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Common Stock | 12 Months Ended
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Dec. 31, 2018
Equity [Abstract] |
Common Stock | 12. 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 $76 million for each of the years ended December 31, 2018 and 2017. 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. Total compensation cost that has been charged against income for all share-based compensation arrangements was $110 million, $124 million and $107 million for 2018, 2017 and 2016, respectively. The total income tax benefit recognized in the consolidated statements of income for all share-based compensation arrangements was $16 million, $24 million and $30 million for 2018, 2017 and 2016, respectively. The Company has a stock-based compensation plan known as the National Oilwell Varco, Inc. Long-Term Incentive Plan (the “Plan”). The Plan provides for the granting of stock options, performance-based share awards, restricted stock, phantom shares, stock payments and stock appreciation rights (“SARs”). The number of shares authorized under the Plan is 69.4 million. The Plan is subject to a fungible ratio concept, such that the issuance of stock options and SARs reduces the number of available shares under the Plan on a 1-for-1 basis, and the issuance of other awards reduces the number of available shares under the Plan on a 3-for-1 basis. The Company’s other stock-based compensation plan, known as the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan (the “2018 Plan”), was approved by shareholders on May 11, 2018. The 2018 Plan provides for the granting of stock options, restricted stock, restricted stock units, performance awards, phantom shares, stock appreciation rights, stock payments and substitute awards. The number of shares authorized under the 2018 Plan is 17.8 million. The 2018 Plan is also subject to a fungible ratio concept, such that the issuance of stock options and SARs reduces the number of available shares under the 2015 Plan on a 1-for-1 basis, and the issuance of other awards reduces the number of available shares under the 2018 Plan on a 2.5-for-1 basis. At December 31, 2018, approximately 17.7 million shares were available for future grants. Stock Options 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. We also have an inactive stock option plan that was acquired in connection with the acquisition of Grant Prideco in 2008. We converted the outstanding stock options under this plan to options to acquire our common stock and no further options are being issued under this plan. 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, 2018 under the stock option plans have exercise prices between $23.94 and $77.99 per share, and expire at various dates from February 21, 2019 to February 29, 2028. The following summarizes options activity:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | 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 |  |  | 22,472,047 |  |  | $ | 48.99 |  |  |  | 17,439,060 |  |  | $ | 54.08 |  |  |  | 15,430,307 |  |  | $ | 59.50 |
Granted |  |  | 1,610,599 |  |  |  | 35.09 |  |  |  | 6,961,041 |  |  |  | 36.51 |  |  |  | 3,672,411 |  |  |  | 28.26 |
Forfeited |  |  | (1,318,380 | ) |  |  | 57.56 |  |  |  | (1,482,531 | ) |  |  | 55.22 |  |  |  | (1,517,065 | ) |  |  | 49.95 |
Exercised |  |  | (1,754,758 | ) |  |  | 44.12 |  |  |  | (445,523 | ) |  |  | 29.83 |  |  |  | (146,593 | ) |  |  | 28.53 |
Shares under option at end of year |  |  | 21,009,508 |  |  | $ | 48.88 |  |  |  | 22,472,047 |  |  | $ | 48.99 |  |  |  | 17,439,060 |  |  | $ | 54.08 |
Exercisable at end of year |  |  | 15,223,029 |  |  | $ | 54.13 |  |  |  | 14,309,944 |  |  | $ | 55.00 |  |  |  | 9,828,897 |  |  | $ | 61.56 |
