STOCK-BASED COMPENSATION

The Company’s stock incentive program permits the grant of incentive stock options, non-qualifying stock options, stock awards, performance shares and performance units to employees and members of its Board of Directors. As a result of a stock award, a settlement of an award of performance shares, or by exercise of a participant’s stock option, the Company may deliver common stock from the Company’s authorized but unissued common stock and/or from outstanding common stock acquired by or on behalf of the Company in the name of the participant. Key provisions of the stock incentive program are:


•	Authorized limit is 14,500,000 shares of common stock;


•	Prohibits the grant of a stock option with an exercise price that is less than the fair market value of the Company’s stock on the date of the grant; and

•

Imposes the following award limits to a single participant in a single calendar year, (1) options for more than 500,000 shares of common stock; (2) stock awards for more than 150,000 shares of common stock; (3) performance share awards for more than 300,000 shares of common stock (based on the maximum payout under the award); or (4) more than 1,000,000 performance units, which have a face amount of $1.00 each.

The Company records compensation expense at fair value over the vesting period for all awards it grants.

The following table summarizes the components of stock-based compensation:



	2014		2013		2012
	(In millions)
Stock-based compensation expense	$	103	$	99	$	83
Tax benefit	40		38		33
Stock-based compensation cost capitalized in property, plant and equipment	16		15		5

Stock Options

Options are exercisable according to the terms of the individual stock option award agreements and expire 10 years after the date of the grant. The option exercise price equals the fair value of the stock on the date that the option was granted. Stock options vest ratably over a 3-year period.

The following table summarizes our stock option activity for the year ended December 31, 2014:



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (In millions)
Options outstanding at December 31, 2013	723,697		$	42.60
Granted	—		$	—
Exercised	(268,689	)	$	41.14
Forfeited or expired	(10,730	)	$	39.41
Options outstanding and exercisable at December 31, 2014	444,278		$	43.56	$	17

As of December 31, 2014, the weighted average remaining contractual life for the exercisable shares is 3.41 years. As of December 31, 2014, all options were vested. No options vested during 2014.

There were no options granted during 2014, 2013 or 2012. The intrinsic value of options exercised for the years ended December 31, 2014, 2013 and 2012 was $11 million, $12 million and $25 million, respectively. Total option expense recognized was zero for 2014 and 2013 and $0.7 million for 2012.

The number, weighted average exercise price and weighted average remaining contractual life of options outstanding were as follows:



Range of Exercise Prices					Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$	27.00	—	$	38.00	25,857	$	27.70	4.16
$	38.01	—	$	42.00	82,834	$	41.77	3.16
$	42.01	—	$	45.00	221,487	$	43.93	4.06
$	45.01	—	$	50.00	114,100	$	47.75	2.15
					444,278	$	43.56	3.41

Restricted Stock Awards

Stock awards granted under the plan are restricted for varying periods, generally for three years. Participants have all rights of a shareholder with respect to a stock award, including the right to receive dividends and vote the shares. Prior to vesting in stock awards, the participant: (i) may not sell, transfer, pledge, exchange or otherwise dispose of shares; (ii) shall not retain custody of the share certificates; and (iii) will deliver to the Company a stock power with respect to each stock award upon request.

The stock awards are recorded at cost that approximates fair value on the date of grant. The cost is amortized to compensation expense over the vesting period.

Stock award activity for the years ended December 31 was:



	2014		2013		2012
Fair value of awards vested (in millions)	$	11	$	8	$	9
Restricted common shares awarded	159,590		127,785		167,320
Weighted average market price of shares awarded	$	70.09	$	64.72	$	53.71
Compensation cost charged against income (in millions)	$	10	$	23	$	12

The following table summarizes the Company’s restricted stock awards activity for the year ended December 31, 2014:



	Restricted Stock		Weighted Average Grant Date Fair Value
Balance at December 31, 2013	492,329		$	53.76
Grants	159,590		$	70.09
Forfeitures	(16,841	)	$	62.41
Vested and issued	(218,760	)	$	47.77
Balance at December 31, 2014	416,318		$	62.82

Performance Share Awards

Performance shares awarded under the plan are for a specified number of shares of common stock that entitle the holder to receive a cash payment, shares of common stock or a combination thereof. The final value of the award is determined by the achievement of certain performance objectives and market conditions. The awards vest at the end of a specified period, usually three years. Awards granted in 2014 were primarily deemed to be equity awards. The stock price and number of probable shares attributable to market conditions for such equity awards are fair valued only at the grant date. Performance shares awarded prior to 2014 are liability awards and are remeasured to fair value at each reporting period. The Company accounts for performance share awards by accruing compensation expense over the vesting period based on: (i) the number of shares expected to be paid which is based on the probable achievement of performance objectives; and (ii) the closing stock price market value. The settlement of the award is based on the closing price at the settlement date.

The Company recorded compensation expense for performance share awards as follows:



	2014		2013		2012
	(In millions)
Compensation expense	$	93	$	77	$	71
Cash settlements (a)	$	11	$	9	$	4
Stock settlements (a)	$	61	$	56	$	41

_______________________________________


(a)	Sum of cash and stock settlements approximates the intrinsic value of the liability.

During the vesting period, the recipient of a performance share award has no shareholder rights. During the period beginning on the date the performance shares are awarded and ending on the certification date of the performance objectives, the number of performance shares awarded will be increased, assuming full dividend reinvestment at the fair market value on the dividend payment date. The cumulative number of performance shares will be adjusted to determine the final payment based on the performance objectives achieved. Performance share awards are nontransferable and are subject to risk of forfeiture.

The following table summarizes the Company’s performance share activity for the period ended December 31, 2014:



	Performance Shares		Weighted Average Grant Date Fair Value
Balance at December 31, 2013	1,608,789		$	—
Grants	561,335		$	69.32
Forfeitures	(44,250	)	$	69.16
Payouts	(571,177	)	$	—
Balance at December 31, 2014	1,554,697		$	69.32

Unrecognized Compensation Costs

As of December 31, 2014, the total unrecognized compensation cost related to non-vested stock incentive plan arrangements and the weighted average recognition period was as follows:



	Unrecognized Compensation Cost		Weighted Average to be Recognized
	(In millions)		(In years)
Stock awards	$	10	1.06
Performance shares	48		0.98
	$	58	0.99