Southwest Airlines 1997 Annual Report Download - page 45

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SOUTHWEST AIRLINES CO. ♥ FIVE SYMBOLS OF FREEDOM
On September 25, 1997, the Company’s Board of Directors declared a three-for-two
stock split, distributing 73,577,983 shares on November 26, 1997. Unless otherwise
stated, all per share data presented in the accompanying consolidated financial
statements and notes thereto have been restated to give effect to the stock split.
7. STOCK PLANS
At December 31, 1997, the Company had six 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 five fixed option plans. Under the 1991 Incentive Stock Option
Plan, the Company may grant options to key Employees for up to 13,500,000 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 1,125,000 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 27,000,000
shares of common stock. An initial grant of approximately 21,750,000 shares was made
on January 12, 1995, at an option price of $13.33 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, 1997 and 1996,
vest in 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. In the event that the
Southwest Airlines Pilots’ Association exercises its option to make the collective
bargaining agreement amendable on September 1, 1999, any unexercised options will
be canceled on December 1, 1999.
Under the 1996 Incentive Stock Option Plan, the Company may grant options to key
Employees for up to 9,000,000 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 862,500 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 all fixed option plans, except the SWAPA Plan, the exercise price of each
option equals the market price of the Company’s stock on the date of grant. Under the
SWAPA Plan, for additional options granted each September 1, the exercise price will
be equal to 105 percent of the fair value of such stock on the date of the grant.