The following summarizes information about stock options outstanding at December 31, 2018:
|  | Weighted-Avg |  |  | Options Outstanding |  |  | Options Exercisable |
|  | Remaining |  |  |  |  |  |  | Weighted-Avg |  |  |  |  |  |  | Weighted-Avg |
Range of Exercise Price |  | Contractual Life |  |  | Shares |  |  | Exercise Price |  |  | Shares |  |  | Exercise Price |
$23.94 - $55.00 |  |  | 6.81 |  |  |  | 15,179,485 |  |  | $ | 40.68 |  |  |  | 9,393,006 |  |  | $ | 44.14 |
$55.01 - $70.00 |  |  | 4.69 |  |  |  | 3,658,652 |  |  |  | 66.82 |  |  |  | 3,658,652 |  |  |  | 66.82 |
$70.01 - $77.99 |  |  | 2.69 |  |  |  | 2,171,371 |  |  |  | 75.95 |  |  |  | 2,171,371 |  |  |  | 75.95 |
Total |  |  | 6.01 |  |  |  | 21,009,508 |  |  | $ | 48.88 |  |  |  | 15,223,029 |  |  | $ | 54.13 |
The weighted-average fair value of options granted during 2018, 2017 and 2016, was approximately $10.01, $9.68 and $6.44 per share, respectively, as determined using the Black-Scholes option-pricing model. The total intrinsic value of options exercised during 2018 and 2017 was $54 million and $13 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 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, |
Valuation Assumptions: |  | 2018 |  |  | 2017 |  |  | 2016 |
Expected volatility |  |  | 31.8 | % |  |  | 36.1 | % |  |  | 48.6 | %
Risk-free interest rate |  |  | 2.7 | % |  |  | 2.2 | % |  |  | 1.2 | %
Expected dividend yield |  |  | 0.6 | % |  |  | 0.6 | % |  |  | 6.5 | %
Expected term (in years) |  |  | 4.3 |  |  |  | 3.0 |  |  |  | 3.0 |
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. Forfeitures are accounted for as they occur. The following summary presents information regarding outstanding options at December 31, 2018 and changes during 2017 with regard to options under all stock option plans:
|  |  |  |  |  | Weighted- Average |  |  | Weighted Average Remaining Contractual |  |  | Aggregate |
|  | Shares |  |  | Exercise Price |  |  | Term (years) |  |  | Intrinsic Value |
Outstanding at December 31, 2017 |  |  | 22,472,047 |  |  | $ | 48.99 |  |  |  | 6.66 |  |  | $ | 34,186,368 |
Granted |  |  | 1,610,599 |  |  | $ | 35.09 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (1,318,380 | ) |  | $ | 57.56 |  |  |  |  |  |  |  |  |
Exercised |  |  | (1,754,758 | ) |  | $ | 44.12 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2018 |  |  | 21,009,508 |  |  | $ | 48.88 |  |  |  | 6.01 |  |  | $ | 458,576 |
Exercisable at December 31, 2018 |  |  | 15,223,029 |  |  | $ | 54.13 |  |  |  | 5.24 |  |  | $ | 458,576 |
At December 31, 2018, total unrecognized compensation cost related to nonvested stock options was $25 million. This cost is expected to be recognized over a weighted-average period of three years. The total fair value of stock options vested in 2018, 2017 and 2016 was approximately $26 million, $70 million and $61 million, respectively. Cash received from option exercises for 2018, 2017 and 2016 was $54 million, $13 million and $4 million, respectively. The actual tax benefit (expense) realized for the tax deductions from option exercises totaled $2 million, (2) million, and $nil for 2018, 2017 and 2016, respectively. Stock Appreciation Rights On December 20, 2017, the Company made a tender offer to exchange SARs issued to certain employees on February 24, 2016 (“2016 SARs”) for cash, amended SARs, and new stock options. The transaction was structured to provide the employees an equal long-term incentive compensation value, while alleviating volatility in the Company’s earnings caused by required mark-to-market accounting on outstanding SARS. Of the outstanding 2016 SARs, 94.75% were exchanged resulting in a total cash payment of $14 million and granting of 3,613,707 new stock options on the exchange date with an exercise price of $34.32 and a fair value of $8.47, with vesting matched to the exchanged 2016 SARs. The following summary presents information regarding outstanding SARs:
