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2013 Annual Report 56
Baker Hughes Incorporated
Notes to Consolidated Financial Statements
looking stock price model. The expected volatility is based on our implied volatility, which is the volatility forecast
that is implied by the prices of actively traded options to purchase our stock observed in the market. The risk-free
interest rate is based on the observed U.S. Treasury yield curve in effect at the time the options were granted. The
dividend yield is based on our history of dividend payouts.
2013 2012 2011
Expected life (years) 5.2 5.4 5.0
Risk-free interest rate 1.3% 0.9% 1.8%
Volatility 36.0% 41.4% 40.8%
Dividend yield 1.3% 1.4% 0.9%
Weighted average fair value per share at grant date $ 13.79 $ 14.51 $ 24.20
The following table presents the changes in stock options outstanding and related information (in thousands,
except per option prices):
Number of
Options
Weighted Average
Exercise Price
Per Option
Outstanding at December 31, 2012 11,156 $ 51.79
Granted 2,635 46.46
Exercised (722) 35.84
Forfeited (159) 48.23
Expired (704) 70.27
Outstanding at December 31, 2013 12,206 $ 50.57
Exercisable at December 31, 2013 7,895 $ 52.58
The weighted average remaining contractual term for options outstanding and options exercisable at
December 31, 2013 was 5.9 years and 5.2 years, respectively.
The total intrinsic value of stock options (defined as the amount by which the market price of our common stock
on the date of exercise exceeds the exercise price of the option) exercised in 2013, 2012 and 2011 was $11 million,
$3 million and $74 million, respectively. The income tax benefit realized from stock options exercised was $2.0
million, $0.8 million and $20 million in 2013, 2012 and 2011, respectively.
The total fair value of options vested in 2013, 2012 and 2011 was $31 million, $28 million and $22 million,
respectively. As of December 31, 2013, there was $20 million of total unrecognized compensation cost related to
unvested stock options, which is expected to be recognized over a weighted average period of two years.
The total intrinsic value of stock options outstanding at December 31, 2013 was $108 million, of which $67
million relates to options vested and exercisable. The intrinsic value for stock options outstanding is calculated as
the amount by which the quoted price of $55.26 of our common stock as of the end of 2013 exceeds the exercise
price of the options.
Restricted Stock Awards and Units
In addition to stock options, our 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