Share-Based Compensation
The Company’s outstanding share-based awards consist mainly of non-qualified stock options, SARs and restricted stock and restricted stock units (collectively, restricted shares). As of December 31, 2013, the Company had 35 million shares available for future grants of share-based awards under its share-based compensation plan, including, but not limited to, incentive or non-qualified stock options, SARs and 14 million of awards in restricted shares. As of December 31, 2013, there were also 17 million shares of common stock available for issuance under the ESPP.
Stock Options and SARs
Stock option and SAR activity for the year ended December 31, 2013 is summarized in the table below: |
| | | | | | | | | | | | | |
| Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| (in millions) | | | | (in years) | | (in millions) |
Outstanding at beginning of period | 63 |
| | $ | 45 |
| | | | |
Granted | 8 |
| | 58 |
| | | | |
Exercised | (28 | ) | | 44 |
| | | | |
Forfeited | (2 | ) | | 55 |
| | | | |
Outstanding at end of period | 41 |
| | 48 |
| | 4.5 |
| | $ | 1,121 |
|
Exercisable at end of period | 30 |
| | 46 |
| | 3.1 |
| | 879 |
|
Vested and expected to vest, end of period | 40 |
| | 48 |
| | 4.5 |
| | 1,110 |
|
Restricted Shares
Restricted share activity for the year ended December 31, 2013 is summarized in the table below:
|
| | | | | | | |
(shares in millions) | | Shares | | Weighted-Average Grant Date Fair Value per Share |
Nonvested at beginning of period | | 9 |
| | $ | 46 |
|
Granted | | 4 |
| | 58 |
|
Vested | | (1 | ) | | 38 |
|
Forfeited | | (1 | ) | | 51 |
|
Nonvested at end of period | | 11 |
| | 50 |
|
Other Share-Based Compensation Data |
| | | | | | | | | | | | |
(in millions, except per share amounts) | | For the Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Stock Options and SARs | | | | | | |
Weighted-average grant date fair value of shares granted, per share | | $ | 19 |
| | $ | 18 |
| | $ | 15 |
|
Total intrinsic value of stock options and SARs exercised | | 592 |
| | 559 |
| | 327 |
|
Restricted Shares | | | | | | |
Weighted-average grant date fair value of shares granted, per share | | 58 |
| | 52 |
| | 42 |
|
Total fair value of restricted shares vested | | $ | 31 |
| | $ | 716 |
| | $ | 113 |
|
Employee Stock Purchase Plan | | | | | | |
Number of shares purchased | | 3 |
| | 3 |
| | 3 |
|
Share-Based Compensation Items | | | | | | |
Share-based compensation expense, before tax | | $ | 331 |
| | $ | 421 |
| | $ | 401 |
|
Share-based compensation expense, net of tax effects | | 239 |
| | 299 |
| | 260 |
|
Income tax benefit realized from share-based award exercises | | 206 |
| | 461 |
| | 170 |
|
|
| | | | |
(in millions, except years) | | December 31, 2013 |
Unrecognized compensation expense related to share awards | | $ | 310 |
|
Weighted-average years to recognize compensation expense | | 1.3 |
|
Share-Based Compensation Recognition and Estimates
The principal assumptions the Company used in calculating grant-date fair value for stock options and SARs were as follows:
|
| | | | | | |
| | 2013 | | 2012 | | 2011 |
Risk-free interest rate | | 1.0% - 1.6% | | 0.7% - 0.9% | | 0.9% - 2.3% |
Expected volatility | | 41.0% - 43.0% | | 43.2% - 44.0% | | 44.3% - 45.1% |
Expected dividend yield | | 1.4% - 1.6% | | 1.2% - 1.7% | | 1.0% - 1.4% |
Forfeiture rate | | 5.0% | | 5.0% | | 5.0% |
Expected life in years | | 5.3 | | 5.3 - 5.6 | | 4.9 - 5.0 |
Risk-free interest rates are based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on the historical volatility of the Company’s common stock and the implied volatility from exchange-traded options on the Company’s common stock. Expected dividend yields are based on the per share cash dividend paid by the Company. The Company uses historical data to estimate option and SAR exercises and forfeitures within the valuation model. The expected lives of options and SARs granted represents the period of time that the awards granted are expected to be outstanding based on historical exercise patterns.
Other Employee Benefit Plans
The Company also offers a 401(k) plan for its employees. Compensation expense related to this plan was not material for the years ended December 31, 2013, 2012 and 2011.
In addition, the Company maintains non-qualified, unfunded deferred compensation plans, which allow certain members of senior management and executives to defer portions of their salary or bonus and receive certain Company contributions on such deferrals, subject to plan limitations. The deferrals are recorded within Long-Term Investments with an approximately equal amount in Other Liabilities in the Consolidated Balance Sheets. The total deferrals are distributable based upon termination of employment or other periods, as elected under each plan and were $441 million and $348 million as of December 31, 2013 and 2012, respectively.
