Common Stock

We have authorized 135 million shares ($0.01 par value) of common stock, of which 63,714,728 shares and 62,789,382 shares were issued at December 31, 2013 and 2012, respectively. We held 2,844,692 and 2,294,692 shares of treasury stock at December 31, 2013 and 2012, respectively.

Equity Plans — In December 1996, we adopted the 1996 Stock Ownership Plan, which permitted the granting of a variety of awards, including common stock, restricted stock, performance units, stock equivalent units, stock appreciation rights (“SARs”) and stock options to our directors, officers, employees and consultants. The 1996 plan, which terminated as to new awards on December 31, 2001, was renamed the “Stock Ownership Plan.” In December 1999, we adopted the Supplemental Stock Ownership Plan, which permitted the granting of a variety of similar awards to our directors, officers, employees and consultants. We were authorized to deliver up to about 1.1 million treasury shares of common stock under the Supplemental Stock Ownership Plan, which also terminated as to new awards on December 31, 2001. In March 2002, we adopted the 2002 Long-Term Incentive Plan which permitted the granting of a variety of similar awards to our officers, directors, employees and consultants. Up to 4 million shares of our common stock were authorized for delivery under the 2002 Long-Term Incentive Plan. In March 2006, we adopted the 2006 Long-Term Incentive Plan which replaced the 2002 Long-Term Incentive Plan and permits the granting of a variety of similar awards to directors, officers, employees and consultants. On May 13, 2009, our stockholders approved an amendment to the Tenneco Inc. 2006 Long-Term Incentive Plan to increase the shares of common stock available thereunder by 2.3 million. Each share underlying an award generally counts as one share against the total plan availability under the 2009 amendment, each share underlying a full value award (e.g. restricted stock), however, counts as 1.25 shares against the total plan availability. On May 15, 2013 our stockholders approved another amendment to the Tenneco Inc. 2006 Long-Term Incentive Plan to increase the shares of common stock available thereunder by 3.5 million. As part of this amendment, each share underlying a full value award subsequently issued counts as 1.49 shares against total plan availability. As of December 31, 2013, up to 3,979,918 shares of our common stock remain authorized for delivery under the 2006 Long-Term Incentive Plan. Our nonqualified stock options have seven to 20 year terms and vest equally over a three-year service period from the date of the grant.

We have granted restricted common stock and stock options to our directors and certain key employees and restricted stock units, payable in cash, to certain key employees. These awards generally require, among other things, that the award holder remain in service to our company during the restriction period, which is currently three years, with a portion of the award vesting equally each year. We also have granted stock equivalent units and long-term performance units to certain key employees that are payable in cash. At December 31, 2013, the long-term performance units outstanding included a three-year grant for 2011-2013 payable in the first quarter of 2014, a three-year grant for 2012-2014 payable in the first quarter of 2015, and a three-year grant for 2013-2015 payable in the first quarter of 2016. Payment is based on the attainment of specified performance goals. Grant value is based on stock price, cumulative EBITDA and free cash flow metrics. In addition, we have granted SARs to certain key employees in our Asian and Indian operations that are payable in cash after a three-year service period. The grant value is indexed to the stock price.

Accounting Methods — We have recorded compensation expense of $6 million, $5 million, and $3 million in the years ended December 31, 2013, 2012 and 2011, respectively, related to nonqualified stock options as part of our selling, general and administrative expense. This resulted in a $0.10 decrease in basic and a $0.09 decrease in diluted earnings per share in 2013, a $0.09 decrease in basic and a $0.08 decrease in diluted earnings per share in 2012, and a $0.05 decrease in both basic and diluted earnings per share in 2011.

For employees eligible to retire at the grant date, we immediately expense stock options and restricted stock. If employees become eligible to retire during the vesting period, we immediately recognize any remaining expense associated with their stock options and restricted stock.

As of December 31, 2013, there was approximately $6 million of unrecognized compensation costs related to our stock options awards that we expect to recognize over a weighted average period of 1.2 years.

Compensation expense for restricted stock, restricted stock units, long-term performance units and SARs was $17 million, $16 million, and $11 million for each of the years ended 2013, 2012 and 2011, respectively, and was recorded in selling, general, and administrative expense on the consolidated statements of income.

Cash received from stock option exercises was $15 million in 2013, $7 million in 2012, and $6 million in 2011. Stock option exercises would have generated an excess tax benefit of $6 million in 2013 and $10 million in both 2012 and 2011. This tax benefit was not recorded because we still have federal net operating losses that have not been utilized.

In 2013 we recorded a tax benefit of $24 million related to the historic tax benefit on stock options from 2006 through 2011 because we began utilizing some of our federal and state net operating losses.

Assumptions — We calculated the fair values of stock option awards using the Black-Scholes option pricing model with the weighted average assumptions listed below. The fair value of share-based awards is determined at the time the awards are granted which is generally in January of each year, and requires judgment in estimating employee and market behavior.




	2013			2012			2011
Stock Options Granted:
Weighted average grant date fair value, per share	$	19.84		$	17.35		$	26.13
Weighted average assumptions used:
Expected volatility	66.4		%	73.5		%	70.1		%
Expected lives	4.9			4.7			4.8
Risk-free interest rates	0.7		%	0.8		%	1.8		%
Dividends yields	—		%	—		%	—		%

Expected volatility is calculated based on current implied volatility and historical realized volatility for the Company.

