Northrop Grumman 2012 Annual Report Download - page 83

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NORTHROP GRUMMAN CORPORATION
-73-
The 1995 SPND provided for an annual grant of nonqualified stock options to each non-employee director. Since
June 2005, no new grants have been issued under that 1995 SPND. Each grant of stock options under the 1995
SPND was made at the closing market price on the date of the grant and expires ten years from the date of grant. As
of December 31, 2012, only three non-employee directors held unexercised options.
Compensation Expense
Stock-based compensation expense and the related tax benefits for the years ended December 31, 2012, 2011, and
2010, were as follows:
Year Ended December 31
$ in millions 2012 2011 2010
Stock-based compensation expense:
Stock options $ 10 $ 14 $ 27
Stock awards 173 125 107
Total stock-based compensation expense 183 139 134
Tax benefits from the exercise of stock options 26 18 17
Tax benefits from the issuance of stock awards 19 37 36
Tax benefits recognized for stock-based compensation $ 45 $ 55 $ 53
At December 31, 2012, there was $114 million of unrecognized compensation expense related to unvested awards
granted under the company’s stock-based compensation plans, of which $5 million relates to stock options and $109
million relates to stock awards. These amounts are expected to be charged to expense over a weighted-average
period of 1.3 years.
Stock Options
There were no stock options issued in 2012. Stock option activity for the year ended December 31, 2012, was as
follows:
Shares
under Option
(in thousands)
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($ in millions)
Outstanding at January 1, 2012 11,744 $53 3.4 years $93
Granted — —
Exercised (5,404) 47
Cancelled and forfeited (69) 61
Outstanding at December 31, 2012 6,271 58 2.9 years 66
Vested and expected to vest in the future at
December 31, 2012 6,257 58 2.9 years 66
Exercisable at December 31, 2012 4,874 $58 2.5 years $53
The total intrinsic value of options exercised during the years ended December 31, 2012, 2011, and 2010, was $97
million, $46 million, and $42 million, respectively. Intrinsic value is measured using the fair market value at the date
of exercise (for options exercised) or at December 31, 2012 (for outstanding options), less the applicable exercise
price.
Stock Awards
Compensation expense for stock awards is measured at the grant date based on the fair value of the award and is
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.