STOCK COMPENSATION

3 Months Ended

Mar. 31, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCK COMPENSATION

10. STOCK COMPENSATION

Stock compensation expense totaled $20 million and $18 million in the first quarter of 2018 and 2017, respectively. Approximately 80% of stock compensation expense is classified in marketing and administrative expenses with the remainder classified in cost of sales and R&D expenses. The Tax Cuts and Jobs Act of 2017 (2017 Tax Act) made several changes to the $1 million deduction limitation on top executives’ compensation including removing the exemption on performance based pay. Baxter is using the “cash first” approach to determine the deductible portion of executive compensation whereby the impact of cash compensation takes priority over stock-based compensation. Accordingly, the tax benefits recognized in respect of the equity compensation accruals for the top executives’ compensation is expected to be insignificant.

The company awarded stock compensation grants which consisted of 3.8 million stock options, 0.5 million RSUs and 0.3 million PSUs during the first quarter of 2018.

Stock Options

The weighted-average Black-Scholes assumptions used in estimating the fair value of stock options granted during the period, along with weighted-average grant-date fair values, were as follows.

	Three months ended March 31,
	2018			2017
Expected volatility		18	%		19	%
Expected life (in years)		5.5			5.5
Risk-free interest rate		2.6	%		2.1	%
Dividend yield		1.0	%		1.0	%
Fair value per stock option	$	13		$	10

The total intrinsic value of stock options exercised was $66 million and $50 million during the first quarters of 2018 and 2017, respectively.

As of March 31, 2018, the unrecognized compensation cost related to all unvested stock options of $93 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

Restricted Stock Units

As of March 31, 2018, the unrecognized compensation cost related to all unvested RSUs of $86 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

Performance Share Units

As of March 31, 2018, the unrecognized compensation cost related to all unvested and awarded PSUs of $47 million is expected to be recognized as expense over a weighted-average period of 1.8 years.