Expected lives of options are based upon the historical and expected time to post-vesting forfeiture and exercise. We believe this method is the best estimate of the future exercise patterns currently available.

The risk-free interest rates are based upon the Constant Maturity Rates provided by the U.S. Treasury. For our valuations, we used the continuous rate with a term equal to the expected life of the options.

Stock Options — The following table reflects the status and activity for all options to purchase common stock for the period indicated:



	Year Ended December 31, 2013
	Shares Under Option		Weighted Avg. Exercise Prices		Weighted Avg. Remaining Life in Years	Aggregate Intrinsic Value
						(Millions)
Outstanding Stock Options:
Outstanding, January 1, 2013	2,447,475		$	20.14	4.1	$	29
Granted	311,539		36.29
Canceled	(7,225	)	11.73
Forfeited	(14,920	)	14.59
Exercised	(82,622	)	19.96			1
Outstanding, March 31, 2013	2,654,247		$	22.12	4.3	$	41
Granted	388		38.90
Forfeited	(450	)	21.81
Exercised	(393,442	)	22.53			7
Outstanding, June 30, 2013	2,260,743		$	22.06	4.7	$	44
Granted	1,182		35.41
Forfeited	(283	)	8.68
Exercised	(147,753	)	15.42			—
Outstanding, September 30, 2013	2,113,889		$	22.52	4.6	$	56
Granted	—		—
Canceled	—		—
Forfeited	—		—
Exercised	(130,316	)	16.23			5
Outstanding, December 31, 2013	1,983,573		$	22.93	4.5	$	62

Of the outstanding 1,983,573 options, 1,397,102 are currently exercisable and have an intrinsic value of $51, a weighted average exercise price of 17.82 and a weighted average remaining life of 4.7 years.

The weighted average grant-date fair value of options granted during the years 2013, 2012 and 2011 was $19.86, $17.49 and $26.11, respectively. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $19 million, $10 million and $13 million, respectively. The total fair value of shares vested was $5 million, $4 million, and $3 million in 2013, 2012 and 2011.

Restricted Stock — The following table reflects the status for all nonvested restricted shares for the period indicated:



	Year Ended December 31, 2013
	Shares		Weighted Avg. Grant Date Fair Value
Nonvested Restricted Shares
Nonvested balance at January 1, 2013	348,918		$	31.69
Granted	204,731		36.28
Vested	(154,160	)	29.54
Forfeited	—		—
Nonvested balance at March 31, 2013	399,489		$	34.88
Granted	226		38.90
Vested	(15,289	)	35.40
Forfeited	—		—
Nonvested balance at June 30, 2013	384,426		$	34.86
Granted	2,223		46.91
Vested	(16,255	)	35.58
Forfeited	—		—
Nonvested balance at September 30, 2013	370,394		$	34.90
Granted	—		—
Vested	(2,126	)	34.93
Forfeited	—		—
Nonvested balance at December 31, 2012	368,268		$	34.90

The fair value of restricted stock grants is equal to the average market price of our stock at the date of grant. As of December 31, 2013, approximately $6 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 1.7 years.

The weighted average grant-date fair value of restricted stock granted during the years 2013, 2012 and 2011 was $36.40, $30.06, and $45.38, respectively. The total fair value of restricted shares vested was $6 million in 2013, $5 million in 2012 and $3 million in 2011.

Share Repurchase Program — In January 2012, our Board of Directors approved a share repurchase program, authorizing us to repurchase up to 600,000 shares of our outstanding common stock over a 12 months period. This share repurchase program was intended to offset dilution from shares of restricted stock and stock options issued in 2012 to employees. We purchased all of the 600,000 shares during the second quarter of 2012 through open market purchases, which were funded through cash from operations, at a total cost of $18 million, at an average price of $29.22 per share. These repurchased shares are held as part of our treasury stock which increased to 2,294,692 shares at December 31, 2012 from 1,694,692 shares at December 31, 2011.

In January 2013, our Board of Directors approved a share repurchase program, authorizing our company to repurchase up to 550,000 shares of our outstanding common stock over a 12 month period. This share repurchase program is intended to offset dilution from shares of restricted stock and stock options issued in 2013 to employees. We purchased 450,000 shares through open market purchases and 100,000 shares from the Tenneco Retirement Plan for Salaried Employees, both of which were funded through cash from operations, at a total cost of $27 million, at an average price of 49.33 per share. These repurchased shares are held as part of our treasury stock which increased to 2,844,692 shares at December 31, 2013 from 2,294,692 shares at December 31, 2012 .

In January 2014, our Board of Directors approved a share repurchase program, authorizing our company to repurchase up to 400,000 shares of our outstanding common stock over a 12 month period. This share repurchase program is intended to offset dilution from shares of restricted stock and stock options issued in 2014 to employees.

Long-Term Performance Units, Restricted Stock Units and SARs — Long-term performance units, restricted stock units, and SARs are paid in cash and recognized as a liability based upon their fair value. As of December 31, 2013, $13 million of total unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 1.2 years.