Baker Hughes 2015 Annual Report Download - page 71

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Baker Hughes Incorporated
Notes to Consolidated Financial Statements
62
Stock-based compensation costs are as follows for the years ended December 31:
2015 2014 2013
Stock-based compensation cost $ 120 $ 122 $ 115
Tax benefit (28) (26) (24)
Stock-based compensation cost, net of tax $ 92 $ 96 $ 91
For our stock options and restricted stock awards and units, we currently have 60.7 million shares authorized
for issuance and as of December 31, 2015, approximately 21.3 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 for 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. No stock options were
granted in 2015.
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-
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.
2014 2013
Expected life (years) 4.6 5.2
Risk-free interest rate 1.5% 1.3%
Volatility 31.9% 36.0%
Dividend yield 1.0% 1.3%
Weighted average fair value per share at grant date $16.81 $ 13.79