Note 20. Stock-Based Compensation

In 2013, we adopted the 2013 Long-Term Incentive Compensation Plan (the 2013 LTIP), which superseded the 2004 Long-Term Incentive Compensation Plan (the 2004 LTIP).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. 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 aggregate number of new shares available to be granted under the 2013 LTIP at December 31, 2014 was approximately 10.7 million.

A target number of contingent performance shares were awarded to certain executives in February 2014. 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, 2014 and ending December 31, 2016. 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 years ended December 31, 2014 and 2013, we granted approximately 177,000 and 164,000 performance shares, respectively, with grant date fair values of $103.65 and $77.72 per share, respectively, under the 2013 LTIP. During the year ended December 31, 2014, approximately 39,000 performance shares were forfeited with a weighted average fair value of $89.86 per share. As of December 31, 2014, 302,000 performance shares remained outstanding with a weighted average fair value of $91.38 per share and a remaining life of 1.5 years.

Compensation expense, including the impact of reimbursements during 2014, 2013 and 2012 was approximately $52 million, $54 million and $63 million, respectively, resulting in tax benefits of $20 million, $21 million and $24 million, respectively. As of December 31, 2014, there was approximately $69 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.

In 2014 and 2013, we did not grant any stock options. In 2012, 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
Dividend yield		1.25	%
Volatility:
Near term		37.0	%
Long term		46.0	%
Expected life		6 yrs.
Yield curve:
6 month		0.14	%
1 year		0.18	%
3 year		0.41	%
5 year		0.84	%
10 year		1.94	%

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 2014:


	Options (In Millions)			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2013		1.1		$	48.55
Granted		—			n/a
Exercised		(0.5	)		48.32
Forfeited, Canceled or Expired		(0.1	)		56.90

Outstanding at December 31, 2014		0.5		$	48.41

Exercisable at December 31, 2014		0.4		$	44.98

As of December 31, 2014 and 2013, we had non-vested options totaling 0.1 million and 0.4 million, respectively, with a weighted average grant date fair value of $19.52 and $18.71, respectively. During the year ended December 31, 2014, 0.2 million options vested with a weighted average grant date fair value of $18.00.

The weighted-average fair value per option for options granted during 2012 was $18.62, and the service period is typically four years. The total intrinsic value of options exercised during 2014, 2013 and 2012 was approximately $18 million, $104 million and $84 million, respectively, resulting in tax benefits of approximately $7 million, $32 million and $32 million, respectively.

The aggregate intrinsic value of outstanding options as of December 31, 2014 was $17 million. The aggregate intrinsic value of exercisable options as of December 31, 2014 was $13 million. The weighted-average contractual life was 3.8 years for outstanding options and 3.3 years for exercisable options as of December 31, 2014.

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. During 2014, we granted approximately 974,000 shares of restricted stock and restricted stock units that had a weighted average grant date fair value of $81.75 per share or unit under the 2013 LTIP. The weighted-average fair value per restricted stock or unit granted during 2013 and 2012 was $60.38 and $54.96, respectively. The service period is typically three years. The fair value of restricted stock and units for which the restrictions lapsed during 2014, 2013 and 2012 was approximately $91 million, $103 million and $237 million, respectively.

The following table summarizes our restricted stock and units activity during 2014:


	Number of Restricted Stock and Units (In Millions)			Weighted Average Grant Date Value Per Share
Outstanding at December 31, 2013		3.0		$	57.11
Granted		1.0			81.75
Lapse of restrictions		(1.1	)		58.41
Forfeited or canceled		(0.3	)		62.72

Outstanding at December 31, 2014		2.6		$	65.28

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, 2014 at purchase prices ranging from $75.05 to $80.31. 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.