STOCKHOLDERS’ EQUITY

3 Months Ended

Mar. 31, 2020

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Stock compensation expense totaled $29 million and $22 million in the first quarter of 2020 and 2019, respectively. Approximately 70% of stock compensation expense is classified within SG&A expense with the remainder classified in cost of sales and R&D expense.

We awarded stock compensation grants which consisted of 3.7 million stock options, 0.5 million restricted stock units (RSUs) and 0.4 million performance stock units (PSUs) during the first quarter of 2020. The grant date fair values of stock options, RSUs and PSUs awarded in the first quarter of 2020 were $59 million, $37 million and $29 million, respectively. Stock options and RSUs generally vest in one-third increments over a three-year period. One-fourth of the PSUs granted related to the establishment of the adjusted operating margin vesting condition for awards issued in 2018 and 2019 whereas the remainder were related to awards made in March 2020, which are equally divided into PSUs based on our compound annual sales growth rate performance, our adjusted return on invested capital performance and on our stock performance relative to our peer group. All of the PSUs granted vest at the end of the applicable three-year service period.

Stock Options

The weighted-average Black-Scholes assumptions used in establishing 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,
	2020			2019
Expected volatility	26		%	19		%
Expected life (in years)	5.5			5.5
Risk-free interest rate	0.6		%	2.6		%
Dividend yield	1.2		%	1.0		%
Fair value per stock option	$	16		$	15

The total intrinsic value of stock options exercised was $52 million and $153 million during the first quarters of 2020 and 2019, respectively.

As of March 31, 2020, the unrecognized compensation cost related to all unvested stock options of $103 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

RSUs

As of March 31, 2020, the unrecognized compensation cost related to all unvested RSUs of $73 million is expected to be recognized as expense over a weighted-average period of 2.0 years.

PSUs

As of March 31, 2020, the unrecognized compensation cost related to all unvested PSUs of $44 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

Stock Options Award Modification

In the first quarter of 2020, we modified the terms of stock option awards granted to 123 employees. Specifically, we extended the term for certain stock options that were scheduled to expire in the first quarter of 2020 as applicable employees were not permitted to exercise these awards due to our announcement in February 2020 that our previously issued financial statements should no longer be relied upon. The stock options were extended in order to allow impacted employees to exercise their stock option awards for a brief period once we became current with our

SEC reporting obligations, which occurred in March 2020. As a result of the modifications, we recognized an additional $8 million of stock compensation expense during the quarter ended March 31, 2020.

Cash Dividends

Cash dividends declared per share for the three months ended March 31, 2020 and March 31, 2019 were $0.22 and $0.19, respectively.

Stock Repurchase Programs

In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. During the first quarter of 2020, we did not repurchase any shares under this authority. During the first quarter of 2019, we repurchased 8.1 million shares pursuant to Rule 10b5-1 plans. We had $897 million remaining available under the authorization as of March 31, 2020.