United Healthcare 2006 Annual Report Download - page 98

Preferred Stock
At December 31, 2006, we had 10 million shares of $0.001 par value preferred stock authorized for issuance, and
no preferred shares issued and outstanding.
11. Stock-Based Compensation and Other Employee Benefit Plans
As further described in Note 1, we adopted FAS 123R as of January 1, 2006. FAS 123R requires companies to
measure compensation expense for all share-based payments (including employee stock options, stock
appreciation rights and restricted stock) at fair value and recognize the expense over the related service period.
We adopted FAS 123R using the modified retrospective transition method, under which all prior period financial
statements were restated to recognize compensation cost in the amounts historically disclosed under FAS 123.
As of December 31, 2006, we had approximately 83.0 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, restricted stock and restricted stock units. Our existing stock-based awards
consist mainly of non-qualified stock options and stock-settled stock appreciation rights (SARs). Stock options
and SARs generally vest ratably over four years and may be exercised up to 10 years from the date of grant.
Stock option and SAR activity is summarized in the table below (shares in millions):
2006 2005 2004
Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price
Outstanding at Beginning of Year ................ 186.8 $25 176.3 $18 174.6 $14
Granted ..................................... 19.6 $50 26.2 $51 34.1 $36
Assumed in Acquisitions ....................... — $— 10.9 $16 15.2 $17
Exercised .................................... (20.4) $16 (23.6) $15 (43.5) $12
Forfeited .................................... (5.8) $37 (3.0) $28 (4.1) $18
Outstanding at End of Year ...................... 180.2 $28 186.8 $23 176.3 $19
Vested or Expected to Vest at End of Year ......... 176.2 $28 181.4 $23 170.9 $18
Exercisable at End of Year ...................... 121.4 $21 110.7 $14 89.6 $11
As of December 31, 2006 (shares in millions):
Options Outstanding Options Exercisable
Range of Exercise Prices
Number
Outstanding
Weighted-
Average
Remaining
Option Term
(years)
Weighted-
Average
Exercise
Price
Number
Exercisable
Weighted-
Average
Exercise
Price
$ 1.68 – $15.63 ........................... 51.9 2.9 $11 51.9 $11
$15.65 – $26.18 ........................... 50.1 5.6 $21 43.1 $21
$26.23 – $47.34 ........................... 46.7 7.6 $40 22.3 $38
$47.39 – $62.90 ........................... 31.5 9.1 $52 4.1 $56
$ 1.68 – $62.90 ........................... 180.2 6.0 $28 121.4 $21
To determine compensation expense related to our stock options and SARs, the fair value of each award grant is
estimated on the date of grant using an option-pricing model. To estimate the 2006, 2005 and 2004 fair value of
our employee stock option and SAR grants, we utilize a binomial model. The principal assumptions we used in
applying the option-pricing models were as follows:
2006 2005 2004
Risk-Free Interest Rate .................................. 4.1% – 5.2% 2.1% – 4.5% 1.9% – 4.2%
Expected Volatility ..................................... 26.0% 23.5% 28.5%
Expected Dividend Yield ................................. 0.1% 0.1% 0.1%
Forfeiture Rate ......................................... 5.0% 5.0% 4.1%
Expected Life in Years .................................. 4.1 4.1 4.2
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