Common Stock

Equity Plans — We have granted a variety of awards, including common stock, restricted stock, restricted stock units, performance units, stock appreciation rights (“SARs”), and stock options to our directors, officers, and employees.

Accounting Methods — We have recorded $2 million in compensation expense in each of the three month periods ended March 31, 2014 and 2013 related to nonqualified stock options as part of our selling, general and administrative expense. This resulted in a decrease of $0.04 in both basic and diluted earnings per share for the three month period ended March 31, 2014 and a decrease of $0.04 and $0.03 in basic and diluted earnings per share, respectively, for the three month period ended March 31, 2013.

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 March 31, 2014, there was approximately $9 million of unrecognized compensation costs related to our stock option awards that we expect to recognize over a weighted average period of 1.6 years.

Compensation expense for restricted stock, restricted stock units, long-term performance units and SARs was $8 million and $5 million for the three months ended March 31, 2014 and 2013, respectively, and was recorded in selling, general, and administrative expense in our condensed consolidated statements of income.

Cash received from stock option exercises for the quarter ended March 31, 2014 was less than $1 million and was $2 million for the quarter ended March 31, 2013.

Stock options exercised in the quarter ended March 31, 2013 would have generated a tax benefit of $1 million, however in 2013 we did not begin to record this tax benefit until the third quarter 2013 when we began utilizing our federal and state NOLs. In the first quarter of 2014, we recorded a tax benefit of $12 million, all of which was related to the historic tax benefit on stock options from 2011 through 2013.

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.



	Three Months Ended March 31,
	2014			2013
Stock Options Granted
Weighted average grant date fair value, per share	$	26.46		$	19.84
Weighted average assumptions used:
Expected volatility	52.8		%	66.4		%
Expected lives	5.0			4.9
Risk-free interest rates	1.7		%	0.7		%
Dividend 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:



	Three Months Ended March 31, 2014
	Shares Under Option		Weighted Avg. Exercise Prices		Weighted Avg. Remaining Life in Years	Aggregate Intrinsic Value
						(Millions)
Outstanding Stock Options
Outstanding, January 1, 2014	1,983,573		$	22.93	4.5	$	62
Granted	192,624		56.23
Canceled	(31,299	)	19.78
Forfeited	(300	)	22.77
Exercised	(25,595	)	14.72			1
Outstanding, March 31, 2014	2,119,003		$	26.10	4.6	$	67

The weighted average grant-date fair value of options granted during the three months ended March 31, 2014 and 2013 was $26.46 and $19.84, respectively. The total fair value of shares vested was $6 million and $5 million for the periods ended March 31, 2014 and 2013, respectively.

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



	Three Months Ended March 31, 2014
	Shares		Weighted Avg. Grant Date Fair Value
Nonvested Restricted Shares
Nonvested balance at January 1, 2014	368,268		$	34.90
Granted	131,561		54.90
Vested	(186,112	)	36.57
Forfeited	—		—
Nonvested balance at March 31, 2014	313,717		$	42.30

The fair value of restricted stock grants is equal to the average of the high and low trading price of our stock on the date of grant. As of March 31, 2014, approximately $10 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 2.2 years. The total fair value of restricted shares vested was $7 million and $5 million at March 31, 2014 and 2013, respectively.

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. We did not purchase any shares through this program in the three month period ended March 31, 2014.

These repurchased shares are held as part of our treasury stock which was at 2,844,692 shares at both March 31, 2014 and December 31, 2013.

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 March 31, 2014, $26 million of total unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 2.1 years.