Humana 2008 Annual Report Download - page 99

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2008, we terminated all of our interest-rate swap agreements for cash consideration of $93.0 million.
We recognized a $10.4 million impairment charge as a realized investment loss associated with the termination
of a swap with a subsidiary of Lehman, which subsequently filed for bankruptcy protection.
13. EMPLOYEE BENEFIT PLANS
Employee Savings Plan
We have defined contribution retirement and savings plans covering eligible employees. Our contribution to
these plans is based on various percentages of compensation, and in some instances, on the amount of our
employees’ contributions to the plans. The cost of these plans amounted to approximately $79.6 million in 2008,
$69.7 million in 2007, and $56.0 million in 2006, all of which was funded currently to the extent it was
deductible for federal income tax purposes. Based on the closing stock price of $37.28 on December 31, 2008,
approximately 19% of the retirement and savings plan’s assets were invested in our common stock representing
3% of the shares outstanding as of December 31, 2008. Through December 31, 2006, the Company match was
invested in the Humana common stock fund. However, a participant could reinvest any funds, including the
Company match in the Humana common stock fund, in any other plan investment option at any time. Beginning
January 1, 2007, the Company’s cash match is invested pursuant to the participant’s contribution direction.
Stock-Based Compensation
We have plans under which options to purchase our common stock and restricted stock awards have been
granted to executive officers, directors and key employees. The terms and vesting schedules for stock-based
awards vary by type of grant. Generally, the awards vest upon time-based conditions. Upon exercise, stock-based
compensation awards are settled with authorized but unissued company stock. The compensation expense that
has been charged against income for these plans was as follows for the years ended December 31, 2008, 2007,
and 2006:
2008 2007 2006
(in thousands)
Stock-based compensation expense by type:
Stock options ..................................... $18,202 $ 15,408 $ 18,025
Restricted stock awards ............................. 37,167 26,724 14,533
Total stock-based compensation expense ........... 55,369 42,132 32,558
Tax benefit recognized .......................... (20,282) (15,568) (12,028)
Stock-based compensation expense, net of tax . . . $ 35,087 $ 26,564 $ 20,530
The tax benefit recognized in our consolidated financial statements is based on the amount of compensation
expense recorded for book purposes. The actual tax benefit realized in our tax return is based on the intrinsic
value, or the excess of the market value over the exercise or purchase price, of stock options exercised and
restricted stock awards vested during the period. The actual tax benefit realized for the deductions taken on our
tax returns from option exercises and restricted stock vesting totaled $16.9 million in 2008, $48.0 million in
2007, and $47.8 million in 2006. There was no capitalized stock-based compensation expense.
The stock plans provide that one restricted share is equivalent to 1.7 stock options. At December 31, 2008,
there were 14,708,198 shares reserved for stock award plans, including 7,714,499 shares of common stock
available for future grants assuming all stock options or 4,537,941 shares available for future grants assuming all
restricted shares.
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