Share Tracking Award Plans

3 Months Ended

Mar. 31, 2015

8. Share Tracking Award Plans

We maintain the United Therapeutics Corporation Share Tracking Awards Plan, adopted in June 2008 (2008 STAP) and the United Therapeutics Corporation 2011 Share Tracking Awards Plan, adopted in March 2011 (2011 STAP). We refer to the 2008 STAP and the 2011 STAP collectively as the “STAP” and awards granted and/or outstanding under either of these plans as “STAP awards.” STAP awards convey the right to receive in cash an amount equal to the appreciation of our common stock, which is measured as the increase in the closing price of our common stock between the dates of grant and exercise. STAP awards generally vest in equal increments on each anniversary of the grant date over a four-year period and expire on the tenth anniversary of the date of grant.

The aggregate STAP liability balance was $460.3 million and $322.7 million at March 31, 2015 and December 31, 2014, respectively, of which $67.9 million and $40.6 million, respectively, have been classified as non-current liabilities under the caption “other liabilities” on our consolidated balance sheets based on their vesting terms.

Estimating the fair value of STAP awards requires the use of certain inputs that can materially impact the determination of fair value and the amount of compensation expense (benefit) we recognize. Inputs used in estimating fair value include the price of our common stock, the expected volatility of the price of our common stock, the risk-free interest rate, the expected term of STAP awards, the expected forfeiture rate and the expected dividend yield. The fair value of the STAP awards is measured each financial reporting period because the awards are settled in cash.

The table below includes the assumptions used to measure the fair value of STAP awards:

	March 31, 2015	March 31, 2014
Expected volatility	34.2%	32.9%
Risk-free interest rate	1.1%	1.4%
Expected term of awards (in years)	4.4	4.1
Expected forfeiture rate	9.5%	9.9%
Expected dividend yield	0.0%	0.0%

A summary of the activity and status of STAP awards is presented below:

	Number of Awards		Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in Thousands)
Outstanding at January 1, 2015	7,716,424		$	62.59
Granted	1,644,388		159.51
Exercised	(1,004,188	)	56.41
Forfeited	(37,956	)	88.30
Outstanding at March 31, 2015	8,318,668		$	82.38	7.8	$	749,197
Exercisable at March 31, 2015	3,198,513		$	62.43	6.6	$	351,883
Expected to vest at March 31, 2015	4,624,500		$	95.20	8.7	$	357,208

The weighted average grant-date fair value of STAP awards granted during the three-month periods ended March 31, 2015 and March 31, 2014 was $58.43 and $33.96, respectively.

Share-based compensation expense (benefit) recognized in connection with the STAP is as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Research and development	$	74,909		$	(26,674	)
Selling, general and administrative	149,715			(31,972		)
Cost of product sales	9,595			(2,309		)
Share-based compensation expense (benefit) before taxes	234,219			(60,955		)
Related income tax (expense) benefit	(89,237		)	21,334
Share-based compensation expense (benefit), net of taxes	$	144,982		$	(39,621	)
Share-based compensation expense (benefit) capitalized as part of inventory	$	2,315		$	(265	)

Cash paid to settle STAP awards exercised during the three-month periods ended March 31, 2015 and March 31, 2014 was $98.5 million and $20.5 million, respectively.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References+ Details