Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

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

Stock-Based Compensation

Stock-Based Compensation

The Company records compensation expense for all stock-based awards based on the estimated fair value of the award at the grant date, which is recognized over the vesting period. The Company recorded stock-based compensation expense of $8 million and $4 million ($5 million and $3 million, net of tax) during the three months ended March 31, 2014 and 2013, respectively, related to stock-based awards that were granted by the Company. In jurisdictions with net operating loss carryforwards, tax deductions for exercises and/or vestings of stock-based awards have generated a $57 million tax benefit at March 31, 2014, with a corresponding increase to additional paid-in capital. Approximately $22 million of incremental tax benefits will be recorded in additional paid-in capital when realized in these jurisdictions.

Stock Unit Awards

The Company’s performance-based restricted stock units granted in 2014 and 2013 incorporate a total shareholder return metric. The grant date fair value of these awards is estimated using a Monte Carlo simulation model to estimate the Company’s shareholder-return ranking relative to an applicable stock index. The weighted average assumptions used in the Monte Carlo simulation model to calculate the fair value of the Company’s stock unit awards are as follows:

	Three Months Ended   March 31,
	2014	2013
Expected volatility of stock price	40%	43%
Risk-free interest rate	0.85%	0.39%
Expected term of awards	3 years	3 years
Dividend yield	0.0%	0.0%

The activity related to the Company’s restricted stock units (“RSUs”) and cash units, consisted of (in thousands of shares):

		Time-Based RSUs				Performance-Based and Market-Based RSUs				Cash Unit Awards
		Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2014 (a)		1,308		$	17.92	2,043		$	13.79	267	$	14.90
	Granted	352		41.15		235		39.37		—	—
	Vested (b)	(588	)	16.62		(432	)	10.91		—	—
	Forfeited/expired	(56	)	23.49		(32	)	21.48		—	—
Outstanding at March 31, 2014 (c)		1,016		$	26.40	1,814		$	17.66	267	$	14.90

__________

^(a)  Reflects the maximum number of stock units assuming achievement of all performance-, market- and time-vesting criteria and does not include those for non-employee directors. The weighted-average fair value of time-based RSUs, performance-based and market-based RSUs, and cash units granted in 2013 was $21.20, $20.30 and $17.14, respectively.

^(b)  The total grant date fair value of RSUs vested during the three months ended March 31, 2014 and 2013 was $14 million and $14 million, respectively.

^(c)  The Company’s outstanding time-based RSUs, performance-based and market-based RSUs, and cash units had aggregate intrinsic value of $49 million, $88 million and $13 million, respectively. Aggregate unrecognized compensation expense related to time-based RSUs and performance-based and market-based RSUs amounted to $43 million and will be recognized over a weighted average vesting period of 1.3 years. The Company assumes that substantially all outstanding awards will vest over time.

Stock Options

The stock option activity consisted of (in thousands of shares): 

		Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)		Weighted Average Remaining Contractual Term (years)
Outstanding at January 1, 2014		979		$	2.82	$	37	5.2
	Granted	—		—		—
	Exercised	(87	)	2.22		4
	Forfeited/expired	—		—		—
Outstanding at March 31, 2014 (a)		892		2.88		41		5.0
Exercisable at March 31, 2014		860		$	2.56	$	40	5.0

__________ 

^(a)  The Company assumes that substantially all outstanding stock options will vest over time.