Delta Airlines 2009 Annual Report Download - page 110

Table of Contents
The total fair value of shares vested during the years ended December 31, 2009 and 2008 was $68 million and $107 million, respectively.
Stock Options. Stock option awards are granted with an exercise price equal to the closing price of Delta common stock on the date of grant. Generally,
outstanding employee options vest over several years and have a 10-year term, subject to the employee's continued employment.
The fair value of stock options is determined at the grant date using an option pricing model based on several assumptions. The risk-free rate is based on
the U.S. Treasury yield in effect for the expected term of the options at the time of grant. The dividend yield on our common stock is assumed to be zero since
we do not pay dividends and have no current plans to do so. The expected life of the options was developed assuming that the options will be exercised evenly
from the time they become exercisable to expiration due to the lack of exercise history. We base our volatility assumptions on historical volatilities of the
stock of comparable publicly-traded airlines, using daily stock price returns equal to our expected option lives. We have used this volatility assumption due to
the lack of trading history of Delta common stock since emergence from Chapter 11.
We granted stock options to purchase 12 million shares of common stock in connection with the Merger. These options become exercisable in four
installments (20% on May 1, 2009, 20% on November 1, 2009, 20% on May 1, 2010, and 40% on November 1, 2011), subject to the employee's continued
employment. We granted options to purchase four million shares of common stock to eligible employees upon emergence from Chapter 11. Substantially all
of these awards, to the extent not previously exercisable, became exercisable upon the closing of the Merger. Pursuant to the Merger Agreement, outstanding
stock options under the Northwest 2007 Stock Incentive Plan were assumed by Delta and modified to provide for the purchase of Delta common stock.
Accordingly, the number of shares and the exercise price were adjusted for the 1.25 exchange ratio. We have not granted any stock options subsequent to
those granted in 2008 in connection with the Merger.
The weighted average fair value of options granted in 2008 was determined based on the following assumptions:
Risk-free interest rate 2.6-3.4%
Expected life of stock options (in years) 5.6-6.0
Expected volatility of common stock 63-79%
The following table summarizes stock option activity for the year ended December 31, 2009:
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Shares Exercise Contractual Value (in
(000) Price Life (in years) millions)
Outstanding at January 1, 2009 23,544 $ 12.69
Granted — —
Exercised (683) 8.01
Forfeited or expired (551) 15.12
Outstanding at December 31, 2009 22,310 $ 12.79 6.6 $ 39
Vested or expected to vest 22,310 $ 12.79 6.6 $ 39
Exercisable at December 31, 2009 15,779 $ 14.71 5.7 $ 17
The weighted-average grant-date fair value of options granted during the year ended December 31, 2008 was $4.86.
Performance Shares. Performance shares are long-term incentive opportunities which are payable in common stock and are generally contingent upon our
achieving certain financial goals. During 2008, we granted performance shares with an aggregate target payout opportunity covering approximately two
million shares of common stock. The closing of the Merger caused the vesting at target of substantially all previously unvested performance shares.
Other. There was no corresponding tax benefit in 2009, 2008 or 2007 related to the stock-based compensation, as we record a full valuation allowance
against our deferred tax assets due to the uncertainty regarding the ultimate realization of those assets. For additional information, see Note 9.
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