Spirit Airlines 2015 Annual Report Download - page 77

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Notes to Financial Statements—(Continued)
77
Stock option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at
the date of grant, vest over four years of continuous service and have ten-year contractual terms. The fair value of each stock
option award is estimated on the date of grant using the Black Scholes model. There were no options granted during 2015,
2014, or 2013. The Company has not granted options since 2011, at which time the Company’s weighted average assumptions
for expected volatility, dividends, term and risk-free interest rate were 46.25%, 0%, 6.25 years and 2.03%,
respectively. Expected volatilities are based on the historical volatility of a group of peer entities within the same industry. The
expected term of options is based upon the simplified method, which represents the average of the vesting term and the
contractual term. The risk-free interest rate is based on U.S. Treasury yields for securities with terms approximating the
expected term of the option.
Prior to the Company's IPO, to the extent a market price was not available, the fair value of the Company’s common
stock was estimated using a discounted cash flow analysis and market multiples, based on management’s estimates of revenue,
driven by assumed market growth rates, and estimated costs as well as appropriate discount rates. These estimates were
consistent with the plans and estimates management used to manage the Company’s business.
A summary of share option activity as of December 31, 2015 and changes during the year ended December 31, 2015 is
presented below:
Number
of Options
Weighted-
Average
Exercise
Price ($)
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
($000)
Outstanding at December 31, 2014 31,625 8.32 5.7 2,126
Exercised (3,500) 9.23
Forfeited or expired — —
Outstanding at December 31, 2015 28,125 8.20 4.7 890
Exercisable at December 31, 2015 28,125 8.20 4.7 890
Vested or Expected to Vest at December 31, 2015 28,125 8.20 4.7 890
The total intrinsic value of share options exercised during the years ended December 31, 2015, 2014 and 2013 was $0.2
million, $1.3 million and $2.0 million, respectively. The total fair value of options vested during the years ended December 31,
2015, 2014 and 2013 was $4 thousand, $100 thousand and $200 thousand, respectively.
As of December 31, 2015, there was no unrecognized compensation cost related to options as all option awards were
fully vested. As of December 31, 2014, there was $3 thousand of total unrecognized compensation cost related to options
expected to be recognized over 0.7 years.
Performance Share Awards
The Company grants certain senior-level executives performance stock units that vest based on market and time-based
service conditions as part of a long-term incentive plan, which are referred to herein as performance share awards. The number
of shares of common stock underlying each award is determined at the end of a three-year performance period. In order to vest,
the senior level executive must still be employed by the Company, with certain contractual exclusions, at the end of the
performance period. At the end of the performance period, the percentage of the stock units that will vest will be determined by
ranking the Company’s total shareholder return compared to the total shareholder return of the peer companies identified in the
plan. Based on the level of performance, between 0% and 200% of the award may vest. Within 60 days after vesting, the shares
underlying the award will be issued to the participant. In the event of a change in control of the Company or the death or
permanent disability of a participant, the payout of any award is limited to a pro-rated portion of such award based upon a
performance assessment prior to the change-in-control date or date of death or permanent disability.
The market condition requirements are reflected in the grant date fair value of the award, and the compensation expense,
net of forfeitures, for the award is recognized assuming that the requisite service is rendered regardless of whether the market
conditions are achieved.