Occidental Petroleum 2008 Annual Report Download - page 72

Download and view the complete annual report

Please find page 72 of the 2008 Occidental Petroleum annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

STOCK OPTIONS AND SARs
Certain employees have been granted Options that are settled in stock and SARs that are settled either only in stock or only in cash.
Exercise prices of the Options and SARs were equal to the quoted market value of Occidental’s stock on the grant date. Generally, the
Options and SARs vest ratably over three years with a maximum term of ten years. These Options and SARs may be forfeited or
accelerated under certain circumstances.
The fair value of each Option or stock-settled SAR is measured on the grant date using the Black Scholes option valuation model and
expensed on a straight-line basis over the vesting period. The expected life is estimated based on the actual weighted-average life of historical
exercise activity of the grantee population at the grant date. The volatility factors are based on the historical volatilities of Occidental common
stock over the expected lives as estimated on the grant date. The risk-free interest rate is the implied yield available on zero coupon T-notes
(US Treasury Strip) at the grant date with a remaining term equal to the expected life. The dividend yield is the expected annual dividend yield
over the expected life, 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 employees who receive stock-based incentive awards, and subsequent events may not be
indicative of the reasonableness of the original estimates of fair value made by Occidental.
The grant-date assumptions used in the Black Scholes valuation for Options and stock-settled SARs were as follows:
Year Granted 2006
Assumptions used:
Risk-free interest rate 5.0%
Dividend yield 1.4%
Volatility factor 26%
Expected life (years) 5.5
The grant-date fair value of each stock-settled SAR granted in 2006 was $14.77. The fair value of the cash-settled SARs is also
estimated using the Black Scholes model and is recalculated using updated assumptions each quarter until they are exercised. Changes in
the fair value from the date of grant until the date when the cash-settled SARs are exercised are recognized as periodic compensation
expense. No Options or SARs have been granted since 2006.
The following is a summary of Option and SAR transactions during 2008:
Stock-settled Cash-settled
Weighted- Weighted-
Weighted- Average Aggregate Weighted- Average Aggregate
SARs & Average Remaining Intrinsic Average Remaining Intrinsic
Options Exercise Contractual Value SARs Exercise Contractual Value
(000's) Price Term (yrs) (000’s) (000's) Price Term (yrs) (000’s)
Beginning balance,
January 1, 2008 9,940 $35.83 3,126 $24.66
Exercised (5,962) $36.42 (1,808) $24.66
Ending balance,
December 31, 2008 3,978 $34.94 6.0 $99,637 1,318 $24.66 5.5 $46,576
Exercisable at
December 31, 2008 2,939 $29.46 5.4 $89,703 1,318 $24.66 5.5 $46,576
58
RSUs