Southwest Airlines 1999 Annual Report Download - page 44

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was $8.81. The weighted-average fair value of each purchase right under the ESPP
granted in 1999, 1998, and 1997, which is equal to the ten percent discount from the
market value of the common stock at the end of each purchase period, was $1.75, $1.29,
and $0.79, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective assumptions
including expected stock price volatility. Because the Company’s Employee stock options
have characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value estimate, in
management’s opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its Employee stock options.
For purposes of pro forma disclosures, the estimated fair value of stock-based
compensation plans and other options is amortized to expense primarily over the vesting
period. The Company’s pro forma net income and net income per share is as follows:
(In thousands except per share amounts)1999 1998 1997
NET INCOME:
As reported $474,378 $433,431 $317,772
Pro forma $459,669 $421,097 $306,553
NET INCOME PER SHARE, BASIC:
As reported $.94 $.87 $.64
Pro forma $.91 $.84 $.62
NET INCOME PER SHARE, DILUTED:
As reported $.89 $.82 $.62
Pro forma $.86 $.79 $.60
As required, the pro forma disclosures above include only options granted since
January 1, 1995. Consequently, the effects of applying SFAS 123 for providing pro forma
disclosures may not be representative of the effects on reported net income for future years
until all options outstanding are included in the pro forma disclosures.
10. EMPLOYEE PROFITSHARING AND SAVINGS PLANS
Substantially all of Southwest’s Employees are members of the Southwest Airlines
Co. Profitsharing Plan. Total profitsharing expense charged to operations in 1999, 1998,
and 1997 was $138.3 million, $120.7 million, and $91.3 million, respectively.