Southwest Airlines 2010 Annual Report Download - page 99

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14. Common Stock
The Company has one class of capital stock, its common stock. Holders of shares of common stock are
entitled to receive dividends when and if declared by the Board of Directors and are entitled to one vote per share
on all matters submitted to a vote of the shareholders. At December 31, 2010, the Company had 46 million shares
of common stock reserved for issuance pursuant to Employee stock benefit plans (of which 25 million shares had
not been granted) through various share-based compensation arrangements. See Note 15.
15. Stock Plans
Share-based compensation
The Company has previously awarded share-based compensation pursuant to plans covering the majority of
its Employee groups, including plans adopted via collective bargaining, plans covering the Company’s Board of
Directors, and plans related to employment contracts with the Chairman Emeritus of the Company. The
Company accounts for share-based compensation utilizing fair value.
The Consolidated Statement of Income for the years ended December 31, 2010, 2009, and 2008 reflects
share-based compensation expense of $12 million, $13 million, and $18 million, respectively. The total tax
benefit recognized in earnings from share-based compensation arrangements for the years ended December 31,
2010, 2009, and 2008, was $1 million, $1 million, and $4 million, respectively. As of December 31, 2010, there
was $21 million of total unrecognized compensation cost related to share-based compensation arrangements,
which is expected to be recognized over a weighted-average period of 1.5 years.
Restricted stock units
Under the Company’s Amended and Restated 2007 Equity Incentive Plan (2007 Equity Plan), it granted
restricted stock units (RSUs) to Employees and members of its Board of Directors during 2010. The fair value of
restricted stock units is based on the closing price of the common stock on the date of grant. Outstanding RSUs
vest over three years, subject to the Employee’s continued employment. The Company recognizes expense on a
straight-line basis over the vesting period. A remaining balance of up to 13 million RSUs or stock options may be
issued from the 2007 Equity Plan. Aggregated information regarding the Company’s RSUs is summarized below:
RESTRICTED STOCK UNITS
Units (000)
Wtd. average
Grant Date
Fair Value
Outstanding December 31, 2009 ........................ —
Granted ........................................ 997 $12.28
Exercised ...................................... —
Surrendered .................................... (7) 12.28
Outstanding December 31, 2010 ........................ 990 $12.28
Stock options
The Company has previously awarded stock options under plans covering Employees subject to collective
bargaining agreements (collective bargaining plans) and plans covering Employees and Board of Director
members not subject to collective bargaining agreements (other Employee plans). None of the collective
bargaining plans were required to be approved by shareholders. Options granted to Employees under collective
bargaining plans are non-qualified, granted at or above the fair value of the Company’s common stock on the
date of grant, and generally have terms ranging from six to twelve years. Neither Executive Officers nor
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