NBR » Topics » Stock Option Plans

This excerpt taken from the NBR 10-Q filed Nov 2, 2006.
Stock Option Plans
 
Stock option awards under the Company’s various stock-based employee compensation plans are granted at prices equal to the fair market value of the shares on the date of the grant. Options granted under the plan generally vest in varying periodic installments after one year. In the case of certain key executives, options granted under the plans may vest immediately on the grant date. Options granted under the plan expire ten years from the date of grant.
 
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions for the risk-free interest rate, volatility, dividend yield and the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equal to the expected term of the option. Expected volatilities are based on implied volatilities from traded options on the Nabors’ common shares, historical volatility of Nabors’ common shares, and other factors. We do not assume any dividend yield, as the Company does not pay dividends. We use historical data to estimate the expected term of the options and employee terminations within the option-pricing model; separate groups of employees that have


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

similar historical exercise behavior are considered separately for valuation purposes. The expected term of the options represents the period of time that the options granted are expected to be outstanding.
 
We also consider an estimated forfeiture rate when determining the fair value of each award, and we only recognize compensation cost for those shares that are expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three to four years. The forfeiture rate is based on historical experience. Estimated forfeitures will be adjusted to reflect actual forfeitures in future periods.
 
There were no stock options granted, and as a result, no fair value determinations were made during the nine months ended September 30, 2006. Stock option transactions under the Company’s various stock-based employee compensation plans during the nine months ended September 30, 2006, is presented below:
 
                                 
                Weighted
       
                Average
       
          Weighted
    Remaining
    Aggregate
 
          Average
    Contractual
    Intrinsic
 
Options
  Shares     Exercise Price     Term     Value  
(In thousands, except exercise price)  
 
Options outstanding as of December 31, 2005
    38,559     $ 21.87                  
Granted
        $                  
Exercised
    (1,033 )   $ 21.22                  
Forfeited
    (135 )   $ 22.70                  
                                 
Options outstanding as of September 30, 2006
    37,391     $ 21.88       5.2 years     $ 320,167  
                                 
Options exercisable as of September 30, 2006
    34,322     $ 21.85       5.0 years     $ 297,173  
                                 
 
The total intrinsic value of options exercised during the nine months ended September 30, 2006 and 2005 was $15.5 million and $330.3 million, respectively.
 
As of September 30, 2006, there was $11.7 million of total future compensation cost related to nonvested options. That cost is expected to be recognized over a weighted-average period of less than one year. We expect substantially all of the nonvested options to vest.
 
This excerpt taken from the NBR 10-Q filed May 10, 2006.
Stock Option Plans
 
Stock option awards under the Company’s various stock-based employee compensation plans are granted at prices equal to the fair market value of the shares on the date of the grant. Options granted under the plan generally vest in varying periodic installments after one year. In the case of certain key executives, options granted under the plans may vest immediately on the grant date. Options granted under the plan expire ten years from the date of grant.
 
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions for the risk-free interest rate, volatility, dividend yield and the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equal to the expected term of the option. Expected volatilities are based on implied volatilities from traded options on the Nabors’ common shares, historical volatility of Nabors’ common shares, and other factors. We use historical


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data to estimate the expected term of the options and employee terminations within the option-pricing model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of the options represents the period of time that the options granted are expected to be outstanding.
 
We also consider an estimated forfeiture rate when determining the fair value of each award, and we only recognize compensation cost for those shares that are expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three to four years. The forfeiture rate for the first quarter of 2006 is based on historical experience. Estimated forfeitures will be adjusted to reflect actual forfeitures in future periods.
 
There were no stock options granted, and as a result, no fair value determinations were made during the three months ended March 31, 2006.
 
Stock option transactions under the Company’s various stock-based employee compensation plans during the three months ended March 31, 2006, are presented below:
 
                                 
                Weighted Average
    Aggregate
 
          Weighted Average
    Remaining
    Intrinsic
 
Options
  Shares     Exercise Price     Contractual Term     Value  
(In thousands, except exercise price)                        
 
Options outstanding as of December 31, 2005
    38,559     $ 21.87                  
Granted
                           
Exercised
    (405 )     20.41                  
Forfeited
    (79 )     23.79                  
                                 
Options outstanding as of March 31, 2006
    38,075     $ 21.88       5.72 years     $ 529,789  
                                 
Options exercisable as of March 31, 2006
    34,897     $ 21.84       5.54 years     $ 486,713  
                                 
 
The total intrinsic value of options exercised during the three months ended March 31, 2006 was $5.7 million.
 
As of March 31, 2006, there was $20.1 million of total future compensation cost related to nonvested options. That cost is expected to be recognized over a weighted-average period of less than one year.
 

EXCERPTS ON THIS PAGE:

10-Q
Nov 2, 2006
10-Q
May 10, 2006
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