Stockholders' Equity

1.625% Convertible Notes

Conversion. As described in Note 11, “Debt,” we issued 0.6 million shares of our common stock in connection with the conversion of the 1.625% Convertible Notes in the third quarter of 2018.

Exchange. As described in Note 11, “Debt,” we issued 1.8 million shares and 2.6 million shares of our common stock in connection with the exchange of the 1.625% Convertible Notes in March 2018 and December 2017, respectively.

1.125% Warrants

In connection with the Call Spread Overlay transaction described in Note 12, “Derivatives,” in 2013, we issued 13.5 million warrants with a strike price of $53.8475 per share. Under certain circumstances, beginning in April 2020, if the price of our common stock exceeds the strike price of the 1.125% Warrants, we will be obligated to issue shares of our common stock subject to a share delivery cap. The 1.125% Warrants could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the 1.125% Warrants. Refer to Note 3, “Net Income (Loss) Per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised. Following the transactions described below, 6.2 million of the 1.125% Warrants remain outstanding.

As described in Note 12, “Derivatives,” in the second, third and fourth quarters of 2018, we entered into privately negotiated termination agreements with each of the Counterparties to terminate the respective portion of the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes repaid. In each case, additional paid-in capital was reduced for the same amount paid to the Counterparties for the termination of the 1.125% Warrants.


•	In the fourth quarter of 2018, we paid $130 million to the Counterparties for the termination of 1.5 million of the 1.125% Warrants outstanding.


•	In the third quarter of 2018, we paid $306 million to the Counterparties for the termination of 3.4 million of the 1.125% Warrants outstanding.


•	In the second quarter of 2018, we paid $113 million to the Counterparties for the termination of 2.4 million of the 1.125% Warrants outstanding.

Share-Based Compensation

At December 31, 2018, we had employee equity incentives outstanding under our 2011 Equity Incentive Plan (“2011 Plan”). The 2011 Plan provides for the award of restricted stock (“RSAs”), performance stock (“PSAs”), performance stock units (“PSUs”), stock options and stock bonuses to the company’s officers, employees, directors, consultants, advisers, and other service providers. The 2011 Plan provides for the issuance of up to 4.5 million shares of common stock.

In connection with the 2011 Plan and employee stock purchase plan, approximately 365,000 shares and 857,000 shares of common stock were purchased or vested, net of shares used to settle employees’ income tax obligations, during the years ended December 31, 2018, and 2017, respectively.

Except as noted below, we record share-based compensation as “General and administrative expenses” in the accompanying consolidated statements of operations. Total share-based compensation expense was as follows:



	Year Ended December 31,
	2018				2017				2016
	(In millions)
	Pretax Charges		Net-of-Tax Amount		Pretax Charges		Net-of-Tax Amount		Pretax Charges		Net-of-Tax Amount
RSAs, PSAs and PSUs	$	17	$	17	$	39	$	35	$	20	$	17
Employee stock purchase plan and stock options	10		9		7		5		6		5
	$	27	$	26	$	46	$	40	$	26	$	22

RSAs, PSAs and PSUs are granted with a fair value equal to the market price of our common stock on the date of grant, and generally vest in equal annual installments over periods up to four years from the date of grant. Certain PSUs may vest in their entirety at the end of three-year performance periods, if their performance conditions are met. We generally recognize expense for RSAs, PSAs and PSUs on a straight-line basis.

Activity for such awards in the year ended December 31, 2018 is summarized below:



	RSAs		PSAs		PSUs		Total Shares		Weighted Average Grant Date Fair Value
Unvested balance as of December 31, 2017	401,804		84,762		91,828		578,394		$	58.35
Granted	363,740		—		214,952		578,692		75.38
Vested	(192,609	)	(32,929	)	—		(225,538	)	59.08
Forfeited	(173,140	)	(48,701	)	(105,397	)	(327,238	)	63.69
Unvested balance as of December 31, 2018	399,795		3,132		201,383		604,310		$	71.50

As of December 31, 2018, there was $35 million of total unrecognized compensation expense related to unvested RSAs, PSAs and PSUs, which we expect to recognize over a remaining weighted-average period of 2.6 years, 0.2 years and 2.0 years, respectively. This unrecognized compensation cost assumed an estimated forfeiture rate of 16.1% for non-executive employees as of December 31, 2018, based on actual forfeitures over the last 4 years.

The total grant date fair value of awards granted and vested is presented in the following table:



	Year Ended December 31,
	2018		2017		2016
	(In millions)
Granted:
RSAs	$	28	$	20	$	19
PSAs	—		—		15
PSUs	16		16		—
	$	44	$	36	$	34
Vested:
RSAs	$	15	$	23	$	22
PSAs	3		15		—
PSUs	—		9		—
	$	18	$	47	$	22

During the year ended December 31, 2017, the vesting of 133,957 RSAs, 153,574 PSAs and 139,272 PSUs was accelerated in connection with the termination of our former Chief Executive Officer and former Chief Financial Officer in May 2017. The incremental charge relating to this acceleration, or $23 million, is reported in “Restructuring and separation costs” in the accompanying consolidated statements of operations. This amount is included in the 2017 “Pretax Charges” in the table above.

Stock Options. Stock option awards generally have an exercise price equal to the fair market value of our common stock on the date of grant, vest in equal annual installments over periods up to four years from the date of grant, and have a maximum term of ten years from the date of grant. Stock option activity for the year ended December 31, 2018 is summarized below:



	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual term
				(In millions)		(Years)
Stock options outstanding as of December 31, 2017	405,000	$	64.79
Granted	—	—
Exercised	—	—
Stock options outstanding as of December 31, 2018	405,000	64.79		$	21	8.5
Stock options exercisable and expected to vest as of December 31, 2018	405,000	64.79		$	21	8.5
Exercisable as of December 31, 2018	155,000	60.69		$	9	8.0

The weighted-average grant date fair value per share of stock options awarded in 2017 was $41.43. We estimate the fair value of each stock option award on the grant date using the Black-Scholes option pricing model. To determine the fair value of the stock options awarded in 2017 we applied a risk-free interest rate of 2.3%, expected volatility of 38.4%, dividend yield of 0% and expected life of 8.4 years. No stock options were granted in 2018 and 2016.

Also as of December 31, 2018, there was $9 million of total unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of 1.8 years. The total intrinsic value of options exercised during the years ended December 31, 2017, and 2016 was $2 million, and $1 million, respectively. No stock options were exercised in 2018. The following is a summary of information about stock options outstanding and exercisable at December 31, 2018:



	Options Outstanding				Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
Range of Exercise Prices
$33.02	30,000	4.2	$	33.02	30,000	$	33.02
$67.33	375,000	8.9	67.33		125,000	67.33
	405,000				155,000

Employee Stock Purchase Plan. Under our employee stock purchase plan (“ESPP”), eligible employees may purchase common shares at 85% of the lower of the fair market value of our common stock on either the first or last trading day of each six-month offering period. Each participant is limited to a maximum purchase of $25,000 (as measured by the fair value of the stock acquired) per year through payroll deductions. We estimate the fair value of the stock issued using the Black-Scholes option pricing model. For the years ended December 31, 2018, 2017, and 2016, the inputs to this model were as follows: risk-free interest rates of approximately 0.4% to 1.9%; expected volatilities ranging from approximately 31% to 44%, dividend yields of 0%, and an average expected life of 0.5 years. We issued approximately 216,000, 351,000 and 410,000 shares of our common stock under the ESPP during the years ended December 31, 2018, 2017, and 2016, respectively. The 2011 ESPP provides for the issuance of up to three million shares of common stock.