Alaska Airlines and Horizon Air 2009 Annual Report Download - page 180

NOTE 10. STOCK-BASED COMPENSATION PLANS
The Company has stock awards outstanding
under a number of long-term incentive equity
plans, one of which (the 2008 Long-Term
Incentive Equity Plan) continues to provide for
the granting of stock awards to directors, officers
and employees of the Company and its
subsidiaries. Compensation expense is recorded
over the shorter of the vesting period or the
period between grant date and the date the
employee becomes retirement-eligible as defined
in the applicable plan. All stock-based
compensation expense is recorded in wages and
benefits in the consolidated statements of
operations.
Stock Options
Under the various plans, options for 8,299,258
shares have been granted and, at December 31,
2009, 1,406,393 shares were available for
future grant of either options or stock awards.
Under all plans, the stock options granted have
terms of up to ten years. For all plans except the
1997 Long-term Incentive Equity Plan (1997
Plan), when options are exercised, new common
shares are issued. When options granted under
the 1997 Plan are exercised, shares are issued
from the Company’s treasury shares. The total
number of outstanding options from the 1997
Plan as of December 31, 2009 is 203,100.
Substantially all grantees are 25% vested after
one year, 50% after two years, 75% after three
years, and 100% after four years.
The tables below summarize stock option activity for the year ended December 31, 2009:
Shares
Weighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Contractual
Life (Years)
Aggregate
Intrinsic
Value (in
millions)
Outstanding, December 31, 2008 ................ 2,605,627 $30.77
Granted ..................................... 389,652 27.54
Exercised ................................... (354,801) 27.90
Forfeited or expired ........................... (321,655) 38.88
Outstanding, December 31, 2009 ................ 2,318,823 $29.54 5.2 $13.6
Exercisable at December 31, 2009 .............. 1,521,456 $29.97 3.6 $ 8.2
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions used for grants in 2009, 2008, and
2007:
2009 2008 2007
Expected volatility ........................................ 52% 42% 43%
Expected term .......................................... 6 years 5.8 years 6 years
Risk-free interest rate ..................................... 2.01% 2.96% 4.79%
Expected dividend yield ................................... ———
Weighted-average fair value of options granted ................. $14.00 $11.12 $19.51
The expected market price volatility of the
common stock is based on the historical
volatility over a time period commensurate with
the expected term of the awards. The risk-free
interest rate is based on the U.S. Treasury yield
curve in effect for the term nearest the expected
term of the option at the time of grant. The
dividend yield is zero as the Company does not
pay dividends and has no plans to do so in the
immediate future. The expected term of the
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