Health Net 2006 Annual Report Download - page 122

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HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
implied volatilities from traded options on our stock, historical volatility of our stock and other factors. We
estimated the expected term of options by using historical data to estimate option exercise and employee
termination within a lattice-based valuation model; separate groups of employees that have similar historical
exercise behavior are considered separately for valuation purposes. The expected term of options granted is
derived from a lattice-based option valuation model and represents the period of time that options granted are
expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the
U.S. Treasury Strip yields in effect at the time of grant.
2006 2005 2004
Risk-free interest rate ................................................... 4.83% 4.29% 2.65%
Expected option lives (in years) ........................................... 4.4 3.7 3.6
Expected volatility for options ............................................ 27.7% 30.6% 28.6%
Expected dividend yield ................................................. None None None
The weighted-average grant-date fair values for options granted during 2006, 2005 and 2004 were $14.52,
$9.31 and $6.85, respectively. The total intrinsic value of options exercised was $52.6 million, $55.3 million and
$6.4 million during the years ended December 31, 2006, 2005 and 2004, respectively.
A summary of option activity under our various plans as of December 31, 2006, and changes during the year
then ended is presented below:
Number of
Options
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(Years)
Aggregate
Intrinsic Value
Outstanding at January 1, 2006 ............... 11,812,650 $26.47
Granted .................................. 1,296,929 46.58
Exercised ................................ (2,852,176) 26.29
Forfeited or expired ........................ (995,561) 30.43
Outstanding at December 31, 2006 ............ 9,261,842 $28.92 6.31 $183,137,446
Vested or expected to vest at December 31, 2006
(reflecting estimated forfeiture rates effective
January 1, 2006) ......................... 9,013,976 $28.66 6.24 $180,566,179
Exercisable at December 31, 2006 ............. 5,124,968 $24.94 4.94 $121,593,849
Options Outstanding Options Exercisable
Range of
Exercise Prices
Number of
Options
Weighted Average
Remaining
Contractual Life
(Years)
Weighted Average
Exercise Price
Number of
Options
Weighted Average
Exercise Price
$ 7.63 – $20.60 .............. 424,328 3.02 $13.04 424,328 $13.04
20.81 – 22.64 ............... 933,726 5.58 22.59 933,726 22.59
22.76 – 23.02 ............... 1,150,869 4.28 23.01 1,130,185 23.01
23.40 – 23.64 ............... 382,000 7.23 23.63 153,500 23.63
23.83 – 24.06 ............... 1,234,597 6.18 24.05 724,051 24.05
24.13 – 28.24 ............... 362,207 6.81 26.83 237,833 26.92
28.87 – 28.90 ............... 1,016,453 7.14 28.90 390,117 28.90
28.91 – 29.20 ............... 1,033,242 8.15 29.20 191,391 29.19
29.28 – 32.50 ............... 931,434 2.64 32.05 800,710 32.23
32.59 – 52.05 ............... 1,792,986 8.92 42.89 139,127 36.34
$ 7.63 – $52.05 .............. 9,261,842 6.31 $28.92 5,124,968 $24.94
F-28