American Airlines 2010 Annual Report Download - page 77

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74
9. Share Based Compensation (Continued)
In 2010, 2009 and 2008 the total charge for share-based compensation expense included in Wages, salaries and
benefits expense was $53 million, $61 million and $53 million, respectively. In 2010, 2009 and 2008, the amount
of cash used to settle equity instruments granted under share-based compensation plans was $2 million, $1
million and $24 million, respectively.
Stock Options/SARs During 2006, the AMR Board of Directors approved an amendment covering all of the
outstanding stock options previously granted under the 1998 Plan. The amendment added to each of the
outstanding options an additional SAR in tandem with each of the then outstanding stock options. The addition of
the SAR did not impact the fair value of the stock options, but simply allowed the Company to settle the exercise
of the option by issuing the net number of shares equal to the in-the-money value of the option. This amendment
is estimated to make available enough shares to permit the Company to settle all outstanding performance and
deferred share awards under the 1998 Plan in stock rather than cash.
Options/SARs granted under the LTIP Plans and the 2003 Plan are awarded with an exercise price equal to the
fair market value of the stock on date of grant, become exercisable in equal annual installments over periods
ranging from three to five years and expire no later than ten years from the date of grant. Expense for the options
is recognized on a straight-line basis. The fair value of each award is estimated on the date of grant using the
modified Black-Scholes option valuation model and the assumptions noted in the following table. Expected
volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility of the
Company’s stock, and other factors. The Company uses historical employee exercise data to estimate the
expected term of awards granted used in the valuation model. The risk-free rate is based on the U.S. Treasury
yield curve in effect at the time of grant. The dividend yield is assumed to be zero based on the Company’s
history and expectation of not paying dividends.
2010
2009
2008
Expected volatility
74.4% to 75.9%
73.6% to 76.7%
53.0% to 55.9%
Expected term (in years)
4.0
4.0
4.0
Risk-free rate
1.18% to 2.58%
2.33% to 2.46%
2.98% to 3.15%
Annual forfeiture rate
10.0%
10.0%
10.0%
A summary of stock option/SARs activity under the LTIP Plans and the 2003 Plan as of December 31, 2010, and
changes during the year then ended is presented below:
LTIP Plans
The 2003 Plan
Options/SARs
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Outstanding at January 1
15,892,528
$19.02
13,526,670
$5.66
Granted
3,165,950
7.07
-
-
Exercised
(100,366)
4.86
(211,575)
5.00
Forfeited or Expired
(3,573,824)
30.51
(106,712)
6.94
Outstanding at December 31
15,384,288
$13.99
13,208,383
$5.66
Exercisable at December 31
7,290,070
$21.32
13,206,599
$5.66
Weighted Average Remaining
Contractual Term of Options
Outstanding (in years)
6.2
2.4
Aggregate
Intrinsic Value of
Options Outstanding
$ 14,155,359
$ 32,871,830