Ford 2006 Annual Report Download - page 78
Download and view the complete annual report
Please find page 78 of the 2006 Ford annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.76
Notes to the Financial Statements
76
NOTE 16. SHARE-BASED COMPENSATION
Since January 1, 2003, we have been expensing employee compensation pursuant to the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. During the fourth quarter of 2005, we adopted the provisions of SFAS No.
123R, Share-Based Payment, under the modified prospective method. We applied SFAS No. 123R to new awards in
2006 and to any previous awards that were modified, repurchased, or cancelled after the date of adoption of this
standard.
At December 31, 2006, a variety of Ford stock-based compensation grants or awards were outstanding for employees
(including officers) and members of the Board of Directors. All stock-based compensation plans are approved by the
shareholders.
Description of Stock Option Plans
We continue to measure the fair value of the majority of our stock-based compensation using the Black-Scholes
option-pricing model, using historical volatility and the simplified method of calculating the expected term. Our expected
term is calculated by averaging the vesting term (3 years) and the contractual term of the option (10 years). Historical
data is also used to estimate option exercise behaviors and employee termination experience within the valuation model.
Based on our assessment of employee groupings and observable behaviors, we determined that a single grouping is
appropriate. Upon stock-settled compensation exercises and awards, shares were issued from treasury stock. We do not
expect to repurchase a significant number of shares for treasury stock during 2007.
We have stock options outstanding under two Long-term Incentive Plans ("LTIP"), the 1990 LTIP and the 1998 LTIP.
No further grants may be made under the 1990 LTIP and all outstanding options thereunder are exercisable. All
outstanding options under the 1990 LTIP continue to be governed by the terms and conditions of the existing option
agreements for those grants. Grants may continue to be made under the 1998 LTIP through April 2008. Under the
1998 LTIP, 33% of the options are generally exercisable after the first anniversary of the date of grant, 66% after the
second anniversary, and 100% after the third anniversary. Stock options expire ten years from the grant date and are
expensed using a three-year cliff vesting methodology.
We awarded performance-based stock options in 2006. The fair value of the performance-based options was
measured on the date of grant using the Monte Carlo simulation lattice model. This model computes an expected term for
the performance-based option grant and utilizes multiple input variables that determine the probability of satisfying each
market condition stipulated in the award grant.
Under the 1998 LTIP, 2% of our issued Common Stock as of December 31 becomes available for granting plan
awards in the succeeding calendar year. Any unused portion is available for later years. The limit may be increased up to
3% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 2006, the
number of unused shares carried forward was 95.9 million shares.
Stock option activity was as follows:
6WRFN2SWLRQ$FWLYLW\
6KDUHV
PLOOLRQV
:HLJKWHG
$YHUDJH
([HUFLVH
3ULFH
6KDUHV
PLOOLRQV
:HLJKWHG
$YHUDJH
([HUFLVH
3ULFH
6KDUHV
PLOOLRQV
:HLJKWHG
$YHUDJH
([HUFLVH
3ULFH
2XWVWDQGLQJEHJLQQLQJRI\HDU
*UDQWHG
([HUFLVHG
)RUIHLWHGLQFOXGLQJH[SLUDWLRQV
2XWVWDQGLQJHQGRI\HDU
([HUFLVDEOHHQGRI\HDU
BBBBBBBBBB
([HUFLVHGDWRSWLRQSULFHRIGXULQJDQGUDQJLQJIURPWRGXULQJDQGWRGXULQJ