18. STOCK-BASED COMPENSATION PLANS

The Company’s stock-based compensation plans were established to attract and retain key personnel by providing them the opportunity to acquire an equity interest in the Company or other incentive compensation measured by reference to the value of shares or other performance objectives, and align the interests of key personnel with those of stockholders.

Long-Term Incentive Plans – The Company’s long-term incentive plans (“LTIP Plans”) include long-term incentive plans initiated before 2017 (“Pre-2017 Plans”) and the 2017 Long-Term Incentive Plan (‘‘2017 Plan’’) pursuant to which shares may be issued by the Company from treasury. Under the LTIP Plans, awards of stock appreciation rights (“SARs”) may be granted to employees of the Company and its subsidiaries; however, no LTIP award may be issued to any director of a subsidiary of the Company who is not an employee. An aggregate of 6,820,000 LTIP awards were authorized under the Pre-2017 Plans and an aggregate of 1,900,000 LTIP awards were authorized under the 2017 Plan. No further awards shall be granted under the LTIP Plans.

Omnibus Equity Incentive Plan – The Company adopted the Omnibus Equity Incentive Plan (“Omnibus Plan”) in February 2017 and the stockholders approved the Omnibus Plan in July 2017. The Omnibus Plan provides for grants to eligible employees, officers, consultants or advisors of the Company and its subsidiaries of stock options, long-term incentive units, restricted stock units (‘‘RSUs”), SARs and performance stock units in order to provide a long-term incentive compensation to such persons. No awards will be made under the Omnibus Plan to non-employee directors. 1,100,000 shares were reserved for issuance under the Omnibus Plan. The Omnibus Plan has a term of ten years and shares may be issued by the Company from treasury.

Deferred Stock Unit Plan – The Company established a Deferred Share Unit (“DSU”) Plan (“DSU Plan”) whereby the Company’s independent directors receive some or all of their annual retainers in DSUs. DSUs are granted at a price equal to the closing price of the common shares on the day before the date of grant. The DSUs are settled in equity at retirement at the closing price of the common shares of the Company on the retirement date of the director. Under the DSU plan, 100,000 DSUs were reserved for issuance.

Employee Stock Purchase Plan – On October 1, 2001, the Company implemented an employee stock purchase plan. Under this plan, the Company may issue 1,500,000 common shares to certain eligible employees. The maximum number of common shares that may be issued under the plan in any one year is 300,000. Under the terms of the plan, employees can purchase shares of the Company at 85% of the market value of the shares. Employees can allocate a maximum of 10% of their salary to the plan to a maximum of C$20,000 per annum. During the years ended December 31, 2018, 2017 and 2016, 102,076, 83,453 and 66,466 common shares were issued, respectively, at an average price of C$47.77, C$59.58, C$70.56 under the employee stock purchase plan.

DigitalGlobe Equity Plan – The Employee Stock Option Plan (‘‘DigitalGlobe Equity Plan’’) was assumed as a result of the DigitalGlobe Transaction, effective as of October 5, 2017. As of December 31, 2017, no further awards shall be granted under the DigitalGlobe Equity Plan.

Stock Appreciation Rights

The Company awards SARs to certain employees under its 2017 Plan and Omnibus Plan. Certain awards issued under the Pre-2017 Plans, the 2017 Plan and Omnibus Plan remain outstanding as of December 31, 2018. The SARs issued under the Pre-2017 Plans vest over a period of three years, in the amount of one-third each year, and expire five years from their grant date. The SARs issued under the 2017 Plan and Omnibus Plan vest over a period of four years, in the amount of one-quarter each year, and expire ten years from their grant date.

SARs Accounted for as Liability Classified Awards

A summary of the SARs accounted for as liability classified awards for the year ended December 31, 2018 is presented below:



	Number of Awards	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
SARs outstanding at December 31, 2017	2,638,857	C$	81.56
Exercised	(23,604)		57.99
Cancelled or expired	(1,283,592)		82.67
SARs outstanding at December 31, 2018	1,331,661		84.32		2.7	C$	—
SARs vested and expected to vest at December 31, 2018	1,319,781		84.43		2.7	C$	—
SARs exercisable at December 31, 2018	1,071,358	C$	86.01		2.3	C$	—

The weighted average grant-date estimated fair value of SARs accounted for as liability classified awards granted during the years ended December 31, 2017 and 2016 was C$65.38 and C$78.75, respectively. No SARs accounted for as liability classified awards were granted during 2018. The total intrinsic value of SARs exercised during the years ended December 31, 2018, 2017 and 2016 was $1 million, $6 million and $8 million, respectively. The SARs that vested during the years ended December 31, 2018, 2017 and 2016 had a total estimated fair value of $3 million, $4 million and $2 million, respectively.

As of December 31, 2018, total unrecognized compensation expense related to nonvested SARs accounted for as liability classified awards was not significant.

