Lockheed Martin 2008 Annual Report Download - page 97

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In 2008, our stockholders approved a new plan for the Board of Directors (the 2009 Directors Equity Plan) which
became effective January 1, 2009. The 2009 Directors Equity Plan replaces but provides comparable compensation to the
Directors Plan, which was due to expire in May 2009. There are 0.6 million shares reserved for issuance under the New
Directors Plan.
2008 Activity
Stock Options
The following table summarizes stock option activity during the year ended December 31, 2008:
Number of
Stock
Options
(In thousands)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(In years)
Aggregate
Intrinsic
Value
(In millions)
Outstanding at December 31, 2007 20,365 $ 59.99
Granted 3,581 106.88
Exercised (4,700) 52.80
Terminated (97) 75.64
Outstanding at December 31, 2008 19,149 70.44 6.3 $380.8
Vested and unvested expected to vest at
December 31, 2008 19,024 70.22 6.3 380.8
Exercisable at December 31, 2008 12,107 55.25 5.0 361.0
Stock options granted vest over three years and have 10-year terms. Exercise prices of stock options awarded for all
periods were equal to the market price of the stock on the date of grant. The following table pertains to stock options which
were granted, vested, and exercised for the years presented.
(In millions, except for grant date fair value of stock options) 2008 2007 2006
Weighted average grant-date fair value of stock options granted $19.31 $23.99 $17.64
Aggregate fair value of all the stock options that vested 78 86 103
Aggregate intrinsic value of all of the stock options exercised 263 361 389
We estimate the fair value for stock options at the date of grant using the Black-Scholes option pricing model, which
requires us to make certain assumptions. We estimate volatility based on the historical volatility of our daily stock price over
the past five years, which is commensurate with the expected life of the options. We base the average expected life on the
contractual term of the stock option, historical trends in employee exercise activity, and post-vesting employment
termination trends. We base the risk-free interest rate on U.S. Treasury zero-coupon issues with a remaining term equal to the
expected life assumed at the date of grant. We estimate forfeitures at the date of grant based on historical experience. The
impact of forfeitures is not material.
We used the following weighted average assumptions in the Black-Scholes option pricing model to determine the fair
values of stock-based compensation awards during the years ended December 31, 2008, 2007, and 2006:
2008 2007 2006
Risk-free interest rate 2.83% 4.83% 4.50%
Dividend yield 1.70% 1.70% 1.80%
Volatility factors 0.195 0.234 0.260
Expected option life 5 years 5 years 5 years
89