McKesson 2011 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 of the 2011 McKesson 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 130

  • 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

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
69
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 options-pricing 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 options-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 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,
2011
2010
2009
Expected stock price volatility
29%
33%
27%
Expected dividend yield
1.1%
0.7%
0.6%
Risk-free interest rate
3%
2%
3%
Expected life (in years)
5
5
5
The following is a summary of options outstanding at March 31, 2011:
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
$
27.35
-
$
41.02
4
3
$
37.26
3
$
35.28
$
41.03
-
$
54.70
1
2
45.89
1
46.06
$
54.71
-
$
68.37
4
5
62.76
1
59.95
9
5