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Stock-Based Compensation
 6 Months Ended
Jun. 30, 2014
Stock-Based Compensation  
Stock-Based Compensation

I.                            The Company’s 2014 Long Term Stock Incentive Plan (and the prior plan that it replaced) provides for the issuance of stock-based incentives in various forms to employees and non-employee Directors of the Company.  At June 30, 2014, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights.  Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Long-term stock awards

 

$

12

 

$

11

 

$

23

 

$

20

 

Stock options

 

1

 

5

 

2

 

10

 

Phantom stock awards and stock appreciation rights

 

1

 

—

 

1

 

3

 

Total

 

$

14

 

$

16

 

$

26

 

$

33

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (37 percent tax rate — before valuation allowance)

 

$

5

 

$

6

 

$

10

 

$

12

 

 

Long-Term Stock Awards.  Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of repurchasing and retiring an equal number of shares in the open market.  The Company granted 1,656,220 shares of long-term stock awards in the six months ended June 30, 2014.

 

The Company’s long-term stock award activity was as follows, shares in millions:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Unvested stock award shares at January 1

 

8

 

8

 

Weighted average grant date fair value

 

$

17

 

$

16

 

 

 

 

 

 

 

Stock award shares granted

 

1

 

2

 

Weighted average grant date fair value

 

$

22

 

$

20

 

 

 

 

 

 

 

Stock award shares vested

 

2

 

2

 

Weighted average grant date fair value

 

$

17

 

$

16

 

 

 

 

 

 

 

Stock award shares forfeited

 

—

 

—

 

Weighted average grant date fair value

 

$

16

 

$

18

 

 

 

 

 

 

 

Unvested stock award shares at June 30

 

7

 

8

 

Weighted average grant date fair value

 

$

18

 

$

17

 

 

At June 30, 2014 and 2013, there was $81 million and $83 million of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of four years in both 2014 and 2013.

 

The total market value (at the vesting date) of stock award shares which vested during the six months ended June 30, 2014 and 2013 was $45 million and $32 million, respectively.

 

Stock Options.  Stock options are granted to key employees of the Company.  The exercise price equals the market price of the Company’s common stock at the grant date.

 

The Company granted 332,750 of stock option shares in the six months ended June 30, 2014 with a grant date exercise price approximating $22 per share. In the first six months of 2014, 592,470 stock option shares were forfeited (including options that expired unexercised).

 

The Company’s stock option activity was as follows, shares in millions:

 

 

 

Six Months Ended

 

 

June 30,

 

 

2014

 

2013

 

 

 

 

 

 

 

Option shares outstanding, January 1

 

24

 

30

 

Weighted average exercise price

 

$

22

 

$

21

 

 

 

 

 

 

 

Option shares granted

 

—

 

1

 

Weighted average exercise price

 

$

22

 

$

20

 

 

 

 

 

 

 

Option shares exercised

 

2

 

2

 

Aggregate intrinsic value on date of exercise (A) 

 

$

13 million

 

$

21 million

 

Weighted average exercise price

 

$

16

 

$

11

 

 

 

 

 

 

 

Option shares forfeited

 

—

 

1

 

Weighted average exercise price

 

$

22

 

$

23

 

 

 

 

 

 

 

Option shares outstanding, June 30

 

22

 

28

 

Weighted average exercise price

 

$

22

 

$

22

 

Weighted average remaining option term (in years)

 

4

 

4

 

 

 

 

 

 

 

Option shares vested and expected to vest, June 30

 

22

 

28

 

Weighted average exercise price

 

$

22

 

$

22

 

Aggregate intrinsic value (A) 

 

$

88 million

 

$

69 million

 

Weighted average remaining option term (in years)

 

4

 

4

 

 

 

 

 

 

 

Option shares exercisable (vested), June 30

 

20

 

23

 

Weighted average exercise price

 

$

23

 

$

24

 

Aggregate intrinsic value (A) 

 

$

69 million

 

$

37 million

 

Weighted average remaining option term (in years)

 

3

 

3

 

 

(A)                   Aggregate intrinsic value is calculated using the Company’s stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.

 

At June 30, 2014 and 2013, there was $8 million and $12 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of two years at both June 30, 2014 and 2013.

 

The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$

9.53

 

$

8.33

 

Risk-free interest rate

 

1.91

%

1.20

%

Dividend yield

 

1.34

%

1.47

%

Volatility factor

 

49.00

%

49.00

%

Expected option life

 

6 years

 

6 years