Lockheed Martin 2002 Annual Report Download - page 63

SEVENTY
Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Approximately 19.6 million, 27.1 million and 27.9 mil-
lion outstanding options were exercisable by employees at
December 31, 2002, 2001 and 2000, respectively.
Information regarding options outstanding at December 31,
2002 follows (number of options in thousands):
Weighted
Weighted Average
Average Remaining
Range of Number of Exercise Contractual
Exercise Prices Options Price Life
Options outstanding:
Less than $20.00 2,969 $18.36 5.7
$20.00–$29.99 3,200 25.99 4.1
$30.00–$39.99 10,606 36.01 6.5
$40.00–$50.00 3,453 45.58 4.1
Greater than $50.00 10,406 51.00 7.7
Total 30,634 39.42 6.3
Options exercisable:
Less than $20.00 2,959 $18.36 5.7
$20.00–$29.99 2,486 25.77 3.2
$30.00–$39.99 7,253 36.45 5.8
$40.00–$50.00 3,443 45.57 4.1
Greater than $50.00 3,483 52.06 5.0
Total 19,624 36.74 5.0
All stock options granted in 2002, 2001 and 2000 under the
Omnibus Plan have 10-year terms and generally vest over a
two-year service period. Exercise prices of options awarded in
those years were equal to the market price of the stock on the
date of grant. Pro forma information regarding net earnings and
earnings per share as if the Corporation had accounted for its
employee stock options under the fair value method is included
in Note 1. The fair value for these options was estimated at the
date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions for 2002, 2001 and
2000, respectively: risk-free interest rates of 4.24%, 4.95% and
6.61%; dividend yields of 1.0%, 0.6% and 0.8%; volatility fac-
tors related to the expected market price of the Corporation’s
common stock of .376, .366 and .342; and a weighted average
expected option life of five years. The weighted average fair
value of each option granted during 2002, 2001 and 2000 was
$18.23, $13.32 and $7.62, respectively.
NOTE 13—POST-RETIREMENT BENEFIT PLANS
Defined contribution plans—The Corporation maintains a
number of defined contribution plans which cover substan-
tially all employees, the most significant of which are the
401(k) plans for salaried employees and hourly employees.
Under the provisions of these 401(k) plans, employees’ eligi-
ble contributions are matched by the Corporation at estab-
lished rates. The Corporation’s matching obligations were
$232 million in 2002, $226 million in 2001 and $221 million
in 2000.
The Lockheed Martin Corporation Salaried Savings Plan
includes an ESOP which purchased 34.8 million shares of the
Corporation’s common stock in 1989 with the proceeds from a
$500 million note issue which is guaranteed by the Corporation.
The Corporation’s match consisted of shares of its common
stock, which was partially fulfilled with stock released from
the ESOP at approximately 2.4 million shares per year based
upon the debt repayment schedule through the year 2004.
Compensation cost recognized relative to the ESOP shares
was $134 million, $90 million and $59 million in 2002, 2001
and 2000, respectively. The remainder of the Corporation’s
match to the Salaried Savings Plan was fulfilled through pur-
chases of common stock from terminating participants or in
the open market, or through newly issued shares from the
Corporation. Interest incurred on the ESOP debt totaled $10
million, $13 million and $17 million in 2002, 2001 and 2000,
respectively. Dividends received by the ESOP with respect to
unallocated shares held are used for debt service. The ESOP
held approximately 45.8 million issued shares of the
Corporation’s common stock at December 31, 2002, of which
approximately 42.3 million were allocated and 3.5 million
were unallocated. The fair value of the unallocated ESOP
shares at December 31, 2002 was approximately $200 million.
Unallocated common shares held by the ESOP are considered
outstanding for voting and other Corporate purposes, but
excluded from weighted average outstanding shares in calcu-
lating earnings per share. For 2002, 2001 and 2000, the
weighted average unallocated ESOP shares excluded in calcu-
lating earnings per share totaled approximately 4.4 million,
6.7 million and 9.0 million common shares, respectively.