American Airlines 2000 Annual Report Download - page 30

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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 Com-
pany’s stock at the date of grant. The shares vest over a
three-year performance period based upon certain spec-
ified financial measures of AMR. Performance share
activity was:
Year Ended December 31,
200 0 1999 1998
Outstanding at January 1 1 ,21 5 ,644 1,565,616 1,737,274
Sabre adjustment 1 ,665,432 ––
Granted 1 ,277,539 509,822 644,680
Issued (399 ,51 7) (208,265) (205,458)
Awards settled in cash (1 ,200 ,1 77) (513,370) (522,234)
Canceled (51 ,1 6 6) (138,159) (88,646)
Outstanding at December 31 2 ,507,755 1,215,644 1,565,616
The weighted-average grant date fair value of
performance share awards granted during 2000, 1999
and 1998 was $32.93, $62.95 and $62.06, respectively.
The Company has adopted the pro forma disclo-
sure 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 continu-
ing operations before extraordinary loss and earnings
per share from continuing operations before extraordi-
nary loss 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
2000, 1999 and 1998: risk-free interest rates ranging
from 5.01% to 6.15%; dividend yields of 0%; expected
stock volatility ranging from 29.9% to 43.5%; 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 assump-
tions, 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 addi-
tion, because SFAS 123 is applicable only to options
and stock-based awards granted subsequent to Decem-
ber 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 before
extraordinary loss and earnings per share from con-
tinuing operations before extraordinary loss 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,
200 0 1999 1998
Income from continuing operations
before extraordinary loss:
As reported $779 $656 $ 1,114
Pro forma 772 651 1,114
Basic earnings per share from continuing
operations before extraordinary loss:
As reported $5.20 $4.30 $ 6.60
Pro forma 5.1 5 4.27 6.60
Diluted earnings per share from continuing
operations before extraordinary loss:
As reported $4.81 $4.17 $ 6.38
Pro forma 4.77 4.14 6.38
10 . RETI REMENT BENEFI TS
All regular employees of the Company are eligible to
participate in pension plans. The defined benefit plans
provide benefits for participating employees based on
years of service and average compensation for a speci-
fied period of time before retirement. Airline pilots and
flight engineers also participate in defined contribution
plans for which Company contributions are determined
as a percentage of participant compensation.
In addition to pension benefits, other postretire-
ment benefits, including certain health care and life
insurance benefits, are also provided to retired employ-
ees. The amount of health care benefits is limited to
lifetime maximums as outlined in the plan. Substantially
all employees of American and employees of certain
other subsidiaries may become eligible for these bene-
fits if they satisfy eligibility requirements during their
working lives.