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STOCK-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2013
STOCK-BASED COMPENSATION |
STOCK-BASED COMPENSATION | L. STOCK-BASED COMPENSATION 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 December 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:
|  | 2013 |  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | --- | --- | ---
Long-term stock awards |  | $ | 34 |  | $ | 35 |  | $ | 39 |
Stock options |  |  | 13 |  |  | 15 |  |  | 21 |
Phantom stock awards and stock appreciation rights |  |  | 7 |  |  | 11 |  |  | 1 |
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Total |  | $ | 54 |  | $ | 61 |  | $ | 61 |
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Income tax benefit (37 percent tax rate – before valuation allowance) |  | $ | 20 |  | $ | 23 |  | $ | 23 |
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At December 31, 2013, a total of 9.3 million shares of Company common stock were available under the 2005 Plan for the granting of stock options and other long-term stock incentive awards. 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 1,743,180 shares of long-term stock awards during 2013. The Company's long-term stock award activity was as follows, shares in millions:
|  | 2013 |  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | --- | --- | ---
Unvested stock award shares at January 1 |  |  | 8 |  |  | 10 |  |  | 10 |
Weighted average grant date fair value |  | $ | 16 |  | $ | 17 |  | $ | 19 |
Stock award shares granted |  |  | 2 |  |  | 1 |  |  | 2 |
Weighted average grant date fair value |  | $ | 20 |  | $ | 12 |  | $ | 13 |
Stock award shares vested |  |  | 2 |  |  | 2 |  |  | 2 |
Weighted average grant date fair value |  | $ | 17 |  | $ | 18 |  | $ | 20 |
Stock award shares forfeited |  |  | — |  |  | 1 |  |  | — |
Weighted average grant date fair value |  | $ | 16 |  | $ | 17 |  | $ | 18 |
Unvested stock award shares at December 31 |  |  | 8 |  |  | 8 |  |  | 10 |
Weighted average grant date fair value |  | $ | 17 |  | $ | 16 |  | $ | 17 |
At December 31, 2013, 2012 and 2011, there was $69 million, $72 million and $107 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of three years for 2013, four years for 2012 and four years for 2011. The total market value (at the vesting date) of stock award shares which vested during 2013, 2012 and 2011 was $38 million, $27 million and $28 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 899,000 of stock option shares during 2013 with a grant date exercise price approximating $20 per share. During 2013, 3.8 million stock option shares were forfeited (including options that expired unexercised). The Company's stock option activity was as follows, shares in millions:
|  | 2013 |  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | --- | --- | ---
Option shares outstanding, January 1 |  |  | 30 |  |  | 36 |  |  | 37 |
Weighted average exercise price |  | $ | 21 |  | $ | 21 |  | $ | 21 |
Option shares granted |  |  | 1 |  |  | 1 |  |  | 2 |
Weighted average exercise price |  | $ | 20 |  | $ | 12 |  | $ | 13 |
Option shares exercised |  |  | 3 |  |  | 1 |  |  | — |
Aggregate intrinsic value on date of exercise (A) |  | $ | 23 million |  | $ | 5 million |  | $ | 1 million |
Weighted average exercise price |  | $ | 12 |  | $ | 10 |  | $ | 8 |
Option shares forfeited |  |  | 4 |  |  | 6 |  |  | 3 |
Weighted average exercise price |  | $ | 26 |  | $ | 19 |  | $ | 22 |
Option shares outstanding, December 31 |  |  | 24 |  |  | 30 |  |  | 36 |
Weighted average exercise price |  | $ | 22 |  | $ | 21 |  | $ | 21 |
Weighted average remaining option term (in years) |  |  | 4 |  |  | 5 |  |  | 5 |
Option shares vested and expected to vest, December 31 |  |  | 24 |  |  | 30 |  |  | 36 |
Weighted average exercise price |  | $ | 22 |  | $ | 21 |  | $ | 21 |
Aggregate intrinsic value (A) |  | $ | 109 million |  | $ | 55 million |  | $ | 12 million |
Weighted average remaining option term (in years) |  |  | 4 |  |  | 5 |  |  | 5 |
Option shares exercisable (vested), December 31 |  |  | 20 |  |  | 23 |  |  | 24 |
Weighted average exercise price |  | $ | 24 |  | $ | 24 |  | $ | 25 |
