Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Share-Based Compensation

v2.4.0.6
Share-Based Compensation
12 Months Ended
Dec. 31, 2011
Share-Based Compensation [Abstract]  
Share-Based Compensation

18. Share-based compensation

Cerberus Funds Equity Grants

     Effective June 30, 2005, companies controlled by Cerberus ("Cerberus Funds") which indirectly owned 100% of our equity interests put into place an Equity Incentive Plan ("Cerberus Funds Equity Plan") under which members of our senior management, Board of Directors and an employee of Cerberus (the "participants") were granted either restricted shares or share options ("Cerberus Funds Equity Grants") in such companies. The value of the Cerberus Funds Equity Grants is derived exclusively with reference to the value of our shares.

     We apply the provisions of ASC 718 in accounting for the Cerberus Funds Equity Grants. In addition to formal vesting restrictions, the terms of the Cerberus Funds Equity Grants contained provisions which allowed the Cerberus Funds to repurchase any restricted shares or shares obtained through the exercise of options upon the occurrence of certain employment termination events or cessation of service on the board of directors for share options issued to our independent directors. All holders of Cerberus Fund Equity Grants signed a Share Agreement in connection with our initial public offering which gives each of them the right to exchange their Cerberus Fund shares or share options for our shares or options on our shares directly with the Cerberus Funds and which limited the repurchase right of the Cerberus Funds to the period prior to November 27, 2008. The exchange right was exercisable as of November 27, 2008 and is valid for a period of three years from that date, and was subsequently extended with two years until November 27, 2013. As of November 27, 2008, the participants are no longer restricted from selling their vested interests in our shares and the Cerberus Funds' rights to repurchase restricted shares or shares obtained through the exercise of options upon certain employment termination rights has lapsed. All share options granted under the Cerberus Funds Equity Plan are exercisable for a period of ten years from the date of issuance.

     Since all of the Cerberus Fund Equity Grants issued are shares or share options in the Cerberus Funds and since the right of the holders of the Cerberus Funds Equity Grants to exchange their shares in the Cerberus Funds for our shares starting November 27, 2008 is not directly with us, the existence of the restricted share and share options is not dilutive to our share ownership.

     The fair values of all shares and share options issued with a zero strike price (all of which were issued prior to our initial public offering in 2006), were calculated on their respective grant dates based on the value of our underlying shares at the time of our initial public offering. To this value, a discount for lack of marketability was applied to reflect the fact that (i) the shares being valued represent an illiquid minority interest in a closely-held indirect holding company without access to a recognized market and (ii) the shares are subject to significant restrictions which prevent their transfer or pledge. In accordance with ASC 718, the amount of compensation expense recognized for restricted shares is derived with reference to the excess of fair market value of the shares at the date of grant over the price paid, if any. The restricted shares granted to the Cerberus employee are subject to mark-to-market valuations at each reporting period.

     The amount of expense recognized with respect to share options with a strike price is based on the fair value of the option using a Black-Scholes option pricing model. The value of each of the Cerberus Funds Equity Grants is recognized on a straight-line basis over the applicable vesting periods.

For options valued with a Black-Scholes option pricing model, we have used the following assumptions:

Volatility 38.25% - 39.90%  
Expected life 5.00 5.93 years  
Risk-free interest rate 4.67% - 4.72%  
Dividend yield rate 0.00 %

 

     Since our shares had not traded in the public market at the time of the valuations, we derived our volatility assumptions by comparison to peer group companies. The expected life represents the period of time the options are expected to be outstanding. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant and which has a term equal to the expected life of the options. The expected dividend yield is based on our history of not paying regular

dividends in the past and our current intention not to pay regular dividends in the foreseeable future. The differing assumptions used result from the differences in expected life among the different tranches of share options valued.

     A summary of activity during the years ended December 31, 2009, 2010 and 2011 for all issuances under the Cerberus Funds Equity Plan is set forth below. Because the number of shares and share options under the Cerberus Funds Equity Plan are shares and share options of the Cerberus Funds, ownership interests in the table below have been stated as the equivalent number of our shares which are represented by the Cerberus Funds shares.

  Number of  
  Restricted  
  Shares/Options  
Beginning outstanding January 1, 2009 2,457,098  
Forfeitures (245,738 )
Ending outstanding December 31, 2009 2,211,360  
 
Beginning outstanding January 1, 2010 2,211,360  
Exercises of Cerberus Funds shares/options for direct    
holdings of AerCap shares (1,465,395 )
Ending outstanding December 31, 2010 745,965  
 
Beginning outstanding January 1, 2011 745,965  
Forfeitures  
Ending outstanding December 31, 2011 745,965  

 

There are no remaining share options which are still subject to future vesting criteria.

