Stock-Based Compensation
The Company recorded stock-based compensation expense of $7 million and $8 million ($5 million and $5 million, net of tax) during the three months ended September 30, 2016 and 2015, respectively, and $21 million and $19 million ($14 million and $12 million, net of tax) during the nine months ended September 30, 2016 and 2015, respectively. In jurisdictions with net operating loss carryforwards, exercises and/or vestings of stock-based awards have generated $96 million of total tax deductions at September 30, 2016. Approximately $38 million of tax benefits will be recorded in additional paid-in capital when these tax deductions are realized in these jurisdictions.
The weighted average assumptions used in the Monte Carlo simulation model to calculate the fair value of the Company’s stock unit awards containing a market condition were as follows: | | | | | | Nine Months Ended
September 30, | | 2016 | | 2015 | Expected volatility of stock price | 46% | | 37% | Risk-free interest rate | 0.98% | | 0.74% | Valuation period | 3 years | | 3 years | Dividend yield | 0.0% | | 0.0% |
The activity related to the Company’s restricted stock units (“RSUs”) and cash units, consisted of (in thousands of shares): | | | | | | | | | | | | | | | | | | | | | | | | | Time-Based RSUs | | Performance-Based and Market-Based RSUs | | Cash Unit Awards | | | Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Units | | Weighted Average Grant Date Fair Value | Outstanding at January 1, 2016 (a) | 819 |
| | $ | 43.34 |
| | 941 |
| | $ | 35.18 |
| | 111 |
| | $ | 18.04 |
| | Granted | 587 |
| | 25.92 |
| | 528 |
| | 23.33 |
| | — |
| | — |
| | Vested (b) | (422 | ) | | 36.06 |
| | (488 | ) | | 25.13 |
| | (111 | ) | | 18.04 |
| | Forfeited/expired | (25 | ) | | 38.34 |
| | (51 | ) | | 27.16 |
| | — |
| | — |
| Outstanding at September 30, 2016 (c) | 959 |
| | $ | 36.01 |
| | 930 |
| | $ | 34.14 |
| | — |
| | $ | — |
|
__________ | | (a) | Reflects the maximum number of stock units assuming achievement of all time-, performance- and market-vesting criteria and does not include those for non-employee directors. The weighted-average fair value of time-based RSUs and performance-based and market-based RSUs granted during the nine months ended September 30, 2015 was $54.72 and $55.51, respectively. |
| | (b) | The total grant date fair value of RSUs vested during the nine months ended September 30, 2016 and 2015 was $27 million and $24 million, respectively. The total grant date fair value of cash units vested during the nine months ended September 30, 2016 and 2015 was $2 million, in each period. |
| | (c) | The Company’s outstanding time-based RSUs and performance-based and market-based RSUs had aggregate intrinsic values of $33 million and $32 million, respectively. Aggregate unrecognized compensation expense related to time-based RSUs and performance-based and market-based RSUs amounted to $34 million and will be recognized over a weighted average vesting period of 1.3 years. The Company assumes that substantially all outstanding awards will vest over time. |
The stock option activity consisted of (in thousands of shares): | | | | | | | | | | | | | | | | | Number of Options | | Weighted Average Exercise Price | | Aggregate Intrinsic Value (in millions) | | Weighted Average Remaining Contractual Term (years) | Outstanding at January 1, 2016 | 827 |
| | $ | 2.87 |
| | $ | 28 |
| | 3.3 | | Granted | — |
| | — |
| |
| |
| | Exercised | (13 | ) | | 0.79 |
| | — |
| |
| | Forfeited/expired | — |
| | — |
| |
| |
| Outstanding and exercisable at September 30, 2016 | 814 |
| | $ | 2.90 |
| | $ | 25 |
| | 2.5 |
|