Share Tracking Awards Plans

9 Months Ended

Sep. 30, 2016

7.Share Tracking Awards Plans

We previously issued awards under 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 expire on the tenth anniversary of the grant date, and in most cases they vest in equal increments on each anniversary of the grant date over a four-year period. The STAP liability includes vested awards and awards that are expected to vest. We recognize expense for awards that are expected to vest during the vesting period. We discontinued the issuance of STAP awards in June 2015, when our shareholders approved the United Therapeutics Corporation 2015 Stock Incentive Plan (the 2015 Plan), a broad-based stock incentive plan enabling us to grant stock options and other forms of equity compensation to our employees. See Note 9—Stockholders’ Equity to these consolidated financial statements for information on the 2015 Plan.

The aggregate STAP liability balance was $184.7 million and $354.7 million at September 30, 2016 and December 31, 2015, respectively, of which $50.0 million and $80.2 million, respectively, has 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 weighted-average assumptions used to measure the fair value of the outstanding STAP awards:

	September 30, 2016		September 30, 2015
Expected volatility	35.5	%	34.5	%
Risk-free interest rate	0.9	%	1.2	%
Expected term of awards (in years)	2.8		4.1
Expected forfeiture rate	10.2	%	9.6	%
Expected dividend yield	0.0	%	0.0	%

The closing price of our common stock was $118.08 and $131.24 on September 30, 2016 and September 30, 2015, respectively.

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 millions)
Outstanding at January 1, 2016	6,845,163		$	86.86
Granted	—		—
Exercised	(914,642	)	61.41
Forfeited	(544,507	)	94.00

Outstanding at September 30, 2016	5,386,014		$	90.46	6.7	$	208.2

Exercisable at September 30, 2016	2,797,117		$	86.50	6.2	$	113.5

Expected to vest as of September 30, 2016	2,316,622		$	94.33	7.2	$	85.4

The weighted average grant-date fair value of STAP awards granted during the nine-month period ended September 30, 2015 was $58.52. No STAP awards were granted during the nine-month period ended September 30, 2016.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Cost of product sales	$	3.5		$	(8.1	)	$	(8.7	)	$	2.8
Research and development	8.1			(31.1		)	(31.6		)	57.1
Selling, general and administrative	34.2			(82.4		)	(76.2		)	99.7

Share-based compensation expense (benefit) before taxes	$	45.8		$	(121.6	)	$	(116.5	)	$	159.6
Related income tax (expense) benefit	(17.1		)	45.9			42.6			(60.2		)

Share-based compensation expense (benefit), net of taxes	$	28.7		$	(75.7	)	$	(73.9	)	$	99.4

Cash paid to settle STAP awards exercised during the nine-month periods ended September 30, 2016 and September 30, 2015 was $52.7 million and $218.2 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.

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