Baker Hughes 2007 Annual Report Download - page 133

Download and view the complete annual report

Please find page 133 of the 2007 Baker Hughes 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 163

  • 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
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163

50 Baker Hughes Incorporated
The weighted average grant date fair value per share for
RSAs in 2006 and 2005 was $73.97 and $44.28, respectively.
The weighted average grant date fair value per share for RSUs
in 2006 and 2005 was $74.00 and $42.60, respectively.
The total grant date fair value of RSAs and RSUs vested in
2007 and 2006 was $16.3 million and $10.6 million, respec-
tively. There were no RSAs or RSUs that vested in 2005. As of
December 31, 2007, there was $26.2 million and $6.0 million
of total unrecognized compensation cost related to nonvested
RSAs and RSUs, respectively, which is expected to be recog-
nized over a weighted average period of 1.8 years.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (“ESPP”) allows eligible
employees to elect to contribute on an after-tax basis between
1% and 10% of their annual pay to purchase our common
stock; provided, however, an employee may not contribute
more than $25,000 annually to the plan pursuant to Internal
Revenue Service restrictions. Shares are purchased at a 15%
discount of the fair market value of our common stock on
January 1 or December 31, whichever is lower. We currently
have 14.5 million shares authorized for issuance under the
ESPP, and at December 31, 2007, there were 2.9 million shares
reserved for future issuance under the ESPP. Compensation
expense determined under SFAS 123(R) for the year ended
December 31, 2007 was calculated using the Black-Scholes
option pricing model with the following assumptions:
2007 2006 2005
Actual Actual Pro Forma
Expected life (years) 1.0 1.0 1.0
Interest rate 4.9% 4.4% 2.7%
Volatility 30.5% 28.0% 26.6%
Dividend yield 0.7% 0.9% 1.1%
Weighted average
fair value per share
at grant date $ 10.39 $ 7.66 $ 10.05
We calculated estimated volatility using historical daily
prices based on the expected life of the stock purchase plan.
The risk-free interest rate is based on the observed U.S. Trea-
sury yield curve in effect at the time the ESPP shares were
granted. The dividend yield is based on our history of divi-
dend payouts.
The following table summarizes information about stock options outstanding as of December 31, 2007 (in thousands, except
per option prices and remaining life):
Outstanding Exercisable
Weighted Average Weighted Weighted Average Weighted
Remaining Contractual Average Exercise Remaining Contractual Average Exercise
Range of Exercise Prices Number of Options Life (In years) Price Per Option Number of Options Life (In years) Price Per Option
$ 14.49 – $ 21.00 60 1.1 $ 20.24 60 1.1 $ 20.24
22.88 – 33.50 405 4.3 29.64 405 4.6 29.64
35.81 – 43.39 989 6.1 40.14 821 6.2 39.64
56.21 – 82.28 1,717 8.4 71.21 460 8.0 65.67
Total 3,171 7.0 $ 55.25 1,746 6.1 $ 43.51
The aggregate intrinsic value of stock options outstanding at December 31, 2007 was $86.7 million, of which $68.3 million
relates to awards vested and exercisable and $18.4 million relates to awards expected to vest. The intrinsic value for stock options
outstanding is calculated as the amount by which the quoted price of $82.60 of our common stock as of the end of 2007 exceeds
the exercise price of the options.
Restricted Stock Awards and Units
In addition to stock options, officers, directors and key employees may be granted restricted stock awards (“RSA”), which is an
award of common stock with no exercise price, or restricted stock units (“RSU”), where each unit represents the right to receive at
the end of a stipulated period one unrestricted share of stock with no exercise price. RSAs and RSUs are subject to cliff or graded
vesting, generally ranging over a three to five year period. We determine the fair value of restricted stock awards and restricted stock
units based on the market price of our common stock on the date of grant. Compensation cost for RSAs and RSUs is primarily rec-
ognized on a straight-line basis over the vesting or service period and is net of forfeitures.
A summary of our RSA and RSU activity and related information is presented below (in thousands, except per share/unit prices):
RSA Number Weighted Average Grant RSU Number Weighted Average Grant
of Shares Date Fair Value Per Share of Units Date Fair Value Per Unit
Nonvested balance at December 31, 2006 747 $ 56.23 124 $ 61.91
Granted 352 68.59 93 68.54
Vested (243) 55.25 (49) 58.74
Forfeited (61) 57.20 (12) 65.76
Nonvested balance at December 31, 2007 795 $ 61.93 156 $ 66.56