UPS 2005 Annual Report Download - page 87

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
consisted entirely of UPS Class A common stock that was fully vested in the year of grant. During the first
quarter of 2005, we modified our management incentive awards program to provide that half of the annual
management incentive award, with certain exceptions, be made in restricted stock units, which generally vest
over a five-year period. The other half of the award granted in November 2005 was in the form of cash or
unrestricted shares of Class A common stock and was fully vested at the time of grant. Amounts expensed for
management incentive awards, including the restricted stock units, were $404, $738, and $606 million during
2005, 2004, and 2003, respectively.
Upon vesting, restricted stock units result in the issuance of the equivalent number of UPS Class A common
shares after required tax withholdings. Except in the case of death, disability, or retirement, restricted stock units
vest over a five year period with approximately 20% of the award vesting at each anniversary date of the grant.
All restricted stock units granted are subject to earlier cancellation or vesting under certain conditions. Dividends
earned on restricted stock units are reinvested in additional restricted stock units at each dividend payable date.
As of December 31, 2005, we had a total of 5.108 million restricted stock units outstanding, with approximately
1.022 million units, before tax withholdings, vesting each year from 2006 through 2010.
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 closing price of UPS class B common stock on the date the option was granted.
Persons earning the right to receive stock options are determined each year by the Compensation
Committee. 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 cancellation or exercise
under certain conditions. Options granted to eligible employees will generally be granted annually during the first
half of each year at the discretion of the Compensation Committee.
The following is an analysis of options to purchase shares of Class A common stock issued and outstanding:
2005 2004 2003
Weighted
Average
Price
Shares
(in thousands)
Weighted
Average
Price
Shares
(in thousands)
Weighted
Average
Price
Shares
(in thousands)
Outstanding at beginning of year . . . $59.96 17,701 $48.02 22,745 $38.73 27,745
Exercised ...................... 56.44 (1,325) 26.97 (7,351) 18.59 (7,297)
Granted ....................... 72.18 2,667 70.70 2,663 62.40 2,860
Forfeited / expired ............... 67.09 (309) 58.70 (356) 44.63 (563)
Outstanding at end of year ......... $61.84 18,734 $59.96 17,701 $48.02 22,745
F-31