v2.4.0.6
Share-Based Compensation
 3 Months Ended
Mar. 31, 2012
Share-Based Compensation [Abstract]  
Share-Based Compensation

Note 17—Share-Based Compensation

Share-based compensation expense consists of:

 

                 
    First Quarter  
    2012     2011  
    (In thousands)  

Cash-settled awards

   $ 2,082     $ 2,169  

Equity-settled awards

     1,274       149  

Restricted stock

     614       663  

Stock options

     1,261       1,119  
   

 

 

    

 

 

  
    $ 5,231     $ 4,100  
   

 

 

    

 

 

  

Share-based compensation expense is included in:

 

                 
    First Quarter  
    2012     2011  
    (In thousands)  

General and administrative expense

   $ 2,601     $ 2,055  

Other operating expense

     2,630       2,045  
   

 

 

    

 

 

  
    $ 5,231     $ 4,100  
   

 

 

    

 

 

  

Share-based compensation increased principally as result of new awards granted in first quarter 2012 and an increase in our expected stock price volatility rate assumptions used in valuing new awards and existing awards.

The fair value of awards granted to retirement eligible employees and expensed at the date of grant was $595,000 in first quarter 2012 and $654,000 in first quarter 2011. Unrecognized share-based compensation expense related to non-vested equity-settled awards, restricted stock and stock options is $12,899,000 at first quarter-end 2012. The weighted average period over which this amount will be recognized is estimated to be two years. We did not capitalize any share-based compensation in first quarter 2012 or 2011.

In first quarter 2012, we withheld 70,894 shares having a value of $1,148,000 in connection with vesting of restricted stock awards and exercises of stock options. In first quarter 2011, we withheld 63,000 shares having a value of $1,190,000 in connection with vesting of restricted stock awards and exercises of stock options. These shares are included in treasury stock and are reflected in financing activities in our consolidated statement of cash flows.

A summary of awards granted under our 2007 Stock Incentive Plan follows:

Cash-settled awards

Cash-settled awards granted to our employees in the form of restricted stock units or stock appreciation rights generally vest over three to four years from the date of grant and generally provide for accelerated vesting upon death, disability or if there is a change in control. Vesting for some restricted stock unit awards is also conditioned upon achievement of a minimum one percent annualized return on assets over a three-year period. Cash-settled stock appreciation rights have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Stock appreciation rights were granted with an exercise price equal to the market value of our stock on the date of grant.

Cash-settled awards granted to our directors in the form of restricted stock units are fully vested at the time of grant and payable upon retirement.

 

The following table summarizes the activity of cash-settled restricted stock unit awards in the first quarter 2012:

 

                 
     Equivalent
Units		     Weighted
Average Grant
Date Fair Value		  
    (In thousands)     (Per unit)  

Non-vested at beginning of period

     449     $ 13.13  

Granted

     187       16.11  

Vested

     (286 )      10.32  

Forfeited

     —         —    
   

 

 

    

 

 

  

Non-vested at end of period

     350     $ 17.03  
   

 

 

    

 

 

  

The following table summarizes the activity of cash-settled stock appreciation rights in first quarter 2012:

 

                                 
     Rights
Outstanding		     Weighted
Average
Exercise Price		     Weighted
Average
Remaining
Contractual
Term		     Aggregate
Intrinsic Value
(Current
Value Less
Exercise Price)		  
    (In thousands)     (Per share)     (In years)     (In thousands)  

Balance at beginning of period

     895     $ 11.31       7     $ 3,986  

Granted

     —         —                    

Exercised

     (4 )      9.29                  

Forfeited

     —         —                    
   

 

 

    

 

 

                  

Balance at end of period

     891     $ 11.32       7     $ 4,137  
         

Exercisable at end of period

     613     $ 10.79       7     $ 3,084  

The fair value of awards settled in cash was $4,671,000 in first quarter 2012 and $184,000 in first quarter 2011. At first quarter-end 2012, the fair value of vested cash-settled awards is $14,927,000 and is included in other liabilities. The aggregate current value of non-vested cash-settled awards is $6,432,000 at first quarter-end 2012 based on a quarter-end stock price of $15.39.

