National Oilwell Varco 2015 Annual Report Download - page 98
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Table of Contents
The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as
assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price
volatility over the term of the awards, and actual and projected employee stock option exercise activity. The use of the Black Scholes model requires the use
of extensive actual employee exercise activity data and the use of a number of complex assumptions including expected volatility, risk-free interest rate,
expected dividends and expected term.
Valuation Assumptions:
Expected volatility 49.1% 49.4% 50.1%
Risk-free interest rate 1.5% 1.5% 0.9%
Expected dividends $3.36 $ 1.39 $ 0.75
Expected term (in years) 3.0 3.7 3.4
The Company 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 2015 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 at December 31, 2015 and changes during 2015 with regard to options under all
stock option plans:
Outstanding at December 31, 2014 10,881,133 $ 61.22 5.15 $85,503,217
Granted 5,746,153 $ 54.74
Cancelled (886,356) $ 62.73
Exercised (310,623) $ 22.56
Outstanding at December 31, 2015 15,430,307 $ 59.50 7.01 $ 5,894,977
Vested or expected to vest 15,229,713 $ 59.50 7.01 $ 5,814,216
Exercisable at December 31, 2015 7,498,414 $ 60.30 5.16 $ 5,894,977
At December 31, 2015, total unrecognized compensation cost related to nonvested stock options was $95 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 2015, 2014 and 2013 was approximately $72 million, $67 million
and $64 million, respectively. Cash received from option exercises for 2015, 2014 and 2013 was $7 million, $108 million and $58 million, respectively. The
actual tax benefit realized for the tax deductions from option exercises totaled $7 million, $44 million and $39 million for 2015, 2014 and 2013,
respectively. Cash used to settle equity instruments granted under all share-based payment arrangements for 2015, 2014 and 2013 was not material for any
period.
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