Northrop Grumman 2010 Annual Report Download - page 113

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experience under the company’s stock-based compensation plans and represents the period of time that awards
granted are expected to be outstanding.
The significant weighted-average assumptions relating to the valuation of the company’s stock options for the
years ended December 31, 2010, 2009, and 2008, was as follows:
2010 2009 2008
Dividend yield 2.9% 3.6% 1.8%
Volatility rate 25% 25% 20%
Risk-free interest rate 2.2% 1.7% 2.8%
Expected option life (years) 65-6 6
The company generally granted stock options exclusively to executives, and the expected term of six years is
based on these employees’ exercise behavior. In 2009, the company granted options to non-executives and
assigned an expected term of five years for valuing these options. The company believes that this stratification of
expected terms best represents future expected exercise behavior between the two employee groups.
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2010,
2009, and 2008, was $11, $7, and $15, per share, respectively.
Stock option activity for the year ended December 31, 2010, was as follows:
Shares
Under Option
(in thousands)
Weighted-
Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
($ in millions)
Outstanding at January 1, 2010 14,442 $53 3.8 years $ 88
Granted 2,092 60
Exercised (2,913) 48
Cancelled and forfeited (400) 54
Outstanding at December 31, 2010 13,221 $55 3.8 years $149
Vested and expected to vest in the
future at December 31, 2010 13,084 $55 3.7 years $147
Exercisable at December 31, 2010 9,813 $55 3.1 years $115
Available for grant at December 31, 2010 7,257
The total intrinsic value of options exercised during the years ended December 31, 2010, 2009, and 2008, was
$42 million, $11 million, and $66 million, respectively. Intrinsic value is measured using the fair market value at
the date of exercise (for options exercised) or at December 31, 2010 (for outstanding options), less the applicable
exercise price.
Stock Awards
The fair value of stock awards is determined based on the closing market price of the company’s common stock
on the grant date. Compensation expense for stock awards is measured at the grant date based on fair value and
recognized over the vesting period, generally three years. For purposes of measuring compensation expense, the
number of shares ultimately expected to vest is estimated at each reporting date based on management’s
expectations regarding the relevant performance criteria.
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NORTHROP GRUMMAN CORPORATION