Humana 2012 Annual Report Download - page 123

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Stock-Based Compensation
We have plans under which options to purchase our common stock and restricted stock, including both
restricted stock units 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. The stock awards of retirement-eligible participants will continue to vest upon
retirement from the Company. Our equity award program includes a retirement provision that generally treats
employees with a combination of age and years of service with the Company totaling 65 or greater, with a
minimum required age of 55 and a minimum requirement of 5 years of service, as retirement-eligible. Upon
exercise, stock-based compensation awards are settled with authorized but unissued company stock or treasury
stock. The compensation expense that has been charged against income for these plans was as follows for the
years ended December 31, 2012, 2011, and 2010:
2012 2011 2010
(in millions)
Stock-based compensation expense by type:
Stock options ................................................ $16 $16 $22
Restricted stock .............................................. 66 51 41
Total stock-based compensation expense ...................... 82 67 63
Tax benefit recognized .................................... (30) (25) (23)
Stock-based compensation expense, net of tax .............. $52 $42 $40
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 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 $43 million in 2012, $44 million in 2011, and
$15 million in 2010. There was no capitalized stock-based compensation expense during these years.
At December 31, 2012, there were 26.6 million shares reserved for stock award plans. These reserved shares
included giving effect to, under the 2003 Plan, 0.5 million shares of common stock available for future grants
assuming all stock options or 0.3 million shares available for future grants assuming all restricted stock, and
under the 2011 Plan, 16.7 million shares of common stock available for future grants assuming all stock options
or 7.3 million shares available for future grants assuming all restricted stock. Shares may be issued from
authorized but unissued company stock or treasury stock.
Stock Options
Stock options are granted with an exercise price equal to the fair market value of the underlying common
stock on the date of grant. Our stock plans, as approved by the Board of Directors and stockholders, define fair
market value as the average of the highest and lowest composite stock prices reported by the New York Stock
Exchange on a given date. Exercise provisions vary, but most options vest in whole or in part 1 to 3 years after
grant and expire 7 to 10 years after grant.
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