Lockheed Martin 2010 Annual Report Download - page 81

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During 2010, 2009, and 2008, we repurchased 33.0 million, 24.9 million, and 29.0 million shares of our common stock for
$2,483 million, $1,851 million, and $2,931 million. Of the shares we repurchased in 2010, 0.9 million shares for $63 million were
repurchased in December but settled and were paid for in January 2011. In October 2010, our Board of Directors approved a new
share repurchase program for the repurchase of our common stock from time-to-time, up to an authorized amount of $3 billion. Under
the program, we have discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in
compliance with applicable law and regulation. During 2010, we had repurchased a total of 11.2 million shares under the program for
$776 million, and as of December 31, 2010, there remained $2,224 million available for additional share repurchases. In connection
with their approval of the new share repurchase program, our Board of Directors terminated our previous share repurchase program.
As we repurchase our common shares, we reduce common stock for the $1 of par value of the shares repurchased, with the
remainder of the purchase price over par value recorded as a reduction of additional paid-in capital. Due to the volume of repurchases
made under our share repurchase program, additional paid-in capital was reduced to zero, with the remainder of the excess of purchase
price over par value of $1.9 billion and $1.4 billion recorded as a reduction of retained earnings in 2010 and 2009.
Note 13 – Stock-Based Compensation
During 2010, 2009, and 2008, we recorded non-cash compensation cost related to stock options and restricted stock totaling
$168 million, $154 million, and $155 million, which is included on our Statements of Earnings in other unallocated corporate costs
within cost of sales. The net impact to earnings for the respective years was $109 million, $99 million, and $100 million.
Stock-Based Compensation Plans
We had two stock-based compensation plans in place at December 31, 2010: the Lockheed Martin Amended and Restated 2003
Incentive Performance Award Plan (the Award Plan) and the Lockheed Martin Directors Equity Plan (the Directors Plan). Under the
Award Plan, we have the right to grant key employees stock-based incentive awards, including options to purchase common stock,
stock appreciation rights, restricted stock, or stock units. Employees also may receive cash-based incentive awards. We evaluate the
types and mix of stock-based incentive awards on an ongoing basis and may vary the mix based on our overall strategy regarding
compensation.
Under the Award Plan, the exercise price of options to purchase common stock may not be less than 100% of the market value
of our stock on the date of grant. No award of stock options may become fully vested prior to the second anniversary of the grant, and
no portion of a stock option grant may become vested in less than one year, except for 1.5 million stock options that are 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, change of control, or layoff. The Award Plan does not impose any minimum vesting periods on
other types of awards. The maximum term of a stock option or any other award is 10 years.
We generally recognize compensation cost for stock options ratably over the three-year vesting period for active, non-retirement
eligible employees. For active, retirement-eligible employees or, those who have attained age 55 with five years of service, we
generally recognize expense over the initial one-year vesting period. When an option holder becomes retirement eligible, we
accelerate the recognition of any expense not previously recognized for options held for at least one year. We use the Black-Scholes
option pricing model to estimate the fair value of stock options.
We record restricted stock units (RSUs) issued under the Award Plan based on the market value of our common stock on the
date of the award. We recognize the related compensation expense over the vesting period. Employees who are granted RSUs receive
the restricted shares and dividend-equivalent cash payments; however, the shares are not issued, and the employees may not sell or
transfer shares prior to vesting and have no voting rights until the RSUs vest, generally three years from the date of the award.
Under the Directors Plan, directors receive approximately 50% of their annual compensation in the form of equity-based
compensation. Each director may elect to receive his or her equity-based compensation in the form of stock units that track investment
returns to changes in value of our common stock with dividends reinvested, options to purchase common stock, or a combination of
the two. Under the Directors Plan, options to purchase common stock have an exercise price of 100% of the market value of the
underlying stock on the date of grant. Stock options and stock units issued under the Directors Plan vest 50% on June 30 following the
date of grant and 50% on December 31 following the date of grant, except in certain circumstances. The maximum term of a stock
option is 10 years.
Our stockholders have approved the Award Plan and the Directors Plan, as well as the number of shares of our common stock
authorized for issuance under these plans. At December 31, 2010, inclusive of the shares reserved for outstanding stock options and
RSUs, we had 35 million shares reserved for issuance under our stock option and award plans. At December 31, 2010, 7 million of the
shares reserved for issuance remained available for grant under the plans. We issue new shares upon the exercise of stock options or
when restrictions on RSUs have been satisfied.