. Stock-based Compensation
The following table summarizes stock-based compensation costs for the years ended December 31, 2013, 2012, and 2011.
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| | | | | | | | | |
| Year Ended December 31 |
Millions of dollars | 2013 | 2012 | 2011 |
Stock-based compensation cost | $ | 264 |
| $ | 217 |
| $ | 198 |
|
Tax benefit | (81 | ) | (67 | ) | (61 | ) |
Stock-based compensation cost, net of tax | $ | 183 |
| $ | 150 |
| $ | 137 |
|
Our Stock and Incentive Plan, as amended (Stock Plan), provides for the grant of any or all of the following types of stock-based awards:
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- | stock options, including incentive stock options and nonqualified stock options; |
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- | restricted stock awards; |
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- | restricted stock unit awards; |
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- | stock appreciation rights; and |
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- | stock value equivalent awards. |
There are currently no stock appreciation rights, stock value equivalent awards, or incentive stock options outstanding.
Under the terms of the Stock Plan, approximately 172 million shares of common stock have been reserved for issuance to employees and non-employee directors. At December 31, 2013, approximately 28 million shares were available for future grants under the Stock Plan. The stock to be offered pursuant to the grant of an award under the Stock Plan may be authorized but unissued common shares or treasury shares.
In addition to the provisions of the Stock Plan, we also have stock-based compensation provisions under our Restricted Stock Plan for Non-Employee Directors and our Employee Stock Purchase Plan (ESPP).
Each of the active stock-based compensation arrangements is discussed below.
Stock options
The majority of our options are generally issued during the second quarter of the year. All stock options under the Stock Plan are granted at the fair market value of our common stock at the grant date. Employee stock options vest ratably over a three- or four-year period and generally expire 10 years from the grant date. Compensation expense for stock options is generally recognized on a straight line basis over the entire vesting period. No further stock option grants are being made under the stock plans of acquired companies.
The following table represents our stock options activity during 2013.
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| | | | | | | | | |
| Number
of Shares
(in millions) | Weighted
Average
Exercise
Price
per Share | Weighted
Average
Remaining
Contractual Term (years) | Aggregate
Intrinsic
Value
(in millions) |
Outstanding at January 1, 2013 | 18.1 |
| $ | 32.23 |
| | |
Granted | 5.4 |
| 43.06 |
| | |
Exercised | (4.7 | ) | 27.35 |
| | |
Forfeited/expired | (0.7 | ) | 37.37 |
| | |
Outstanding at December 31, 2013 | 18.1 |
| $ | 36.57 |
| 7.1 | $ | 256 |
|
Exercisable at December 31, 2013 | 9.0 |
| $ | 33.48 |
| 5.3 | $ | 156 |
|
The total intrinsic value of options exercised was $93 million in 2013, $12 million in 2012, and $102 million in 2011. As of December 31, 2013, there was $83 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately two years.
Cash received from option exercises was $277 million during 2013, $107 million during 2012, and $160 million during 2011.
The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility of options granted was a blended rate based upon implied volatility calculated on actively traded options on our common stock and upon the historical volatility of our common stock. The expected term of options granted was based upon historical observation of actual time elapsed between date of grant and exercise of options for all employees. The assumptions and resulting fair values of options granted were as follows:
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| | | |
| Year Ended December 31 |
| 2013 | 2012 | 2011 |
Expected term (in years) | 5.27 | 5.21 | 5.20 |
Expected volatility | 40% | 46% | 40% |
Expected dividend yield | 0.94 - 1.33% | 0.99 – 1.24% | 0.69 – 1.01% |
Risk-free interest rate | 0.77 - 1.73% | 0.65 – 1.15% | 0.93 – 2.29% |
Weighted average grant-date fair value per share | $14.34 | $11.99 | $15.61 |
Restricted stock
Restricted shares issued under the Stock Plan are restricted as to sale or disposition. These restrictions lapse periodically over an extended period of time not exceeding 10 years. Restrictions may also lapse for early retirement and other conditions in accordance with our established policies. Upon termination of employment, shares on which restrictions have not lapsed must be returned to us, resulting in restricted stock forfeitures. The fair market value of the stock on the date of grant is amortized and charged to income on a straight-line basis over the requisite service period for the entire award.
