McKesson 2009 Annual Report Download - page 88

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
82
Compensation expense for stock options is recognized on a straight-line basis over the requisite service period
and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest. We
continue to use the Black-Scholes model to estimate the fair value of our stock options. Once the fair value of an
employee stock option is determined, current accounting practices do not permit it to be changed, even if the
estimates used are different from actual. The option pricing model requires the use of various estimates and
assumptions as follows:
−Expected stock price volatility is based on a combination of historical volatility of our common stock and
implied market volatility. We believe that this market-based input provides a better estimate of our future stock
price movements and is consistent with employee stock option valuation considerations.
−Expected dividend yield is based on historical experience and investors’ current expectations.
−The risk-free interest rate for periods within the expected life of the option is based on the constant maturity
U.S. Treasury rate in effect at the time of grant.
−Expected life of the options is based primarily on historical employee stock option exercise and other behavior
data and also reflects the impact of changes in contractual life of current option grants compared to our
historical grants.
Weighted-average assumptions used to estimate the fair value of employee stock options were as follows:
Years Ended March 31,
2009 2008 2007
Expected stock price volatility 27% 24% 27%
Expected dividend yield 0.6% 0.4% 0.5%
Risk-free interest rate 3% 5% 5%
Expected life (in years) 5 5 5
The following is a summary of options outstanding at March 31, 2009:
Options Outstanding Options Exercisable
Range of Exercise
Prices
Number of
Options
Outstanding At
Year End
(In millions)
Weighted-
Average
Remaining
Contractual Life
(Years)
Weighted-
Average
Exercise
Price
Number of
Options
Exercisable at
Year End
(In millions)
Weighted-
Average
Exercise Price
$ 13.67 - $ 27.35 1 1 $ 21.27 1 $ 21.27
$ 27.36 - $ 41.02 12 3 34.06 12 34.06
$ 41.03 - $ 54.70 4 3 45.94 3 45.58
$ 54.71 - $ 68.37 2 6 59.61 - 62.26
19 3 39.28 16 36.22