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Stock-Based Compensation
 3 Months Ended
Mar. 31, 2015
Stock-Based Compensation  
Stock-Based Compensation

 

J. STOCK-BASED COMPENSATION

 

Our 2014 Long Term Stock Incentive Plan (the “2014 Plan”) provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors.  At March 31, 2015, 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

 

 

 

March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Long-term stock awards

 

$
7 

 

$
11 

 

Stock options

 
1 

 
1 

 

Phantom stock awards and stock appreciation rights

 
3 

 

—

 

 

 

 

 

 

 

Total

 

$
11 

 

$
12 

 

 

 

 

 

 

 

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

 

$
4 

 

$
4 

 

 

Long-Term Stock Awards.  Long-term stock awards are granted to our key employees and non-employee Directors and do not cause net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market.  We granted 675,040 shares of long-term stock awards in the three months ended March 31, 2015.

 

Our long-term stock award activity was as follows, shares in millions:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Unvested stock award shares at January 1

 
6 

 
8 

 

Weighted average grant date fair value

 

$
18 

 

$
17 

 

 

 

 

 

 

 

Stock award shares granted

 
1 

 
1 

 

Weighted average grant date fair value

 

$
26 

 

$
22 

 

 

 

 

 

 

 

Stock award shares vested

 
2 

 
2 

 

Weighted average grant date fair value

 

$
17 

 

$
17 

 

 

 

 

 

 

 

Stock award shares forfeited

 

—

 

—

 

Weighted average grant date fair value

 

$
19 

 

$
18 

 

 

 

 

 

 

 

Unvested stock award shares at March 31

 
5 

 
7 

 

Weighted average grant date fair value

 

$
19 

 

$
18 

 

 

At March 31, 2015 and 2014, there was $68 million and $94 million of total unrecognized compensation expense related to unvested stock awards, respectively; such awards had a weighted average remaining vesting period of three years in 2015 and four years in 2014.

 

The total market value (at the vesting date) of stock award shares which vested during the three months ended March 31, 2015 and 2014 was $48 million and $45 million, respectively.

 

Stock Options.  Stock options are granted to our key employees.  The exercise price equals the market price of our common stock at the grant date.  These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.

 

We granted 452,380 of stock option shares in the three months ended March 31, 2015 with a grant date exercise price approximating $26 per share. In the first three months of 2015, 136,040 stock option shares were forfeited (including options that expired unexercised).

 

Our stock option activity was as follows, shares in millions:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Option shares outstanding, January 1

 
18 

 
24 

 

Weighted average exercise price

 

$
21 

 

$
22 

 

 

 

 

 

 

 

Option shares granted

 

—

 

—

 

Weighted average exercise price

 

$
26 

 

$
22 

 

 

 

 

 

 

 

Option shares exercised

 
1 

 
1 

 

Aggregate intrinsic value on date of exercise (A) 

 

$

17 million

 

$

10 million

 

Weighted average exercise price

 

$
14 

 

$
16 

 

 

 

 

 

 

 

Option shares forfeited

 

—

 

—

 

Weighted average exercise price

 

$
22 

 

$
27 

 

 

 

 

 

 

 

Option shares outstanding, March 31

 
17 

 
23 

 

Weighted average exercise price

 

$
22 

 

$
22 

 

Weighted average remaining option term (in years)

 
3 

 
4 

 

 

 

 

 

 

 

Option shares vested and expected to vest, March 31

 
17 

 
23 

 

Weighted average exercise price

 

$
22 

 

$
22 

 

Aggregate intrinsic value (A) 

 

$

108 million

 

$

93 million

 

Weighted average remaining option term (in years)

 
3 

 
4 

 

 

 

 

 

 

 

Option shares exercisable (vested), March 31

 
15 

 
20 

 

Weighted average exercise price

 

$
22 

 

$
23 

 

Aggregate intrinsic value (A) 

 

$

94 million

 

$

72 million

 

Weighted average remaining option term (in years)

 
3 

 
3 

 

 

(A)

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

 

At March 31, 2015 and 2014, there were $9 million and $11 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 three years at both March 31, 2015 and 2014.

 

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:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$
9.67 

 

$
9.53 

 

Risk-free interest rate

 
1.75 

%
1.91 

%

Dividend yield

 
1.32 

%
1.34 

%

Volatility factor

 
42.00 

%
49.00 

%

Expected option life

 

6 years

 

6 years