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Stock-Based Compensation
 3 Months Ended
Mar. 31, 2013
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation
I. The Company’s 2005 Long Term Stock Incentive Plan (the “2005 Plan”) provides for the issuance of stock-based incentives in various forms to employees and non-employee Directors of the Company. At March 31, 2013, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights. Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Long-term stock awards

    $ 9       $ 8   

Stock options

      5         5   

Phantom stock awards and stock appreciation rights

      3         5   
  

 

 

     

 

 

  

Total

    $ 17       $ 18   
  

 

 

     

 

 

  

Income tax benefit (37 percent tax rate - before valuation allowance)

    $ 6       $ 7   
  

 

 

     

 

 

  

Long-Term Stock Awards. Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of repurchasing and retiring an equal number of shares in the open market. The Company granted 1,570,020 shares of long-term stock awards in the three months ended March 31, 2013.

The Company’s long-term stock award activity was as follows, shares in millions:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Unvested stock award shares at January 1

      8         10   

Weighted average grant date fair value

    $ 16       $ 17   

Stock award shares granted

      2         1   

Weighted average grant date fair value

    $ 20       $ 12   

Stock award shares vested

      2         2   

Weighted average grant date fair value

    $ 16       $ 17   

Stock award shares forfeited

      —           —     

Weighted average grant date fair value

    $ 18       $ 18   

Unvested stock award shares at March 31

      8         9   

Weighted average grant date fair value

    $ 17       $ 16   

At March 31, 2013 and 2012, there was $94 million and $103 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of four years in both periods.

The total market value (at the vesting date) of stock award shares which vested during the three months ended March 31, 2013 and 2012 was $32 million and $23 million, respectively.

Stock Options. Stock options are granted to key employees of the Company. The exercise price equals the market price of the Company’s common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.

The Company granted 869,000 of stock option shares in the three months ended March 31, 2013 with a grant date exercise price approximating $20 per share. In the first three months of 2013, 453,070 stock option shares were forfeited (including options that expired unexercised).

The Company’s stock option activity was as follows, shares in millions:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Option shares outstanding, January 1

      30        36   

Weighted average exercise price

    $ 21      $ 21   

Option shares granted

      1        1   

Weighted average exercise price

    $ 20      $ 12   

Option shares exercised

      2        —     

Aggregate intrinsic value on date of exercise (A)

    $ 17  million    $ 1  million 

Weighted average exercise price

    $ 11      $ 8   

Option shares forfeited

      —          2   

Weighted average exercise price

    $ 19      $ 18   

Option shares outstanding, March 31

      29        35   

Weighted average exercise price

    $ 22      $ 21   

Weighted average remaining option term (in years)

      4        5   

Option shares vested and expected to vest, March 31

      29        35   

Weighted average exercise price

    $ 22      $ 21   

Aggregate intrinsic value (A)

    $ 82  million    $ 26  million 

Weighted average remaining option term (in years)

      4        5   

Option shares exercisable (vested), March 31

      23        25   

Weighted average exercise price

    $ 24      $ 23   

Aggregate intrinsic value (A)

    $ 45  million    $ 14  million 

Weighted average remaining option term (in years)

      4        4   

 

(A) Aggregate intrinsic value is calculated using the Company’s stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.

At March 31, 2013 and 2012, there was $17 million and $29 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model) related to unvested stock options; such options had a weighted average vesting period of two years and three years in 2013 and 2012, respectively.

 

The weighted average grant date fair value of option shares granted in the period and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Weighted average grant date fair value

    $ 8.33      $ 4.44   

Risk-free interest rate

      1.20 %      1.10 % 

Dividend yield

      1.47 %      2.57 % 

Volatility factor

      49.00 %      51.00 % 

Expected option life

      6 years        6 years