UPS 2004 Annual Report Download - page 65

Notes to consolidated financial statements 63
shares are publicly traded on the New York Stock Exchange
(NYSE) under the symbol “UPS.”
Incentive Compensation Plan
The UPS Incentive Compensation Plan permits the grant of non-
qualified stock options, incentive stock options, stock
appreciation rights, restricted stock, performance shares, per-
formance units, and management incentive awards to eligible
employees. The number of shares reserved for issuance under the
Plan is 112 million, with the number of shares reserved for
issuance as restricted stock limited to 34 million. As of
December 31, 2004, management incentive awards, stock
options, and restricted performance units had been granted
under the Incentive Compensation Plan.
Management Incentive Awards
Persons earning the right to receive management incentive
awards are determined annually by the Compensation
Committee of the UPS Board of Directors. This Committee, in
its sole discretion, determines the total award, which consists of
UPS Class A common stock, given in any year. Amounts
expensed for management incentive awards were $738, $606,
and $556 million during 2004, 2003, and 2002, respectively.
Nonqualified Stock Options
We maintain fixed stock option plans, under which options are
granted to purchase shares of UPS Class A common stock. Stock
options granted in connection with the Incentive Compensation
Plan must have an exercise price at least equal to the NYSE clos-
ing price of UPS class B common stock on the date the option
was granted.
Persons earning the right to receive stock options are deter-
mined each year by the Compensation Committee of the UPS
Board of Directors. Except in the case of death, disability, or
retirement, options granted under the Incentive Compensation
Plan are generally exercisable three to five years from the date of
grant and before the expiration of the option 10 years after the
date of grant. All options granted are subject to earlier cancella-
tion or exercise under certain conditions.
The following is an analysis of options to purchase shares of Class A common stock issued and outstanding:
2004 2003 2002
Weighted Weighted Weighted
Average Shares Average Shares Average Shares
Price(in thousands) Price (in thousands) Price (in thousands)
Outstanding at beginning of year $ 48.02 22,745 $ 38.73 27,745 $ 29.64 29,224
Exercised 26.97 (7,351) 18.59 (7,297) 15.91 (6,434)
Granted 70.70 2,663 62.40 2,860 60.22 5,760
Forfeited/expired 58.70 (356) 44.63 (563) 46.08 (805)
Outstanding at end of year $ 59.96 17,701 $ 48.02 22,745 $ 38.73 27,745
Beginning in November 1999, options were granted under the Incentive Compensation Plan, and a limited option grant to certain
employees under this plan occurred in 2000. Beginning in 2001 and in future years, options to eligible employees will generally be
granted annually during the first half of each year at the discretion of the Compensation Committee of the UPS Board of Directors.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2004:
Options Outstanding Options Exercisable
Average Average
Shares Average Life Exercise Shares Exercise
Exercise price range (in thousands) (in years) Price (in thousands) Price
$ 13.94 - $ 50.63 2,424 4.82 $ 49.89 2,397 $ 49.89
$ 56.25 - $ 57.50 4,467 6.24 56.90 4,467 56.90
$59.38 - $ 60.61 5,381 7.27 60.20 141 59.54
$ 61.88 - $ 65.00 2,757 8.32 62.41 11 64.20
$ 68.44 - $143.13 2,672 9.23 71.23 48 99.88
17,701 7.13 $ 59.96 7,064 $ 54.88