Lockheed Martin 2005 Annual Report Download - page 62

   
As฀part฀of฀the฀share฀repurchase฀program,฀the฀Corporation฀
may฀from฀time-to-time฀enter฀into฀structured฀share฀repurchase฀
transactions฀with฀financial฀institutions.฀These฀agreements฀gen-
erally฀ require฀ an฀ up-front฀ cash฀ payment฀ in฀ exchange฀ for฀ the฀
right฀to฀receive฀shares฀of฀Lockheed฀Martin’s฀common฀stock฀or฀
cash฀ at฀ the฀ expiration฀ of฀ the฀ agreement,฀ dependent฀ upon฀ the฀
closing฀ price฀ of฀ the฀ common฀ stock฀ at฀ the฀ maturity฀ date.฀ The฀
Corporation฀entered฀into฀several฀such฀transactions฀during฀2005฀
which,฀in฀the฀aggregate,฀required฀up-front฀cash฀payments฀total-
ing฀ $396฀ million.฀ Based฀ on฀ the฀ closing฀ price฀ of฀ its฀ common฀
stock฀on฀ the฀maturity฀dates฀of฀the฀agreements,฀certain฀of฀the฀
transactions฀resulted฀in฀the฀Corporation฀repurchasing฀3.1฀mil-
lion฀ shares฀ of฀ common฀ stock฀ at฀ a฀ total฀ cost฀ of฀ $195฀ million.฀
These฀amounts฀are฀included฀in฀the฀total฀share฀repurchase฀fig-
ures฀ included฀ in฀ the฀ previous฀ paragraph.฀ The฀ Corporation฀
received฀ its฀ up-front฀ cash฀ payment฀ plus฀ a฀ premium฀ for฀ the฀
remaining฀transactions฀that฀did฀not฀result฀in฀the฀repurchase฀of฀
shares.฀ There฀ were฀ no฀ such฀ transactions฀ outstanding฀ at฀
December฀31,฀2005.฀

In฀April฀2005,฀the฀stockholders฀approved฀the฀Lockheed฀Martin฀
Amended฀ and฀ Restated฀ 2003฀ Incentive฀ Performance฀ Award฀
Plan฀ (the฀ Award฀ Plan).฀ Under฀ the฀ Award฀ Plan,฀ employees฀ of฀
the฀Corporation฀may฀be฀granted฀stock-based฀incentive฀awards,฀
including฀options฀to฀purchase฀common฀stock,฀stock฀apprecia-
tion฀rights,฀restricted฀stock฀or฀stock฀units.฀The฀maximum฀num-
ber฀of฀shares฀that฀may฀be฀subject฀to฀such฀stock-based฀incentive฀
awards฀ in฀ any฀ calendar฀ year฀ is฀ limited฀ to฀ 1.6%฀ of฀ the฀
Corporation’s฀common฀stock฀outstanding฀on฀the฀December฀31฀
preceding฀the฀grant.฀The฀maximum฀number฀of฀shares฀that฀may฀
be฀issued฀as฀restricted฀stock฀awards฀(RSAs)฀is฀limited฀to฀28%฀
of฀the฀total฀number฀of฀shares฀authorized฀to฀be฀issued฀under฀the฀
Award฀Plan.฀Employees฀may฀also฀be฀granted฀cash-based฀incen-
tive฀awards.฀These฀awards฀may฀be฀granted฀either฀individually฀
or฀in฀combination฀with฀other฀awards.฀
The฀ Award฀ Plan฀ requires฀ that฀ options฀ to฀ purchase฀ com-
mon฀stock฀have฀an฀exercise฀price฀of฀not฀less฀than฀100%฀of฀the฀
market฀ value฀ of฀ the฀ underlying฀ stock฀ on฀ the฀ date฀ of฀ grant.฀
Under฀the฀Award฀Plan,฀no฀award฀of฀options฀may฀become฀fully฀
vested฀prior฀to฀the฀second฀anniversary฀of฀the฀grant฀and฀no฀por-
tion฀ of฀ an฀ option฀ grant฀ may฀ become฀ vested฀ in฀ less฀ than฀ one฀
year,฀ except฀ for฀ 1.5฀ million฀ of฀ options฀ that฀ are฀ specifically฀
exempted฀ from฀ vesting฀ restrictions.฀ The฀ minimum฀ vesting฀
period฀for฀RSAs฀or฀stock฀units฀payable฀in฀stock฀is฀three฀years.฀
Award฀agreements฀may฀provide฀for฀shorter฀vesting฀periods฀or฀
vesting฀ following฀ termination฀ of฀ employment฀ in฀ the฀ case฀ of฀
death,฀disability,฀ divestiture,฀ retirement฀ or฀ layoff.฀The฀Award฀
Plan฀does฀not฀impose฀any฀minimum฀vesting฀periods฀on฀other฀
types฀of฀awards.฀The฀maximum฀term฀of฀an฀option฀or฀any฀other฀
award฀is฀10฀years.฀The฀Award฀Plan฀allows฀the฀Corporation฀to฀
provide฀for฀financing฀by฀award฀recipients,฀other฀than฀executive฀
officers,฀ of฀ the฀ exercise฀ or฀ purchase฀ price฀ of฀ common฀ stock฀
underlying฀an฀award,฀subject฀to฀certain฀conditions,฀by฀interest-
bearing฀notes฀payable฀to฀the฀Corporation.฀There฀were฀no฀such฀
notes฀payable฀at฀December฀31,฀2005.
