Stock-based Compensation and Outstanding Awards

9 Months Ended

Sep. 30, 2015

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation and Outstanding Awards

9. Stock-based Compensation and Outstanding Awards

The Company established the NOW Inc. Long-Term Incentive Plan (the “Plan”). The Plan was adopted by the Company’s board of directors on May 1, 2014. Under the Plan, the Company’s employees are eligible to be granted stock options, RSAs, RSUs and PSAs.

During the nine months ended September 30, 2015, the Company granted 534,929 stock options with a fair value of $8.06 per share and 157,538 shares of RSAs and RSUs with a weighted average fair value of $22.59 per share. In addition, the Company granted PSAs to senior management employees with potential payouts varying from zero to 146,486 shares. The stock options were granted February 24, 2015 with an exercise price of $22.44. These options generally vest over a three-year period from the grant date on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The RSAs and RSUs were granted February 24, 2015 and May 27, 2015 and vest on the third anniversary of the date of grant. The PSAs were granted on February 24, 2015 and can be earned based on performance against established metrics over a three-year performance period. The PSAs are divided into three equal, independent parts that are subject to three separate performance metrics: (i) one-third of the PSAs have a Total Shareholder Return (TSR) metric, (ii) one-third of the PSAs have an EBITDA metric, and (iii) one-third of the PSAs have a Working Capital (WC) metric.

Performance against the TSR metric is determined by comparing the performance of the Company’s TSR with the TSR performance of designated peer companies for the three year performance period. Performance against the EBITDA metric is determined by comparing the performance of the Company’s actual EBITDA average for each of the three-years of the performance period against the EBITDA metrics set by the Company’s Compensation Committee of the Board of Directors. Performance against the WC metric is determined by comparing the performance of the Company’s actual WC average for each of the three-years of the performance period against the WC metrics set by the Company’s Compensation Committee of the Board of Directors.

Stock-based compensation expense totaled $7 million and $20 million for the three months and nine months ended September 30, 2015, respectively, and $5 million and $10 million for the same periods in 2014, respectively.

A summary of stock option activity under the Plan as of September 30, 2015, and changes from December 31, 2014 through September 30, 2015 are presented below:

Options ⁽¹⁾	Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)
Outstanding as of January 1, 2015		3,545,519		$	30.86
Granted		534,929			22.44
Forfeited		(33,261	)		29.35
Exercised or settled		—			—
Expired or canceled		—			—
Outstanding as of September 30, 2015		4,047,187		$	29.76	$	—
Exercisable at September 30, 2015		2,482,499		$	30.92	$	—

⁽¹⁾

All Stock Options presented in this table are for NOW stock only.

The weighted-average remaining contractual terms of outstanding options and exercisable options at September 30, 2015, were 6.8 years and 6.4 years, respectively. The total intrinsic value of options exercised for the period from December 31, 2014 through September 30, 2015 was $0. As of September 30, 2015, unrecognized compensation cost related to stock option awards was $10 million, which is expected to be recognized over a weighted average period of 1.6 years.

A summary of the status of the Company’s nonvested shares as of September 30, 2015, and changes for the period from December 31, 2014 through September 30, 2015 are presented below:


RSAs / RSUs / PSAs	Shares			Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2015		2,446,938		$	30.24
Granted		230,707			23.15
Vested ⁽¹⁾		(199,813	)		35.20
Forfeited		(15,264	)		31.31
Expired or canceled		—			—
Nonvested as of September 30, 2015		2,462,568		$	29.17

⁽¹⁾

63,209 shares withheld and retired from the vesting of shares to employees to satisfy minimum tax withholding.

As of September 30, 2015, unrecognized compensation cost related to RSUs, RSAs and PSAs was $49 million, which is expected to be recognized over a weighted average period of 4.0 years.