Boeing 2008 Annual Report Download - page 109

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Performance Shares granted in 2005 were measured on the date of grant using a Monte Carlo model.
Additionally, certain Performance Shares that have a cash settlement, are re-measured each balance
sheet date using a Monte Carlo model and are recalculated as a liability. Liability awards vesting and
transferred into deferred compensation plans totaled $0, $48 and $98 for the years ended
December 31, 2008, 2007 and 2006. The key assumptions used for valuing Performance Shares in
2008, 2007 and 2006 follow:
Grant Year
Measurement
Date
Weighted
Average
Expected
Volatility
Expected
Dividend
Yield
Risk Free
Interest Rate
Stock
Beta
2008 valuation assumptions
2005 12/31/2008 32.3% 2.3% 0.54% 0.91
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
Weighted average expected volatility is based on recent volatility levels implied by actively traded
option contracts on our common stock and the historical volatility levels on our common stock.
Expected dividend yield is based on historical dividend 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 different expected term, resulting in the
range of values provided.
At December 31, 2008, there was $6 of unrecognized compensation cost related to the Performance
Share plan which is expected to be recognized over a weighted average period of 15.3 years.
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 retirement, layoff, disability or death, the employee (or beneficiary) immediately
vests in grants that have been outstanding for at least one year.
On February 25, 2008, February 26, 2007 and February 27, 2006, we granted to our executives
6,411,300, 5,334,700 and 6,361,100 options, respectively, with an exercise 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-vested portion of the stock option will not vest and all rights to the
non-vested portion will terminate completely.
95