Share-Based and Long-Term Incentive Compensation

Share-based and long-term incentive compensation expense consists of:



	For the Year
	2016		2015			2014
	(In thousands)
Cash-settled awards	$	717	$	(3,127	)	$	(3,710	)
Equity-settled awards	2,444		5,026			5,168
Restricted stock	22		(8		)	(25		)
Stock options	854		2,355			1,984
Total share-based compensation	$	4,037	$	4,246		$	3,417
Deferred cash	388		228			—
	$	4,425	$	4,474		$	3,417

Share-based and long-term incentive compensation expense is included in:



	For the Year
	2016		2015		2014
	(In thousands)
General and administrative	$	3,323	$	2,451	$	1,001
Other operating	1,102		2,023		2,416
	$	4,425	$	4,474	$	3,417

Excluded from share-based compensation expense in the table above are fees earned by directors in the amount of $725,000 for 2016, $1,203,000 for 2015 and $906,000 for 2014 for which they elected to defer payment until retirement in the form of share-settled units. These expenses are included in general and administrative expense on our consolidated statements of income (loss) and comprehensive income (loss).

Share-Based Compensation

The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $600,000 in 2016, $517,000 in 2015 and $760,000 in 2014. Unrecognized share-based compensation expense related to non-vested equity-settled awards and stock options was $1,878,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be one year. We did not capitalize any share-based compensation in 2016, 2015 or 2014.

In 2016 and 2015, we issued 300,491 and 288,089 shares out of our treasury stock associated with vesting of stock-based awards or exercise of stock options, net of 25,082 and 51,521 shares withheld having a value of $222,000 and $762,000 for payroll taxes in connection with vesting of stock-based awards or exercise of stock options which are reflected in financing activities in our consolidated statements 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. 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 2016:



	Equivalent Units		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	117		$16.00
Granted	—		—
Vested	(41	)	18.84
Forfeited	(34	)	13.83
Non-vested at end of period	42		14.98

The weighted average grant date fair value of cash-settled restricted stock unit awards was $13.26 per unit for 2015 and $18.96 per unit for 2014. The fair value of cash-settled restricted stock unit awards settled was $1,195,000 in 2016, $2,469,000 in 2015, and $2,286,000 in 2014. The aggregate current value of non-vested awards is $555,000 at year-end 2016 based on a year-end stock price of $13.30.

The following table summarizes the activity of cash-settled stock appreciation rights in 2016:



	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	487		$12.97	4	$404
Granted	—		—
Exercised	(52	)	9.29
Forfeited	(61	)	16.12
Balance at end of period	374		12.97	3	773
Exercisable at end of period	345		12.87	3	773

The intrinsic value of cash-settled stock appreciation rights settled was $154,000 in 2016, $206,000 in 2015 and $1,181,000 in 2014.

The fair value of accrued cash-settled awards at year-end 2016 and year-end 2015 were $1,758,000 and $3,757,000 and is included in other liabilities in our consolidated balance sheets.

Equity-settled awards

Equity-settled awards granted to our employees include restricted stock units (RSU), which vest after three years from the date of grant, market-leveraged stock units (MSU), which vest after three years from date of grant and performance stock units (PSU), which generally vest after three years from the date of grant if certain performance goals are met. Equity settled awards in the form of restricted stock units granted to our directors are fully vested at time of grant and settled upon retirement. The following table summarizes the activity of equity-settled awards in 2016:



	Equivalent Units		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	631		$	18.25
Granted	313		9.04
Vested	(281	)	15.12
Forfeited	(108	)	17.91
Non-vested at end of period	555		14.70

In 2016, we granted 313,000 RSU awards at market value of the stock on the date of the grant. In 2015 and 2014, we granted 234,000 and 86,000 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 351,000 shares if our stock price increases by 50 percent or more, to 117,000 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. We estimate the grant date fair value of MSU awards using a Monte Carlo simulation pricing model and the following assumptions:



	For the Year
	2015			2014
Expected stock price volatility	32.9		%	42.2		%
Risk-free interest rate	1.0		%	0.7		%
Expected dividend yield	—		%	—		%
Weighted average grant date fair value of MSU awards (per unit)	$	15.11		$	20.38

The weighted average grant date fair value of equity-settled awards (RSU, MSU and PSU) per unit in 2016, 2015 and 2014 was $9.04, $12.99 and $19.18. The fair value of equity-settled awards settled was $2,884,478, $4,451,000 and $3,119,000 in 2016, 2015 and 2014.