Aggregate intrinsic value (A) |  | $ | 62 million |  | $ | 22 million |  | $ | 4 million |
Weighted average remaining option term (in years) |  |  | 3 |  |  | 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 December 31, 2013, 2012 and 2011, there was $9 million, $15 million and $33 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of two years in 2013, two years in 2012 and three years in 2011. The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:
|  | 2013 |  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | --- | --- | ---
Weighted average grant date fair value |  | $ | 8.35 |  | $ | 4.44 |  | $ | 5.07 |
Risk-free interest rate |  |  | 1.22 | % |  | 1.09 | % |  | 2.69 | %
Dividend yield |  |  | 1.47 | % |  | 2.57 | % |  | 2.35 | %
Volatility factor |  |  | 49.07 | % |  | 50.97 | % |  | 49.03 | %
Expected option life |  |  | 6 years |  |  | 6 years |  |  | 6 years |
The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2013, shares in millions:
Option Shares Outstanding |  | Option Shares Exercisable |
--- | --- | --- | ---
Range of Prices |  | Number of Shares |  | Weighted Average Remaining Option Term |  | Weighted Average Exercise Price |  | Number of Shares |  | Weighted Average Exercise Price |
$ | 8 - 21 |  |  | 13 |  | 6 Years |  | $ | 14 |  |  | 8 |  | $ | 15 |
$ | 26 - 28 |  |  | 3 |  | 2 Years |  | $ | 27 |  |  | 3 |  | $ | 27 |
$ | 29 - 31 |  |  | 8 |  | 2 Years |  | $ | 30 |  |  | 9 |  | $ | 30 |
$ | 33 - 36 |  |  | — |  | 2 Years |  | $ | 34 |  |  | — |  | $ | 34 |
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$ | 8 - 36 |  |  | 24 |  | 4 Years |  | $ | 22 |  |  | 20 |  | $ | 24 |
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Phantom Stock Awards and Stock Appreciation Rights ("SARs"). The Company grants phantom stock awards and SARs to certain non-U.S. employees. Phantom stock awards are linked to the value of the Company's common stock on the date of grant and are settled in cash upon vesting, typically over 5 to 10 years. The Company accounts for phantom stock awards as liability-based awards; the compensation expense is initially measured as the market price of the Company's common stock at the grant date and is recognized over the vesting period. The liability is remeasured and adjusted at the end of each reporting period until the awards are fully-vested and paid to the employees. The Company recognized expense of $5 million, $7 million and $2 million related to the valuation of phantom stock awards for 2013, 2012 and 2011, respectively. In 2013, 2012 and 2011, the Company granted 165,180 shares, 162,310 shares and 349,550 shares, respectively, of phantom stock awards with an aggregate fair value of $3 million, $2 million and $4 million, respectively, and paid $4 million, $3 million and $2 million of cash in 2013, 2012 and 2011, respectively, to settle phantom stock awards. SARs are linked to the value of the Company's common stock on the date of grant and are settled in cash upon exercise. The Company accounts for SARs using the fair value method, which requires outstanding SARs to be classified as liability-based awards and valued using a Black-Scholes option pricing model at the grant date; such fair value is recognized as compensation expense over the vesting period, typically five years. The liability is remeasured and adjusted at the end of each reporting period until the SARs are exercised and payment is made to the employees or the SARs expire. The Company recognized expense (income) of $2 million, $4 million and $(1) million related to the valuation of SARs for 2013, 2012 and 2011, respectively. During 2013, 2012 and 2011, the Company did not grant any SARs. Information related to phantom stock awards and SARs was as follows, in millions:
|  | Phantom Stock Awards |  | Stock Appreciation Rights |
--- | --- | --- | --- | --- | ---
|  | At December 31, |  | At December 31, |
|  | 2013 |  | 2012 |  | 2013 |  | 2012 |
Accrued compensation cost liability |  | $ | 14 |  | $ | 11 |  | $ | 8 |  | $ | 6 |
Unrecognized compensation cost |  | $ | 4 |  | $ | 5 |  | $ | — |  | $ | 1 |
Equivalent common shares |  |  | 1 |  |  | 1 |  |  | 2 |  |  | 2 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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