Southwest Airlines 2007 Annual Report Download - page 73

Options (000)
Wtd. Average
Exercise Price
Wtd. Average
Remaining
Contractual Term
Aggregate Intrinsic
Value (Millions)
Other Employee Plans
Outstanding December 31, 2004 .......... 34,221 $12.94
Granted .......................... 6,662 15.60
Exercised ......................... (3,800) 7.09
Surrendered ....................... (1,263) 15.60
Outstanding December 31, 2005 .......... 35,820 $13.96
Granted .......................... 2,831 17.52
Exercised ......................... (5,015) 9.57
Surrendered ....................... (1,442) 15.93
Outstanding December 31, 2006 .......... 32,194 $14.87
Granted .......................... 293 16.35
Exercised ......................... (2,506) 8.45
Surrendered ....................... (1,454) 16.49
Outstanding December 31, 2007 .......... 28,527 $15.37 4.9 $8
Vested or expected to vest at December 31,
2007 ............................ 28,407 $15.36 4.9 $7
Exercisable at December 31, 2007 ......... 20,777 $15.29 4.6 $6
The total aggregate intrinsic value of options exer-
cised during the years ended December 31, 2007, 2006,
and 2005, was $137 million, $262 million, and $179 mil-
lion, respectively. The total fair value of shares vesting
during the years ended December 31, 2007, 2006, and
2005, was $64 million, $112 million, and $96 million,
respectively. As of December 31, 2007, there was
$37 million of total unrecognized compensation cost
related to share-based compensation arrangements,
which is expected to be recognized over a weighted-
average period of 2.25 years. The total recognition period
for the remaining unrecognized compensation cost is
approximately eight years; however, the majority of this
cost will be recognized over the next two years, in
accordance with vesting provisions.
Employee Stock Purchase Plan
Under the amended 1991 Employee Stock Purchase
Plan (ESPP), which has been approved by shareholders,
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 monthly purchase period. Common Stock
purchases are paid for through periodic payroll deduc-
tions. For the years ended December 31, 2007, 2006, and
2005, participants under the plan purchased 1.3 million
shares, 1.2 million shares, and 1.5 million shares at
average prices of $13.30, $14.86, and $13.19, respec-
tively. The weighted-average fair value of each purchase
right under the ESPP granted for the years ended Decem-
ber 31, 2007, 2006, and 2005, which is equal to the ten
percent discount from the market value of the Common
Stock at the end of each monthly purchase period, was
$1.48, $1.65, and $1.47, respectively.
Non-Employee Director Grants and Incentive Plan
Upon initial election to the Board, non-Employee
Directors receive a one-time option grant to purchase
10,000 shares of Southwest Common Stock at the fair
market value of such stock on the date of the grant. These
grants are made out of one of the Company’s plans
covering Employees not subject to collective bargaining
agreements (other Employee plans). Stock option grants
to the Board become exercisable over a period of three
years from the grant date and have a term of 10 years.
In 2001, the Board adopted the Southwest
Airlines Co. Outside Director Incentive Plan. The purpose
of the plan is to align more closely the interests of the non-
Employee Directors with those of the Company’s Share-
holders and to provide the non-Employee Directors with
retirement income. To accomplish this purpose, the plan
compensates each non-Employee Director based on the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)