Stock-Based Compensation Plans

The following table shows stock-based compensation expense included in the Consolidated Statements of Income:



	Years Ended December 31,
	2014			2013			2012
Cost of equipment sales	$	1,004		$	886		$	1,212
Cost of software	95			—			—
Cost of support services	607			382			522
Cost of business services	694			527			721
Selling, general and administrative	14,028			11,099			15,176
Research and development	1,018			435			596
Discontinued operations⁽¹⁾	—			1,592			—
Stock-based compensation expense	17,446			14,921			18,227
Tax benefit	(5,776		)	(5,759		)	(6,061		)
Stock-based compensation expense, net of tax	$	11,670		$	9,162		$	12,166

(1) Amount represents the expense related to the immediate vesting of restricted stock units and stock options held by employees of PBMS upon the sale of the business.

Stock Plans

We have a long-term incentive program whereby eligible employees may be granted restricted stock units, non-qualified stock options, other stock-based awards, cash or any combination thereof. The Executive Compensation Committee of the Board of Directors administers these plans. We settle employee stock compensation awards with treasury shares. At December 31, 2014, there were 19,715,336 shares available for future grants under our long-term incentive program.

Restricted Stock Units

Restricted stock units (RSUs) entitle the holder to shares of common stock as the units vest, typically over a three or four year service period. The fair value of the units is determined based on the stock price on the grant date less the present value of expected dividends. At December 31, 2014, there was $13 million of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.8 years. The intrinsic value of RSUs outstanding at December 31, 2014 was $44 million. The intrinsic value of RSUs vested during 2014, 2013 and 2012 was $18 million, $15 million and $11 million, respectively. The fair value of RSUs vested during 2014, 2013 and 2012 was $10 million, $18 million and $13 million, respectively. During 2012, we granted 999,381 RSUs at a weighted average fair value of $14.72.

The following table summarizes information about restricted stock units during 2014 and 2013:



	2014				2013
	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value
Restricted stock units outstanding - beginning of the year	1,941,312		$	13.19	1,909,160		$	17.68
Granted	685,994		23.62		1,365,798		10.37
Vested	(713,886	)	14.50		(1,049,572	)	17.52
Forfeited	(94,181	)	15.11		(284,074	)	13.33
Restricted stock units outstanding - end of the year	1,819,239		$	16.41	1,941,312		$	13.19

Market Stock Units

Market stock units (MSUs) are stock awards that entitle the holder to receive a number of shares, adjusted for the attainment of certain performance and market conditions. The award vests at the end of a three-year performance period and the actual number of shares the recipient receives may range from 50% to 200% of the shares awarded. The expense for these awards, net of estimated forfeitures, is recorded over the performance period based on the fair value of the award, which was determined on the grant date using a Monte Carlo simulation model. At December 31, 2014, substantially all of expense for these awards has been recognized as the award fully vests in February 2015. In February 2015, 259,531 shares were issued with an intrinsic value of $6 million.

There were no MSUs awarded during 2014 or 2013 and in 2012, we awarded 205,013 MSUs at a weighted average fair value of $17.91. The fair value of MSUs was determined based on the following assumptions: expected dividend yield - 6.7%, expected stock price volatility - 29.7%, and risk-free interest rate - 0.4%.

The following table summarizes information about market stock units during 2014 and 2013:



	2014			2013
	Shares	Weighted average grant date fair value		Shares		Weighted average grant date fair value
Market stock units outstanding - beginning of the year	188,427	$	17.91	198,145		$	17.91
Forfeited	—	—		(9,718	)	17.91
Market stock units outstanding - end of the year	188,427	$	17.91	188,427		$	17.91

Performance Stock Units

Performance stock units (PSUs) are stock awards where the number of shares ultimately received by the employee is conditional upon the attainment of certain performance targets as well as total shareholder return relative to peer companies. PSUs vest at the end of a three-year service period and the actual number of shares awarded may range from 0% to 200% of the target award. However, the final determination of the number of shares to be issued is made by our Board of Directors, who may reduce, but not increase, the ultimate number of shares to be awarded (negative discretion). PSUs are accounted for as variable awards until the end of the service period when the grant date is established.

