United Airlines 2012 Annual Report Download - page 101

Table of Contents
The table below summarizes UAL stock option activity for the years ended December 31, 2012, 2011 and 2010 (shares in thousands):












Outstanding at January 1, 2010 6,406 $ 22.42
Issued in exchange for Continental options 7,366 16.77
Exercised (2,467) 8.13 $ 42
Surrendered (253) 28.77
Outstanding at December 31, 2010 11,052 21.70
Exercised (2,449) 10.77 33
Surrendered (1,657) 29.07
Outstanding at December 31, 2011 6,946 23.80
Exercised (1,327) 12.42 14
Surrendered (1,012) 30.50
Outstanding at December 31, 2012 4,607 25.60 2.9 20
Exercisable at December 31, 2012 4,358 25.76 2.9 20
The following table provides additional information for Continental Predecessor options granted in 2010 which were valued at the Merger date:


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Risk-free interest rate 0.1 - 1.8%
Dividend yield —%
Expected market price volatility of UAL common stock 75%
Expected life of options (years) 0.1 - 6.3
Weighted-average fair value $ 11.52
The fair value of options is determined at the grant date, and at the Merger date in the case of Continental Predecessor options, using a Black Scholes option
pricing model, which requires UAL to make several assumptions. The risk-free interest rate is based on the U.S. treasury yield curve in effect for the expected
term of the option at the time of grant. The dividend yield on UAL’s common stock was assumed to be zero since UAL did not have any plans to pay
dividends at the time of the option grants.
The volatility assumptions were based upon historical volatilities of UAL and other comparable airlines whose shares are traded using daily stock price
returns equivalent to the contractual term of the option. In addition, implied volatility data for both UAL and other comparable airlines, using current
exchange-traded options, was utilized.
The expected lives of the options were determined based upon either a simplified assumption that the option will be exercised evenly from vesting to expiration
or estimated using historical experience for the assumed options. The terms of certain UAL awards do not provide for the acceleration of vesting upon
retirement. In addition, certain UAL awards and the assumed options awarded to employees that are retirement eligible either at the grant date or within the
vesting period is considered vested at the respective retirement eligibility date.
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