Unrecognized share-based compensation expense related to non-vested equity-settled awards is $1,106,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be one year.

Restricted stock awards

Restricted stock awards generally vest over three years, typically 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 2016:



	Restricted Shares		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	4		$	20.55
Granted	—		—
Vested	(4	)	20.55
Forfeited	—		—
Non-vested at end of period	—		—

The fair value of our restricted stock awards settled in 2016, 2015 and 2014 was $44,000, $88,000 and $341,000.

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. In 2016 and 2015, options were granted with an exercise price equal to the market value of our stock on the date of grant. In the first quarter of 2016, stock options were issued to each of two new directors to acquire 20,000 shares of common stock of which 6,500 shares vest on the first and second anniversary of the date of grant and the remaining 7,000 shares vest on the third anniversary of the date of grant. Expense associated with annual restricted stock units and non-qualified stock options to our board of directors is included in share-based compensation expense. The following table summarizes the activity of stock option awards in 2016:



	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	2,171		$	19.56	5	$	156
Granted	53		9.98
Exercised	(35	)	9.29
Forfeited	(353	)	20.03
Balance at end of period	1,836		19.39		5	449
Exercisable at end of period	1,597		20.25		4	261

We estimate the grant date fair value of stock options that do not have a market condition using the Black-Scholes option pricing model and the following assumptions:



	For the Year
	2016			2015
Expected stock price volatility	39.5		%	45.6		%
Risk-free interest rate	1.5		%	1.8		%
Expected life of options (years)	6			6
Expected dividend yield	—		%	—		%
Weighted average grant date fair value of options (per share)	$	8.60		$	6.51

We determine the expected life using the simplified method which utilizes the midpoint between the vesting period and the contractual life of the awards. The expected stock price volatility assumption was determined using a blend of historical and implied volatility.

Stock option awards granted in third quarter 2015 in connection with management promotions have a ten-year term, vest ratably over three years and are exercisable only when our stock price exceeds $17.50 per share. We estimated the fair value of these options with market conditions using Monte Carlo simulation pricing model and the following assumptions:



Expected stock price volatility	61.4		%
Risk-free interest rate	2.2		%
Expected dividend yield	—		%
Weighted average grant date fair value of options (per share)	$	7.87

The fair value of vested stock options was $0 in 2016, $0 in 2015 and $21,000 in 2014. The intrinsic value of options exercised was $61,000 in 2016, $0 in 2015 and $568,000 in 2014. Unrecognized share-based compensation expense related to non-vested stock options is $772,000 at year-end 2016. The weighted average period over which this amount will be recognized is estimated to be two years.

Pre-Spin Awards

Certain of our employees participated in Temple-Inland’s share-based compensation plans. In conjunction with our 2007 spin-off, these awards were equitably adjusted into separate awards of the common stock of Temple-Inland and the spin-off entities. No pre-spin awards were exercised in 2016. The intrinsic value of pre-spin awards exercised was $0 in 2016, $24,000 in 2015 and $352,000 in 2014.

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 year-end 2016, there were 17,000 pre-spin awards outstanding and exercisable on our stock with a weighted average exercise price of $30.56 and weighted average remaining term of less than one year.

Long-Term Incentive Compensation

In 2016, we granted $620,000 of long-term incentive compensation in the form of deferred cash compensation. The 2016 deferred cash awards vest annually over two years, and the 2015 deferred cash awards vest after three years. Both awards provide for accelerated vesting upon retirement, disability, death, or if there is a change in control. Expense associated with deferred cash awards is recognized ratably over the vesting period or earlier based on retirement eligibility. The accrued liability was $539,000 at year-end 2016 and is included in other liabilities.