National Oilwell Varco 2010 Annual Report Download - page 90

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We used the actual volatility for traded options for the past 10 years prior to option date as the expected volatility assumption required in the
Black Scholes model.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The dividend
yield assumption is based on the history and expectation of dividend payouts. The estimated expected term is based on actual employee exercise
activity for the past ten years.
As stock-based compensation expense recognized in the Consolidated Statement of Income in 2010 is based on awards ultimately expected to
vest, it has been reduced for estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.
The following summary presents information regarding outstanding options as of December 31, 2010 and changes during 2010 with regard to
options under all stock option plans:
Weighted
Weighted- Remaining
Average Contractual
Exercise Term Aggregate
Shares Price (years) Intrinsic Value
Outstanding at December 31, 2009 10,255,982 $34.19
Granted 3,485,283 $44.03
Exercised (2,469,233) $30.35
Cancelled (232,488) $40.53
Outstanding at December 31, 2010 11,039,544 $38.01 7.27 $312,423,777
Vested or expected to vest 10,669,951 $38.01 7.27 $304,394,486
Exercisable at December 31, 2010 5,067,186 $36.31 5.69 $152,742,256
As of December 31, 2010, total unrecognized compensation cost related to nonvested stock options was $47 million. This cost is expected to be
recognized over a weighted-average period of two years. The total fair value of stock options vested in 2010, 2009 and 2008 was approximately
$78 million, $40 million and $43 million, respectively. Cash received from option exercises for 2010, 2009 and 2008 was $73 million, $8 million
and $78 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $16 million, $2 million and $46
million for 2010, 2009 and 2008, respectively. Cash used to settle equity instruments granted under all share-based payment arrangements for
2010, 2009 and 2008 was not material for any period.
Restricted Shares
The Company issues restricted stock awards (RSA) with no exercise price to officers and key employees in addition to stock options. Out of
the total number of restricted stock awards granted, 543,035 were granted on February 16, 2010 and 1,440 were granted on May 12, 2010 and
vest on the third anniversary of the date of grant. In addition, on May 12, 2010, 14,056 restricted stock awards were granted to the non-employee
members of the Board of Directors. These restricted stock awards vest in equal thirds over three years on the anniversary of the grant date. The
performance-based restricted stock awards of 171,400 were granted on February 16, 2010. The performance-based restricted stock awards
granted will be 100% vested 36 months from the date of grant, subject to the performance condition of the Companys average operating income
growth, measured on a percentage basis, from January 1, 2010 through December 31, 2012 exceeding the median operating income level growth
of a designated peer group over the same period. The estimated forfeiture rate of RSAs is factored into the share-based compensation expense
the Company recognizes. 87