Boeing 2007 Annual Report Download - page 72

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Notes to Consolidated Financial Statements
Stock Options
Options have been granted with an exercise price equal to the
fair market value of our stock on the date of grant and expire
ten years after the date of grant. For stock options issued prior
to 2006, vesting is generally over a five-year service period
with portions of a grant becoming exercisable at one year,
three years and five years after the date of grant. In the event
an employee has a termination of employment due to retire-
ment, layoff, disability or death, the employee (or beneficiary)
immediately vests in grants that have been outstanding for at
least one year.
On February 26, 2007 and February 27, 2006, we granted to
our executives 5,334,700 and 6,361,100 options with an exer-
cise price equal to the fair market value of our stock on the
date of grant. The stock options vest over a period of three
years, with 34% vesting after the first year, 33% vesting after
the second year and the remaining 33% vesting after the third
year. The options expire 10 years after the date of grant. If an
executive terminates employment for any reason, the non-vest-
ed portion of the stock option will not vest and all rights to the
non-vested portion will terminate completely. Stock options
granted during 2005 were not material.
The activity of stock options issued to directors, officers, and
other employees for the year ended December 31, 2007 is
as follows:
(Shares in thousands) Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
Number of shares
under option:
Outstanding at
beginning of year 15,482 $56.22
Granted 5,342 89.66
Exercised
Forfeited
(4,291)
(663)
49.35
80.25
Expired (30) 53.14
Outstanding at end of year 15,840 $68.36 6.84 $314
Exercisable at end of year 6,700 $52.19 4.34 $236
The total intrinsic value of options exercised was $192, $216
and $170 during the years ended December 31, 2007, 2006
and 2005, respectively. Cash received from options exercised
for the years ended December 31, 2007, 2006 and 2005 was
$209, $294 and $348 with a related tax benefit of $65, $52
and $59, respectively, derived from the compensation deduc-
tions resulting from these option exercises. At December 31,
2007, there was $125 of total unrecognized compensation
cost related to the Stock Option plan which is expected to be
recognized over a weighted average period of 1.8 years. The
total fair value of stock options vested during the year ended
December 31, 2007 was $43.
The fair value of stock-based compensation awards granted
prior to 2006 were estimated using a binomial option-pricing
model and the 2007 and 2006 awards granted were estimated
using the Black-Scholes option-pricing model with the follow-
ing assumptions:
Risk Weighted
Free Average
Grant Grant Expected Expected Dividend Interest Grant Date
Year Date Life Volatility Yield Rate Fair Value
2007 2/26/07 6 years 28.4% 1.7% 4.62% $27.31
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
For the stock option grants issued in 2007 and 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 2007 and 2006 stock
option grants to be 6 years, calculated using the “simplified”
method in accordance with the SEC Staff Accounting Bulletin
107, Valuation of Share-Based Payment Arrangements for
Public Companies. We used the “simplified” method since we
changed the vesting terms, tax treatment and the recipients of
our stock options beginning in 2006 such that we believe our
historical data no longer provides a reasonable basis upon
which to estimate expected term.
Other Stock Unit Awards
The total number of other stock unit awards that are convert-
ible either to common stock or cash equivalents and are not
contingent upon stock price were 1,997,763, 1,871,559 and
2,037,438 at December 31, 2007, 2006 and 2005, respectively.
Liability award payments relating to Boeing Stock Units totaled
$40, $57 and $32 for the years ended December 31, 2007,
2006 and 2005, 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 adop-
tion 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 peri-
ods 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
The Boeing Company and Subsidiaries