Equity-settled awards

Equity-settled awards granted to our employees include restricted stock units (RSU), which vest ratably over three years from the date of grant, and market-leveraged stock units (MSU), which vest after three years. Equity settled awards in the form of restricted stock units granted to our directors are fully vested at time of grant and payable upon retirement. The following table summarizes the activity of equity-settled awards in first quarter 2012:

 

                 
     Equivalent
Units		     Weighted
Average Grant
Date Fair Value		  
    (In thousands)     (Per share)  

Non-vested at beginning of period

     159     $ 20.74  

Granted

     278       17.56  

Vested

     (68 )      16.11  

Forfeited

     —         —    
   

 

 

    

 

 

  

Non-vested at end of period

     369     $ 19.20  
   

 

 

    

 

 

  

In first quarter 2012, we granted 154,900 MSU awards. These awards will be settled in common stock based upon our stock price performance over three years from the date of grant. The number of shares to be issued could range from a high of 232,370 shares if our stock price increases by 50 percent or more, to a low of 77,460 shares if our stock price decreases by 50 percent, or could be zero if our stock price decreases by more than 50 percent, the minimum threshold performance. MSU awards are valued using a Monte Carlo simulation pricing model, which includes expected stock price volatility and risk-free interest rate assumptions. Compensation expense is recognized regardless of achievement of performance conditions, provided the requisite service period is satisfied.

 

Unrecognized share-based compensation expense related to non-vested equity-settled awards is $5,221,000 at first quarter-end 2012. The weighted average period over which this amount will be recognized is estimated to be two years.

Restricted stock

Restricted stock awards vest either ratably over or after three years, generally if we achieve a minimum one percent annualized return on assets over such three-year period. The following table summarizes the activity of restricted stock awards in first quarter 2012:

 

                 
     Restricted
Shares		     Weighted
Average Grant
Date Fair Value		  
    (In thousands)     (Per share)  

Non-vested at beginning of period

     399     $ 15.02  

Granted

     —         —    

Vested

     (183 )      12.65  

Forfeited

     —         —    
   

 

 

    

 

 

  

Non-vested at end of period

     216     $ 17.03  
   

 

 

    

 

 

  

Unrecognized share-based compensation expense related to non-vested restricted stock awards is $2,147,000 at first quarter-end 2012. The weighted average period over which this amount will be recognized is estimated to be one year.

Stock options

Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. Options were granted with an exercise price equal to the market value of our stock on the date of grant. The following table summarizes the activity of stock option awards in first quarter 2012:

 

                                 
     Options
Outstanding		     Weighted
Average
Exercise Price		     Weighted
Average
Remaining
Contractual
Term		     Aggregate
Intrinsic Value
(Current
Value Less
Exercise Price)		  
    (In thousands)     (Per share)     (In years)     (In thousands)  

Balance at beginning of period

     1,284     $ 22.22       7     $ 944  

Granted

     453       16.11                  

Exercised

     —         —                    

Forfeited

     —         —                    
   

 

 

    

 

 

                  

Balance at end of period

     1,737     $ 20.62       8     $ 986  
         

Exercisable at end of period

     910     $ 24.20       7     $ 740  

We estimate the fair value of stock options using the Black-Scholes option pricing model and the following assumptions:

 

                 
    First Quarter  
    2012     2011  

Expected dividend yield

     0  %      0  % 

Expected stock price volatility

     61.8  %      56.2  % 

Risk-free interest rate

     1.4  %      2.4  % 

Expected life of options (years)

     6       6  

Weighted average estimated fair value of options granted

   $ 9.32     $ 10.11  

We have limited historical experience as a stand-alone company so we utilized alternative methods in determining our valuation assumptions. The expected life was based on the simplified method utilizing the midpoint between the vesting period and the contractual life of the awards. Our expected stock price volatility is based on a blended rate utilizing our historical volatility and historical prices of our peers’ common stock for a period corresponding to the expected life of the options. Pre-vesting forfeitures are estimated based upon the pool of participants and their expected activity and historical trends.

 

Unrecognized share-based compensation expense related to non-vested stock options is $5,531,000 at first quarter-end 2012. The weighted average period over which this amount will be recognized is estimated to be three years.

Pre-Spin Awards

Certain of our employees participated in Temple-Inland’s share-based compensation plans. In conjunction with the 2007 spin-off, these awards were equitably adjusted into separate awards of the common stock of Temple-Inland and the spin-off entities. As result of Temple-Inland’s merger with International Paper’s in first quarter 2012, all outstanding awards on Temple-Inland stock were settled with an intrinsic value of $1,132,000.

Pre-Spin stock option awards to our employees to purchase our common stock have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability or if there is a change in control. At first quarter-end 2012, there were 69,000 awards outstanding and exercisable on our stock with a weighted average exercise price of $23.17, weighted average remaining term of three years and aggregate intrinsic value of $69,000.