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Stock-Based Compensation | 6 Months Ended
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Jun. 30, 2015
Stock-Based Compensation |
Stock-Based Compensation | J. STOCK-BASED COMPENSATION Our 2014 Long Term Stock Incentive Plan (the “2014 Plan”) provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors. At June 30, 2015, 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 |  | Six Months Ended |
|  | June 30, |  | June 30, |
|  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Long-term stock awards |  | $ | 7 |  | $ | 11 |  | $ | 13 |  | $ | 21 |
Stock options |  | 3 |  | 1 |  | 4 |  | 2 |
Phantom stock awards and stock appreciation rights |  | 3 |  | 1 |  | 6 |  | 1 |
Total |  | $ | 13 |  | $ | 13 |  | $ | 23 |  | $ | 24 |
Income tax benefit (37 percent tax rate — before valuation allowance) |  | $ | 5 |  | $ | 5 |  | $ | 9 |  | $ | 9 |
Long-Term Stock Awards. Long-term stock awards are granted to our key employees and non-employee Directors and do not cause net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market. We granted 719,546 shares of long-term stock awards in the six months ended June 30, 2015. Our long-term stock award activity was as follows, shares in millions:
|  | Six Months Ended |
|  | June 30, |
|  | 2015 |  | 2014 |
Unvested stock award shares at January 1 |  | 6 |  | 8 |
Weighted average grant date fair value |  | $ | 18 |  | $ | 17 |
Stock award shares granted |  | 1 |  | 1 |
Weighted average grant date fair value |  | $ | 26 |  | $ | 22 |
Stock award shares vested |  | 2 |  | 2 |
Weighted average grant date fair value |  | $ | 17 |  | $ | 17 |
Stock award shares forfeited |  | — |  | — |
Weighted average grant date fair value |  | $ | 19 |  | $ | 16 |
Forfeitures upon spin off (A) |  | 1 |  | — |
Weighted average grant date fair value |  | $ | 20 |  | $ | — |
Modification upon spin off (B) |  | 1 |  | — |
Unvested stock award shares at June 30 |  | 5 |  | 7 |
Weighted average grant date fair value |  | $ | 17 |  | $ | 18 |
| (A) |  | In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards, which were then converted to TopBuild stock awards.
| (B) |  | Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding stock awards was made pursuant to an existing anti-dilution provision in our 2014 Plan and 2005 Long Term Incentive Plan.
At June 30, 2015 and 2014, there was $52 million and $81 million of total unrecognized compensation expense related to unvested stock awards, respectively; such awards had a weighted average remaining vesting period of three years in 2015 and four years in 2014. The total market value (at the vesting date) of stock award shares which vested during the six months ended June 30, 2015 and 2014 was $49 million and $45 million, respectively. Stock Options. Stock options are granted to our key employees. The exercise price equals the market price of our 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. We granted 452,380 of stock option shares in the six months ended June 30, 2015 with a grant date exercise price approximating $26 per share. In the first six months of 2015, 2,977,740 stock option shares were forfeited (including options that expired unexercised). Our stock option activity was as follows, shares in millions:
|  | Six Months Ended |
|  | June 30, |
|  | 2015 |  | 2014 |
Option shares outstanding, January 1 |  | 18 |  | 24 |
Weighted average exercise price |  | $ | 21 |  | $ | 22 |
Option shares granted |  | — |  | — |
Weighted average exercise price |  | $ | 26 |  | $ | 22 |
Option shares exercised |  | 2 |  | 2 |
Aggregate intrinsic value on date of exercise (A) |  | $ | 24 million |  | $ | 13 million |
Weighted average exercise price |  | $ | 16 |  | $ | 16 |
Option shares forfeited |  | 3 |  | — |
Weighted average exercise price |  | $ | 29 |  | $ | 22 |
Forfeitures upon spin off (B) |  | — |  | — |
Weighted average exercise price |  | $ | 19 |  | $ | — |
Modification upon spin off (C) |  | 2 |  | — |
Option shares outstanding, June 30 |  | 15 |  | 22 |
Weighted average exercise price |  | $ | 18 |  | $ | 22 |
Weighted average remaining option term (in years) |  | 4 |  | 4 |
Option shares vested and expected to vest, June 30 |  | 15 |  | 22 |
Weighted average exercise price |  | $ | 18 |  | $ | 22 |
Aggregate intrinsic value (A) |  | $ | 101 million |  | $ | 88 million |
Weighted average remaining option term (in years) |  | 4 |  | 4 |
Option shares exercisable (vested), June 30 |  | 13 |  | 20 |
Weighted average exercise price |  | $ | 18 |  | $ | 23 |
Aggregate intrinsic value (A) |  | $ | 89 million |  | $ | 69 million |
Weighted average remaining option term (in years) |  | 3 |  | 3 |
| (A) |  | Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.
| (B) |  | In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards, which were then converted to TopBuild stock awards.
| (C) |  | Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding options was made pursuant to an existing anti-dilution provision in our 2014 Plan and 2005 Long Term Incentive Plan.
At June 30, 2015 and 2014, there were $7 million and $8 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 3 years and 2 years at June 30, 2015 and 2014, respectively. 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:
|  | Six Months Ended |
|  | June 30, |
|  | 2015 |  | 2014 |
Weighted average grant date fair value |  | $ | 9.67 |  | $ | 9.53 |
Risk-free interest rate |  | 1.75 | % | 1.91 | %
Dividend yield |  | 1.32 | % | 1.34 | %
Volatility factor |  | 42.00 | % | 49.00 | %
Expected option life |  | 6 years |  | 6 years |

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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 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 2: 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 3: 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 4: 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 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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