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |
|  | Number |  |  | Average |  |  | Number |  |  | Average |
|  | of |  |  | Exercise |  |  | of |  |  | Exercise |
|  | Shares |  |  | Price |  |  | Shares |  |  | Price |
Shares under SARs at beginning of year |  |  | 1,493,689 |  |  | $ | 28.41 |  |  |  | 4,341,740 |  |  | $ | 28.32 |
Granted |  |  | 14,228 |  |  |  | 35.09 |  |  |  | 14,400 |  |  |  | 38.86 |
Forfeited |  |  | (83,124 | ) |  |  | 28.32 |  |  |  | (283,822 | ) |  |  | 28.35 |
Exercised |  |  | (25,491 | ) |  |  | 42.61 |  |  |  | (2,578,629 | ) |  |  | 34.72 |
Shares under SARs at end of year |  |  | 1,399,302 |  |  | $ | 28.49 |  |  |  | 1,493,689 |  |  | $ | 28.41 |
Exercisable at end of year |  |  | 165,755 |  |  | $ | 28.57 |  |  |  | 75,102 |  |  | $ | 28.33 |
The expense recognized in 2018, 2017, and 2016 was nil, $8 million, and $20 million, respectively. There was no liability for cash-settled SARs at December 31, 2018. Restricted Shares The Company issues restricted stock awards and restricted stock units to officers and key employees in addition to stock options. On February 28, 2018, the Company granted 2,391,933 shares of restricted stock and restricted stock units with a fair value of $35.09 per share; and performance share awards to senior management employees with potential payouts varying from zero to 449,532 shares. The restricted stock and restricted stock units vest in three equal annual installments commencing on the first 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 based entirely on a TSR (total shareholder return) goal. 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 (Oil Service Sector) index for the three-year performance period. On May 11, 2018, the Company granted 35,432 restricted stock awards under the 2018 Plan with a fair value of $40.65 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. The following summary presents information regarding outstanding restricted shares:
| Years Ended December 31, |
| 2018 |  |  | 2017 |  |  | 2016 |
|  |  |  |  | Weighted- |  |  |  |  |  |  | Weighted- |  |  |  |  |  |  | Weighted- |
| Number |  |  | Average |  |  | Number |  |  | Average |  |  | Number |  |  | Average |
| of |  |  | Grant Date |  |  | of |  |  | Grant Date |  |  | of |  |  | Grant Date |
| Units |  |  | Fair Value |  |  | Units |  |  | Fair Value |  |  | Units |  |  | Fair Value |
Nonvested at beginning of year |  | 4,889,678 |  |  | $ | 37.04 |  |  |  | 4,563,983 |  |  | $ | 41.10 |  |  |  | 1,969,250 |  |  | $ | 61.53 |
Granted |  | 2,657,115 |  |  |  | 35.17 |  |  |  | 1,738,589 |  |  |  | 38.74 |  |  |  | 3,384,325 |  |  |  | 31.59 |
Vested |  | (1,242,682 | ) |  |  | 34.86 |  |  |  | (1,018,206 | ) |  |  | 34.84 |  |  |  | (565,202 | ) |  |  | 29.32 |
Forfeited |  | (389,251 | ) |  |  | 57.56 |  |  |  | (394,688 | ) |  |  | 55.22 |  |  |  | (224,390 | ) |  |  | 49.95 |
Nonvested at end of year |  | 5,914,860 |  |  | $ | 34.41 |  |  |  | 4,889,678 |  |  | $ | 37.04 |  |  |  | 4,563,983 |  |  | $ | 41.10 |
The weighted-average grant day fair value of restricted stock awards and restricted stock units granted during the years ended 2018, 2017 and 2016 was $35.17, $38.74 and $31.59 per share, respectively. There were 1,242,682, 1,018,206 and 565,202 restricted stock awards that vested during 2018, 2017 and 2016, respectively. At December 31, 2018, there was approximately $108 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.

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