Occidental Petroleum 2006 Annual Report Download - page 74
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The fair values of the stock settled portion of PSAs are measured on the grant date using a Monte Carlo simulation model that uses the
assumptions noted in the following table. The expected life is based on the vesting period (Term). The volatility factors are based on the historical
volatilities of Occidental stock over the Term. The risk-free interest rate is the implied yield available on zero coupon (US Treasury Strip) T-notes at
the time of grant with a remaining term equal to the Term. The dividend yield is the expected annual dividend yield over the Term, expressed as a
percentage of the stock price on the grant date. Estimates of fair value are not intended to predict actual future events or the value ultimately
realized by the employees who receive the awards, and subsequent events may not be indicative of the reasonableness of the original estimates
of fair value made by Occidental. The fair values of the underlying Occidental stock as of the grant dates of the PSAs granted in 2006 and 2005
were $39.94 and $29.18, respectively.
The grant-date assumptions used in the Monte Carlo simulation model for stock-settled PSAs were as follows:
The fair value of the cash-settled portion of PSAs is also estimated using a Monte Carlo simulation model each quarter, through vesting, using
updated assumptions. Changes in fair value of the cash-settled portion of the PSAs are recorded as compensation expense.
A summary of Occidental’s unvested PSAs as of December 31, 2006 and changes during the year ended December 31, 2006, is presented
below:
Occidental adopted SFAS No. 123(R) on July 1, 2005. The following table shows the pro forma net income and earnings per share that
Occidental would have recorded if compensation expense were determined using SFAS No. 123(R) for these periods (amounts in millions, except
per share amounts).
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