Note 21. Stock-Based Compensation

In accordance with our 2004 Long-Term Incentive Compensation Plan (the “2004 LTIP”), during the five month period ended May 31, 2013, we granted restricted stock, restricted stock units and performance shares to executive officers, members of the Board of Directors and certain employees.

A target number of contingent performance shares were awarded to certain executives in February 2013 in lieu of stock options. Vesting of the performance shares is dependent upon a market condition and three years of continuous service beginning at date of grant, subject to a prorated adjustment for employees who are terminated under certain circumstances or who retire. The market condition is based on our total stockholder return relative to the total stockholder return of a specified group of peer companies at the end of a three-calendar-year performance period beginning January 1, 2013 and ending December 31, 2015. The number of performance shares earned is determined based on our percentile ranking among these companies. The performance shares are entitled to any dividends made during the performance period in the same proportion as the number of performance shares that vest. Dividends will be paid at the end of the service period.

We classified the performance shares as a share-based equity award, and as such, compensation expense related to these shares is based on the grant-date fair value, which will be recognized ratably over the requisite service period. We determined the fair value of the performance shares using a Monte Carlo simulation valuation model. The Monte Carlo simulation estimates the fair value of our performance awards primarily based on the terms associated with the grant and public information that is readily available. The underlying principles in the Monte Carlo simulation are that publicly traded stocks are fairly priced and the future returns of a stock may be estimated primarily by the stock’s assumed volatility. During the year ended December 31, 2013, we granted approximately 164,000 performance shares with a grant date fair value of $77.72 per share under the 2004 LTIP. In addition, we granted approximately 1,173,000 shares of restricted stock and restricted stock units that had a weighted average grant date fair value of $60.30 per share or unit under the 2004 LTIP.

On May 31, 2013, our stockholders approved the 2013 Long-Term Incentive Compensation Plan (“2013 LTIP”), which superseded the 2004 LTIP. The 2013 LTIP authorizes the Compensation Committee of the Board of Directors to provide equity-based compensation in the form of stock options, stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards for the purpose of providing our officers and other employees, and those of our subsidiaries, and non-employees who perform employee functions, incentives and rewards for performance. During the year ended December 31, 2013, we granted approximately 30,000 shares of restricted stock and restricted stock units that had a weighted average grant date fair value of $63.47 per share or unit under the 2013 LTIP.

Although no additional awards will be granted under the 2004 LTIP, the provisions under the previous plan will continue to govern awards that have been granted and remain outstanding under that plan. No awards may be granted under the 2013 LTIP after the tenth anniversary of the date on which the stockholders approved the 2013 LTIP. However, awards outstanding under the 2013 LTIP will continue to be governed by the 2013 LTIP until all awards granted prior to that date are no longer outstanding. The approval of the 2013 LTIP significantly decreased the number of shares that we may issue pursuant to equity-based awards from 56 million shares to 11 million shares of common stock. The aggregate number of new shares available to be granted under the 2013 LTIP at December 31, 2013 was approximately 11 million.

Compensation expense, net of reimbursements during 2013, 2012 and 2011 was approximately $54 million, $63 million and $75 million, respectively, resulting in tax benefits of $21 million, $24 million and $29 million, respectively. As of December 31, 2013, there was approximately $62 million of unrecognized compensation cost, net of estimated forfeitures, including the impact of reimbursement from third parties, which is expected to be recognized over a weighted-average period of 1.5 years on a straight-line basis.

As of December 31, 2013, 164,000 performance shares remained outstanding with a remaining life of 2.0 years.

In 2013, we did not grant any stock options. In 2012 and 2011, we utilized the Lattice model to calculate the fair value of option grants. The weighted average assumptions used to determine the fair value of option grants were as follows:


	Year Ended December 31,
	2012			2011
Dividend yield		1.25	%		0.75	%
Volatility:
Near term		37.0	%		36.0	%
Long term		46.0	%		44.0	%
Expected life		6 yrs.			6 yrs.
Yield curve:
6 month		0.14	%		0.18	%
1 year		0.18	%		0.25	%
3 year		0.41	%		1.18	%
5 year		0.84	%		2.13	%
10 year		1.94	%		3.42	%

The dividend yield was estimated based on the expected annualized dividend payment and the average expected price of our common shares during the same periods.