Prior฀to฀April฀2003,฀the฀Corporation฀granted฀stock-based฀
and฀ cash-based฀ incentive฀ awards฀ pursuant฀ to฀ the฀ Lockheed฀
Martin฀ Corporation฀ 1995฀ Omnibus฀ Performance฀ Award฀ Plan฀
(the฀Omnibus฀Plan),฀which฀was฀approved฀by฀the฀stockholders฀
in฀March฀1995.฀Awards฀under฀the฀Omnibus฀Plan฀were฀similar฀
to฀those฀authorized฀by฀the฀Award฀Plan฀except฀that฀the฀Omnibus฀
Plan฀did฀not฀include฀any฀minimum฀vesting฀requirements.
Under฀ the฀ Award฀ Plan,฀ 590,000฀ and฀ 25,000฀ RSAs฀ were฀
issued฀ in฀ 2004฀ and฀ 2003,฀ respectively.฀ There฀ were฀ no฀ RSAs฀
issued฀in฀2005.฀The฀shares฀were฀recorded฀based฀on฀the฀market฀
value฀ of฀ the฀ Corporation’s฀ common฀ stock฀ on฀ the฀ date฀ of฀ the฀
award฀ and฀ the฀ related฀ compensation฀ expense฀ is฀ recognized฀
over฀ the฀ vesting฀ period.฀ The฀ weighted฀ average฀ fair฀ value฀ of฀
RSAs฀in฀2004฀and฀2003฀was฀$46.11฀and฀$48.12,฀respectively.฀
Recipients฀ are฀ entitled฀ to฀ receive฀ cash฀ dividends฀ and฀ to฀ vote฀
their฀respective฀shares,฀but฀are฀prohibited฀from฀selling฀or฀trans-
ferring฀shares฀prior฀to฀vesting.฀The฀RSAs฀generally฀vest฀over฀
three฀to฀ five฀ years฀ from฀the฀grant฀ date.฀The฀impact฀ of฀RSAs฀
was฀not฀material฀to฀net฀earnings฀in฀2005,฀2004฀or฀2003.
In฀ April฀ 1999,฀ the฀ stockholders฀ approved฀ the฀ Lockheed฀
Martin฀ Directors฀ Equity฀ Plan฀ (the฀ Directors฀ Plan).฀
Approximately฀50%฀of฀each฀director’s฀annual฀compensation฀is฀
awarded฀under฀the฀Directors฀Plan.฀Directors฀of฀the฀Corporation฀
may฀ elect฀ to฀ receive฀ such฀ compensation฀ in฀ the฀ form฀ of฀ stock฀
units฀which฀track฀investment฀returns฀to฀changes฀in฀value฀of฀the฀
Corporation’s฀common฀stock฀with฀dividends฀reinvested,฀options฀
to฀purchase฀common฀stock฀of฀the฀Corporation,฀or฀a฀ combina-
tion฀of฀the฀two.฀The฀Directors฀Plan฀requires฀that฀options฀to฀pur-
chase฀ common฀ stock฀ have฀ an฀ exercise฀ price฀ of฀ not฀ less฀ than฀
100%฀of฀the฀market฀value฀of฀the฀underlying฀stock฀on฀the฀date฀of฀
grant.฀Except฀in฀certain฀circumstances,฀options฀and฀stock฀units฀
issued฀under฀the฀Directors฀Plan฀vest฀on฀the฀first฀anniversary฀of฀
the฀grant.฀The฀maximum฀term฀of฀an฀option฀is฀ten฀years.
Lockheed฀Martin฀Corporation
NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS
December฀31,฀2005