Common Stock

Equity Plans — We have granted a variety of awards, including common stock, restricted stock, restricted stock units, performance units, stock appreciation rights (“SARs”), and stock options to our directors, officers, and employees.

Accounting Methods — We have recorded $1 million in compensation expense in each of the three month periods ended June 30, 2013 and 2012 and $3 million in compensation expense for each of the six month periods ended June 30, 2013 and 2012, related to nonqualified stock options as part of our selling, general and administrative expense. This resulted in a decrease of $0.02 in both basic and diluted earnings per share for the three month periods ended June 30, 2013 and 2012 and a decrease of $0.05 in both basic and diluted earnings per share for the six month periods ended June 30, 2013 and 2012.

For employees eligible to retire at the grant date, we immediately expense stock options and restricted stock. If employees become eligible to retire during the vesting period, we immediately recognize any remaining expense associated with their stock options and restricted stock.

As of June 30, 2013, there was approximately $8 million of unrecognized compensation costs related to our stock option awards that we expect to recognize over a weighted average period of 1.7 years.

Compensation expense for restricted stock, restricted stock units, long-term performance units and SARs was $5 million and $2 million for the three months ended June 30, 2013 and 2012, respectively, and $8 million for each of the six months ended June 30, 2013 and 2012 and was recorded in selling, general, and administrative expense in our condensed consolidated statements of income.

Cash received from stock option exercises for the six months ended June 30, 2013 and 2012 was $10 million and $2 million, respectively. Stock option exercises in the first six months of 2013 and 2012 would have generated an excess tax benefit of $3 million and $1 million, respectively. We did not record the excess tax benefit as we have federal and state net operating losses which were not being utilized.

Assumptions — We calculated the fair values of stock option awards using the Black-Scholes option pricing model with the weighted average assumptions listed below. The fair value of share-based awards is determined at the time the awards are granted which is generally in January of each year, and requires judgment in estimating employee and market behavior.



	Six Months Ended June 30,
	2013			2012
Stock Options Granted
Weighted average grant date fair value, per share	$	19.84		$	17.35
Weighted average assumptions used:
Expected volatility	66.4		%	73.5		%
Expected lives	4.9			4.7
Risk-free interest rates	0.7		%	0.8		%
Dividend yields	—		%	—		%

Expected volatility is calculated based on current implied volatility and historical realized volatility for the Company.

Expected lives of options are based upon the historical and expected time to post-vesting forfeiture and exercise. We believe this method is the best estimate of the future exercise patterns currently available.

The risk-free interest rates are based upon the Constant Maturity Rates provided by the U.S. Treasury. For our valuations, we used the continuous rate with a term equal to the expected life of the options.

Stock Options — The following table reflects the status and activity for all options to purchase common stock for the period indicated:



	Six Months Ended June 30, 2013
	Shares Under Option		Weighted Avg. Exercise Prices		Weighted Avg. Remaining Life in Years	Aggregate Intrinsic Value
						(Millions)
Outstanding Stock Options
Outstanding, January 1, 2013	2,447,475		$	20.14	4.1	$	29
Granted	311,539		36.29
Canceled	(7,225	)	11.73
Forfeited	(14,920	)	14.59
Exercised	(82,622	)	19.96			1
Outstanding, March 31, 2013	2,654,247		$	22.12	4.3	$	41
Granted	388		38.90
Forfeited	(450	)	21.81
Exercised	(393,442	)	22.53			7
Outstanding, June 30, 2013	2,260,743		22.06		4.7	44

The weighted average grant-date fair value of options granted during the six months ended June 30, 2013 and 2012 was $19.84 and $17.49, respectively. The total fair value of shares vested was $3 million for both the periods ended June 30, 2013 and 2012.

Restricted Stock — The following table reflects the status for all nonvested restricted shares for the period indicated:



	Six Months Ended June 30, 2013
	Shares		Weighted Avg. Grant Date Fair Value
Nonvested Restricted Shares
Nonvested balance at January 1, 2013	348,918		$	31.69
Granted	204,731		36.28
Vested	(154,160	)	29.54
Forfeited	—		—
Nonvested balance at March 31, 2013	399,489		$	34.88
Granted	226		38.90
Vested	(15,289	)	35.40
Forfeited	—		—
Nonvested balance at June 30, 2013	384,426		34.86

The fair value of restricted stock grants is equal to the average of the high and low trading price of our stock on the date of grant. As of June 30, 2013, approximately $9 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 2.0 years. The total fair value of restricted shares vested was $5 million and $4 million at June 30, 2013 and 2012, respectively.

In January 2013, our Board of Directors approved a share repurchase program, authorizing us to repurchase up to 550,000 shares of Tenneco’s outstanding common stock over a 12 months period. This share repurchase program is intended to offset dilution from shares of restricted stock and stock options issued in 2013 to employees. We purchased 45,000 shares during the second quarter of 2013 through open market purchases, which were funded through cash from operations at a total cost of $2 million at an average price of $44.56 per share. These repurchased shares are held as part of our treasury stock which increased to 2,339,692 shares at June 30, 2013 from 2,294,692 shares at December 31, 2012.

Long-Term Performance Units, Restricted Stock Units and SARs — Long-term performance units, restricted stock units and SARs are paid in cash and recognized as a liability based upon their fair value. As of June 30, 2013, $18 million of total unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 2.1 years.