(14) STOCK-BASED COMPENSATION

On June 27, 2018, the Company announced a reduction in workforce. Unvested stock-based awards of the affected employees were subsequently forfeited and the approximate fair value of a portion of those cancelled awards was included in a cash severance payment that was paid in the third quarter of 2018. Stock-based compensation costs recognized prior to the cancellation as either general and administrative expense or capitalized expense were subsequently reclassified as restructuring charges for the three and nine months ended September 30, 2018 on the consolidated statements of operations.

The Company recognized the following amounts in total employee stock-based compensation costs for the three and nine months ended September 30, 2018 and 2017:



	For the three months ended September 30,				For the nine months ended September 30,
(in millions)	2018		2017		2018		2017
Stock-based compensation cost – expensed	$	7	$	7	$	20	$	19
Stock-based compensation cost – capitalized	$	3	$	2	$	10	$	10

The Company’s stock-based compensation is classified as either equity awards or liability awards in accordance with GAAP. The fair value of an equity-classified award is determined at the grant date and is amortized to general and administrative expense and capitalized expense on a straight-line basis over the vesting period of the award. The fair value of a liability-classified award is determined on a quarterly basis beginning at the grant date until final vesting. Changes in the fair value of liability-classified awards are recorded to general and administrative expense and capitalized expense over the vesting period of the award.

Equity-Classified Awards

The Company recognized the following amounts in employee equity-classified stock-based compensation costs for the three and nine months ended September 30, 2018 and 2017:




	For the three months ended September 30,				For the nine months ended September 30,
(in millions)	2018		2017		2018		2017
Equity-classified awards – expensed	$	3	$	7	$	12	$	19
Equity-classified awards – capitalized	$	2	$	2	$	6	$	10

As of September 30, 2018, there was $28 million of total unrecognized compensation cost related to the Company’s unvested equity-classified stock option grants, equity-classified restricted stock grants and equity-classified performance units. This cost is expected to be recognized over a weighted-average period of two years.

Equity-Classified Stock Options

The following table summarizes equity-classified stock option activity for the nine months ended September 30, 2018 and provides information for options outstanding and options exercisable as of September 30, 2018:


	Number	Weighted Average
	of Options	Exercise Price
	(in thousands)
Outstanding at December 31, 2017	6,020	$	19.43
Granted	–		–
Exercised	–		–
Forfeited or expired	(72)		26.87
Outstanding at September 30, 2018	5,948		19.34
Exercisable at September 30, 2018	4,422		23.30

Equity-Classified Restricted Stock

The following table summarizes equity-classified restricted stock activity for the nine months ended September 30, 2018 and provides information for unvested shares as of September 30, 2018:



	Number	Weighted Average
	of Shares	Fair Value
	(in thousands)
Unvested shares at December 31, 2017	6,254	$	8.85
Granted	344		4.71
Vested (1)	(1,462)		8.39
Forfeited	(1,143)		9.03
Unvested shares at September 30, 2018	3,993		8.61

(1)

Includes 670,385 shares forfeited as a result of the reduction in workforce.

Equity-Classified Performance Units

The following table summarizes equity-classified performance unit activity for the nine months ended September 30, 2018 and provides information for unvested units as of September 30, 2018. The performance unit awards granted in 2015, 2016 and 2017 include a market condition based exclusively on the fair value of the Total Shareholder Return (“TSR”), as calculated by a Monte Carlo model. The total fair value of the performance units is amortized to compensation expense on a straight line basis over the vesting period of the award. The grant date fair value is calculated using the closing price of the Company’s common stock at the grant date.



	Number	Weighted Average
	of Shares (1)	Fair Value
	(in thousands)
Unvested units at December 31, 2017	1,084	$	10.12
Granted	–		–
Vested	(290)		10.47
Forfeited	(125)		9.91
Unvested units at September 30, 2018	669		10.01

(1)

The actual payout of shares may range from a minimum of zero shares to a maximum of two shares per unit contingent upon TSR. The performance units have a three-year vesting term and the actual disbursement of shares, if any, is determined during the first quarter following the end of the three-year vesting period.

(2)

Includes 95,914 units forfeited as a result of the reduction in workforce.

Liability-Classified Awards

The Company recognized the following amounts in employee liability-classified stock-based compensation costs for the three and nine months ended September 30, 2018:


	For the three months		For the nine months
	ended September 30,		ended September 30,
(in millions)	2018		2018
Liability-classified stock-based compensation cost – expensed	$	4	$	8
Liability-classified stock-based compensation cost – capitalized	$	1	$	4

Liability-Classified Restricted Stock Units

In the first quarter of 2018, the Company granted restricted stock units that vest over a period of four years and are payable in either cash or shares at the option of the Compensation Committee of the Company’s Board of Directors. The Company has accounted for these as liability-classified awards, and accordingly changes in the market value of the instruments will be recorded to general and administrative expense and capitalized expense over the vesting period of the award. As of September 30, 2018, there was $42 million of total unrecognized compensation cost related to liability-classified restricted stock units that is expected to be recognized over a weighted-average period of three years.


	Number	Weighted Average
	of Units	Fair Value
	(in thousands)
Unvested shares at December 31, 2017	–	$	–
Granted	12,216		3.69
Vested	(232)		5.14
Forfeited	(2,297)		5.14
Unvested units at September 30, 2018	9,687		5.11

(1)

Includes 1,503,470 units forfeited as a result of the reduction in workforce.

Liability-Classified Performance Units

In the first quarter of 2018, the Company granted performance units that vest over a three-year period and are payable in either cash or shares at the option of the Compensation Committee of the Company’s Board of Directors. The Company has accounted for these as liability-classified awards, and accordingly changes in the fair market value of the instruments will be recorded to general and administrative expense and capitalized expense over the vesting period of the awards. The performance unit awards granted in 2018 include a performance condition based on cash flow per debt-adjusted share and two market conditions, one based on absolute TSR and the other on relative TSR as compared to a group of the Company’s peers, collectively the “Performance Measures.” The fair values of the two market conditions are calculated by Monte Carlo models on a quarterly basis. As of September 30, 2018, there was $16 million of total unrecognized compensation cost related to liability-classified performance units. This cost is expected to be recognized over a weighted-average period of two years. The final value of the performance unit awards is contingent upon the Company’s actual performance against the Performance Measures.


	Number	Weighted Average
	of Shares	Fair Value
	(in thousands)
Unvested shares at December 31, 2017	–	$	–
Granted	3,200		3.70
Vested	–		–
Forfeited (1)	(210)		4.87
Unvested units at September 30, 2018	2,990		5.11

(1)

Includes 191,790 units forfeited as a result of the reduction in workforce.