Southwest Airlines 1998 Annual Report Download - page 53

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53
SOUTHWEST AIRLINES CO. ¤ SIX STORIES OF FREEDOM
8. STOCK PLANS
At December 31, 1998, the Company had seven stock-based compensation plans
and other stock options outstanding, which are described below. The Company applies
APB 25 and related Interpretations in accounting for its stock-based compensation.
Accordingly, no compensation expense is recognized for its fixed option plans because
the exercise prices of the Company’s Employee stock options equal or exceed the
market prices of the underlying stock on the dates of the grants. Compensation
expense for other stock options is not material.
The Company has six fixed option plans. Under the 1991 Incentive Stock Option
Plan, the Company may grant options to key Employees for up to 20,250,000 shares of
common stock. Under the 1991 Non-Qualified Stock Option Plan, the Company may
grant options to key Employees and non-employee directors for up to 1,687,500 shares
of common stock. All options granted under these plans have ten-year terms and vest
and become fully exercisable at the end of three, five, or ten years of continued
employment, depending upon the grant type.
Under the 1995 Southwest Airlines Pilots’ Association Non-Qualified Stock Option
Plan (SWAPA Plan), the Company may grant options to Pilots for up to 40,500,000
shares of common stock. An initial grant of approximately 32,788,000 shares was made
on January 12, 1995, at an option price of $8.89 per share, which exceeded the market
price of the Company’s stock on that date. Options granted under the initial grant vest
in ten annual increments of ten percent. On September 1 of each year of the agreement
beginning in 1996, additional options will be granted to Pilots that become eligible
during that year. Additional options granted on September 1, 1998, 1997, and 1996,
vest in six annual increments of 16.7 percent, seven annual increments of 14.3 percent,
and eight annual increments of 12.5 percent, respectively. Options under all grants
must be exercised prior to January 31, 2007, or within a specified time upon retirement
or termination.
Under the 1996 Incentive Stock Option Plan, the Company may grant options to key
Employees for up to 13,500,000 shares of common stock. Under the 1996 Non-
Qualified Stock Option Plan, the Company may grant options to key Employees and
non-employee directors for up to 1,293,750 shares of common stock. All options