Common Stock

We have authorized 135 million shares ($0.01 par value) of common stock, of which 65,891,930 shares and 65,067,132 shares were issued at December 31, 2016 and 2015, respectively. We held 11,655,938 and 7,473,325 shares of treasury stock at December 31, 2016 and 2015, 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, 2016, up to 2,541,470 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 have also granted stock equivalent units and long-term performance units to certain key employees that are payable in cash. At December 31, 2016, the long-term performance units outstanding included a three-year grant for 2014-2016 payable in the first quarter of 2017, a three-year grant for 2015-2017 payable in the first quarter of 2018 and a three-year grant for 2016-2018 payable in the first quarter of 2019. 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 (net of taxes) of $1 million, $2 million, and $3 million in the years ended December 31, 2016, 2015 and 2014, respectively, related to nonqualified stock options as part of our selling, general and administrative expense. This resulted in a $0.01 decrease in basic and diluted earnings per share in 2016, a $0.03 decrease in basic and diluted earnings per share in 2015, and a $0.06 decrease in basic and diluted earnings per share in 2014.

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, 2016, there was less than $1 million of unrecognized compensation costs related to our stock options awards that we expect to recognize over a weighted average period of 0.1 years.

Compensation expense for restricted stock, restricted stock units, long-term performance units and SARs (net of taxes) was $18 million, $12 million, and $13 million for each of the years ended 2016, 2015 and 2014, respectively, and was recorded in selling, general, and administrative expense on the consolidated statements of income.

Cash received from stock option exercises was $16 million in 2016, $4 million in 2015, and $10 million in 2014. Stock option exercises generated an excess tax benefit of $1 million in 2016, $6 million in 2015 and $12 million in 2014.

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. There were no stock options granted in 2016 or 2015.




	2016			2015			2014
Stock Options Granted:
Weighted average grant date fair value, per share	$	—		$	—		$	26.46
Weighted average assumptions used:
Expected volatility	—		%	—		%	52.8		%
Expected lives	0.0			0.0			5.0
Risk-free interest rates	—		%	—		%	1.7		%
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, 2016
	Shares Under Option		Weighted Avg. Exercise Prices		Weighted Avg. Remaining Life in Years	Aggregate Intrinsic Value
						(Millions)
Outstanding Stock Options:
Outstanding, January 1, 2016	1,144,719		$	34.69	3.6	$	19
Exercised	(19,192	)	9.31			1
Outstanding, March 31, 2016	1,125,527		$	35.12	3.5	$	12
Forfeited	(788	)	51.88
Exercised	(183,774	)	23.07			5
Outstanding, June 30, 2016	940,965		$	37.46	3.1	$	14
Forfeited	(3,183	)	56.23
Exercised	(178,455	)	30.17			4
Outstanding, September 30, 2016	759,327		$	39.13	2.8	$	12
Canceled	(4,499	)	24.07
Exercised	(148,303	)	42.01
Outstanding, December 31, 2016	606,525		$	38.54	2.6	$	12

Of the outstanding 606,525 options, 560,238 are currently exercisable and have an intrinsic value of $12 million, a weighted average exercise price of $37.01 and a weighted average remaining life of 2.6 years.

The weighted average grant-date fair value of options granted during the year 2014 was $26.48. There were no stock options granted in 2016 or 2015. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014 was $11 million, $10 million and $30 million, respectively. The total fair value of shares vested was $4 million in 2016 and $6 million in both 2015 and 2014, respectively.

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



	Year Ended December 31, 2016
	Shares		Weighted Avg. Grant Date Fair Value
Nonvested Restricted Shares
Nonvested balance at January 1, 2016	496,842		$	51.65
Granted	347,398		35.98
Vested	(156,109	)	46.50
Nonvested balance at March 31, 2016	688,131		$	44.90
Vested	(20,221	)	42.32
Forfeited	(32,192	)	53.91
Nonvested balance at June 30, 2016	635,718		$	44.42
Granted	3,368		55.02
Vested	(23,705	)	37.37
Forfeited	(3,485	)	53.34
Nonvested balance at September 30, 2016	611,896		$	44.70
Granted	3,038		55.45
Vested	(1,999	)	52.75
Forfeited	(21,519	)	47.46
Nonvested balance at December 31, 2016	591,416		$	44.63

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, 2016, approximately $13 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 1.9 years.

The weighted average grant-date fair value of restricted stock granted during the years 2016, 2015 and 2014 was $36.36, $52.85, and $55.26, respectively. The total fair value of restricted shares vested was $9 million in 2016, $7 million in 2015 and $8 million in 2014.

Share Repurchase Program — 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 was intended to offset dilution from shares of restricted stock and stock options issued in 2014 to employees. We purchased 400,000 shares through open market purchases, which were funded through cash from operations, at a total cost of $22 million, at an average price of $56.06 per share. These repurchased shares are held as part of our treasury stock which increased to 3,244,692 shares at December 31, 2014 from 2,844,692 shares at December 31, 2013.

In January 2015, our Board of Directors approved a share repurchase program, authorizing our company to repurchase up to $350 million of our outstanding common stock over a three-year period. In October 2015, our Board of Directors expanded this share repurchase program, authorizing the repurchase of an additional $200 million of the Company’s outstanding common stock. We purchased 4,228,633 shares in 2015 through open market purchases, which were funded through cash from operations, at a total cost of $213 million, at an average price of $50.32 per share. These repurchased shares are held as part of our treasury stock which increased to 7,473,325 at December 31, 2015 from 3,244,692 at December 31, 2014. We purchased 4,182,613 shares in 2016 through open market purchases, which were funded through cash from operations, at a total cost of $225 million, at an average price of $53.89 per share. These repurchased shares are held as part of our treasury stock which increased to 11,655,938 at December 31, 2016 from 7,473,325 at December 31, 2015.

In February 2017, our Board of Directors authorized the repurchase of up to $400 million of the Company's outstanding common stock over the next three years. This includes $112 million remaining amount authorized under earlier repurchase programs. The company anticipates acquiring the shares through open market or privately negotiated transactions, which will be funded through cash from operations. The repurchase program does not obligate the Company to repurchase shares within any specific time or situations, and opportunities in higher priority areas could affect the cadence of this program.

Dividends —On February 1, 2017, our Board of Directors declared a quarterly cash dividend of $0.25, payable on March 23, 2017 to shareholders of record as of March 7, 2017.

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, 2016, $22 million of total unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 1.8 years.