United Healthcare 2004 Annual Report Download - page 56

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54 UNITEDHEALTH GROUP
9 Stock-Based Compensation Plans
As of December 31, 2004, we had approximately 49.2 million shares available for future grants of stock-
based awards under our stock-based compensation plan including, but not limited to, incentive or
non-qualified stock options, stock appreciation rights and restricted stock.
Stock options are granted at an exercise price not less than the fair value of our common stock on the
date of grant. They generally vest ratably over four years and may be exercised up to 10 years from the date
of grant. Activity under our stock option plan is summarized in the tables below (shares in millions):
2004
2003 2002
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at Beginning of Year
87.3 $ 27
86.4 $21 76.7 $15
Granted
17.1 $ 72
18.4 $44 25.0 $38
Assumed in Acquisitions
7.6 $ 34
–$–0.9 $30
Exercised
(21.8) $ 24
(15.3) $15 (13.2) $14
Forfeited
(2.1) $ 35
(2.2) $30 (3.0) $20
Outstanding at End of Year
88.1 $ 37
87.3 $27 86.4 $21
Exercisable at End of Year
44.8 $ 22
42.7 $16 41.4 $12
As of December 31, 2004
Options Outstanding Options Exercisable
Weighted-Average
Number Remaining Weighted-Average Number Weighted-Average
Range of Exercise Prices Outstanding Option Term (years) Exercise Price Exercisable Exercise Price
$0 - $20 26.5 4.3 $11 26.2 $11
$21 - $40 29.4 7.0 $34 12.2 $32
$41 - $60 18.2 8.0 $48 6.2 $46
$61 - $85 14.0 9.7 $75 0.2 $67
$0 - $85 88.1 6.8 $37 44.8 $22
We also maintain a 401(k) plan and an employee stock purchase plan. Activity related to these plans was not
significant in relation to our consolidated financial results in 2004, 2003 and 2002.
To determine compensation expense related to our stock-based compensation plans under the fair
value method, the fair value of each option grant is estimated on the date of grant using an option-pricing
model. For purposes of estimating the fair value of our employee stock option grants, we utilized a Black-
Scholes model during 2002 and a binomial model during 2003 and 2004. The principal assumptions we
used in applying the option pricing models were as follows:
2004 2003 2002
Risk-Free Interest Rate
3.3%
2.6% 2.5%
Expected Volatility
28.5%
30.9% 40.2%
Expected Dividend Yield
0.1%
0.1% 0.1%
Expected Life in Years
4.2
4.1 4.5
Information regarding the effect on net earnings and net earnings per common share had we applied the
fair value expense recognition provisions of FAS No. 123 is included in Note 2.