Quarterly report pursuant to Section 13 or 15(d)

Note 16 - Stock-based Compensation Plans

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Note 16 - Stock-based Compensation Plans
3 Months Ended
Mar. 31, 2023
Notes to Financial Statements  
Share-Based Payment Arrangement [Text Block]

16. STOCK-BASED COMPENSATION PLANS

As of March 31, 2023, we had approximately 5 million shares remaining under the stock-based compensation plans available for grant. Option awards have a maximum contractual term of 10 years and generally must have an exercise price at least equal to the market price of our common stock on the date the option award is granted. Outstanding stock-based awards generally vest annually over a three-year period or in total at the end of a three-year period. Certain performance share unit awards vest in total at the end of a two-year period.

 

The compensation cost from continuing operations under the stock-based compensation plans for our Company and Huntsman International were as follows (dollars in millions):

 

   

Three months

 
   

ended

 
   

March 31,

 
   

2023

   

2022

 

Huntsman Corporation compensation cost

  $ 9     $ 10  

Huntsman International compensation cost

    8       8  

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The total income tax benefit recognized in the condensed consolidated statements of operations for us and Huntsman International for stock-based compensation arrangements was $1 million and $4 million for the three months ended March 31, 2023 and 2022, respectively.

Stock Options

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of our common stock through the grant date. The expected term of options granted was estimated based on the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions noted below represent the weighted average of the assumptions utilized for stock options granted during the periods.

 

During each of the three months ended  March 31, 2023 and 2022, no stock options were granted.

 

A summary of stock option activity under the stock-based compensation plans as of March 31, 2023 and changes during the three months then ended is presented below:

                   

Weighted

         
           

Weighted

   

average

         
           

average

   

remaining

   

Aggregate

 
           

exercise

   

contractual

   

intrinsic

 

Option awards

 

Shares

   

price

   

term

   

value

 
   

(in thousands)

           

(years)

   

(in millions)

 

Outstanding at January 1, 2023

    3,413     $ 21.93                  

Exercised

    (45 )     21.79                  

Forfeited

    (10 )     29.72                  

Outstanding at March 31, 2023

    3,358       21.91       4.3     $ 20  

Exercisable at March 31, 2023

    3,270       21.76       4.2       20  

As of March 31, 2023, there was approximately $1 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of approximately 0.9 years. 

 

The total intrinsic value of stock options exercised during the three months ended March 31, 2023 and 2022 was approximately nil and $11 million, respectively. Cash received from stock options exercised during the three months ended March 31, 2023 and 2022 was approximately nil and $5 million, respectively. The cash tax benefit from stock options exercised during the three months ended March 31, 2023 and 2022 was approximately nil and $2 million, respectively.

 

Nonvested Shares

Nonvested shares granted under the stock-based compensation plans consist of restricted stock and performance share unit awards, which are accounted for as equity awards, and phantom stock, which is accounted for as a liability award because it can be settled in either stock or cash. The fair value of each restricted stock and phantom stock award is estimated to be the closing stock price of Huntsman’s stock on the date of grant.

We grant two types of performance share unit awards. For one type of performance share unit award, the performance criteria are total stockholder return of our common stock relative to the total stockholder return of a specified industry peer group for the three-year performance periods. The fair value of each performance share unit award is estimated using a Monte Carlo simulation model that uses various assumptions, including an expected volatility rate and a risk-free interest rate. For the three months ended March 31, 2023 and 2022, the weighted-average expected volatility rate was 37.6% and 43.5%, respectively, and the weighted average risk-free interest rate was 4.38% and 1.67%, respectively. For the performance share unit awards granted during the three months ended March 31, 2023 and 2022, the number of shares earned varies based upon the Company achieving certain performance criteria over a three-year performance period.

 

During the first quarter of 2022, we granted a second type of performance share unit award, which also includes a market condition. The performance criteria are our corporate free cash flow achieved relative to targets set by management, modified for the total stockholder return of our common stock relative to the total stockholder return of a specified industry peer group for the two-year performance period. The fair value of each performance share unit award is estimated using a Monte Carlo simulation model that uses various assumptions, including an expected volatility rate and a risk-free interest rate. For the three months ended March 31, 2022, the weighted-average expected volatility rate was 37.9% and the weighted average risk-free interest rate was 1.43%. For the performance share unit awards granted during the three months ended March 31, 2022, the number of shares earned varies based upon the Company achieving certain performance criteria over a two-year performance period. No performance share unit awards of this type were granted during the three months ended March 31, 2023.

 

A summary of the status of our nonvested shares as of March 31, 2023 and changes during the three months then ended is presented below:

   

Equity awards

   

Liability awards

 
             

Weighted

           

Weighted

 
             

average

           

average

 
             

grant-date

           

grant-date

 
   

Shares

     

fair value

   

Shares

   

fair value

 
   

(in thousands)

             

(in thousands)

         

Nonvested at January 1, 2023

    1,802       $ 35.15       257     $ 31.61  

Granted

    945         36.54       114       30.83  

Vested

    (711 )

(1)(2)

    27.28       (165 )     29.51  

Forfeited

    (22 )       37.53       (5 )     33.07  

Nonvested at March 31, 2023

    2,014         38.55       201       32.85  

 


(1)

As of March 31, 2023, a total of 115,685 restricted stock units were vested but not yet issued, of which 9,400 vested during the three months ended March 31, 2023. These shares have not been reflected as vested shares in this table because, in accordance with the restricted stock unit agreements, shares of common stock are not issued for vested restricted stock units until termination of employment.

(2)

A total of 264,624 performance share unit awards are reflected in the vested shares in this table, which represents the target number of performance share unit awards for this grant and were included in the balance at December 31, 2022. During the three months ended March 31, 2023, an additional 132,314 performance share unit awards with a grant date fair value of $22.85 were issued due to the target performance criteria being exceeded.

 

As of March 31, 2023, there was approximately $52 million of total unrecognized compensation cost related to nonvested share compensation arrangements granted under the stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of approximately 2.3 years. The value of share awards that vested during the three months ended March 31, 2023 and 2022 was approximately $28 million and $31 million, respectively.

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