Union Pacific 2002 Annual Report Download - page 82

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through January 31, 2004. The LTP performance criteria include three year (for fiscal years 2001, 2002 and 2003) cumulative
earnings per share and stock price targets.
The Union Pacific Corporation 2001 Stock Incentive Plan (2001 Plan) was approved by the shareholders in April 2001.
The 2001 Plan reserved 12,000,000 shares of UPC common stock for issuance to eligible employees of the Corporation in
the form of non-qualified options, incentive stock options, retention shares, stock units and incentive bonus awards. Awards
and options under the 2001 Plan may be granted to employees of the Corporation and its subsidiaries. Non-employee
directors are not eligible. As of December 31, 2002, there were 854,931 retention shares and stock units outstanding under
the 2001 Plan, and there were 2,074,950 options outstanding under the 2001 Plan.
Pursuant to the above plans, 9,544,569, 12,461,025, and 6,089,561 shares of UPC common stock were available for grant
at December 31, 2002, 2001 and 2000, respectively.
Options – Stock options are granted with an exercise price equal to the fair market value of the Corporation’s common stock
as of the date of the grant. Options are granted with a 10-year term and are generally exercisable one to two years after the
date of the grant. A summary of the stock options issued under the 1988 Plan, the 1993 Plan, the UP Shares Plan, the
Directors Plan and the 2001 Plan, and changes during the years ending December 31 are as follows:
Year Ended December 31,
2002 2001 2000
Weighted Weighted Weighted
-Average -Average -Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding, beginning of year 23,189,323 $51.12 25,342,300 $50.48 25,391,470 $50.41
Granted 2,107,500 61.14 1,798,150 49.91 253,250 41.96
Exercised (3,814,625) 45.99 (2,044,997) 38.63 (175,900) 30.05
Forfeited (130,093) 54.99 (1,906,130) 54.82 (126,520) 48.64
Outstanding, end of year 21,352,105 $53.00 23,189,323 $51.12 25,342,300 $50.48
Options exercisable at year end 18,897,155 $52.04 21,053,773 $51.13 13,758,817 $47.00
Weighted-average fair value of
options granted during the year $17.78 $13.09 $11.84
The following table summarizes information about the Corporation’s outstanding stock options as of December 31, 2002:
Options Outstanding Options Exercisable
Weighted-Average Weighted-Weighted-
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Execise Price Exercisable Exercise Price
$20.60 - $41.91 1,224,249 2.82 $33.12 1,224,249 $33.12
$42.87 - $52.53 5,133,671 6.02 47.78 5,130,671 47.78
$52.88 - $62.40 14,994,185 5.34 56.42 12,542,235 55.62
$20.60 - $62.40 21,352,105 5.36 $53.00 18,897,155 $52.04
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, with
the following weighted-average assumptions for options granted in 2002, 2001, and 2000, respectively: risk-free interest rates
of 4.4%, 4.3% and 5.1%; dividend yield of 1.3%, 1.4% and 1.6%; expected lives of 5 years, 4 years and 4 years; and volatility
of 28.8%, 29.5% and 31.4%.
Restricted Stock and Other Incentive Plans – The Corporation’s plans provide for awarding retention shares of common
stock or stock units to eligible employees. These awards are subject to forfeiture if employment terminates during the
prescribed retention period, generally three or four years, or, in some cases, if a certain prescribed stock price or other
financial criteria is not met. Restricted stock awards are issued to non-employee directors and are subject to forfeiture if
certain service requirements are not met. During the year ended December 31, 2002, 804,956 retention shares, stock units,
and restricted shares were issued at a weighted-average fair value of $58.21. During 2001, 387,540 retention shares, stock
units, and restricted shares were issued at a weighted-average fair value of $49.95. During 2000, 283,059 retention shares,