Boeing 2007 Annual Report Download - page 70

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Notes to Consolidated Financial Statements
401(k) Plans
We provide certain defined contribution plans to all eligible em-
ployees. The principal plans are the Company-sponsored 401(k)
plans. The expense for these defined contribution plans was
$536, $514 and $483 in 2007, 2006 and 2005, respectively.
Note 16 – Share-Based Compensation and
Other Compensation Arrangements
Share-Based Compensation
On May 1, 2006, the shareholders approved an amendment to
The Boeing Company 2003 Incentive Stock Plan (2003 Plan).
The 2003 Plan permits awards of incentive stock options,
nonqualified stock options, restricted stock, stock units,
Performance Shares, performance units and other incentives
to our employees, officers, consultants and independent con-
tractors. The aggregate number of shares of our stock avail-
able for issuance under the amended 2003 Plan will not
exceed 60,000,000. Under the terms of the amended 2003
Plan, no more than an aggregate of 12,000,000 shares are
available for issuance as restricted stock awards.
Our 1997 Incentive Stock Plan (1997 Plan) permits the grant of
stock options, stock appreciation rights (SARs) and restricted
stock awards (denominated in stock or stock units) to employ-
ees and contract employees. Under the terms of the plan,
64,000,000 shares are authorized for issuance upon exercise
of options, as payment of SARs and as restricted stock
awards, of which no more than an aggregate of 6,000,000
shares are available for issuance as restricted stock awards.
This authorization for issuance under the 1997 Plan terminated
on April 30, 2007.
Shares issued as a result of stock option exercise or conver-
sion of stock unit awards will be funded out of treasury shares
except to the extent there are insufficient treasury shares in
which case new shares will be issued. We believe we currently
have adequate treasury shares to meet any requirements to
issue shares during 2008.
Share-based plans expense is primarily included in general
and administrative expense since it is incentive compensation
issued primarily to our executives. The share-based plans
expense and related income tax benefit follow:
Years ended December 31, 2007 2006 2005
Performance Shares $÷94 $473 $÷«723
Stock options, other 115 173 234
ShareValue Trust 78 97 79
Share-based plans expense $287 $743 $1,036
Income tax benefit $118 $291 $÷«332
Adoption of SFAS No. 123R
We early adopted the provisions of SFAS No. 123R as of
January 1, 2005 using the modified prospective method. Upon
adoption of SFAS No. 123R, we recorded an increase in net
earnings of $21, net of taxes of $12, as a cumulative effect of
accounting change due to SFAS No. 123R’s requirement to
apply an estimated forfeiture rate to unvested awards.
Previously we expensed forfeitures as incurred. SFAS No.
123R also resulted in changes in our methods of measuring
and amortizing compensation cost of our Performance Shares.
For Performance Shares granted prior to 2005, share-based
expense was measured based on the market price of our
stock on the award date and was generally amortized over a
five-year period. For Performance Shares granted in 2005, the
fair value of each award was measured on the date of grant
using a Monte Carlo simulation model. The Monte Carlo model
also computed an expected term for each Performance Share.
We changed our valuation method based on further clarification
provided in SFAS No. 123R and the fact that our Performance
Shares contain a market condition, which should be reflected
in the grant date fair value of an award. The Monte Carlo
simulation model utilizes multiple input variables that determine
the probability of satisfying each market condition stipulated in
the award grant.
Additionally, prior to the adoption of SFAS No. 123R, we
amortized compensation cost for share-based awards over
the stated vesting period for retirement eligible employees and,
if an employee retired before the end of the vesting period,
we recognized any remaining unrecognized compensation
cost at the date of retirement. As a result of adopting SFAS
No. 123R, for all share-based awards granted after January 1,
2005, we recognize compensation cost for retirement eligible
employees over the greater of one year from the date of grant
or the period from the date of grant to the employee’s retire-
ment eligibility date (non-substantive vesting approach). Had
we also applied the non-substantive vesting approach to
awards granted prior to 2005, compensation expense would
have been $6, $50 and $96 lower for the years ended
December 31, 2007, 2006 and 2005.
Performance Shares
Performance Shares are stock units that are convertible to
common stock, on a one-to-one basis, contingent upon stock
price performance. If, at any time up to five years after award,
the stock price reaches and maintains for twenty consecutive
days a price equal to stated price growth targets, a stated
percentage (up to 125%) of the Performance Shares awarded
are vested and convertible to common stock.
Cumulative stock price growth targets and vesting percent-
ages for 2003, 2004 and 2005 awards follow:
Cumulative Growth 40% 50% 60% 70% 80% 90% 100% 110% 120% 125%
Cumulative Vesting 15% 30% 45% 60% 75% 90% 100% 110% 120% 125%
The Boeing Company and Subsidiaries