Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

10. Share-Based Compensation

We grant share-based compensation to eligible participants under our amended Long-Term Incentive Plan, or LTIP. The LTIP was approved by our Board of Directors and stockholders. As of December 31, 2011, a total of 12.7 million shares of common stock were authorized for grants under the LTIP, of which 4.5 million shares were reserved for future grants. The LTIP authorizes the Board, or the Board’s Compensation and Organization Committee, to provide equity-based compensation in the form of stock options, stock appreciation rights, or SARs, restricted stock, RSUs, performance shares and units, and other cash and share-based awards for the purpose of providing our directors, officers and other employees incentives and rewards for performance. We may issue common shares upon option exercises and upon the vesting or grant of other awards under the LTIP from our authorized but unissued shares or from treasury shares.

Our expense for share-based arrangements was $21 million in 2011, $23 million in 2010 and $21 million in 2009. No income tax benefits were recognized for share-based arrangements in the consolidated statements of operations in 2011, 2010 and 2009. We recognize expense on all share-based awards over the service period, which is the shorter of the period until the employees’ retirement eligibility dates or the service period of the award for awards expected to vest. Accordingly, expense is generally reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

STOCK OPTIONS

We granted stock options in 2011, 2010 and 2009 at the closing price of USG common stock on the date of grant. The stock options generally become exercisable in four equal annual installments beginning one year from the date of grant, although they may become exercisable earlier in the event of death, disability, retirement or a change in control. The stock options generally expire 10 years from the date of grant, or earlier in the event of death, disability or retirement.

We estimated the fair value of each stock option granted on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. We based expected volatility on a 50% weighting of our historical volatilities and 50% weighting of implied USG volatilities. The risk-free rate was based on zero-coupon U.S. government issues at the time of grant. The expected term was developed using the simplified method, as permitted by the Securities and Exchange Commission because there is not sufficient historical stock option exercise experience available.

Assumptions:	2011			2010			2009
Expected volatility		55.88	%		46.90	%		62.58	%
Risk-free rate		2.85	%		2.97	%		2.63	%
Expected term (in years)		6.25			6.25			6.25
Expected dividends		—			—			—

A summary of stock options outstanding as of December 31, 2011 and of stock option activity during the fiscal year then ended is presented below:

	Number of Options (000)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (millions)
Outstanding at January 1, 2011		4,457		$	25.40		7.35	$	17
Granted		662			18.99
Exercised		(31	)		7.86
Canceled		(34	)		28.03
Forfeited		(172	)		20.17
Outstanding at December 31, 2011		4,882		$	24.81		6.72	$	4
Exercisable at December 31, 2011		3,251		$	29.93		6.12	$	2
Vested or expected to vest at December 31, 2011		4,879		$	24.81		6.80	$	4

The weighted average grant date fair value was $10.60 for options granted during 2011, $5.92 for options granted during 2010 and $4.12 for options granted during 2009.

Intrinsic value for stock options is defined as the difference between the current market value of our common stock and the exercise price of the stock options. The total intrinsic value of stock options exercised was less than $1 million in each of 2011 and 2010 and cash received from the exercise of stock options also was less than $1 million in each of those years. There were no stock options exercised in 2009. As a result of the NOL we reported for federal tax purposes for 2011, 2010 and 2009, none of the tax benefit with respect to these exercises has been reflected in capital received in excess of par value as of December 31, 2011. Included in our NOL carryforwards is $13 million for which a tax benefit of $5 million will be recorded in capital received in excess of par value if the loss carryforward is utilized.

As of December 31, 2011, there was $3 million of total unrecognized compensation cost related to nonvested share-based compensation awards represented by stock options granted under the LTIP. We expect that cost to be recognized over a weighted average period of 2.3 years. The total fair value of stock options vested was $14 million during 2011, $9 million during 2010 and $11 million during 2009.

