STOCK-BASED EMPLOYEE COMPENSATION (Notes)

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-based compensation expense included in "Personnel" expenses in the Unaudited Consolidated Statements of Operations was $80 million and $79 million for the three months ended September 30, 2020 and 2019, respectively, and $163 million and $232 million for the nine months ended September 30, 2020 and 2019, respectively.

Stock-based compensation expense related to performance share units, restricted stock units and stock options is recognized based on fair value on a straight-line basis over the respective requisite service periods and forfeitures are accounted for when they occur. The fair value on the grant date of performance share units and restricted stock units is determined based on the number of units granted and the quoted price of the Company's common stock. For performance share units with market conditions, the effect of the market condition is also considered in the determination of fair value on the grant date using Monte Carlo simulations. The fair value of employee stock options is determined using the Black-Scholes model. Performance share units and restricted stock units are payable in shares of the Company's common stock upon vesting. The Company issues shares of its common stock upon the exercise of stock options.

The Company records stock-based compensation expense for performance-based awards using its estimate of the probable outcome at the end of the performance period (i.e., the estimated performance against the performance targets or performance goals, as applicable). The Company periodically adjusts the cumulative stock-based compensation expense recorded when the probable outcome for these performance-based awards is updated based upon changes in actual and forecasted operating results or expected achievement of performance goals, as applicable.

For the performance share units outstanding at March 31, 2020, due to the impact of the COVID-19 pandemic (see Note 1), there was a significant decline in the estimated performance over the performance periods against the performance targets and consequently, a significant reduction in the number of shares that were probable to be issued as compared to December 31, 2019. As a result, for the three months ended March 31, 2020, the Company recognized a reduction in stock-based compensation expense of $73 million, which is included in "Personnel" expense in the Unaudited Consolidated Statement of Operations for the nine months ended September 30, 2020. During the three months ended June 30, 2020, considering pre-COVID-19 performance and the significant effect of the COVID-19 pandemic on Company performance and consequently on the number of shares that were probable to be issued to employees, the Company modified the performance-based awards

granted in 2018 (other than the performance-based awards granted to executive officers and certain other employees) to fix the number of shares to be issued, subject to other vesting conditions. As a result, the Company incurred an additional stock-based compensation expense of $11 million to be recognized over the remaining requisite service period.

Restricted stock units and performance share units granted by the Company during the three and nine months ended September 30, 2020 had aggregate grant-date fair values of $19 million and $369 million, respectively. Restricted stock units and performance share units that vested during the three and nine months ended September 30, 2020 had aggregate fair values at vesting of $12 million and $345 million, respectively. At September 30, 2020, there was $459 million of estimated total future stock-based compensation expense related to unvested restricted stock units and performance share units to be recognized over a weighted-average period of 2.0 years.

Stock options granted by the Company during the nine months ended September 30, 2020 had an aggregate grant-date fair value of $79 million. At September 30, 2020, there was $67 million of estimated total future stock-based compensation expense related to unvested stock options to be recognized over a weighted-average period of 2.4 years.

Restricted Stock Units

The Company makes broad-based grants of restricted stock units that generally vest during a period of one- to three-years, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability.

The following table summarizes the activity of restricted stock units for employees and non-employee directors during the nine months ended September 30, 2020:


Restricted Stock Units	Shares	Weighted-average Grant-date Fair Value Per Share
Unvested at December 31, 2019	256,745		$	1,801

Granted	216,229		$	1,646
Vested	(123,872)		$	1,820
Forfeited	(28,043)		$	1,766
Unvested at September 30, 2020	321,059		$	1,692

Performance Share Units

The Company grants performance share units to executives and certain other employees, which generally vest at the end of a three-year period, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability. The number of shares that ultimately vest depends on achieving certain performance metrics or performance goals, as applicable, by the end of the performance period, assuming there is no accelerated vesting for, among other things, a termination of employment under certain circumstances.

The following table summarizes the activity of performance share units for employees during the nine months ended September 30, 2020:


Performance Share Units	Shares	Weighted-average Grant-date Fair Value Per Share
Unvested at December 31, 2019	216,083		$	1,835

Granted	5,540		$	2,373
Vested	(81,839)		$	1,741
Performance Shares Adjustment *	(50,209)		$	1,944
Forfeited	(4,896)		$	1,834
Unvested at September 30, 2020	84,679		$	1,893

* Probable outcome for these performance-based awards is updated based upon changes in actual and forecasted operating results or expected achievement of performance goals, as applicable, and the impact of modifications.

The following table summarizes the estimated vesting, as of September 30, 2020, of performance share units granted in 2020, 2019 and 2018, net of forfeiture and vesting since the respective grant dates:


Performance Share Units, by grant year	2020	2019	2018

Shares probable to be issued	5,540	43,625	35,514
Shares not subject to the achievement of minimum performance thresholds	—	43,625	35,514
Shares that could be issued if maximum performance thresholds are met	11,080	114,086	62,547

Stock Options

In May 2020, the Company granted stock options that vest in March 2023, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability. No stock options were granted to the executive officers of the Company. Stock options granted or assumed in acquisitions generally have a term of 10 years from the grant date. The fair value of stock options granted is estimated on the grant date using the Black-Scholes option pricing model and is affected by assumptions regarding a number of complex and subjective variables. The use of an option pricing model requires the use of several assumptions including expected volatility, risk-free interest rate, expected dividends, and expected term. Expected volatility is based on the Company’s historical volatility over the expected term of the option and implied volatility of publicly traded options of the Company’s common stock. The expected term of the options represents the estimated period of time until option exercise. Since the Company has limited historical stock option exercise experience, the Company used the simplified method in estimating the expected term, which is calculated as the average of the sum of the vesting term and the original contractual term of the options. The risk-free interest rate is based on U.S. Treasury zero-coupon issues at the time of grant for the expected term of the option.

The following table summarizes the assumptions used to value option grants granted during the nine months ended September 30, 2020 using the Black-Scholes options pricing model:


Black-Scholes assumptions
Risk-free interest rate	0.56	%
Expected term in years	6.4
Expected stock price volatility	33.8	%
Expected dividend yield	0	%

The following table summarizes the activity for stock options during the nine months ended September 30, 2020:


Employee Stock Options	Number of Shares	Weighted-average Exercise Price			Aggregate Intrinsic Value (in millions)			Weighted-average Remaining Contractual Term (in years)
Balance, December 31, 2019	15,122		$	484		$	24	2.6
Granted	163,494		$	1,411
Exercised	(13,093)		$	465

Forfeited	(2,555)		$	1,410
Balance, September 30, 2020	162,968		$	1,401		$	50	9.5
Exercisable at September 30, 2020	2,078		$	638		$	2	2.4

Stock options granted by the Company during the nine months ended September 30, 2020 had a weighted-average grant-date fair value per option of $485. The aggregate intrinsic value of employee stock options exercised during the nine months ended September 30, 2020 and 2019 was $14 million and $4 million, respectively.