Boeing 2007 Annual Report Download - page 71

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Notes to Consolidated Financial Statements
Performance Shares not converted to common stock expire
five years after the date of the award. Awards may vest based
on total shareholder return as follows:
■ For 2003 and 2004 awards, up to 125% of the award may
vest based on an award formula using the total shareholder
return performance relative to the S&P 500.
■ For 2005 award, up to 125% of the award may vest based
on an award formula using the total shareholder return per-
formance relative to the S&P 100 and the five-year Treasury
Bill rate.
In the event a participant’s employment terminates due to
retirement, layoff, disability, or death, the participant (or
beneficiary) continues to participate in Performance Shares
awards that have been outstanding for at least one year. In
all other cases, participants forfeit unvested awards if their
employment terminates.
Performance Shares activity for the year ended December 31,
2007 is as follows:
(Shares in thousands) Shares
Number of Performance Shares:
Outstanding at beginning of year 4,020
Transferred1 2,621
Dividend 32
Converted or deferred (5,929)
Forfeited (13)
Outstanding at end of year 731
Outstanding at end of year not
contingent on future employment 333
1 Represents shares for awards greater than 100%
The following table provides additional information
regarding potentially convertible and converted or deferred
Performance Shares.
(Shares in thousands)
Grant Date 2/24/2003 2/23/2004 2/28/2005
Expiration Date 2/24/2008 2/23/2009 2/28/2010
Weighted Average
Grant Date Fair Value $30.27 $43.53 $33.05
Cumulative Vested at
December 31, 2007 125% 125% 90%
Shares Convertible at
December 31, 2007 731
Shares Convertible at
December 31, 2006 4,020
Shares Converted or
Deferred During 2007 2,621 3,308
Shares Converted or
Deferred During 2006 6,003 3,280
Total Market Value of
Converted or Deferred
Shares 2007 $256 $328
Total Market Value of
Converted or Deferred
Shares 2006 $496 $276
The above tables do not include the maximum number of
shares contingently issuable under the Plans. Additional shares
of 1,803,412 could be transferred in and converted or deferred
if Performance Share vestings exceed 100%. Additionally,
future deferred vestings that are eligible for the 25% matching
contribution could result in the issuance of an additional
506,763 shares.
For years ended December 31, 2007, 2006 and 2005, we
recorded $54, $120 and $124, respectively, to accelerate the
amortization of compensation cost for those Performance
Shares converted to common stock or deferred as stock or
cash at the employees’ election.
As discussed above, Performance Shares granted in 2005
were measured on the date of grant using a Monte Carlo
model. Additionally, we began to remeasure certain
Performance Shares that have a cash settlement feature as lia-
bility awards beginning September 30, 2005. Liability awards
vesting and transferred into deferred compensation plans
totaled $48, $98 and $9 for the years ended December 31,
2007, 2006 and 2005. The key assumptions used for valuing
Performance Shares in 2006 and 2005 follow:
Weighted
Average Expected
Measurement Expected Dividend Risk Free Stock
Grant Year Date Volatility Yield Interest Rate Beta
2007 valuation assumptions
2005 12/31/2007 21.5% 1.5% 3.31% 0.91
2006 valuation assumptions
2002– 2005 12/31/2006 21.5% 1.5% 4.62– 4.83% 1.12
2005 valuation assumptions
2001– 2005 12/31/2005 23.0% 1.6% 4.38– 4.43% 0.98
2005 2/28/2005 27.8% 1.9% 4.00% 1.03
Weighted average expected volatility is based on recent vola-
tility levels implied by actively traded option contracts on our
common stock and the historical volatility levels on our com-
mon stock. Expected dividend yield is based on historical divi-
dend payments. Risk free interest rate reflects the yield on the
zero coupon U.S. Treasury based on the Performance Shares’
remaining contractual term. Stock beta is a measure of how
our stock price moves relative to the stock market as a whole.
The fair value of the 2005 Performance Shares is amortized
over the expected term of each award. The expected term of 1
to 4 years for each award granted is derived from the output of
the valuation model and represents the median time required
to satisfy the conditions of the award, adjusted for the effect of
retiree eligible participants. Each price growth target has a dif-
ferent expected term, resulting in the range of values provided.
At December 31, 2007, there was $22 of unrecognized com-
pensation cost related to the Performance Share plan which
is expected to be recognized over a weighted average period
of 0.1 years. In connection with Performance Shares that have
not met the market conditions, we reclassified $288 from
Additional paid-in capital to Other liabilities and recognized a
cumulative adjustment to General and administrative expense
of $88 during 2005. Additionally, effective December 31, 2005,
we modified our deferred stock compensation plan to require
all Performance Shares that were unvested and deferred as
stock units to be settled in stock.
The Boeing Company and Subsidiaries