Lockheed Martin 2003 Annual Report Download - page 61

Lockheed Martin Corporation
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Information regarding options outstanding at December
31, 2003 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 2,578 $ 18.35 5.0
$20.00–$29.99 2,514 26.54 3.1
$30.00–$39.99 10,074 36.05 5.5
$40.00–$50.00 3,468 45.58 3.1
Greater than $50.00 16,846 51.04 7.6
Total 35,480 42.14 6.1
Options exercisable:
Less than $20.00 2,578 $ 18.35 5.0
$20.00–$29.99 2,514 26.54 3.1
$30.00–$39.99 10,074 36.05 5.5
$40.00–$50.00 3,443 45.58 3.1
Greater than $50.00 6,924 51.26 6.1
Total 25,533 38.74 5.0
Stock options granted in 2003 under the Omnibus Plan
have 10-year terms and generally vest over a 3-year service
period. Options granted in 2002 and 2001 under the Omnibus
Plan also have 10-year terms, but generally vest over a 2-year
service period. Exercise prices of options awarded for all 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:
2003 2002 2001
Risk-free interest rate 2.91% 4.24% 4.95%
Dividend yield 1.00% 1.00% 0.60%
Volatility factors related to expected
price of Lockheed Martin stock 0.387 0.376 0.366
Expected option life 5 years 5 years 5 years
The weighted average fair value of each option granted
during 2003, 2002 and 2001 was $17.78, $18.23 and $13.32,
respectively.
NOTE 13 — POST-RETIREMENT BENEFIT PLANS
Defined contribution plans — The Corporation maintains a
number of defined contribution plans with 401(k) features that
cover substantially all employees, the most significant of which
are the 401(k) plans for salaried employees and hourly employ-
ees. Under the provisions of these 401(k) plans, employees’ eli-
gible contributions are matched by the Corporation at estab-
lished rates. The Corporation’s matching obligations were $238
million in 2003, $232 million in 2002 and $226 million in 2001,
the majority of which were funded in Lockheed Martin com-
mon stock.
The Lockheed Martin Corporation Salaried Savings Plan is
a defined contribution plan with a 401(k) feature that includes
an ESOP. The ESOP 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 June 2004.
Compensation costs recognized relative to the ESOP shares
were $108 million, $134 million and $90 million in 2003, 2002
and 2001, 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 $5 mil-
lion, $10 million and $13 million in 2003, 2002 and 2001,
respectively. Dividends received by the ESOP with respect to
unallocated shares held are used for debt service. The ESOP
held approximately 48.2 million issued shares of the
Corporation’s common stock at December 31, 2003, of which
approximately 47.0 million were allocated and 1.2 million were
unallocated. The fair value of the unallocated ESOP shares at
December 31, 2003 was approximately $60 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 calculat-
ing earnings per share. For 2003, 2002 and 2001, the weighted
average unallocated ESOP shares excluded in calculating earn-
ings per share totaled approximately 2.0 million, 4.4 million
and 6.7 million common shares, respectively.