Southwest Airlines 2009 Annual Report Download - page 89

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2009
future volatility observations as determined by independent third parties. For 2009, 2008, and 2007 stock option
grants, the Company has consistently estimated expected volatility utilizing a ratio of two-thirds implied future
volatility and one-third historical volatility as of the grant date. 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 were actual U.S. Treasury zero-coupon rates for bonds matching the expected term of the option as of
the option grant date.
The fair value of each option grant is estimated on the date of grant using a modified Black-Scholes option
pricing model. The following table provides the ranges of assumptions and weighted-average assumptions used
for grants made under the option plans for the current and prior years, as well as the range of fair values and
weighted-average fair value of options granted for 2009, 2008, and 2007:
2009 2008 2007
Wtd-average risk-free interest rate ....................... 4.9% 4.2% 3.7%
Range of risk-free interest rates ......................... 0.93% - 4.97% 0.9% - 5.13% 0.5% - 5.37%
Wtd-average expected life of option (years) ................ 5.9 5.1 4.9
Range of expected life of options (years) .................. 1.0-6.0 1.0-6.0 0.5-8.0
Wtd-average expected stock volatility .................... 38% 25% 26%
Range of expected stock volatilities ...................... 36%-38% 24%-36% 24%-27%
Wtd-average expected dividend yield ..................... 0.20% 0.11% 0.09%
Range of expected dividend yields ....................... 0.18% - 0.28% 0.10% - 0.20% 0.07% - 0.12%
Wtd-average stock option fair value ...................... $ 3.03 $ 3.59 $ 4.28
Range of stock option fair values ........................ 1.33 - 3.03 $ 1.69 - $4.04 $ 0.67 - $6.33
Aggregated information regarding the Company’s stock option plans is summarized below:
COLLECTIVE BARGAINING PLANS
Options (000)
Wtd. average
exercise price
Wtd. average
remaining contractual
term
Aggregate intrinsic
value (millions)
Outstanding December 31, 2006 ............. 80,210 $12.83
Granted ............................ 751 14.89
Exercised ........................... (14,145) 7.17
Surrendered ......................... (3,440) 16.11
Outstanding December 31, 2007 ............. 63,376 $13.93
Granted ............................ 505 12.71
Exercised ........................... (5,933) 13.06
Surrendered ......................... (2,536) 16.45
Outstanding December 31, 2008 ............. 55,412 $13.90
Granted ............................ 81 7.66
Exercised ........................... (11) 8.25
Surrendered ......................... (3,044) 16.29
Outstanding December 31, 2009 ............. 52,438 $13.75 2.1 $2
Vested or expected to vest at December 31,
2009 ................................. 52,434 $13.75 2.1 $2
Exercisable at December 31, 2009 ........... 52,226 $13.74 2.1 $2
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