The Company has established equity compensation plans that provide stock-based compensation to eligible employees. The 2009 Long-Term Incentive Plan (the “2009 Plan”) authorized the issuance of up to 8,854,000 shares of common stock. The 2017 Long-Term Incentive Plan (the “2017 Plan”) was approved by Cabot’s stockholders on March 9, 2017 and authorizes the issuance of up to 5,375,000 shares of common stock. The Company ceased granting awards under the 2009 Plan when the 2017 Plan was approved and, accordingly, the 2017 Plan is the only equity incentive plan under which the Company may grant equity awards to employees.

The terms of awards made under Cabot’s equity compensation plans are generally determined by the Compensation Committee of Cabot’s Board of Directors. The awards made in fiscal 2018, 2017 and 2016 consist of grants of stock options, time-based restricted stock units, and performance-based restricted stock units. The options were issued with an exercise price equal to 100% of the market price of Cabot’s common stock on the date of grant, generally vest over a three year period (30% on each of the first and second anniversaries of the date of grant and 40% on the third anniversary of the date of grant) and have a ten-year term. The restricted stock units generally vest three years from the date of the grant. The number of shares issuable, if any, when a performance-based restricted stock unit award vests will depend on the degree of achievement of the corporate performance metrics for each year within the three-year performance period of the award. Accordingly, future compensation costs associated with outstanding awards of performance-based restricted stock units may increase or decrease based on the probability of the Company achieving the performance metrics.

Stock-based employee compensation expense was $16 million, $10 million and $10 million, after tax, for fiscal 2018, 2017 and 2016, respectively. The expense recognized in fiscal 2016 includes a $5 million charge recorded in connection with the modification of the outstanding equity awards held by the Company’s former CEO under the terms of his transition and separation agreement with the Company.

The Company recognized the full impact of its stock-based employee compensation expense in the Consolidated Statements of Operations for fiscal 2018, 2017 and 2016 and did not capitalize any such costs on the Consolidated Balance Sheets because those that qualified for capitalization were not material. The following table presents stock-based compensation expenses included in the Company’s Consolidated Statements of Operations:

	Years Ended September 30
	2018			2017			2016
	(In millions)
Cost of sales	$	2		$	1		$	1
Selling and administrative expenses		19			14			15
Research and technical expenses		1			1			1
Stock-based compensation expense		22			16			17
Income tax benefit		(6	)		(6	)		(7	)
Net stock-based compensation expense	$	16		$	10		$	10

As of September 30, 2018, Cabot has $25 million and $2 million of total unrecognized compensation cost related to restricted stock units and options, respectively, granted under the Company’s equity incentive plans. These costs are expected to be recognized over a weighted-average period of approximately one year for restricted stock units and options.

The following table summarizes the total stock option and restricted stock unit activity in the equity incentive plans for fiscal 2018:

	Stock Options							Restricted Stock Units
	Total Options ⁽⁴⁾			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Restricted Stock Units⁽¹⁾			Weighted Average Grant Date Fair Value
	(Shares in thousands)
Outstanding at September 30, 2017		1,144		$	43.76	$	13.40		876		$	45.43
Granted		265		$	62.20	$	15.21		263		$	62.18
Performance-based adjustment⁽²⁾		—		$	—	$	—		83		$	50.54
Exercised / Vested		(528	)	$	41.39	$	13.61		(195	)	$	45.81
Cancelled / Forfeited		—		$	—	$	—		(42	)	$	47.54
Outstanding at September 30, 2018		881		$	50.73	$	13.82		985		$	50.16
Exercisable at September 30, 2018		334		$	44.61
Vested and expected to vest⁽³⁾		854		$	50.52

⁽¹⁾	The number granted represents the number of shares issuable upon vesting of time-based restricted stock units and performance-based restricted stock units, assuming the Company performs at the target performance level in each year of the three-year performance period.

⁽²⁾	Represents the net incremental number of shares issuable upon vesting of performance-based restricted stock units based upon the achievement of the annual financial performance metrics for fiscal 2018.

⁽³⁾	Stock options vested and expected to vest in the future, net of estimated forfeitures, have a weighted average remaining contractual life of 7.36 years.

⁽⁴⁾	Unvested stock options were approximately 546,000 and 490,000 at September 30, 2018 and 2017 and their weighted average grant date fair values were $54.48 and $46.68, respectively.

The following table summarizes information related to the outstanding and vested options on September 30, 2018:

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing common stock price of $62.72 on September 30, 2018, which would have been received by the option holders had all option holders exercised their options and immediately sold their shares on that date.

The intrinsic value of options exercised during fiscal 2018, 2017 and 2016 was $11 million, $16 million and $8 million, respectively, and the Company received cash of $22 million, $21 million and $8 million, respectively, from these exercises. In fiscal 2018, the Company recognized a tax benefit of $1 million related to the fiscal 2018 stock option exercises which is included in (Provision) benefit for income taxes within the Consolidated Statement of Operations. Prior to the Company’s adoption of the new accounting standard for stock compensation in fiscal 2018, which is discussed in detail in Note B, tax benefits associated with stock option exercises were included in APIC.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the options at the grant date. The weighted average grant date fair values of options granted during fiscal 2018, 2017 and 2016 was $15.21, $12.76, and $11.12 per option, respectively. The fair values on the grant date were calculated using the following weighted-average assumptions:

	Years Ended September 30
	2018			2017			2016
Expected stock price volatility		28	%		32	%		33	%
Risk free interest rate		2.2	%		1.8	%		2.0	%
Expected life of options (years)		6			6			6
Expected annual dividends per year	$	1.26		$	1.20		$	1.20

The expected stock price volatility assumption was determined using the historical volatility of the Company’s common stock over the expected life of the option. The expected term reflects the anticipated time period between the measurement date and the exercise date or post-vesting cancellation date.

The value of restricted stock unit awards is the closing stock price at the date of the grant. The weighted average grant date fair values of restricted stock unit awards granted during fiscal 2018, 2017 and 2016 was $62.18, $51.03, and $40.51, respectively. The intrinsic value of restricted stock units (meaning the fair value of the units on the date of vesting) that vested during fiscal 2018, 2017 and 2016 was $12 million, $7 million and $15 million, respectively.

Cabot’s Deferred Compensation and Supplemental Retirement Plan (“SERP 401(k)”) provides benefits to highly compensated employees when the retirement plan limits established under the Internal Revenue Code prevent them from receiving all of the Company matching and retirement contributions that would otherwise be provided under the qualified 401(k) plan. The SERP 401(k) is non-qualified and unfunded. Contributions under the SERP 401(k) are treated as if invested in Cabot common stock. The majority of the distributions made under the SERP 401(k) are required to be paid with shares of Cabot common stock. The remaining distributions, which relate to certain grandfathered accounts, will be paid in cash based on the market price of Cabot common stock at the time of distribution. The aggregate value of the accounts that will be paid out in stock, which is equivalent to approximately 116,000 and 109,000 shares of Cabot common stock as of September 30, 2018 and 2017, respectively, is reflected at historic cost in stockholders’ equity, and the aggregate value of the accounts that will be paid in cash, which is $1 million and $2 million as of September 30, 2018 and 2017, respectively, is reflected in other long-term liabilities and marked-to-market quarterly.