Stockholders' Equity

9 Months Ended

Sep. 30, 2019

1.125% Warrants

In connection with the Call Spread Overlay transaction described in Note 8, “Derivatives,” in 2013, we issued 13.5 million warrants with a strike price of $53.8475 per share. Under certain circumstances, beginning in April 2020, if the price of our common stock exceeds the strike price of the 1.125% Warrants, we will be obligated to issue shares of our common stock 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 Income per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised. Following the transactions described below, 0.3 million of the 1.125% Warrants remain outstanding.

As described in Note 8, “Derivatives,” in the nine months ended September 30, 2019, we entered into privately negotiated termination agreements with each of the Counterparties to partially terminate the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes purchased.

In the third quarter of 2019, we paid $90 million to the Counterparties for the termination of 1.4 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.

In the nine months ended September 30, 2019, we paid $514 million to the Counterparties for the termination of 5.9 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.

Share-Based Compensation

In connection with our employee stock plans, approximately 184,000 shares of common stock vested or were purchased, net of shares used to settle employees’ income tax obligations, during the nine months ended September 30, 2019.

Share-based compensation is recorded to “General and administrative expenses” in the accompanying consolidated statements of income. Total share-based compensation expense amounted to $10 million and $7 million, respectively, in the three months ended September 30, 2019 and 2018. Total share-based compensation expense amounted to $29 million and $20 million, respectively, in the nine months ended September 30, 2019 and 2018.

Equity Incentive Plan

In the second quarter of 2019, our stockholders approved the Molina Healthcare, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). The 2019 EIP provides for awards, in the form of restricted stock awards, performance units, stock options, and other stock– or cash–based awards, to eligible persons who perform services for us. The 2019 EIP will remain in effect until its termination by the board of directors; provided, however, that all awards will be granted no later than May 8, 2029. Concurrent with the adoption of the 2019 EIP, the Molina Healthcare, Inc. 2011 Equity Incentive Plan was amended, restated and merged into the 2019 EIP. A maximum of 2.9 million shares of our common stock may be issued under the 2019 EIP.

As of September 30, 2019, there was $55 million of total unrecognized compensation expense related to unvested restricted stock awards (“RSAs”), and performance stock units (“PSUs”), which we expect to recognize over remaining weighted-average periods of 2.5 years and 1.8 years, respectively. This unrecognized compensation cost assumes an estimated forfeiture rate of 16.2% for non-executive employees as of September 30, 2019.

Also as of September 30, 2019, there was $5 million of total unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of 1.0 year. No stock options were granted or exercised in the nine months ended September 30, 2019.

Activity for RSAs, performance stock awards (“PSAs”) and PSUs is summarized below:



	RSAs		PSAs		PSUs		Total		Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2018	399,795		3,132		201,383		604,310		$	71.50
Granted	228,902		—		141,828		370,730		137.53
Vested	(133,828	)	(3,132	)	(10,528	)	(147,488	)	72.21
Forfeited	(46,780	)	—		(11,616	)	(58,396	)	87.99
Unvested balance, September 30, 2019	448,089		—		321,067		769,156		$	101.93

The aggregate fair values of RSAs, PSUs and PSAs granted and vested are presented in the following table:



	Nine Months Ended September 30,
	2019		2018
	(In millions)
Granted:
RSAs	$	32	$	26
PSUs	19		16
Total granted	$	51	$	42
Vested:
RSAs	$	18	$	14
PSUs	2		—
PSAs	—		3
Total vested	$	20	$	17

Employee Stock Purchase Plan

In May 2019, our stockholders approved the Molina Healthcare, Inc. 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which superseded the Molina Healthcare, Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”). A maximum of 3.0 million shares of our common stock may be issued under the 2019 ESPP, the terms of which are substantially similar to the 2011 ESPP. The 2019 ESPP will continue until the earliest of: termination of the 2019 ESPP by the board of directors (which may occur at any time); issuance of all of the shares reserved for issuance under the 2019 ESPP; or May 9, 2029.