Lockheed Martin 2007 Annual Report Download - page 89

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2007 Activity
Stock Options
The following table summarizes stock option activity during the year ended December 31, 2007:
Number of
Stock
Options
(In thousands)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(In years)
Aggregate
Intrinsic
Value
(In millions)
Outstanding at December 31, 2006 24,190 $51.65
Granted 3,523 96.08
Exercised (7,092) 49.32
Terminated (256) 63.38
Outstanding at December 31, 2007 20,365 59.99 6.3 $922.0
Vested and unvested expected to vest at
December 31, 2007 20,225 59.80 6.3 919.5
Exercisable at December 31, 2007 12,424 48.75 5.1 702.0
Stock options granted vest over three years and have 10-year terms. Exercise prices of stock options awarded for all
periods were equal to the market price of the stock on the date of grant. The following table pertains to stock options which
were granted, vested and exercised for the years presented.
(In millions, except for grant date fair value of stock options) 2007 2006
Weighted-average grant-date fair value of stock options granted $23.99 $17.64
Aggregate fair value of all the stock options that vested 86 103
Aggregate intrinsic value of all of the stock options exercised 361 389
We estimate the fair value for stock options at the date of grant using the Black-Scholes option pricing model, which
requires us to make certain assumptions. We estimate volatility based on the historical volatility of our daily stock price over
the past five years, which is commensurate with the expected life of the options. We base the average expected life on the
contractual term of the stock option, historical trends in employee exercise activity and post-vesting employment termination
trends. We base the risk-free interest rate on U.S. Treasury zero-coupon issues with a remaining term equal to the expected
life assumed at the date of grant. We estimate forfeitures at the date of grant based on historical experience. Prior to adopting
FAS 123(R), we recorded forfeitures as they occurred for purposes of estimating pro forma compensation expense under
FAS 123. The impact of forfeitures is not material.
We used the following weighted average assumptions in the Black-Scholes option pricing model to determine the fair
values of stock-based compensation awards during the years ended December 31, 2007, 2006 and 2005:
2007 2006 2005
Risk-free interest rate 4.83% 4.50% 3.70%
Dividend yield 1.70% 1.80% 1.73%
Volatility factors 0.234 0.260 0.259
Expected option life 5 years 5 years 5 years
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