Southwest Airlines 2006 Annual Report Download - page 68

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Company utilized expected volatility based on the
expected life of the option, but within a range of 25%
to 27%. Prior to 2005, the Company relied exclusively on
historical volatility as an input for determining the esti-
mated fair value of stock options. In determining the
expected life of the option grants, the Company has
observed the actual terms of prior grants with similar
characteristics, the actual vesting schedule of the grant,
and assessed the expected risk tolerance of different
optionee groups. The risk-free interest rates used, which
were actual U.S. Treasury zero-coupon rates for bonds
matching the expected term of the option as of the option
grant date, ranged from 4.26% to 5.24% for the year
ended December 31, 2006, from 3.37% to 4.47% for
2005, and from 2.16% to 4.62% for 2004.
The fair value of options granted under the fixed
option plans during the year ended December 31, 2006,
ranged from $2.48 to $6.99, with a weighted-average fair
value of $5.47. The fair value of options granted under the
fixed option plans during 2005 ranged from $2.90 to
$6.79, with a weighted-average fair value of $4.49. The
fair value of options granted under the fixed option plans
during 2004 ranged from $3.45 to $7.83, with a
weighted-average fair value of $4.49.
Aggregated information regarding the Company’s fixed stock option plans is summarized below:
Options (000)
Wtd. Average
Exercise Price
Wtd. Average
Remaining
Contractual Term
Aggregate Intrinsic
Value (Millions)
Collective Bargaining Plans
Outstanding December 31, 2003 .......... 120,058 $10.47
Granted .......................... 14,131 14.41
Exercised ......................... (7,222) 6.59
Surrendered ....................... (6,264) 13.62
Outstanding December 31, 2004 .......... 120,703 $10.98
Granted .......................... 1,697 14.91
Exercised ......................... (14,739) 6.13
Surrendered ....................... (2,417) 13.89
Outstanding December 31, 2005 .......... 105,244 $11.65
Granted .......................... 1,025 16.64
Exercised ......................... (24,632) 7.91
Surrendered ....................... (1,427) 14.25
Outstanding December 31, 2006 .......... 80,210 $12.83 4.1 $224
Vested or expected to vest at December 31,
2006 ............................ 78,270 $12.79 4.1 $222
Exercisable at December 31, 2006 ......... 70,688 $12.55 3.9 $215
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)