Stock Compensation Plans

Our stock compensation plans (collectively, the “Plans”) permit the grant of stock options, stock appreciation rights (“SARs”), performance share units, restricted stock, restricted stock units and other stock-based awards to employees and directors. Our current stock compensation plan, the 2013 Performance Plan, was adopted on April 15, 2013 and expires on April 14, 2023. A total of 11,000,000 shares of our common stock may be issued in respect of grants made under the 2013 Performance Plan. Any shares of common stock that are subject to awards of stock options or SARs will be counted as one share for each share granted for purposes of the aggregate share limit and any shares of common stock that are subject to any other awards will be counted as 1.61 shares for each share granted for purposes of the aggregate share limit. In addition, shares of common stock that are subject to awards issued under the 2013 Performance Plan or certain prior stock compensation plans that expire according to their terms or are forfeited, terminated, canceled or surrendered or are settled, or can be paid, only in cash, or are surrendered in payment of taxes associated with such awards (other than stock options or SARs) will be available for issuance pursuant to a new award under the 2013 Performance Plan. Shares issued under our stock compensation plans are usually issued from shares of our common stock held in treasury.

Stock Options

Grants of stock options and SARs (collectively referred to as “options”) under the Plans generally have a graded vesting period of four years whereby one-fourth of the awards vest on each of the first four anniversaries of the grant date, an exercise price equal to the fair market value of one share of our common stock on the date of grant (calculated as the average of the high and low price or the closing market price on that date depending on the terms of the related Plan) and a contractual term of ten years. The exercise of tandem SARs cancels an equivalent number of stock options and conversely, the exercise of stock options cancels an equivalent number of tandem SARs. Option grants are cancelled on, or 90 days following, termination of employment unless termination is due to retirement, death or disability under certain circumstances, in which case, all outstanding options vest fully and remain outstanding for a term set forth in the related grant agreement.

With respect to stock options granted prior to 2008, the exercise of those stock options through a share swap, whereby the employee exercising the stock options tenders shares of our common stock then owned by such employee towards the exercise price plus taxes, if any, due from such employee, results in an immediate grant of new options (hereinafter referred to as “reload” options) equal to the number of shares so tendered plus any shares tendered to satisfy the employee’s income tax obligations on the transaction. Each such grant of reload options vests on the first anniversary of its respective grant date, has an exercise price equal to the fair market value of one share of our common stock on the date of grant (calculated as the average of the high and low price on that date) and a contractual term equal to the remaining contractual term of the original option. The subsequent exercise of such reload options through a share swap does not result in the grant of any additional reload options. The 2013 Performance Plan does not permit the grant of reload options.

The following table summarizes the activity related to options during 2013:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In millions)
Outstanding at January 1	13,528,862		$	14.75
Options granted	2,271,772		13.82
Options exercised	(2,616,422	)	10.28			$	23
Options expired	(36,720	)	6.82
Options cancelled	(359,947	)	17.29
Outstanding at December 31	12,787,545		15.45		5.7	113
Vested and expected to vest at December 31	12,273,772		15.54		5.6	107
Exercisable at December 31	8,117,932		16.62		4.1	64
Available for grant at December 31	11,126,549

In addition, the aggregate intrinsic value of options exercised in 2012 and 2011 was $2 million and $10 million, respectively.

Significant option groups outstanding at December 31, 2013 and related weighted average exercise price and remaining contractual term information follows:



Grant Date	Options Outstanding	Options Exercisable	Exercise Price			Remaining Contractual Term(Years)
2/28/2013	1,942,818	10,366	$	12.98		9.2
2/27/2012	1,591,837	379,677	12.94			8.2
2/22/2011	1,168,252	561,034	13.91			7.2
2/23/2010	1,016,731	733,248	12.74			6.2
2/26/2009	1,140,723	1,140,723	4.81			5.2
2/21/2008	1,065,835	1,065,835	26.74			4.2
2/27/2007	1,197,897	1,197,897	24.71			3.2
12/6/2005	632,947	632,947	17.15			1.9
12/9/2004	997,368	997,368	12.54			0.9
All other	2,033,137	1,398,837	(1		)	(1	)
	12,787,545	8,117,932

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(1)	Options in the “All other” category had exercise prices ranging from $6.22 to $36.25. The weighted average exercise price for options outstanding and exercisable in that category was $17.53 and $18.43, respectively, while the remaining weighted average contractual term was 5.5 and 4.0 years, respectively.

Weighted average grant date fair values of stock options and the assumptions used in estimating those fair values are as follows:



	2013			2012			2011
Weighted average grant date fair value	$	6.28		$	6.33		$	6.94
Black-Scholes model assumptions (1):
Expected term (years)	6.25			6.25			6.25
Interest rate	1.11		%	1.09		%	2.28		%
Volatility	46.7		%	50.8		%	49.5		%
Dividend yield	—			—			—

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(1)	We review the assumptions used in our Black-Scholes model in conjunction with estimating the grant date fair value of the annual grants of stock-based awards by our Board of Directors.

Performance Share Units

Performance share units granted under the Plans are earned over a three-year period beginning January 1 of the year of grant. Total units earned for grants made in 2013 and 2012, may vary between 0% and 200% of the units granted based on the attainment of performance targets during the related three-year period and continued service. Total units earned for grants made in 2011, may vary between 0% and 150% of the units granted based on the attainment of performance targets during the related three-year period and continued service. The performance targets are established by the Board of Directors. All of the units earned will be settled through the issuance of an equivalent number of shares of our common stock and are equity classified.

Previously, eligible employees could elect to defer receiving the payout of all or a portion of their units earned until termination of employment. For grants made in 2011 through April 2013, each deferred unit equates to one share of our common stock and is payable 100% in shares of our common stock at the expiration of the deferral period. Grants of performance share units under the 2013 Performance Plan may not be deferred.

The following table summarizes the activity related to performance share units during 2013:



	Units		Weighted Average Grant Date Fair Value
Unvested at January 1	318,929		$	14.48
Units granted	195,160		13.65
Units vested	(131,472	)	15.58
Units forfeited	(41,568	)	14.21
Unvested at December 31	341,049		13.61

We measure the fair value of grants of performance share units based primarily on the closing market price of a share of our common stock on the date of the grant, modified as appropriate to take into account the features of such grants.

Other Information

Stock-based compensation expense, cash payments made to settle SARs and performance share units, and cash received from the exercise of stock options follows:



(In millions)	2013		2012		2011
Stock-based compensation expense recognized	$	18	$	15	$	18
Tax impact	—		—		—
After-tax stock-based compensation expense	$	18	$	15	$	18
Cash payments to settle SARs and performance share units	$	1	$	—	$	—
Cash received from stock option exercises	$	22	$	4	$	8

As of December 31, 2013, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $27 million and is expected to be recognized over the remaining vesting period of the respective grants, through December 31, 2017.