Aetna 2009 Annual Report Download - page 78

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will become vested on December 31, 2009 and December 31, 2010, respectively. The number of vested PSUs (which
could be as high as 200% of the original number of units granted and as low as 0%) is dependent upon the degree to
which we achieve performance goals as determined by the Board’ s Committee on Compensation and Organization.
The value of each vested PSU is equal to one share of common stock, net of taxes. The PSUs granted in 2008 did not
vest as the underlying performance metric was not achieved by December 31, 2009.
The fair value of RSUs and PSUs are based on the market price of our common stock on the date of grant. We
estimate the fair value of stock options and SARs using a modified Black-Scholes option pricing model. SARs
granted in 2009, 2008 and 2007 had a weighted average per share fair value of $11.37, $14.71, and $15.10,
respectively, using the assumptions noted in the following table:
2009 2008 2007
Dividend yield .1% .1% .1%
Expected volatility 39.8% 31.7% 31.7%
Risk-free interest rate 1.8% 2.5% 4.7%
Expected term 4.6 years 4.4 years 4.7 years
We use historical data to estimate the period of time that stock options or SARs are expected to be outstanding.
Expected volatilities are based on a weighted average of the historical volatility of our stock price and implied
volatility from traded options on our stock. The risk-free interest rate for periods within the expected life of the
stock option or SAR is based on the benchmark five-year U.S. Treasury rate in effect on the date of grant. The
dividend yield assumption is based on our historical dividends declared.
The stock option and SAR transactions in 2009, 2008 and 2007 were as follows:
Weighted Aggregate
Number of Stock Weighted Average Average Remaining Intrinsic
(Millions, except exercise price and remaining life) Options and SARs Exercise Price Contractual Life Value
2007
Outstanding, beginning of year 49.1 19.22$ 5.5 1,213.5$
Granted 5.7 43.26 - -
Exercised (13.3) 12.55 - 494.1
Expired or forfeited (1.0) 37.31 - -
Outstanding, end of year 40.5 24.31$ 5.3 1,352.6$
Exercisable, end of year 30.6 18.49$ 4.4 1,201.5$
2008
Outstanding, beginning of year 40.5 24.31$ 5.3 1,352.6$
Granted 4.9 49.34 - -
Exercised (2.5) 14.13 - 75.5
Expired or forfeited (1.0) 38.19 - -
Outstanding, end of year 41.9 27.50$ 4.9 347.0$
Exercisable, end of year 33.4 22.48$ 4.0 345.9$
2009
Outstanding, beginning of year 41.9 27.50$ 4.9 347.0$
Granted 5.6 32.00 - -
Exercised (2.5) 10.01 - 46.9
Expired or forfeited (.9) 36.34 - -
Outstanding, end of year 44.1 28.88$ 4.7 356.6$
Exercisable, end of year 34.6 26.16$ 3.7 355.0$
Annual Report – Page 72