Alaska Airlines and Horizon Air 2013 Annual Report Download - page 166

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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 the years ended
December 31:
2013 2012 2011
Expected volatility ........................................... 67% 55% 56%
Expected term .............................................. 6 years 6 years 6 years
Risk-free interest rate ........................................ 1.10% 1.08% 2.26%
Expected dividend yield ...................................... ———
Weighted-average grant date fair value per share .................. $29.47 $17.23 $16.40
Estimated fair value of options granted (millions) .................. $3$2$2
The expected market price volatility is based on the historical volatility. The expected term is based on
the estimated period of time until exercise based on historical experience. The risk-free interest rate is
based on the U.S. Treasury yield curve in effect at the time of the grant. The expected dividend yield is
based on the estimated weighted average dividend yield over the expected term. The expected forfeiture
rates are based on historical experience.
The tables below summarize stock option activity for the year ended December 31, 2013:
Shares
Weighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Contractual
Life (Years)
Aggregate
Intrinsic
Value (in
millions)
Outstanding, December 31, 2012 .................... 941,724 $20.99 6.2 $21
Granted ......................................... 96,590 48.96
Exercised ........................................ (462,976) 17.43
Forfeited or expired ................................ (3,496) 32.64
Outstanding, December 31, 2013 .................... 571,842 $28.51 6.6 $26
Exercisable, December 31, 2013 ..................... 264,823 $19.82 5.4 $14
Vested or expected to vest, December 31, 2013 ........ 571,473 $28.51 6.6 $26
(in millions) 2013 2012 2011
Intrinsic value of option exercises .................................. $19 $11 $20
Cash received from stock option exercises ........................... 8717
Tax benefit related to stock option exercises ......................... 748
Fair value of options vested ....................................... 343
Stock Awards
Restricted stock units (RSUs) are awarded to
eligible employees and entitle the grantee to
receive shares of common stock at the end of
the vest period. The fair value of the RSUs is
based on the stock price on the date of grant.
The RSUs “cliff vest” after three years, or the
period from the date of grant to the employee’s
retirement eligibility, and expense is recognized
accordingly. Performance Share Unit (PSUs) are
awarded to certain executives to receive shares
of common stock if specific performance goals
and market conditions are achieved. There are
several tranches of PSUs which vest when
performance goals and market conditions are
met.
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