Southwest Airlines 2002 Annual Report Download - page 68

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SOUTHWEST AIRLINES CO. 2002 10-K | 49
Under the amended 1991 Employee Stock
Purchase Plan (ESPP), which has been
approved by shareholders, as of December
31, 2002, the Company is authorized to issue
up to a remaining balance of 6.5 million
shares of common stock to Employees of the
Company. These shares may be issued 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 1.4 million shares in 2002,
1.0 million shares in 2001, and 1.0 million
shares in 2000 at average prices of $14.70,
$16.42, and $13.34, respectively. The
weighted-average fair value of each purchase
right under the ESPP granted in 2002, 2001,
and 2000, which is equal to the ten percent
discount from the market value of the
common stock at the end of each purchase
period, was $1.63, $1.82, and $1.48,
respectively.
Pro forma information regarding net
income and net income per share, as
disclosed in Note 1, 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 assump-
tions used for grants under the fixed option
plans:
2002 2001 2000
Wtd-average risk-free interest rate 3.4% 4.5% 5.0%
Expected life of option (years) 5.0 5.9 6.0
Expected stock volatility 34.0% 34.8% 34.9%
Expected dividend yield 0.13% 0.07% 0.10%
The Black-Scholes option valuation model
was developed for use in estimating the fair
value of short-term traded options that have
no vesting restrictions and are fully transfer-
able. 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 2002 ranged from
$3.54 to $8.52. 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.