Southwest Airlines 2015 Annual Report Download - page 109

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8. 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, 2015, the
Company had 60 million shares of common stock reserved for issuance pursuant to Employee equity
plans (of which 33 million shares had not been granted) through various share-based compensation
arrangements. See Note 9 to the Consolidated Financial Statements for information regarding the
Company’s equity plans.
9. STOCK PLANS
Share-based Compensation
The Company accounts for share-based compensation utilizing fair value, which is determined on the
date of grant for all instruments. The Consolidated Statement of Income for the years ended
December 31, 2015, 2014, and 2013, reflects share-based compensation expense of $29 million, $21
million, and $18 million, respectively. The total tax benefit recognized in earnings from share-based
compensation arrangements for the years ended December 31, 2015, 2014, and 2013, was not material.
As of December 31, 2015, there was $34 million of total unrecognized compensation cost related to
share-based compensation arrangements, which is expected to be recognized over a weighted-average
period of 1.9 years. The Company expects substantially all unvested awards to vest.
Restricted Stock Units and Stock Grants
Under the Company’s Amended and Restated 2007 Equity Incentive Plan (“2007 Equity Plan”), it
granted restricted stock units (“RSUs”) to certain Employees during 2013, 2014, and 2015 and
performance-based restricted stock units (“PBRSUs”) to certain Employees during 2014 and 2015.
Outstanding RSUs vest over three years, subject generally to the individual’s continued employment or
service. The Company recognizes all expense on a straight-line basis over the vesting period, with any
changes in expense due to the number of PBRSUs expected to vest being modified on a prospective
basis. The PBRSUs granted in May 2014 and February 2015 are subject to the Company’s
performance with respect to a three-year simple average of Return on Invested Capital, before taxes
and excluding special items (“ROIC”), for the defined performance period and the individual’s
continued employment or service. The number of PBRSUs vesting on the vesting date will be
interpolated based on the Company’s ROIC performance and ranges from zero PBRSUs to 200 percent
of granted PBRSUs.
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