SARs Accounted for as Equity Classified Awards

A summary of the SARs accounted for as equity classified awards for the year ended December 31, 2018 is presented below:


	Number of Awards	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
SARs outstanding at December 31, 2017	3,338,148	C$	78.61
Granted	10,307		49.71
Exercised	(19,837)		66.72
Cancelled or expired	(689,150)		80.65
SARs outstanding at December 31, 2018	2,639,468		76.49		5.4	C$	—
SARs vested and expected to vest at December 31, 2018	2,543,453		76.71		5.3	C$	—
SARs exercisable at December 31, 2018	1,715,148	C$	79.98		3.9	C$	—

The weighted average grant-date estimated fair value of SARs accounted for as equity classified awards granted during the years ended December 31, 2018, 2017 and 2016 was C$10.37, C$75.04 and C$67.75, respectively. The total intrinsic value of SARs exercised during the years ended December 31, 2018, 2017 and 2016 was immaterial. The SARs, accounted for as equity-settled awards, that vested during the years ended December 31, 2018, 2017 and 2016 had a total estimated fair value of $6 million, $8 million and $8 million, respectively.

As of December 31, 2018, total unrecognized compensation expense related to nonvested SARs accounted for as equity classified was $4 million and is expected to be recognized over a weighted average remaining period of 1.7 years.

Restricted Share Units

In 2017, the Company issued RSUs to certain employees under the Omnibus Plan. The RSUs vest over a period of three years, in the amount of one-third each year, and are equity-settled on the vesting date.

As part of the acquisition of DigitalGlobe, the Company provided replacement RSUs for a certain portion of the unvested RSU’s previously granted to DigitalGlobe employees. The replacement RSUs will continue to vest over the next three years, based on the terms of the original plan.

A summary of the status of the Company’s nonvested RSU awards under both the Omnibus and the DigitalGlobe Equity Plans as of December 31, 2018 and changes during the year then ended is presented below:


		Weighted Average				Weighted Average
	Number of	Grant Date		Number of		Grant Date
	Awards 1	Fair Value 1		Awards 2		Fair Value 2
Nonvested RSUs at December 31, 2017	590,663	C$	79.68		470,101	$	54.57
Granted	161,748		52.03		—		—
Vested	(174,825)		79.24		(168,432)		54.52
Cancelled or expired	(73,174)		79.35		(27,808)		54.57
Nonvested RSUs at December 31, 2018	504,412	C$	70.80		273,861	$	54.57

1RSUs under the Omnibus plan

2RSUs under the DigitalGlobe Equity Plan

During the years ended December 31, 2018 and 2017, the total fair value of RSUs that vested was $13 million and $6 million, respectively. No RSUS vested during fiscal 2016.

As of December 31, 2018, total unrecognized compensation expense related to nonvested RSUs was $18 million and is expected to be recognized over a weighted average remaining period of 1.4 years.

Deferred Share Units

A summary of the DSU awards for the year ended December 31, 2018 is presented below:



	Number of Awards	Weighted Average Issuance Price
DSUs outstanding at December 31, 2017	79,460	C$	50.13
Issued	28,143		55.43
DSUs outstanding at December 31, 2018	107,603	C$	51.52

During the years ended December 31, 2017 and 2016, the total intrinsic value of redeemed DSUs was not material. No DSUs were redeemed during the year ended December 31, 2018.

Expense related to DSUs is recognized fully as stock-based compensation expense at the time they are issued.

Stock-Based Compensation Expense

The following table presents stock-based compensation expense (benefit) from continuing operations included in the Company’s Consolidated Statements of Operation:


	Year ended December 31,
	2018		2017		2016
Product costs, excluding depreciation and amortization	$	(1)	$	6	$	(1)
Service costs, excluding depreciation and amortization		2		2		(1)
Selling, general and administrative		19		50		17
Stock-based compensation expense before taxes		20		58		15
Income taxes		—		—		—
Stock-based compensation expense, net of tax	$	20	$	58	$	15

Valuation of Stock-Based Compensation Awards

Valuation of Liability Classified SARs

The fair value of the SARs were estimated at each reporting period using the Black-Scholes option pricing model with the following weighted average assumptions:


	Year ended December 31,
	2018		2017		2016
Risk-free interest rate	1.7 - 1.9	%	1.7 - 1.9	%	0.7 - 1.4	%
Dividend yield	1.8	%	1.8	%	2.2	%
Expected lives (in years)	0.3 - 5.4		1.0 - 6.5		1.0 - 7.0
Volatility	14 - 23	%	14 - 25	%	20 - 26	%

Valuation of Equity Classified SARs, RSUs and DSUs

The fair value of equity classified SARs, RSUs and DSUs were estimated on the date of the grant or the date of accounting reclassification using the Black-Scholes option pricing model with the following weighted average assumptions:


	Year ended December 31,
	2018		2017		2016
Risk-free interest rate	1.9 - 2.3	%	0.6 - 1.9	%	0.6 - 1.3	%
Dividend yield	2.2 - 9.1	%	1.5 - 2.2	%	1.5 - 2.2	%
Expected lives (in years)	3.0 - 7.0		0.4 - 7.0		0.4 - 7.0
Volatility	22 - 41	%	17 - 25	%	17 - 25	%

The risk-free interest rate is based upon Canadian bond rates with the remaining term equal to the expected life assumed at the date of grant. The dividend yield is based on the expected annual dividend yield at date of grant. The expected lives are based on the Company’s actual historical exercise experience. Volatility is calculated using a rate based upon the historical volatility of the Company’s common stock.

Forfeitures are estimated at the time of grant based upon historical information. Forfeitures will be revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.