Total share-based compensation expense for PSUs is determined by the product of the number of shares eligible to be awarded and expected to vest and the fair value of the award, determined using a Monte Carlo simulation model, commencing at the inception of the requisite service period. During the performance period, the compensation expense for PSUs is re-computed using the fair value of the award, determined using a Monte Carlo simulation model each balance sheet date. Due to the variability of these awards, significant fluctuations in share-based compensation expense recognized from one period to the next are possible. At December 31, 2014, there was $11 million of unrecognized compensation cost related to PSUs that will be recognized over 2.1 years.

The following table summarizes information about PSUs during 2014:



	Shares
PSUs outstanding - beginning of the year	—
Granted	493,255
Performance adjustments	113,460
PSUs outstanding - end of the year	606,715

Stock Options

We may also grant stock options to certain officers and employees at an exercise price equal to the stock price of our common stock on the grant date. Options vest ratably over three or four years and expire ten years from the date of grant. At December 31, 2014, there was less than $1 million of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.3 years. The intrinsic value of options outstanding and options exercisable at December 31, 2014 was $10 million and $5 million, respectively. The intrinsic value of options exercised during 2014 and 2013 was not material.

The following table summarizes information about stock option activity during 2014 and 2013:



	2014				2013
	Shares		Per share weighted average exercise prices		Shares		Per share weighted average exercise prices
Options outstanding - beginning of the year	12,396,894		$	34.90	13,653,245		$	35.28
Granted	—		—		800,000		21.93
Exercised	(137,072	)	22.78		(35,461	)	22.09
Canceled	(114,925	)	36.05		(628,731	)	32.93
Expired	(1,436,203	)	40.06		(1,392,159	)	32.39
Options outstanding - end of the year	10,708,694		$	34.27	12,396,894		$	34.90
Options exercisable - end of the year	9,808,694		$	35.60	10,864,753		$	36.84

The following table provides additional information about stock options outstanding and exercisable at December 31, 2014:



	Options Outstanding				Options Exercisable
Range of per share exercise prices	Shares	Per share weighted-average exercise price		Weighted-average remaining contractual life	Shares	Per share weighted-average exercise price		Weighted-average remaining contractual life
$13.39 - $22.99	2,318,742	$	20.26	6.7 years	1,578,742	$	20.89	6.0 years
$23.00 - $30.99	2,410,252	25.31		5.3 years	2,250,252	25.41		5.1 years
$31.00 - $45.99	3,356,418	40.30		2.2 years	3,356,418	40.30		2.2 years
$46.00 - $48.03	2,623,282	47.20		0.6 years	2,623,282	47.20		0.6 years
	10,708,694	$	34.27	3.5 years	9,808,694	$	35.60	3.1 years

We estimate the fair value of stock options using a Black-Scholes valuation model. Key assumptions used to estimate the fair value of stock options include the volatility of our stock price, a risk-free interest rate, the expected dividend yield and expected life of the award. Expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S. treasuries with a term equal to the expected option term. The expected life of the award and expected dividend yield are based on historical experience. There were no stock options granted during 2014. In 2013, we granted 800,000 options at a weighted average exercise price of $21.93 and in 2012, we granted 600,000 options at a weighted average exercise price of $15.71.

The fair value of stock options granted during 2013 and 2012 was determined using the following assumptions:



	Years Ended December 31,
	2013		2012
Expected dividend yield	7.7	%	9.3	%
Expected stock price volatility	29.5	%	30.0	%
Risk-free interest rate	1.8	%	1.2	%
Expected life	7.9 years		7.9 years
Weighted-average fair value per option granted	$0.88		$0.48
Fair value of options granted (in thousands)	$704		$288

Employee Stock Purchase Plan

We maintain a non-compensatory Employee Stock Purchase Plan that enables substantially all U.S. and Canadian employees to purchase shares of our common stock at an offering price of 95% of the average market price on the offering date. At no time will the exercise price be less than the lowest price permitted under Section 423 of the Internal Revenue Code. Employees purchased 87,606 shares and 222,159 shares in 2014 and 2013, respectively. We have reserved 3,200,506 common shares for future purchase under the ESPP.

Directors' Stock Plan

The Directors Stock Plan was amended and restated as of May 12, 2014. Under the revised plan, non-employee directors receive restricted stock units which are convertible into shares of common stock one year from date of grant. Under the Directors’ Stock Plan in effect for the 2013 awards, non-employee directors received shares of stock that vested after six months. In 2014, 34,344 restricted stock units were awarded to non-employee directors and in 2013, 19,800 shares of stock were awarded to non-employee directors.