Stockholders' Equity

1.625% Exchange

As described in Note 11, “Debt,” we issued 2.6 million shares of our common stock in connection with the 1.625% Exchange in December 2017.

1.125% Warrants

In connection with the Call Spread Overlay transaction described in Note 12, “Derivatives,” in 2013, we issued 13,490,236 warrants with a strike price of $53.8475 per share. The number of warrants and the strike price are subject to adjustment under certain circumstances. If the market value per share of our common stock exceeds the strike price of the 1.125% Warrants on any trading day during the 160 trading day measurement period (beginning on April 15, 2020) under the 1.125% Warrants, we will be obligated to issue to the Counterparties a number of shares equal in value to the product of the amount by which such market value exceeds such strike price and 1/160th of the aggregate number of shares of our common stock underlying the 1.125% Warrants, subject to a share delivery cap. The 1.125% Warrants could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the 1.125% Warrants. Refer to Note 3, “Net (Loss) Income per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised.

Share-Based Compensation

At December 31, 2017, we had employee equity incentives outstanding under our 2011 Equity Incentive Plan (2011 Plan). The 2011 Plan provides for the award of restricted shares and units, performance shares and units, stock options and stock bonuses to the company’s officers, employees, directors, consultants, advisers, and other service providers. The 2011 Plan provides for the issuance of up to 4.5 million shares of common stock.

In connection with the 2011 Plan and employee stock purchase plan, approximately 857,000 shares of common stock were purchased or vested, net of shares used to settle employees’ income tax obligations, during the year ended December 31, 2017.

Except as noted below, we record share-based compensation as “General and administrative expenses” in the accompanying consolidated statements of operations. Total share-based compensation expense was as follows:



	Year Ended December 31,
	2017				2016				2015
	(In millions)
	Pretax Charges		Net-of-Tax Amount		Pretax Charges		Net-of-Tax Amount		Pretax Charges		Net-of-Tax Amount
Restricted stock and performance awards	$	39	$	35	$	20	$	17	$	19	$	13
Employee stock purchase plan and stock options	7		5		6		5		4		3
	$	46	$	40	$	26	$	22	$	23	$	16

Restricted stock awards. Restricted stock awards are granted with a fair value equal to the market price of our common stock on the date of grant, and generally vest in equal annual installments over periods up to four years from the date of grant. We recognize expense for these awards on a straight-line basis. Stock option awards generally have an exercise price equal to the fair market value of our common stock on the date of grant, vest in equal annual installments over periods up to four years from the date of grant, and have a maximum term of ten years from the date of grant.

RSAs, PSAs and PSUs activity for the year ended December 31, 2017 is summarized below:



	Restricted Stock Awards		Performance Stock Awards		Performance Stock Units		Total Shares		Weighted Average Grant Date Fair Value
Unvested balance as of December 31, 2016	577,244		345,656		—		922,900		$	58.15
Granted	395,946		—		231,100		627,046		57.34
Vested	(424,556	)	(260,894	)	(139,272	)	(824,722	)	57.78
Forfeited	(146,830	)	—		—		(146,830	)	53.89
Unvested balance as of December 31, 2017	401,804		84,762		91,828		578,394		$	58.35

As of December 31, 2017, there was $19 million of total unrecognized compensation expense related to unvested restricted stock awards (RSAs), performance stock awards (PSAs) and performance stock units (PSUs), which we expect to recognize over a remaining weighted-average period of 2.2 years, 0.4 years and 1.6 years, respectively. This unrecognized compensation cost assumes an estimated forfeiture rate of 11.8% for non-executive employees as of December 31, 2017, which is based on actual forfeitures over the last 4 years. Also as of December 31, 2017, there was $15 million of total unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of 2.8 years.

The total fair value of awards granted and vested is presented in the following table:



	Year Ended December 31,
	2017		2016		2015
	(In millions)
Granted:
Restricted stock awards	$	20	$	19	$	17
Performance stock awards	—		15		11
Performance stock units	16		—		—
	$	36	$	34	$	28
Vested:
Restricted stock awards	$	23	$	22	$	23
Performance stock awards	15		—		16
Performance stock units	9		—		—
	$	47	$	22	$	39

During the year ended December 31, 2017, the vesting of 133,957 RSAs, 153,574 PSAs and 139,272 PSUs was accelerated in connection with the termination of our former Chief Executive Officer (CEO) and former Chief Financial Officer (CFO) in May 2017. The incremental charge relating to this acceleration, or $23 million, is reported in “Restructuring and separation costs” in the accompanying consolidated statements of operations. This amount is included in the 2017 “Pretax Charges” in the table above. See Note 15, “Restructuring and Separation Costs” for further discussion.

Stock Options. Stock option activity for the year ended December 31, 2017 is summarized below:



	Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual term
					(In millions)		(Years)
Stock options outstanding as of December 31, 2016	90,000		$	24.93
Granted	375,000		67.33
Exercised	(60,000	)	20.88
Stock options outstanding as of December 31, 2017	405,000		64.79		$	5	9.5
Stock options exercisable and expected to vest as of December 31, 2017	405,000		64.79		$	5	9.5
Exercisable as of December 31, 2017	30,000		33.02		$	1	5.2

The weighted-average grant date fair value per share of stock options awarded in 2017 was $41.43. We estimate the fair value of each stock option award on the grant date using the Black-Scholes option pricing model. To determine the fair value of the stock options awarded in 2017 we applied a risk-free interest rate of 2.3%, expected volatility of 38.4%, dividend yield of 0% and expected life of 8.4 years. No stock options were granted in 2016 and 2015.

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $2 million, $1 million, and $6 million, respectively. The following is a summary of information about stock options outstanding and exercisable at December 31, 2017:



	Options Outstanding				Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
Range of Exercise Prices
$33.02	30,000	5.2	$	33.02	30,000	$	33.02
$67.33	375,000	9.9	67.33		—	—
	405,000				30,000

Employee Stock Purchase Plan. Under our employee stock purchase plan (ESPP), eligible employees may purchase common shares at 85% of the lower of the fair market value of our common stock on either the first or last trading day of each six-month offering period. Each participant is limited to a maximum purchase of $25,000 (as measured by the fair value of the stock acquired) per year through payroll deductions. We estimate the fair value of the stock issued using the Black-Scholes option pricing model. For the years ended December 31, 2017, 2016, and 2015, the inputs to this model were as follows: risk-free interest rates of approximately 0.1% to 1.1%; expected volatilities ranging from approximately 30% to 40%, dividend yields of 0%, and an average expected life of 0.5 years. We issued approximately 351,000, 410,000 and 302,000 shares of our common stock under the ESPP during the years ended December 31, 2017, 2016, and 2015, respectively. The 2011 ESPP provides for the issuance of up to three million shares of common stock.