13. Common Stock

National Oilwell Varco has authorized 1 billion shares of $0.01 par value common stock. The Company also has authorized 10 million shares of $0.01 par value preferred stock, none of which is issued or outstanding.

Cash dividends aggregated $710 million and $703 million for the years ended December 31, 2015 and 2014, 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.

During the third quarter of 2015 the Company completed its $3 billion share repurchase program. As shares were repurchased, they were constructively retired and returned to an unissued state. During the years ended December 31, 2015 and 2014, the Company repurchased 44.0 million and 11.6 million shares, respectively, under the program for an average price of $50.53 and $66.97 per share, respectively, for an aggregate amount of $2,221 million and $779 million, respectively.

Total compensation cost that has been charged against income for all share-based compensation arrangements was $109 million, $101 million and $92 million for 2015, 2014 and 2013, respectively. The total income tax benefit recognized in the consolidated statement of income for all share-based compensation arrangements was $28 million, $35 million and $28 million for 2015, 2014 and 2013, respectively.

Stock Options

Under the terms of National Oilwell Varco’s Long-Term Incentive Plan, as amended, 39.5 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, 2015, approximately 6.2 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, 2015 under the stock option plans have exercise prices between $12.15 and $77.99 per share, and expire at various dates from January 13, 2016 to February 26, 2025.

On June 2, 2014, as a result of the spin-off and pursuant to the terms of the Employee Matters Agreement and the Plan, outstanding NOV stock-based awards held by continuing NOV employees were adjusted to generally preserve the intrinsic value of the original award. Outstanding NOV stock-based awards held by employees of NOW were converted into similar NOW stock-based awards, each appropriately adjusted to generally preserve the intrinsic value of the original award. Adjustments to the awards are reflected in the following tables and did not have a material impact to compensation expense.

The following summarizes options activity:


	Years Ended December 31,
	2015					2014					2013
	Number of Shares			Average Exercise Price		Number of Shares			Average Exercise Price		Number of Shares			Average Exercise Price
Shares under option at beginning of year		10,881,133		$	61.22		11,535,566		$	58.36		10,274,477		$	54.11
Granted		5,746,153			54.74		3,389,547			69.00		3,072,086			63.96
Spun-off		—			—		(1,567,348	)		70.56		—			—
Cancelled		(886,356	)		62.73		(498,967	)		70.32		(329,002	)		66.78
Exercised		(310,623	)		22.56		(1,977,665	)		53.56		(1,481,995	)		38.75

Shares under option at end of year		15,430,307		$	59.50		10,881,133		$	61.22		11,535,566		$	58.36

Exercisable at end of year		7,498,414		$	60.30		5,903,712		$	55.06		6,324,117		$	49.29

The following summarizes information about stock options outstanding at December 31, 2015:


Range of Exercise Price	Weighted-Avg Remaining Contractual Life		Options Outstanding				Options Exercisable
Range of Exercise Price	Weighted-Avg Remaining Contractual Life		Shares		Weighted-Avg Exercise Price		Shares		Weighted-Avg Exercise Price
$12.15 - $55.00		7.34		7,599,928	$	48.99		2,148,275	$	34.39
$55.01 - $70.00		7.25		5,045,298		66.22		2,569,643		64.98
$70.01 - $77.99		5.68		2,785,081		76.00		2,780,496		76.00

Total		7.01		15,430,307	$	59.50		7,498,414	$	60.30

The weighted-average fair value of options granted during 2015, 2014 and 2013, was approximately $15.41, $25.60 and $24.11 per share, respectively, as determined using the Black-Scholes option-pricing model. The total intrinsic value of options exercised during 2015 and 2014, was $9 million and $111 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,
	2015			2014			2013
Valuation Assumptions:
Expected volatility		49.1	%		49.4	%		50.1	%
Risk-free interest rate		1.5	%		1.5	%		0.9	%
Expected dividends	$	3.36		$	1.39		$	0.75
Expected term (in years)		3.0			3.7			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 2015 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, 2015 and changes during 2015 with regard to options under all stock option plans:


	Shares			Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2014		10,881,133		$	61.22		5.15	$	85,503,217
Granted		5,746,153		$	54.74
Cancelled		(886,356	)	$	62.73
Exercised		(310,623	)	$	22.56

Outstanding at December 31, 2015		15,430,307		$	59.50		7.01	$	5,894,977

Vested or expected to vest		15,229,713		$	59.50		7.01	$	5,814,216

Exercisable at December 31, 2015		7,498,414		$	60.30		5.16	$	5,894,977

At December 31, 2015, total unrecognized compensation cost related to nonvested stock options was $95 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 2015, 2014 and 2013 was approximately $72 million, $67 million and $64 million, respectively. Cash received from option exercises for 2015, 2014 and 2013 was $7 million, $108 million and $58 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $7 million, $44 million and $39 million for 2015, 2014 and 2013, respectively. Cash used to settle equity instruments granted under all share-based payment arrangements for 2015, 2014 and 2013 was not material for any period.

Restricted Shares

The Company issues restricted stock awards and restricted stock units to officers and key employees in addition to stock options. On February 25, 2015, the Company granted 653,750 shares of restricted stock and restricted stock units with a fair value of $54.74 per share; and performance share awards to senior management employees with potential payouts varying from zero to 396,666 shares. The stock options vest over a three-year period from the grant date while the restricted stock and restricted stock units vest on the third anniversary of the date of grant. The performance share awards can be earned based on performance against established goals over a three-year performance period. The performance share awards are divided into two equal, independent parts that are subject to two separate performance metrics: 50% with a TSR (total shareholder return) goal (the “TSR Award”) and 50% with an internal ROC (return on capital) goal (the “ROC Award”).

Performance against the TSR goal is determined by comparing the performance of the Company’s TSR with the TSR performance of the members of the OSX index for the three year performance period. Performance against the ROC goal is determined by comparing the performance of the Company’s actual ROC performance average for each of the three years of the performance period against the ROC goal set by the Company’s Compensation Committee.

On May 13, 2015, the Company granted 26,992 restricted stock awards with a fair value of $51.88 per share. The awards were granted to non-employee members of the board of directors and vest on the first anniversary of the grant date.

On August 28, 2015, the Company granted 75,000 restricted stock awards with a fair value of $41.65 per share. The awards were granted to an officer of the Company and vest over a three-year period from the grant date.

The following summary presents information regarding outstanding restricted shares:


	Years Ended December 31,
	2015					2014					2013
	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		1,569,141		$	73.73		1,643,193		$	67.98		1,449,683		$	62.29
Granted		954,075			53.27		708,821			70.14		822,281			63.69
Spin-off		—			—		(319,949	)		70.56		—			—
Vested		(405,327	)		54.30		(348,981	)		74.97		(368,984	)		63.89
Cancelled		(148,639	)		62.73		(113,943	)		70.32		(259,787	)		37.78

Nonvested at end of year		1,969,250		$	61.53		1,569,141		$	73.73		1,643,193		$	67.98

The weighted-average grant day fair value of restricted stock awards and restricted stock units granted during the years ended 2015, 2014 and 2013 was $53.27, $70.14 and $63.69 per share, respectively. There were 405,327; 348,981 and 368,984 restricted stock awards that vested during 2015, 2014 and 2013, respectively. At December 31, 2015, there was approximately $57 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.