Lockheed Martin 2004 Annual Report Download - page 59

shares in 2002 for $50 million. As a result of this activity, a total
of 16.6 million shares may be repurchased in the future under
the program.
As part of its share repurchase program, the Corporation
may from time-to-time enter into structured share repurchase
transactions with financial institutions. These agreements gen-
erally require the Corporation to make an up-front cash pay-
ment in exchange for the right to receive shares of its common
stock or cash at the expiration of the agreement, dependent
upon the closing price of the Corporation’s common stock at the
maturity date. The Corporation entered into several such trans-
actions during 2004 which, in the aggregate, required up-front
cash payments totaling $125 million. Based on the closing price
of its common stock on the maturity dates of the agreements, the
transactions resulted in the Corporation receiving cash payments,
and therefore did not result in the repurchase of any shares of its
common stock. The net impact of the transactions was not mate-
rial to earnings, cash flows or financial position. There were no
such transactions outstanding at December 31, 2004.
Stock option and award plans — In April 2003, the stockhold-
ers approved the Lockheed Martin 2003 Incentive Performance
Award Plan (the Award Plan). Under the Award Plan, employ-
ees of the Corporation may be granted stock-based incentive
awards, including options to purchase common stock, stock
appreciation rights, restricted stock or stock units. The maxi-
mum number of shares that may be subject to such stock-based
incentive awards in any calendar year is limited to 1.9% of the
Corporation’s common stock outstanding on the December 31
preceding the grant. The maximum number of shares that may
be issued as restricted stock is limited to 18% of the total num-
ber of shares authorized to be issued under the Award Plan.
Employees may also be granted cash-based incentive awards.
These awards may be granted either individually or in combi-
nation with other awards. The Award Plan requires that options
to purchase common stock have an exercise price of not less
than 100% of the market value of the underlying stock on the
date of grant. Under the Award Plan, no award of options may
become fully vested prior to the second anniversary of the grant
and no portion of an option grant may become vested in less
than one year, except for the 1.5 million of options specifically
exempted from vesting restrictions. The minimum vesting
period for restricted stock or stock units payable in stock is
three years. Award agreements may provide for shorter vesting
periods or vesting following termination of employment in the
case of death, disability, divestiture, retirement or layoff. The
Award Plan does not impose any minimum vesting periods on
other types of awards. The maximum term of an option or any
other award is 10 years. The Award Plan allows the Corporation
to provide for financing by award recipients, other than execu-
tive officers, of the exercise or purchase price of common stock
underlying an award, subject to certain conditions, by interest-
bearing notes payable to the Corporation. There were no such
notes payable at December 31, 2004.
Prior to April 2003, the Corporation granted stock-based
and cash-based incentive awards pursuant to the Lockheed
Martin Corporation 1995 Omnibus Performance Award Plan
(the Omnibus Plan), which was approved by the stockholders in
March 1995. Awards under the Omnibus Plan were similar to
those authorized by the Award Plan except that the Omnibus
Plan did not include any minimum vesting requirements.
Under the Award Plan, 590,000 and 25,000 shares of
restricted common stock were issued in 2004 and 2003, respec-
tively. No restricted common stock was awarded in 2002. The
shares were recorded based on the market value of the
Corporation’s common stock on the date of the award and the
related compensation expense is recognized over the vesting
period. Recipients are entitled to receive cash dividends and to
vote their respective shares, but are prohibited from selling or
transferring shares prior to vesting. The restricted shares gener-
ally vest over three to five year periods from the grant date. The
impact of restricted stock awards was not material to net earn-
ings in 2004, 2003 or 2002.
In April 1999, the stockholders approved the Lockheed
Martin Directors Equity Plan (the Directors Plan).
Approximately 50% of each director’s annual compensation is
awarded under the Directors Plan. Directors of the
Corporation may elect to receive such compensation in the
form of stock units which track investment returns to changes
in value of the Corporation’s common stock with dividends
reinvested, options to purchase common stock of the
Corporation, or a combination of the two. The Directors Plan
requires that options to purchase common stock have an exer-
cise price of not less than 100% of the market value of the
underlying stock on the date of grant. Except in certain cir-
cumstances, options and stock units issued under the
Directors Plan vest on the first anniversary of the grant. The
maximum term of an option is 10 years.
Lockheed Martin Corporation
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