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Common Stock
 12 Months Ended
Dec. 31, 2012
Common Stock

13. Common Stock

National Oilwell Varco has authorized 1 billion shares of $.01 par value common stock. The Company also has authorized 10 million shares of $.01 par value preferred stock, none of which is issued or outstanding.

Cash dividends aggregated $209 million and $191 million for the years ended December 31, 2012 and 2011, respectively. The declaration and payment of future dividends is at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Company’s Board of Directors.

Stock Options

Under the terms of National Oilwell Varco’s Long-Term Incentive Plan, as amended, 25.5 million shares of common stock are authorized for the grant of options to officers, key employees, non-employee directors and other persons. Options granted under our stock option plan generally vest over a three-year period starting one year from the date of grant and expire ten years from the date of grant. The purchase price of options granted may not be less than the closing market price of National Oilwell Varco common stock on the date of grant. At December 31, 2012, approximately 3.5 million shares were available for future grants.

We also have inactive stock option plans that were acquired in connection with the acquisitions of Varco International, Inc. in 2005 and Grant Prideco in 2008. We converted the outstanding stock options under these plans to options to acquire our common stock and no further options are being issued under these plans. Stock option information summarized below includes amounts for the National Oilwell Varco Long-Term Incentive Plan and stock plans of acquired companies. Options outstanding at December 31, 2012 under the stock option plans have exercise prices between $9.14 and $84.58 per share, and expire at various dates from January 29, 2013 to February 22, 2022.

 

The following summarizes options activity:

 

     Years Ended December 31,  
     2012      2011      2010  
     Number     Average      Number     Average      Number     Average  
     of     Exercise      of     Exercise      of     Exercise  
     Shares     Price      Shares     Price      Shares     Price  

Shares under option at beginning of year

      10,481,750      $ 47.20         11,039,544      $ 38.01         10,255,982      $ 34.19   

Granted

      2,239,088        84.58         2,277,946        79.68         3,485,283        44.03   

Cancelled

      (228,137 )      60.28         (241,174 )      40.20         (232,488 )      40.53   

Exercised

      (3,019,219 )      82.26         (2,594,566 )      36.84         (2,469,233 )      30.35   
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Shares under option at end of year

      9,473,482      $ 58.69         10,481,750      $ 47.20         11,039,544      $ 38.01   
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Exercisable at end of year

      4,823,331      $ 43.99         5,073,965      $ 38.47         5,067,186      $ 36.31   
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

The following summarizes information about stock options outstanding at December 31, 2012:

 

     Weighted-Avg      Options Outstanding      Options Exercisable  
     Remaining             Weighted-Avg             Weighted-Avg  

Range of Exercise Price

    Contractual Life      Shares      Exercise Price      Shares      Exercise Price  

$9.14—$40.00

      4.16         2,436,289       $ 27.79         2,436,289       $ 27.79   

$40.01—$65.00

      6.47         2,738,151         49.42         1,690,555         52.75   

$65.01—$84.58

      8.63         4,299,042         82.12         696,487         79.40   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

      6.86         9,473,482       $ 58.69         4,823,331       $ 43.99   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

The weighted-average fair value of options granted during 2012, 2011 and 2010, was approximately $30.01, $29.52 and $16.73 per share, respectively, as determined using the Black-Scholes option-pricing model. The total intrinsic value of options exercised during 2012 and 2011, was $120 million and $102 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,  
     2012     2011     2010  

Valuation Assumptions:

       

Expected volatility

      51.7 %      53.2 %      55.0 % 

Risk-free interest rate

      0.9 %      2.1 %      2.3 % 

Expected dividends

    $ 0.57      $ 0.44      $ 0.40   

Expected term (in years)

      3.2        3.1        3.2   

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 2012 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, 2012 and changes during 2012 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, 2011

      10,481,750      $ 47.20         7.03       $ 217,950,989   

Granted

      2,239,088      $ 84.58         

Exercised

      (228,137 )    $ 60.28         

Cancelled

      (3,019,219 )    $ 82.26         

Outstanding at December 31, 2012

      9,473,482      $ 58.69         6.86       $ 150,667,018   
  

 

 

          

Vested or expected to vest

      9,321,906      $ 58.69         6.86       $ 148,256,346   
  

 

 

          

Exercisable at December 31, 2012

      4,823,331      $ 43.99         5.38       $ 125,192,433   
          

At December 31, 2012, total unrecognized compensation cost related to nonvested stock options was $78 million. This cost is expected to be recognized over a weighted-average period of two years. The total fair value of stock options vested in 2012, 2011 and 2010 was approximately $55 million, $54 million and $78 million, respectively. Cash received from option exercises for 2012, 2011 and 2010 was $113 million, $96 million and $73 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $42 million, $43 million and $16 million for 2012, 2011 and 2010, respectively. Cash used to settle equity instruments granted under all share-based payment arrangements for 2012, 2011 and 2010 was not material for any period.

Restricted Shares

The Company issues restricted stock awards and restricted stock units with no exercise price to officers and key employees in addition to stock options. During the year ended December 31, 2012, the Company granted 482,428 shares of restricted stock and restricted stock units, which includes 148,550 performance-based restricted stock awards. Out of the total number of restricted stock and restricted stock units, 464,270 were granted February 21, 2012 and vest on the third anniversary of the date of grant. On May 16, 2012, 18,158 restricted stock awards were granted to the non-employee members of the board of directors. These restricted stock awards vest in equal thirds over three years on the anniversary of the grant date. The performance-based restricted stock awards were granted February 21, 2012. The performance-based restricted stock awards granted will be 100% vested 36 months from the date of grant, subject to the performance condition of the Company’s operating income growth, measured on a percentage basis, from January 1, 2012 through December 31, 2014 exceeding the median operating income growth for the designated peer group over the same period. The estimated forfeiture rate of restricted stock awards and restricted stock units is factored into the share-based compensation expense the Company recognizes.

The following summary presents information regarding outstanding restricted shares:

 

    Years Ended December 31,  
    2012     2011     2010  
    Number of
Units		     Weighted-Average
Grant  Date
Fair Value		     Number of
Units		     Weighted-Average
Grant Date
Fair Value		     Number of
Units		     Weighted-Average
Grant Date
Fair Value		  

Nonvested at beginning of year

     1,606,047      $ 44.21        1,765,837      $ 42.15        2,181,244      $ 40.51   

Granted

     482,428        83.79        374,425        79.53        558,531        43.99   

Vested

     (406,844 )      83.34        (496,642 )      64.22        (921,454 )      43.28   

Cancelled

     (344,965 )      30.39        (37,573 )      44.02        (52,484 )      35.11   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Nonvested at end of year

     1,336,666      $ 67.56        1,606,047      $ 44.21        1,765,837      $ 42.15   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The weighted-average grant day fair value of restricted stock awards and restricted stock units granted during the years ended 2012, 2011 and 2010 was $83.79, $79.53 and $43.99 per share, respectively. There were 406,844; 496,642 and 921,454 restricted stock awards that vested during 2012, 2011 and 2010, respectively. At December 31, 2012, there was approximately $37 million of unrecognized compensation cost related to nonvested restricted stock awards and restricted stock units, which is expected to be recognized over a weighted-average period of two years.