NOTE 5 - SHARE-BASED COMPENSATION PLANS

UAL maintains several share-based compensation plans. These plans provide for grants of qualified and non-qualified stock options, stock appreciation rights, restricted stock awards, RSUs, performance compensation awards, performance units, cash incentive awards and other types of equity-based and equity-related awards.

All awards are recorded as either equity or a liability in the Company’s consolidated balance sheets. The share-based compensation expense is directly recorded in salaries and related costs or integration-related expense.

During 2016, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan. These share-based compensation awards include approximately 1.9 million RSUs, 0.4 million shares of restricted stock and 0.4 million stock options. The time-vested RSUs and the restricted stock awards vest in one-third increments over the first three anniversaries of the date of grant. The time-vested RSUs are generally stock-settled for domestic employees and cash-settled for international employees based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The remainder of the RSUs are performance-based and vest based on the Company’s return on invested capital and the Company’s relative improvement in pre-tax margin for the three years ending December 31, 2018. If the applicable performance conditions are achieved, cash payments will be made after the end of the performance period based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The stock options vest in one-third increments over either (i) the first three anniversaries of the date of grant (for seven-year term options) or (ii) the fourth, fifth and sixth anniversaries of the date of grant (for ten-year term options).

The following table provides information related to UAL’s share-based compensation plan cost for the years ended December 31 (in millions):


	2016		2015		2014
Compensation cost (a):
RSUs	$	58	$	52	$	104
Restricted stock		11		6		10
Stock options		1		—		—

Total	$	70	$	58	$	114

(a) All compensation cost is recorded to Salaries and related costs, with the exception of $3 million in 2014 that was recorded in integration-related costs as a component of special items.

The table below summarizes UAL’s unearned compensation and weighted-average remaining period to recognize costs for all outstanding share-based awards that are probable of being achieved as of December 31, 2016 (in millions, except as noted):


	Unearned Compensation		Weighted- Average Remaining Period (in years)
RSUs	$	49		1.5
Restricted stock		11		1.5
Stock options		5		3.2

Total	$	65

RSUs and Restricted Stock. All performance-based RSUs, as well as a portion of the time-vested RSUs, will be settled in cash. As of December 31, 2016, UAL had recorded a liability of $70 million related to its RSUs. UAL paid $69 million, $85 million and $86 million related to its RSUs during 2016, 2015 and 2014, respectively.

The table below summarizes UAL’s RSUs and restricted stock activity for the years ended December 31 (shares in millions):


	RSUs		Restricted Stock		Weighted- Average Grant Price
Non-vested at December 31, 2013		5.4		0.9	$	25.02
Granted		0.9		0.3		43.33
Vested		(2.2)		(0.4)		24.66
Forfeited		(0.3)		(0.1)		28.88

Non-vested at December 31, 2014		3.8		0.7		32.55
Granted		1.0		0.2		66.53
Vested		(1.6)		(0.4)		31.14
Forfeited		(0.6)		(0.2)		46.23

Non-vested at December 31, 2015		2.6		0.3		48.68
Granted		1.9		0.4		50.63
Vested		(1.4)		(0.1)		41.47
Forfeited		(0.2)		(0.1)		53.42

Non-vested at December 31, 2016		2.9		0.5		52.00

The fair value of RSUs and restricted stock that vested in 2016, 2015 and 2014 was $80 million, $92 million and $97 million, respectively. The fair value of the restricted stock awards was based upon the UAL common stock price on the date of grant. These awards are accounted for as equity awards. The fair value of the RSUs was based on the UAL common stock price as of the last day preceding the settlement date. These awards were accounted for as either equity or liability awards based on their method of settlement. Restricted stock vesting and the recognition of the expense is similar to the stock option vesting described below.

Stock Options. During 2016, UAL granted 0.1 million stock options with exercise prices equal to the fair market value of UAL’s common stock on the date of grant and an additional 0.3 million stock options with exercise prices at a 25% premium of the grant date fair market value resulting in a weighted-average exercise price of $56.19 and a weighted-average grant date fair value of approximately $2.3 million. Prior to 2016, UAL had not granted any stock options since 2010. Expense related to each portion of an option grant is recognized on a straight-line basis over the specific vesting period for those options.

The Company determined the fair value of stock options at the grant date using a Black Scholes option pricing model, which requires the use of several assumptions. The risk-free interest rate is based on the U.S. treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL’s common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants. The volatility assumptions were based upon historical volatilities of UAL using daily stock price returns equivalent to the expected term of the option. The expected lives of the options were determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration due to the Company’s lack of relevant historical data.

As of December 31, 2016, there were approximately 0.5 million outstanding stock option awards, 0.1 million of which were exercisable, with weighted-average exercise prices of $46.83 and $18.58, respectively, intrinsic values of $14 million and $7 million, respectively, and weighted-average remaining contractual lives (in years) of 6.3 and 1.6, respectively.