Southwest Airlines 2001 Annual Report Download - page 26

SOUTHWEST AIRLINES CO. 2001 ANNUAL REPORT
F18
Under the amended 1991 Employee Stock Purchase Plan (ESPP), at
December 31, 2001, the Company is authorized to issue up to a
remaining balance of 7.8 million shares of common stock to Employees
of the Company at a price equal to 90 percent of the market value at
the end of each purchase period. Common stock purchases are paid for
through periodic payroll deductions. Participants under the plan
received 1,025,000 shares in 2001, 1,029,000 shares in 2000, and
974,000 shares in 1999 at average prices of $16.42, $13.34, and
$10.83, respectively.
Pro forma information regarding net income and net income per
share is required by SFAS 123 and has been determined as if the
Company had accounted for its Employee stock-based compensation
plans and other stock options under the fair value method of SFAS 123.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants under the fixed option
plans in 2001, 2000, and 1999, respectively: dividend yield of .065 percent,
.10 percent, and .12 percent; expected volatility of 34.80 percent,
34.87 percent, and 35.66 percent; risk-free interest rate of 4.46 percent,
5.04 percent, and 6.68 percent; and expected lives ranging from
5 years to 6 years, depending upon the type of grant.
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.
The fair value of options granted under the fixed option plans during
2001 ranged from $5.69 to $9.11. The fair value of options granted
under the fixed option plans during 2000 ranged from $4.47 to $9.79.
The fair value of options granted under the fixed option plans during
1999 ranged from $4.17 to $5.87. The weighted-average fair value of
each purchase right under the ESPP granted in 2001, 2000, and 1999,
which is equal to the ten percent discount from the market value of the
common stock at the end of each purchase period, was $1.82, $1.48,
and $1.17, respectively.
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 are as follows:
(in thousands, except
per share amounts) 2001 2000 1999
NET INCOME:
As reported $511,147 $ 603,093 $ 474,378
Pro forma $485,946 $ 583,707 $ 461,875
NET INCOME
PER SHARE, BASIC:
As reported $ .67 $ .81 $ .63
Pro forma $ .64 $ .78 $ .61
NET INCOME
PER SHARE, DILUTED:
As reported $ .63 $ .76 $ .59
Pro forma $ .61 $ .74 $ .58
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.
13. EMPLOYEE RETIREMENT PLANS
The Company has defined contribution plans covering substantially
all of Southwest’s Employees. The Southwest Airlines Co. Profitsharing
Plan is a money purchase defined contribution plan and Employee
stock purchase plan. The Company also sponsors Employee savings
plans under section 401(k) of the Internal Revenue Code, which include
Company matching contributions. The 401(k) plans cover substantially
all Employees. Contributions under all defined contribution plans are
based primarily on Employee compensation and performance of the
Company.
Company contributions to all retirement plans expensed in
2001, 2000, and 1999 were $214.6 million, $241.5 million, and
$192.0 million, respectively.
The following table summarizes information about stock options outstanding under the 11 fixed option plans at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
OPTIONS WTD-AVERAGE OPTIONS
RANGE OF OUTSTANDING REMAINING WTD-AVERAGE EXERCISABLE WTD-AVERAGE
EXERCISE PRICES AT 12/31/01 (000s) CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/01 (000s) EXERCISE PRICE
$2.23 to $3.35 79 .8 yrs $ 2.40 70 $ 2.42
$3.71 to $5.38 59,035 4.9 yrs 4.08 36,973 4.04
$5.85 to $8.73 9,8506.1yrs 7.64 4,554 7.47
$10.10 to $15.07 8,829 7.2 yrs 1 1.32 3,023 1 1.46
$15.25 to $22.81 17,556 8.0 yrs 17.36 4,553 17.23
$23.92 to $23.93 52 10.3 yrs 23.93 6 23.93
$2.23 to $23.93 95,40 1 5.7 yrs $ 7.57 49,1 79 $ 6.03