National Oilwell Varco 2012 Annual Report Download - page 92

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Index to Financial Statements
The following summarizes information about stock options outstanding at December 31, 2011:
Range of Exercise Price
Weighted-Avg
Remaining
Contractual Life
Options Outstanding Options Exercisable
Shares Weighted-Avg
Exercise Price Shares
Weighted-Avg
Exercise
Price$ 8.38 - $40.00 5.45 4,121,224 $ 27.17 3,124,581 $ 27.53
$ 40.01 - $65.00 7.48 4,104,562 49.50 1,919,040 55.72
$ 65.01 - $79.80 9.11 2,255,964 79.60 30,344 73.53
Total 7.03 10,481,750 $ 47.20 5,073,965 $ 38.47
The weighted-average fair value of options granted during 2011, 2010 and 2009 was approximately $29.52, $16.73 and $11.89 per share, respectively, as determined using the
Black-Scholes option-pricing model. The total intrinsic value of options exercised during 2011 and 2010 was $102 million and $60 million, respectively.
The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions
regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards,
and actual and projected employee stock option exercise activity. The use of the Black Scholes model requires the use of extensive actual employee exercise activity data and
the use of a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends and expected term.
Years Ended December 31,
2011 2010 2009
Valuation Assumptions:
Expected volatility 53.2% 55.0% 63.5%
Risk-free interest rate 2.1% 2.3% 1.8%
Expected dividends $ 0.44 $ 0.40 $
Expected term (in years) 3.1 3.2 3.4
The Company used the actual volatility for traded options for the past 10 years prior to option date as the expected volatility assumption required in the Black Scholes model.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption is based on
the history and expectation of dividend payouts. The estimated expected term is based on actual employee exercise activity for the past ten years.
As stock-based compensation expense recognized in the Consolidated Statement of Income in 2011 is based on awards ultimately expected to vest, it has been reduced for
estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Forfeitures were estimated based on historical experience.
The following summary presents information regarding outstanding options at December 31, 2011 and changes during 2011 with regard to options under all stock option
plans:
Shares
Weighted-
Average
Exercise
Price
Remaining
Contractual
Term
(years) Aggregate
Intrinsic Value
Outstanding at December 31, 2010 11,039,544 $ 38.01
Granted 2,277,946 $ 79.68
Exercised (2,594,566) $ 36.84
Cancelled (241,174) $ 40.20
Outstanding at December 31, 2011 10,481,750 $ 47.20 7.03 $ 217,950,989
Vested or expected to vest 10,298,319 $ 47.20 7.03 $ 214,136,846
Exercisable at December 31, 2011 5,073,965 $ 38.47 5.61 $ 149,787,693
90