Lockheed Martin 2011 Annual Report Download - page 83

stock, stock appreciation rights, restricted stock, or stock units. Employees also may receive cash-based incentive awards.
We evaluate the types and mix of stock-based incentive awards on an ongoing basis and may vary the mix based on our
overall strategy regarding compensation. The Award Plan was approved by our stockholders at our April 28, 2011 annual
meeting. Prior to stockholder approval of the Award Plan, equity awards were made to employees under the Amended and
Restated 2003 Incentive Performance Award Plan (the Prior Plan). Awards made under the Prior Plan remain outstanding but
no new awards may be made under the Prior Plan after April 28, 2011.
Under the Award Plan and the Prior Plan, the exercise price of options to purchase common stock may not be less than
the fair market value of our stock on the date of grant. No award of stock options may become fully vested prior to the third
anniversary of the grant, and no portion of a stock option grant may become vested in less than one year. The minimum
vesting period for restricted stock 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,
change of control, or layoff. Neither the Award Plan nor the Prior Plan imposes any minimum vesting periods on other types
of awards. The maximum term of a stock option or any other award is 10 years.
We generally recognize compensation cost for stock options for the entire award ratably over the three-year vesting
period. For stock options granted prior to 2011 to active employees that are retirement eligible on the date of grant or become
retirement eligible during the first year after grant, we recognize compensation expense ratably over a period of one year. For
stock options granted prior to 2011 to active employees that become retirement eligible after the one-year anniversary of the
grant but prior to the three-year anniversary of the grant, we recognize compensation expense ratably from the date of grant
to the date on which the employee becomes retirement eligible. Beginning in 2011, stock option grants do not provide for
accelerated vesting upon reaching retirement eligibility. We use the Black-Scholes option pricing model to estimate the fair
value of stock options.
Restricted stock units (RSUs) granted under both the Award Plan and the Prior Plan are based on the fair market value
of our common stock on the date of the award. We recognize the related compensation expense over the three-year vesting
period. Employees who are granted RSUs receive the right to receive shares of stock after completion of the vesting period,
however, the shares are not issued, and the employees cannot sell or transfer shares prior to vesting and have no voting rights
until the RSUs vest, generally three years from the date of the award. Dividend equivalents are paid in cash during the
vesting period for RSUs granted prior to April 2010. Employees who are granted RSUs subsequent to April 2010, receive
dividend-equivalent cash payments only upon vesting. For these RSU awards, the grant date fair value of our common stock
is reduced to reflect the delay in payment of dividends.
Under the Directors Plan, directors receive approximately half of their annual compensation in the form of equity-based
compensation. Each director may elect to receive his or her equity-based compensation in the form of stock units that track
investment returns to changes in value of our common stock with dividends reinvested, options to purchase common stock,
or a combination of the two. Under the Directors Plan, options to purchase common stock have an exercise price of 100% of
the market value of the underlying stock on the date of grant. Stock options and stock units issued under the Directors Plan
vest half on June 30 following the date of grant and half on December 31 following the date of grant, except in certain
circumstances. The maximum term of a stock option is 10 years.
Our stockholders have approved the Award Plan, the Prior Plan and the Directors Plan, as well as the number of shares
of our common stock authorized for issuance under these plans. At December 31, 2011, inclusive of the shares reserved for
outstanding stock options and RSUs, we had 40 million shares reserved for issuance under our stock option and award plans.
At December 31, 2011, 11 million of the shares reserved for issuance remained available for grant under the plans. We issue
new shares upon the exercise of stock options or when restrictions on RSUs have been satisfied.
Summary of 2011 Activity
As of December 31, 2011, we had $181 million of unrecognized compensation cost related to nonvested stock options
and RSUs. We expect that cost to be recognized over a weighted average period of 1.6 years. We received cash from the
exercise of stock options totaling $116 million, $59 million, and $40 million during 2011, 2010, and 2009. In addition, we
realized tax benefits of $56 million, $47 million, and $56 million from stock-based compensation activities during 2011,
2010, and 2009.
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