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20 B a k e r H u g h e s I n c o r p o r a t e d
Prior to certain corporate mergers consummated in 2010,
the Peer Group that applied for the 2009 one-year perfor-
mance measurement period under the 2009 performance
units was the current Peer Group (listed above) plus Smith
International, Inc. and BJ Services Company. Our relative
ranking for the 2009 one-year performance measurement
period was 4th, 4th, and 4th for the revenue growth, pre-tax
operating margin and return on net capital employed perfor-
mance goals, respectively, resulting in a total per unit value
of $18.75 earned during 2009 with respect to the 2009
performance units that will be paid in March 2012.
Amounts Payable Under 2009 and 2010 Performance Units
for One-Year Performance Periods Starting After 2009 and
for the Three-Year Performance Period
Each performance unit award agreement specifies the
number of units granted to the Senior Executive. In the case
of the one-year performance measurement periods starting
on or after January 1, 2010 and the three-year performance
measurement periods under both the 2009 and 2010 perfor-
mance unit awards, the unit value earned during an applicable
performance measurement period (a one-year or three-year
performance measurement interval, as applicable) for each of
the three revenue growth, pre-tax operating margin and return
on net capital employed performance goals applicable to the
performance measurement period is one-third of 25 percent
of the unit value amount listed below:
Our relative ranking for the 2010 one-year performance
measurement period was 1st, 4th, and 4th for the revenue
growth, pre-tax operating margin and return on net capital
employed performance goals, respectively, resulting in a total
per unit value of $24.17 earned during 2010 with respect to
the 2010 performance units that will be paid in March 2013.
Example of Performance Unit Payout Calculation
The table below illustrates in tabular format the manner in
which the amount payable under the 2010 performance unit
awards may be calculated.
Note that levels of achievement contained in the table
below are not forecasts by us of our expected levels of
achievement. Rather, the levels of achievement for purposes
of the illustrative example were selected at random.
Under the current formula for determining amounts pay-
able under the 2010 performance units, there are multiple unit
value amounts that may be earned based upon the relative
ranking of our performance versus the performance of the
Peer Group.
For each measurement period, our performance will be
compared to the performance of the companies in the Peer
Group, and assigned a rank of 1st, 2nd, 3rd, 4th or 5th.
Values for each rank are assigned based on the table above.
Assuming solely for illustrative purposes that we achieve
the ranks of 5th, 2nd and 1st with respect to the three per-
formance metrics; revenue growth, pre-tax operating margin
and return on net capital employed for the 2010 performance
period, the performance unit value achieved for the 2010 per-
formance period would be $27.92 in the aggregate (average
of 25% of $0, 25% of $135 and 25% of $200, respectively).
Unit values for 2011, 2012 and for the three-year period
would be calculated in the same manner.
At the end of the three-year performance period, the total
amount that would be paid to the Senior Executive under his
2010 performance units would be $112.09 per unit (calcu-
lated as the sum of $27.92, $30.00, $27.92 and $26.25).
Note that levels of achievement contained in the foregoing
example are not forecasts by us of our expected levels of
achievement. Rather, the levels of achievement for purposes
of the illustrative example were selected at random.
2010, 2011 and Three-Year Performance Period
Peer Group Rank 5th 4th 3rd 2nd 1st
Unit Value $ 0 $ 45 $ 90 $ 135 $ 200
$112.09
Relative Rank of Performance Periodic Unit Value Added
Total Unit
Value
Period
Year 1
Year 2
Year 3
3-Year
Total
Revenue
Growth
Rank
Pre-Tax
Operating
Margin Rank
5th
2nd
1st
3rd
2nd
3rd
4th
3rd
RONCE
Rank
1st
2nd
3rd
2nd
$0
$33.75
$50.00
$22.50
$33.75
$22.50
$11.25
$22.50
$50.00
$33.75
$22.50
$33.75
$27.92
$30.00
$27.92
$26.25
Period
Unit
Value
RONCE
Value
Revenue
Growth
Value
Pre-Tax
Operating
Margin Value