Air Canada 2009 Annual Report Download - page 119

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Consolidated Financial Statements and Notes
119
10. STOCK-BASED COMPENSATION
Air Canada Long-Term Incentive Plan
Certain of the Corporation’s employees participate in the Air Canada Long-term Incentive Plan (the “Long-term Incentive
Plan”) administered by the Board of Directors of Air Canada. The Long-term Incentive Plan provides for the grant of options
and performance share units to senior management and offi cers of Air Canada. Five million shares are authorized for
issuance under the Long-term Incentive Plan in the form of stock options or performance share units.
The options to purchase shares granted under the Long-term Incentive Plan have a maximum term of 10 years and an
exercise price based on the fair market value of the shares at the time of the grant of the options. Fifty percent of all
options vest over four years. The remaining options will vest based upon performance conditions. The performance vesting
conditions are based on operating margin (operating income over operating revenues) and net income targets established
by the Air Canada Board over the same time period. The terms of the Long-term Incentive Plan specify that upon the
retirement of the employee, options granted may be exercised as the rights to exercise accrue within three years from the
retirement date.
The number of Air Canada stock options granted to employees, the related compensation expense recorded and the
assumptions used to determine stock-based compensation expense, using the Black-Scholes option valuation model are
as follows:
2009 2008
Compensation expense ($ millions) $ 2 $ (3)
Number of stock options granted to Air Canada employees 2,330,000 11,000
Weighted average fair value per option granted ($) $ 1.06 $ 1.99
Aggregated fair value of options granted ($ millions) $ 2 $ -
Weighted average assumptions:
Risk-free interest rate 1.73 - 3.14 % 3.29 %
Expected volatility 83.0 - 84.7 % 34 %
Dividend yield 0 % 0 %
Expected option life (years) 4.50 4.50
During 2008, previously recorded stock-based compensation expense, related to stock options, of $3 was reversed as
management had determined that the performance vesting criteria would not be met.
A summary of the Long-term Incentive Plan option activity is as follows:
2009 2008
Options
Weighted
Average Exercise
Price/Share Options
Weighted
Average Exercise
Price/Share
Beginning of year 1,701,447 $ 19.14 1,720,092 $ 19.24
Granted 2,330,000 1.32 11,000 8.51
Forfeited (67,973) 19.44 (29,645) 21.00
Outstanding options, end of year 3,963,474 $ 8.66 1,701,447 $ 19.14
Options exercisable, end of year 551,544 $ 19.60 362,253 $ 19.96