straight-line basis over the related service period (generally the vesting period) of the
award, or to an employee’s eligible retirement date under the award agreement, if earlier. Beginning with share-
based awards granted in 2009, the Company’s equity award program includes a retirement provision that treats
all employees who are age 55 or older with at least ten years of recognized employment with the Company as
retirement-eligible. For 2009, 2008 and 2007, the Company recognized compensation expense related to its
share-based compensation plans of $334 million ($220 million net of tax effects), $305 million ($202 million net
of tax effects) and $505 million ($325 million net of tax effects), respectively. Share-based compensation
expense is recognized in Operating Costs in the Company’s Consolidated Statements of Operations. As of
December 31, 2009, there was $490 million of total unrecognized compensation cost related to share awards that
is expected to be recognized over a weighted-average period of 1.4 years. For 2009, 2008 and 2007, the income
tax benefit realized from share-based award exercises was $94 million, $106 million and $399 million,
respectively.
Included in the share-based compensation expense for the year ended December 31, 2007 is $176 million ($112
million net of tax benefit) of expenses recorded in the first quarter of 2007 related to application of deferred
compensation rules under Section 409A of the Internal Revenue Code (Section 409A) to the Company’s
historical stock option practices. As part of its review of the Company’s historical stock option practices, the
Company determined that certain stock options granted to individuals who were nonexecutive officer employees
at the time of grant were granted with an exercise price that was lower than the closing price of the Company’s
common stock on the applicable accounting measurement date, subjecting these individuals to additional tax
under Section 409A. The Company elected to pay these individuals for the additional tax costs relating to such
stock options exercised in 2006 and early 2007. For any outstanding stock options subject to additional tax under
Section 409A that were granted to nonexecutive officer employees, the Company increased the exercise price
and committed to make cash payments to these optionholders for their vested options based on the difference
between the original stock option price and the revised increased stock option price. Payments of $142 million
were made from January 2008 through January 2010 for options vested through December 31, 2009. If the
modified stock options are subsequently exercised, the Company will recover these cash payments at that time
from exercise proceeds at the revised increased stock option exercise prices.
The $176 million Section 409A charge includes $87 million of expense ($55 million net of tax benefit) for the
payment of certain optionholders’ tax obligations for stock options exercised in 2006 and early 2007 and $89
million of expense ($57 million net of tax benefit) for the modification related to increasing the exercise price of
unexercised stock options granted to nonexecutive officer employees and the related cash payments. These
amounts have been recorded in the corporate segment.
84