Boeing 2006 Annual Report Download - page 71

The Boeing Company and Subsidiaries 69
Notes to Consolidated Financial Statements
vesting after the second year and the remaining 33% vesting
after the third year. The options expire ten years after the date
of grant. If an executive terminates for any reason, the non-
vested portion of the stock option will not vest and all rights to
the non-vested portion will terminate completely.
The following table summarizes the activity of stock options
issued to directors, officers and other employees:
December 31, 2006
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
(Shares in thousands) Shares Price Life (years) (in millions)
Number of shares
under option:
Outstanding at
beginning of year 16,358 $45.40
Granted 6,408 74.55
Exercised (6,543)46.58
Forfeited (697)67.64
Expired (44)48.70
Outstanding at
end of year 15,482 56.22 5.87 $505
Exercisable at
end of year 8,428 $46.58 3.48 $356
The total intrinsic value of options exercised was $216, $170
and $44 during the years ended December 31, 2006, 2005
and 2004, respectively. Cash received from options exercised
for the years ended December 31, 2006, 2005 and 2004 was
$294, $348 and $98 with a related tax benefit of $52, $59 and
$13, respectively, derived from the compensation deductions
resulting from these option exercises. Stock options granted
during 2005 and 2004 were not material. At December 31, 2006,
there was $97 of total unrecognized compensation cost related
to the Stock Option plan which is expected to be recognized
over a weighted average period of 2.1 years. The total fair value
of stock options vested during the year ended December 31,
2006 was $8.
The fair value of stock-based compensation awards granted prior
to 2006 were estimated using a binomial option-pricing model
and the 2006 awards granted were estimated using the Black-
Scholes option-pricing model with the following assumptions:
Risk Weighted
Free Average
Grant Grant Expected Expected Dividend Interest Grant Date
Year Date Life Volatility Yield Rate Fair Value
2006 2/27/06 6 years 29.5% 1.8% 4.64% $23.00
2005 8/23/05 9 years 29% 1.5% 4.2% 25.01
2004 12/17/04 9 years 31% 1.1% 4.2% 18.60
For the stock option grants issued in 2006 the expected
volatility is based on a combination of our historical stock
volatility and the volatility levels implied on the grant date by
actively traded option contracts on our common stock. We
determined the expected term of the 2006 stock option grants
to be 6 years, calculated in accordance with the SEC Staff
Accounting Bulletin (SAB) 107 using the “simplified” method.
Other Stock Unit Awards
The total number of other stock unit awards that are convertible
either to common stock or cash equivalents and are not
contingent upon stock price were 1,871,559, 2,037,438 and
2,019,250 at December 31, 2006, 2005 and 2004, respectively.
Liability award payments relating to Boeing Stock Units totaled
$57, $32 and $24 for the years ended December 31, 2006,
2005 and 2004, respectively.
ShareValue Trust
The ShareValue Trust, established effective July 1, 1996, is a
14-year irrevocable trust that holds our common stock,
receives dividends and distributes to employees the apprecia-
tion in value above a 3% per annum threshold rate of return at
the end of each period. The total compensation expense to be
recognized over the life of the trust was determined using a
binomial option-pricing model and was not affected by adoption
of SFAS No.123R.
The Trust was split between two funds, “fund 1” and “fund 2”,
upon its initial funding. Each fund consists of investment
periods which result in overlapping periods as follows:
Period 1 (fund 1): July 1, 1996 to June 30, 1998
Period 2 (fund 2): July 1, 1996 to June 30, 2000
Period 3 (fund 1): July 1, 1998 to June 30, 2002
Period 4 (fund 2): July 1, 2000 to June 30, 2004
Period 5 (fund 1): July 1, 2002 to June 30, 2006
Period 6 (fund 2): July 1, 2004 to June 30, 2008
Period 7 (fund 1): July 1, 2006 to June 30, 2010
An initial investment value is established for each investment
period based on the lesser of either (1) fair market value of the
fund or (2) the prior ending balance of that fund. This amount is
then compounded by the 3% per annum to determine the
threshold amount that must be met for that investment period.
At the end of the investment period, the value of the investment
in excess of the threshold amount will result in a distribution to
participants. A distribution is proportionally distributed in the
ratio each participant’s number of months of participation which
relates to the total number of months earned by all participants
in the investment period. At December 31, 2006, the Trust held
30,903,026 shares of our common stock in the two funds.
Based on the average stock price of $82.285 as of
June 30, 2006, the market value of fund 1 exceeded the
threshold of $1,004 by $758. This excess was paid in Boeing
common stock, except for partial shares and distributions to
non-U.S. employees and beneficiaries of deceased participants,
which were paid in cash. After employee withholding taxes of
$265, which were recorded as a liability in the second quarter
of 2006 and were paid in the third quarter of 2006, 5.6 million
shares of common stock were distributed to participants
during the third quarter of 2006. These distributions were
recorded as a deduction to Additional paid-in capital. In addi-
tion, related employer payroll taxes of $59 were expensed in
the second quarter of 2006.