American Airlines 1999 Annual Report Download - page 54

AMR CORPORATION
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The weighted-average grant date fair value of career equity
awards granted during 1999, 1998 and 1997 was $63.54,
$57.77 and $54.98, respectively.
A performance share plan was implemented in 1993 under
the terms of which shares of deferred stock are awarded at no
cost to officers and key employees under the Plans. The fair value
of the performance shares granted is equal to the market price
of the Company’s stock at the date of grant. The shares vest over
a three-year performance period based upon AMR’s ratio of
cash flow to adjusted gross assets. Performance share activity was:
Year Ended December 31,
1999 1998 1997
Outstanding at January 1 1,565,616 1,737,274 1,679,460
Granted 509,822 644,680 808,736
Issued (208,265) (205,458) (190,766)
Awards settled in cash (513,370) (522,234) (513,064)
Canceled (138,159) (88,646) (47,092)
Outstanding at December 31 1,215,644 1,565,616 1,737,274
The weighted-average grant date fair value of performance
share awards granted during 1999, 1998 and 1997 was $62.95,
$62.06 and $52.28, respectively.
There were approximately 20 million shares of AMR’s
common stock at December 31, 1999 reserved for the issuance
of stock upon the exercise of options and the issuance of stock
awards. See Note 12 for information regarding the impact on
stock awards and options due to the Sabre spin-off.
The Company has adopted the pro forma disclosure features
of Statement of Financial Accounting Standards No. 123,
“ Accounting for Stock-Based Compensation” (SFAS 123). As
required by SFAS 123, pro forma information regarding income
from continuing operations and earnings per share from contin-
uing operations has been determined as if the Company had
accounted for its employee stock options and awards granted
subsequent to December 31, 1994 using the fair value method
prescribed by SFAS 123. The fair value for the stock options was
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions
for 1999, 1998 and 1997: risk-free interest rates ranging from
5.01% to 6.07% ; dividend yields of 0% ; expected stock volatility
ranging from 25.5% to 31.3% ; and expected life of the options
of 4.5 years for the Plans and 1.5 years for The Pilot Plan.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the
Company’s employee stock options have characteristics significantly
different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair
value estimate, in management’s opinion the existing models do
not necessarily provide a reliable single measure of the fair value
of its employee stock options. In addition, because SFAS 123 is
applicable only to options and stock-based awards granted
subsequent to December 31, 1994, its pro forma effect is not
fully reflected in years prior to 1999.
The following table shows the Company’s pro forma income
from continuing operations and earnings per share from con-
tinuing operations assuming the Company had accounted for its
employee stock options using the fair value method (in millions,
except per share amounts):
Year Ended December 31,
1999 1998 1997
Income from continuing operations:
As reported $656 $1,114 $ 809
Pro forma 651 1,114 785
Basic earnings per share from
continuing operations:
As reported $4.30 $ 6.60 $4.54
Pro forma 4.27 6.60 4.40
Diluted earnings per share from
continuing operations:
As reported $4.17 $6.38 $4.43
Pro forma 4.14 6.38 4.30