Our Restricted Stock Plan for Non-Employee Directors (Directors Plan) allows for each non-employee director to receive an annual award of 800 restricted shares of common stock or, beginning in 2012, an annual award of 800 restricted stock units representing the right to receive shares of common stock as a part of their compensation. These awards have a minimum restriction period of six months, and, with respect to the restricted share awards, the restrictions lapse upon the earlier of mandatory director retirement at age 72 or early retirement from the Board after four years of service. With respect to the restricted stock unit awards, the restrictions lapse 25% annually over four years of service. If the non-employee director has made a timely election to defer receipt of the shares upon vesting, then the shares are distributed at the end of January in the year following the year of the non-employee director's mandatory retirement at age 72 or early retirement from the Board after four years of service in a single distribution or in annual installments over a 5- or 10-year period as elected by the director.
The fair market value of the stock on the date of grant is amortized over the lesser of the time from the grant date to age 72 or the time from the grant date to completion of four years of service on the Board. We reserved 200,000 shares of common stock for issuance to non-employee directors, which may be authorized but unissued common shares or treasury shares. At December 31, 2013, 39,200 restricted shares and 13,506 restricted stock units were issued and outstanding under the Directors Plan. In addition, during 2013, our non-employee directors were awarded 29,797 restricted stock units under the Stock Plan with the same terms and conditions as those described above for the Directors Plan.
The following table represents our Stock Plan and Directors Plan restricted stock awards and restricted stock units granted, vested, and forfeited during 2013.
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| | | | | |
| Number of Shares
(in millions) | Weighted Average
Grant-Date Fair
Value per Share |
Nonvested shares at January 1, 2013 | 14.8 |
| $ | 33.17 |
|
Granted | 6.6 |
| 42.93 |
|
Vested | (4.7 | ) | 32.14 |
|
Forfeited | (1.0 | ) | 35.65 |
|
Nonvested shares at December 31, 2013 | 15.7 |
| $ | 37.43 |
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The weighted average grant-date fair value of shares granted during 2012 was $32.17 and during 2011 was $43.35. The total fair value of shares vested during 2013 was $208 million, during 2012 was $126 million, and during 2011 was $165 million. As of December 31, 2013, there was $420 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock, which is expected to be recognized over a weighted average period of four years.
Employee Stock Purchase Plan
Under the ESPP, eligible employees may have up to 10% of their earnings withheld, subject to some limitations, to be used to purchase shares of our common stock. For the years ended December 31, 2012 and 2011, the ESPP contained two six-month offering periods commencing on January 1 and July 1. Beginning in 2013, the ESPP contained four three-month offering periods commencing on January 1, April 1, July 1, and October 1 of each year. The price at which common stock may be purchased under the ESPP is equal to 85% of the lower of the fair market value of the common stock on the commencement date or last trading day of each offering period. Under this plan, 44 million shares of common stock have been reserved for issuance. The stock to be offered may be authorized but unissued common shares or treasury shares. As of December 31, 2013, 33 million shares have been sold through the ESPP and 11 million shares are available for future issuance.
The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. The expected volatility was a one-year historical volatility of our common stock. The assumptions and resulting fair values were as follows:
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| | | | | | | | | |
| Year Ended December 31 |
| 2013 | 2012 | 2011 |
Expected volatility | 27 | % | 49 | % | 38 | % |
Expected dividend yield | 1.12 | % | 1.16 | % | 0.78 | % |
Risk-free interest rate | 0.06 | % | 0.11 | % | 0.14 | % |
Weighted average grant-date fair value per share | $ | 8.40 |
| $ | 8.93 |
| $ | 11.88 |
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