Health Net 1998 Annual Report Download - page 47

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F O U N DAT IO N HEALT H SYSTEMS, I N C . 4 5
The weighted average fair value for options
granted during 1998, 1997 and 1996 was $6.00,
$9.95 and $10.46, respectively.The fair values were
estimated using the Black-Scholes option-pricing
model.The following weighted average assumptions
we r e used in the fair value calculation for 1998, 19 9 7
and 1996, respectively:(i) risk-free interest rate of
4.57%, 5.71% and 6.23%;(ii) expected option lives
of 1.9 years,3.7 years and 2.7 years; (iii) expected
volatility of 44.5%, 30.0% and 37. 6 % ; and (iv) no
e x p e c t e d dividend yield.
The Company applies APB Opinion 25
and related Interpretations in accounting for its
plans.Accordingly, no compensation cost has been
recognized for its stock option or employee stock
purchase plans. Had compensation cost for the
Company’s plans been determined based on the fair
value at the grant dates of options and employee
purchase rights consistent with the method of SFAS
No. 123,the Company’s net income and earnings
per share would have been reduced to the pro
forma amounts indicated below for the years ended
December 31 (amounts in thousands,except per
share data):
Stock option activity and weighted average exe rcise prices for the ye a rs ended December 31 is presented below :
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
Outstanding at January 1 9,636,831 $29.94 7,051,940 $27.75 6,519,232 $24.44
Granted 8,021,018 14.05 3,912,040 32.18 2,338,031 32.50
Exercised (514,064) 18.64 (830,021) 22.66 (1,237,312) 19.52
Canceled (3,725,312) 30.28 (497,128) 28.61 (568,011) 27.32
Outstanding at December 31 13,418,473 $20.87 9,636,831 $29.94 7,051,940 $27.75
Exercisable at December 31 4,140,362 5,116,533 4,640,576
The following table summarizes the weighted average exercise price and weighted average remaining
contractual life for significant option groups outstanding at December 31,1998:
Options Outstanding Options Exercisable
Weighted Average Weighted Weighted
Range of Number of Remaining Average Number of Average
Exercise Prices Options Contractual Life Exercise Price Options Exercise Price
$9.88 – $12.25 507,338 9.69 years $11.88 10,338 $11.66
12.57 – 12.94 6,570,228 6.07 years 12.94 11,576 12.61
13.50 – 32.50 5,387,657 7.35 years 28.11 3,165,198 27.29
32.79 – 52.81 953,250 6.33 years 39.45 953,250 39.45
$9.88 – $52.81 13,418,473 6.74 years $20.87 4,140,362 $30.01
1998 1997 1996
Net income (loss) As reported $(165,158) $(187,084) $84,231
Pro forma (171,022) (193,638) 69,226
Basic earnings (loss) per share As reported (1.35) (1.52) 0.67
Pro forma (1.40) (1.57) 0.56
Diluted earnings (loss) per share As reported (1.35) (1.52) 0.67
Pro forma (1.40) (1.56) 0.55