Baker Hughes 2013 Annual Report Download - page 85

Baker Hughes Incorporated55
Baker Hughes Incorporated
Notes to Consolidated Financial Statements
instruments in our consolidated statements of income were not material in each of the three years ended
December 31, 2013.
New Accounting Standards Updates
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated
Other Comprehensive Income. This ASU requires entities to present separately, among other items, the amount of
the change that is due to reclassifications, and the amount that is due to current period other comprehensive
income. We adopted the new presentation requirements in the notes to our financial statements in the first quarter
of 2013. For additional information see Note 12. Accumulated Other Comprehensive Loss.
In July 2012, the FASB issued an update to ASC 350, Intangibles - Goodwill and Other. This ASU amends the
guidance in ASC 350-30 on testing indefinite-lived intangible assets for impairment. The revised guidance permits
an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative
impairment test. The ASU is effective for impairment tests performed for fiscal years beginning after September 15,
2012. We adopted this ASU for our 2013 impairment testing and it did not have a material impact on our
consolidated financial statements.
NOTE 2. STOCK-BASED COMPENSATION
Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the
award, and is generally recognized on a straight-line basis over the vesting period of the equity grant net of
forfeitures. The compensation cost is determined based on awards ultimately expected to vest; therefore, we have
reduced the cost for estimated forfeitures based on historical forfeiture rates. Forfeitures are estimated at the time
of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures. There were no stock-based
compensation costs capitalized as the amounts were not material.
Stock-based compensation costs are as follows for the years ended December 31:
2013 2012 2011
Stock-based compensation cost $ 115 $ 115 $ 108
Tax benefit (24) (20) (22)
Stock-based compensation cost, net of tax $ 91 $ 95 $ 86
For our stock options and restricted stock awards and units, we currently have 32.5 million authorized for
issuance and as of December 31, 2013, approximately 2 million shares were available for future grants. Our policy
is to issue new shares for exercises of stock options, when restricted stock awards are granted, at vesting of
restricted stock units, and issuances under the employee stock purchase plan.
Stock Options
Our stock option plans provide for the issuance of stock options to directors, officers and other key employees
at an exercise price equal to the fair market value of the stock at the date of grant. Although subject to the terms of
the stock option agreement, substantially all of the stock options become exercisable in three equal annual
installments, beginning a year from the date of grant, and generally expire ten years from the date of grant. The
stock option plans provide for the acceleration of vesting upon the employee’s retirement; therefore, the service
period is reduced for employees that are or will become retirement eligible during the vesting period, and
accordingly, the recognition of compensation expense for these employees is accelerated.
The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. The
following table presents the weighted average assumptions used in the option pricing model for options granted.
The expected life of the options represents the period of time the options are expected to be outstanding. The
expected life is based on our historical exercise trends and post-vest termination data incorporated into a forward-