RESTRICTED STOCK UNITS

We granted RSUs during 2011, 2010 and 2009. RSUs generally vest in four equal annual installments beginning one year from the date of grant. RSUs granted as special retention awards generally vest 100% after three to five years from the date of grant or at a specified date and RSUs granted with performance goals vest if those goals are attained. RSUs may vest earlier in the case of death, disability, retirement or a change in control. Each RSU is settled in a share of our common stock after the vesting period. The fair value of each RSU granted is equal to the closing market price of our common stock on the date of grant.

In 2011, we granted RSUs with respect to 526,401 shares of common stock. Of this amount, 456,401 shares will generally vest in four equal annual installments beginning one year from the date of grant, 35,000 shares granted as a special retention award will vest in four equal annual installments beginning one year from the date of grant and 35,000 shares will vest upon the satisfaction of a specified performance goal.

RSUs outstanding as of December 31, 2011 and RSU activity during 2011 were as follows:

	Number of Shares (000)			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2011		1,625		$	12.99
Granted		526			18.85
Vested		(423	)		12.80
Forfeited		(122	)		15.00
Nonvested at December 31, 2011		1,606		$	14.81

As of December 31, 2011, there was $6 million of total unrecognized compensation cost related to nonvested share-based compensation awards represented by RSUs granted under the LTIP. We expect that cost to be recognized over a weighted average period of 2.5 years. The total fair value of RSUs that vested was $5 million during 2011, $8 million during 2010 and $7 million during 2009.

PERFORMANCE SHARES

We granted performance shares during 2011, 2010 and 2009. The performance shares generally vest after a three-year period based on our total stockholder return relative to the performance of the Dow Jones U.S. Construction and Materials Index, with adjustments to that index in certain circumstances, for the three-year period. The number of performance shares earned will vary from 0% to 200% of the number of performance shares awarded depending on that relative performance. Vesting will be pro-rated based on the number of full months employed during the performance period in the case of death, disability, retirement or a change in control, and pro-rated awards earned will be paid at the end of the three-year period. Each performance share earned will be settled in a share of our common stock.

We estimated the fair value of each performance share granted on the date of grant using a Monte Carlo simulation that uses the assumptions noted in the following table. Expected volatility is based on implied volatility of our traded options and the daily historical volatilities of our peer group. The risk-free rate was based on zero coupon U.S. government issues at the time of grant. The expected term represents the period from the grant date to the end of the three-year performance period.

Assumptions:	2011			2010			2009
Expected volatility		77.84	%		73.34	%		60.84	%
Risk-free rate		1.20	%		1.24	%		1.40	%
Expected term (in years)		2.89			2.89			2.89
Expected dividends		—			—			—

Nonvested performance shares outstanding as of December 31, 2011 and performance share activity during 2011 were as follows:

	Weighted Number of Shares (000)			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2011		672		$	12.23
Granted		227			25.40
Vested		(293	)		8.94
Forfeited		(166	)		17.30
Nonvested at December 31, 2011		440		$	19.32

With respect to the 350,248 performance shares granted in 2009, for which the three-year performance period ended December 31, 2011, 293,299 shares were vested because more than the threshold level of total stockholder return relative to the performance of the Dow Jones U.S. Construction and Materials Index, as adjusted, for the performance period was attained. The remaining performance shares granted in 2009 were forfeited.

Total unrecognized compensation cost related to nonvested share-based compensation awards represented by performance shares granted under the LTIP was $6 million as of December 31, 2011. We expect that cost to be recognized over a weighted average period of 1.7 years.

NON-EMPLOYEE DIRECTOR DEFERRED STOCK UNITS

Our non-employee directors may elect to receive a portion of their compensation as deferred stock units that increase or decrease in value in direct relation to the market price of our common stock. Deferred stock units earned through December 31, 2007 will be paid in cash upon termination of board service. Deferred stock units earned thereafter will be paid in cash or shares of USG common stock, at the election of the director, upon termination of board service.

The number of deferred stock units held by non-employee directors was approximately 163,627 as of December 31, 2011, 107,239 as of December 31, 2010 and 81,347 as of December 31, 2009. We recorded expenses related to these deferred stock units of zero in 2011 and $1 million in 2010 and 2009.