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Stock Compensation | 12 Months Ended
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Dec. 31, 2020
Share-based Payment Arrangement [Abstract] |
Stock compensation | Stock compensation We have stock options outstanding to participants under long-term incentive plans. The option price per share may not be less than the fair market value of our common stock on the date of the grant. The options have a 10-year term, generally vest ratably over four years and continue to vest after the option recipient retires. We also have RSUs outstanding to participants under long-term incentive plans. Each RSU represents the right to receive one share of TI common stock, issued on the vesting date, which is generally four years after the date of grant. RSUs continue to vest after the recipient retires. Holders of RSUs receive an annual cash payment equivalent to the dividends paid on our common stock. We have options and RSUs outstanding to non-employee directors under director compensation plans. The plans generally provide for annual grants of stock options and RSUs, a one-time grant of RSUs to each new non-employee director and the issuance of TI common stock upon the distribution of stock units credited to director deferred compensation accounts. We also have an employee stock purchase plan (ESPP) under which options are offered to all eligible employees in amounts based on a percentage of the employee’s compensation, subject to a cap. Under the plan, the option price per share is 85% of the fair market value on the exercise date. Total stock compensation expense recognized is as follows:
| For Years Ended December 31,
| 2020 |  | 2019 |  | 2018
COR | $ | 21 |  |  | $ | 21 |  |  | $ | 25 |
R&D | 68 |  |  | 66 |  |  | 69 |
SG&A | 135 |  |  | 130 |  |  | 138 |
Total | $ | 224 |  |  | $ | 217 |  |  | $ | 232 |
These amounts include expenses related to non-qualified stock options, RSUs and stock options offered under our ESPP and are net of estimated forfeitures. We recognize compensation expense for non-qualified stock options and RSUs on a straight-line basis over the minimum service period required for vesting of the award, adjusting for estimated forfeitures based on historical activity. Awards issued to employees who are retirement eligible or nearing retirement eligibility are expensed on an accelerated basis. Options issued under our ESPP are expensed over a three-month period. Fair-value methods and assumptions We account for all awards granted under our various stock compensation plans at fair value. We estimate the fair values for non-qualified stock options using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:
| For Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Weighted average grant date fair value, per share | $ | 25.55 |  |  | $ | 22.08 |  |  | $ | 23.20 |
Weighted average assumptions used: |  |  |  |  |
Expected volatility | 26 | % |  | 26 | % |  | 23 | %
Expected lives (in years) | 6.8 |  | 7.1 |  | 7.2
Risk-free interest rates | 1.53 | % |  | 2.66 | % |  | 2.57 | %
Expected dividend yields | 2.76 | % |  | 2.95 | % |  | 2.25 | %
We determine expected volatility on all options granted using available implied volatility rates. We believe that market-based measures of implied volatility are currently the best available indicators of the expected volatility used in these estimates. We determine expected lives of options based on the historical option exercise experience of our optionees using a rolling 10-year average. We believe the historical experience method is the best estimate of future exercise patterns currently available. Risk-free interest rates are determined using the implied yield currently available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the options. Expected dividend yields are based on the annualized approved quarterly dividend rate and the current market price of our common stock at the time of grant. No assumption for a future dividend rate change is included unless there is an approved plan to change the dividend in the near term. The fair value per share of RSUs is determined based on the closing price of our common stock on the date of grant. Our ESPP is a discount-purchase plan and consequently the Black-Scholes-Merton option-pricing model is not used to determine the fair value per share of these awards. The fair value per share under this plan equals the amount of the discount. Long-term incentive and director compensation plans Stock option and RSU transactions under our long-term incentive and director compensation plans are as follows:
| Stock Options |  | RSUs
| Shares |  | Weighted Average Exercise Price per Share |  | Shares |  | Weighted Average Grant Date Fair Value per Share
Outstanding grants, December 31, 2019 | 32,493,944 |  |  | $ | 66.57 |  |  | 5,897,800 |  |  | $ | 79.62 |
Granted | 4,253,606 |  |  | 130.48 |  |  | 1,005,778 |  |  | 130.59 |
Stock options exercised/RSUs vested | (8,392,354) |  |  | 53.28 |  |  | (2,034,933) |  |  | 53.88 |
Forfeited and expired | (359,919) |  |  | 111.06 |  |  | (157,021) |  |  | 103.90 |
Outstanding grants, December 31, 2020 | 27,995,277 |  |  | 79.69 |  |  | 4,711,624 |  |  | 100.80 |
The weighted average grant date fair values per share of RSUs granted in 2020, 2019 and 2018 were $130.59, $106.58 and $110.05, respectively. In 2020, 2019 and 2018, the total grant date fair values of shares vested from RSU grants were $110 million, $125 million and $123 million, respectively. As of December 31, 2020, the number of shares remaining available for future issuance under these plans was 40,334,683. Summarized information about stock options outstanding as of December 31, 2020, is as follows:
