Northrop Grumman 2011 Annual Report Download - page 108

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NORTHROP GRUMMAN CORPORATION
The total intrinsic value of options exercised during the years ended December 31, 2011, 2010, and 2009, was $46
million, $42 million, and $11 million, respectively. Intrinsic value is measured using the fair market value at the
date of exercise (for options exercised) or at December 31, 2011 (for outstanding options), less the applicable
exercise price.
Stock Awards
Compensation expense for stock awards is measured at the grant date based on fair value and recognized over the
vesting period, generally three years. The fair value of stock awards and performance stock awards is determined
based on the closing market price of the company’s common stock on the grant date. The fair value of market-
based stock awards is determined at the grant date using a Monte Carlo simulation model. For purposes of
measuring compensation expense for performance awards, the number of shares ultimately expected to vest is
estimated at each reporting date based on management’s expectations regarding the relevant performance criteria.
Stock award activity for the years ended December 31, 2011, 2010, and 2009, is presented in the table below.
Vested awards include stock awards fully vested during the year and net adjustments to reflect the final
performance measure for issued shares.
Weighted-
Weighted- Average
Stock Average Remaining
Awards Grant Date Contractual
(in thousands) Fair Value Term
Outstanding at January 1, 2009 3,276 $75 1.4 years
Granted 2,356 45
Vested (1,645) 71
Forfeited (329) 66
Outstanding at December 31, 2009 3,658 $58 1.6 years
Granted 2,317 60
Vested (1,319) 79
Forfeited (356) 56
Outstanding at December 31, 2010 4,300 $53 1.5 years
Granted 1,748 63
Vested (1,824) 42
Forfeited (350) 50
Shipbuilding spin-off adjustments (252) 47
Outstanding at December 31, 2011 3,622 $58 1.6 years
The company issued 1.4 million, 1.3 million, and 2.5 million shares to employees in settlement of prior year stock
awards that were fully vested, which had total fair values at issuance of $87 million, $76 million, and $111 million
and grant date fair values of $101 million, $91 million, and $161 million during the years ended December 31,
2011, 2010, and 2009, respectively. The differences between the fair values at issuance and the grant date fair
values reflect the effects of the performance adjustments and changes in the fair market value of the company’s
common stock.
In 2012, the company expects to issue to employees 2.8 million shares of common stock from the 2009 stock
award grant that vested as of December 31, 2011, with a grant date fair value of $115 million. The ultimate
amount of shares to be paid out is subject to approval by the Compensation Committee of the Board of Directors
and may vary from this estimate.
Cash Performance Units
Cash performance units are cash units, which are paid in cash based on the achievement of long-term financial
goals at the end of a three-year period. If objectives are not met at the end of the applicable performance period,
the entire grant may be forfeited. However if objectives are exceeded, up to 200 percent of the original grant may
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