Employee Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Employee Stock-Based Compensation [Abstract]

Employee Stock-Based Compensation

19.  Employee Stock-Based Compensation

During the year-to-date period ended September 30, 2011, the Company granted stock-based compensation awards under the Amended and Restated 2008 Long Term Performance Plan (2008 LTPP) in the form of stock options, restricted stock units and performance units.

Stock Options. The Company granted 694,805 stock options with an exercise price equal to the closing price of L-3 Holdings common stock on the date of grant. The options expire after 10 years from the date of grant and vest ratably over a three-year period on the annual anniversary of the date of grant. The weighted average grant date fair value for the options awarded was $15.54 and was estimated using the Black-Scholes option-pricing model. The weighted average assumptions used in the valuation model for this grant are presented in the table below.

Expected holding period (in years)	5.2
Expected volatility	26.4	%
Expected dividend yield	2.8	%
Risk-free interest rate	2.2	%

Restricted Stock Units. The Company granted 687,422 restricted stock units with a weighted average grant date fair value of $80.17 per share. Restricted stock units automatically convert into shares of L-3 Holdings common stock upon vesting, and are subject to forfeiture until certain restrictions have lapsed, including a three year cliff vesting period for employees and a one year cliff vesting period for non-employee directors, in each case starting on the date of grant.

Performance Units. The Company granted 81,765 performance units with a weighted average grant date fair value per unit of $95.50. The payout for these units is based on the achievement of pre-determined performance goals established by the compensation committee of the Company’s Board of Directors for the three-year period ending December 31, 2013. The payout can range from zero to 200% of the original number of units awarded, which are converted into shares of L-3 Holdings common stock and/or an amount of cash based on the then existing closing price at the end of the performance period.