|  |  | Stock Options Outstanding |  | Options Exercisable
Exercise Price Range |  | Number Outstanding (Shares) |  | Weighted Average Remaining Contractual Life (Years) |  | Weighted Average Exercise Price per Share |  | Number Exercisable (Shares) |  | Weighted Average Exercise Price per Share
$ | 28.13 to 161.98 |  | 27,995,277 |  |  | 5.8 |  | $ | 79.69 |  |  | 17,221,451 |  |  | $ | 59.33 |
In 2020, 2019 and 2018, the aggregate intrinsic values (i.e., the difference in the closing market price on the date of exercise and the exercise price paid by the optionee) of options exercised were $681 million, $819 million and $561 million, respectively. Summarized information as of December 31, 2020, about outstanding stock options that are vested and expected to vest, as well as stock options that are currently exercisable, is as follows:
| Outstanding Stock Options (Fully Vested and Expected to Vest) (a) |  | Options Exercisable
Number of outstanding (shares) | 27,596,705 |  |  | 17,221,451 |
Weighted average remaining contractual life (in years) | 5.8 |  | 4.4
Weighted average exercise price per share | $ | 79.13 |  |  | $ | 59.33 |
Intrinsic value (millions of dollars) | $ | 2,346 |  |  | $ | 1,805 |
(a)Includes effects of expected forfeitures. Excluding the effects of expected forfeitures, the aggregate intrinsic value of stock options outstanding was $2.36 billion. As of December 31, 2020, total future compensation related to equity awards not yet recognized in our Consolidated Statements of Income was $237 million, consisting of $103 million related to unvested stock options and $134 million related to unvested RSUs. The $237 million is expected to be recognized as follows: $115 million in 2021, $77 million in 2022, $40 million in 2023 and $5 million in 2024. Employee stock purchase plan Options outstanding under the ESPP as of December 31, 2020, had an exercise price equal to 85% of the fair market value of TI common stock on the date of automatic exercise. The automatic exercise occurred on January 4, 2021, resulting in an exercise price of $137.89 per share. Of the total outstanding options, none were exercisable as of December 31, 2020. ESPP transactions are as follows:
| Shares |  | Exercise Price
Outstanding grants, December 31, 2019 | 173,849 |  |  | $ | 110.14 |
Granted | 714,680 |  |  | 108.74 |
Exercised | (745,483) |  |  | 103.48 |
Outstanding grants, December 31, 2020 | 143,046 |  |  | 137.89 |
The weighted average grant date fair values per share of options granted under the ESPP in 2020, 2019 and 2018 were $19.19, $18.05 and $15.43, respectively. In 2020, 2019 and 2018, the total intrinsic value of options exercised under these plans was $14 million, $13 million and $13 million, respectively. As of December 31, 2020, the number of shares remaining available for future issuance under this plan was 33,097,602. Effect on shares outstanding and treasury shares Treasury shares were acquired in connection with the board-authorized stock repurchase program. As of December 31, 2020, $10.63 billion of stock repurchase authorizations remain, and no expiration date has been specified. Our current practice is to issue shares of common stock from treasury shares upon exercise of stock options, distribution of director deferred compensation and vesting of RSUs. The following table reflects the changes in our treasury shares:
| Stock Options |  | RSUs |  | Treasury Shares
Balance, December 31, 2017 |  |  |  |  | 757,657,217 |
Repurchases |  |  |  |  | 49,482,220 |
Shares used for: |  |  |  |  |
Stock options/RSUs | (8,432,458) |  |  | (2,769,994) |  |  |
Stock applied to taxes | — |  |  | 553,720 |  |  |
ESPP | (819,878) |  |  | — |  |  |
Director deferred stock units | — |  |  | — |  |  | (5,181) |
Total issued | (9,252,336) |  |  | (2,216,274) |  |  | (11,468,610) |
Balance, December 31, 2018 |  |  |  |  | 795,665,646 |
Repurchases |  |  |  |  | 27,398,701 |
Shares used for: |  |  |  |  |
Stock options/RSUs | (11,529,174) |  |  | (2,370,762) |  |  |
Stock applied to taxes | — |  |  | 490,347 |  |  |
ESPP | (798,806) |  |  | — |  |  |
Director deferred stock units | — |  |  | — |  |  | (71,571) |
Total issued | (12,327,980) |  |  | (1,880,415) |  |  | (14,208,395) |
Balance, December 31, 2019 |  |  |  |  | 808,784,381 |
Repurchases |  |  |  |  | 23,430,215 |
Shares used for: |  |  |  |  |
Stock options/RSUs | (8,392,354) |  |  | (2,034,933) |  |  |
Stock applied to taxes | — |  |  | 421,518 |  |  |
ESPP | (745,483) |  |  | — |  |  |
Director deferred stock units | — |  |  | — |  |  | (1,557) |
Total issued | (9,137,837) |  |  | (1,613,415) |  |  | (10,751,252) |
Balance, December 31, 2020 |  |  |  |  | 821,461,787 |
The effects on cash flows are as follows:
| For Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Proceeds from common stock transactions (a) | $ | 470 |  |  | $ | 539 |  |  | $ | 373 |
Tax benefit realized from stock compensation | $ | 195 |  |  | $ | 224 |  |  | $ | 179 |
Reduction to deferred tax asset | (44) |  |  | (49) |  |  | (43) |
Excess tax benefit for stock compensation | $ | 151 |  |  | $ | 175 |  |  | $ | 136 |
(a)Net of taxes paid for employee shares withheld of $53 million, $52 million and $60 million in 2020, 2019 and 2018, respectively.

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