AerCap Holdings NV Equity Grants

     On October 31, 2006, we implemented an equity incentive plan that is designed to promote our interests by enabling us to attract, retain and motivate directors, employees, consultants and advisors and align their interests with ours ("NV Equity Plan"). The NV Equity Plan provides for the grant of nonqualified share options, incentive share options, share appreciation rights, restricted share, restricted share units and other share awards ("NV Equity Grants") to participants of the plan selected by the Nomination and Compensation Committee of our Board of Directors. Subject to certain adjustments, the maximum number of equity awards available to be granted under the plan is equivalent to 4,251,848 Company's shares.

     The terms and conditions of NV Equity Grants, including vesting provisions for share options, are determined by the Nomination and Compensation Committee, except that, unless otherwise determined by the Nomination and Compensation Committee, or as set forth in an award agreement: (a) each NV Equity Grant is granted for ten years from the date of grant, or, in the case of certain key employees, (i.e., employees owning more than 10% of our ordinary shares), for five years from the date of grant; provided, however, no share option period may extend beyond ten years from the date of grant; (b) the option price per share for incentive share options may not be less than 100% of the fair market value of the ordinary shares except that the option price per share for a key employee may not be less than 110% of the fair market value of the ordinary shares at the time the incentive share option is granted; and (c) incentive share options may only be issued to the extent the aggregate fair market value of shares with respect to the exercise of the incentive share options for the first time by an option holder during any calendar year is $100,000 or less, with any additional share options being treated as nonqualified share options. As of December 31, 2011, we have 2,012,254 share options outstanding under the NV Equity Plan which have been granted to certain of our current and – by now- former employees. In addition, as of December 31, 2011, we have 44,949 share options outstanding under the NV Equity Plan which have been granted to certain of our current and –by now- former Non-Executive Directors.

Following is a summary of issuances to-date under the NV Equity Plan:

      Weighted Average
  Number of Options   Exercise Price
Options outstanding at January 1, 2009 2,887,500   NA
Forfeitures (312,500 ) NA
Options outstanding at December 31, 2009 2,575,000   NA
 
Options outstanding at January 1, 2010 2,575,000   NA
Forfeitures (612,500 ) NA
Options issued during year 321,041   22.54
Options outstanding at December 31, 2010 2,283,541   NA
 
Options outstanding at January 1, 2011 2,283,541   NA
Forfeitures (150,000 ) NA
Options exercised during year (100,000 ) 2.95
Options issued during year 23,662   11.29
Options outstanding at December 31, 2011 2,057,203   NA

 

     The weighted average remaining contractual term of the 2.1 million options outstanding at December 31, 2011 is 6.1 years. The weighted average grant date fair value for options issued in 2008 is $1.52 per option. Total share-based compensation recognized for the above options was $3,563, $2,339 and $1,431 for the years ending December 31, 2009, 2010 and 2011, respectively. In light of the difficult economic environment prevailing at the end of 2008, the Nomination and Compensation Committee adjusted the performance criteria for the performance tranches relating to fiscal years 2009, 2010 and 2011. This change has been accounted for as a modification to the NV Equity Plan with respect to the performance-based options for those years and the weighted average fair values above for issuances which include the tranches subject to the modification include the fair values as of the date of modification. For both the original and modified award, vesting criteria were not probable of being met at the time of the modification, therefore in accordance with ASC 718, no additional expense was recognized as a result of the modification. As of December 31, 2011, we have completely recognized the share-based compensation expenses related to NV Equity Grants. There are no remaining share options which are still subject to future vesting criteria.

     The value of the options issued under the NV Equity Plan was calculated by a Black-Scholes option pricing model using the following assumptions:

Volatility 33.92% - 38.42%  
Expected life 5.33 6.53 years  
Risk-free interest rate 1.89% - 4.20%  
Dividend yield rate 0.00 %

 

     Volatility assumptions were derived by comparison to peer group companies due to the lack of significant trading history in our shares. The expected life represents the period of time the options are expected to be outstanding. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant and which has a term equal to the expected life of the options. The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention not to pay regular dividends in the foreseeable future. The differing assumptions used result from the differing fair value dates among the different tranches (time-based vs. performance- based).

     In addition to the share options, as of December 31, 2011 a total number of 1,760,000 AER restricted share units are outstanding under the NV Equity Plan which have been granted to certain of our employees. All restricted share units are subject to vesting conditions. 925,000 of these restricted share units will vest, subject to the vesting conditions, on May 31, 2015435,000 of these restricted share units will vest, subject to the vesting conditions, on March 31, 2015100,000 of these restricted share units will vest, subject to the vesting conditions, on February 28, 2015100,000 of these restricted share units will vest, subject to the vesting conditions, on May 31, 2014. The remaining 200,000 share units will vest, subject to the vesting conditions, on May 31, 2013. Assuming that established performance criteria are met and that no forfeitures occur, we expect to recognize share-based compensation related to NV restricted share units of approximately $5.6 million during 2012, $5.2 million during 2013, $4.8 million during 2014 and $1.7 million in 2015.