The estimated volatility was based on a combination of historical share price volatility as well as implied volatility based on market analysis. The historical share price volatility was measured over an 8-year period, which is equal to the contractual term of the options.

The expected life represents the period that our stock-based awards are expected to be outstanding and was determined based on an actuarial calculation using historical experience, giving consideration to the contractual terms of the stock-based awards and vesting schedules.

The yield curve (risk-free interest rate) was based on the implied zero-coupon yield from the U.S. Treasury yield curve over the expected term of the option.

The following table summarizes our stock option activity during 2013:


	Options (In Millions)			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2012		4.2		$	35.72
Granted		—			n/a
Exercised		(3.0	)		29.84
Forfeited, Canceled or Expired		(0.1	)		54.80

Outstanding at December 31, 2013		1.1		$	48.62

Exercisable at December 31, 2013		0.7		$	46.17

As of December 31, 2013 and 2012, we had non-vested options totaling 0.4 million and 1.7 million, respectively, with a weighted average grant date fair value of $18.71 and $10.85, respectively. During the year ended December 31, 2013, 1.2 million options vested with a weighted average grant date fair value of $7.54.

The weighted-average fair value per option for options granted during 2012 and 2011 was $18.62, and $21.84, respectively, and the service period is typically four years. The total intrinsic value of options exercised during 2013, 2012 and 2011 was approximately $104 million, $84 million and $62 million, respectively, resulting in tax benefits of approximately $32 million, $32 million and $23 million, respectively.

The aggregate intrinsic value of outstanding options as of December 31, 2013 was $34 million. The aggregate intrinsic value of exercisable options as of December 31, 2013 was $23 million. The weighted-average contractual life was 4.1 years for outstanding options and 3.2 years for exercisable options as of December 31, 2013.

We recognize compensation expense, equal to the fair market value of the stock on the date of grant for restricted stock and unit grants, over the service period. The weighted-average fair value per restricted stock or unit granted during 2013, 2012 and 2011 was $60.38, $54.96 and $60.77, respectively. The service period is typically three years except in the case of restricted stock and units issued in lieu of a portion of an annual cash bonus where the restriction period is typically in equal installments over a two year period, or in equal installments on the first, second and third fiscal year ends following grant date with distribution at the end of the third fiscal year.

The fair value of restricted stock and units for which the restrictions lapsed during 2013, 2012 and 2011 was approximately $103 million, $237 million and $154 million, respectively.

The following table summarizes our restricted stock and units activity during 2013:


	Number of Restricted Stock and Units			Weighted Average Grant Date Value Per Share
	(In Millions)
Outstanding at December 31, 2012		3.7		$	50.49
Granted		1.2			60.38
Lapse of restrictions		(1.7	)		43.39
Forfeited or canceled		(0.2	)		58.26

Outstanding at December 31, 2013		3.0		$	57.83

2002 Employee Stock Purchase Plan

In April 2002, the Board of Directors adopted (and in May 2002 the stockholders approved) our 2002 Employee Stock Purchase Plan (the “ESPP”) to provide our employees with an opportunity to purchase shares through payroll deductions and we reserved approximately 12.0 million shares for issuance under the ESPP. The ESPP commenced in October 2002.

All full-time employees who have completed 30 days of continuous service and who are employed by us on U.S. payrolls are eligible to participate in the ESPP. Eligible employees may contribute up to 20% of their total cash compensation to the ESPP. Amounts withheld are applied at the end of every three-month accumulation period to purchase shares. The value of the shares (determined as of the beginning of the offering period) that may be purchased by any participant in a calendar year is limited to $25,000. The purchase price to employees is equal to 95% of the fair market value of shares at the end of each period. Participants may withdraw their contributions at any time before shares are purchased.

Approximately 0.1 million shares were issued under the ESPP during the year ended December 31, 2013 at purchase prices ranging from $57.31 to $70.76. Approximately 0.1 million shares were issued under the ESPP during the year ended December 31, 2012 at purchase prices ranging from $50.21 to $52.37.