Share-Based Compensation

Share-based compensation expense consists of:



	For the Year
	2013		2012		2011
	(In thousands)
Cash-settled awards	$	7,774	$	6,465	$	1,095
Equity-settled awards	4,281		3,059		941
Restricted stock	538		2,154		2,505
Stock options	4,216		3,251		2,526
	$	16,809	$	14,929	$	7,067

Share-based compensation expense is included in:



	For the Year
	2013		2012		2011
	(In thousands)
General and administrative	$	7,779	$	7,144	$	3,216
Other operating	9,030		7,785		3,851
	$	16,809	$	14,929	$	7,067

In 2013, share-based compensation expense increased principally as a result of increase in our stock price and its impact on cash-settled awards.

The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $590,000 in 2013, $595,000 in 2012 and $654,000 in 2011. Unrecognized share-based compensation expense related to non-vested equity-settled awards, restricted stock and stock options is $8,033,000 at year-end 2013. 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 2013, 2012 or 2011.

In 2013, we withheld 59,219 shares in connection with vesting of restricted stock awards and exercises of stock options, which are accounted for as treasury stock. In 2013, $1,137,000 was withheld for payroll taxes and is 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. 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 2013:



	Equivalent Units		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	350		$17.03
Granted	89		18.70
Vested	(200	)	17.63
Forfeited	(6	)	17.67
Non-vested at end of period	233		17.90

The weighted average grant date fair value of our non-vested cash-settled restricted stock unit awards at year-end 2012 was $17.03 for 350,000 equivalent units and at year-end 2011 was $13.13 for 449,000 equivalent units.

The following table summarizes the activity of cash-settled stock appreciation rights in 2013:



	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	866		$11.38	6	$5,256
Granted	—		—
Exercised	(285	)	10.16
Forfeited	(1	)	17.80
Balance at end of period	580		11.96	5	5,400
Exercisable at end of period	534		11.46	5	5,240

The weighted average exercise price of our cash-settled stock appreciation rights at year-end 2012 was $11.38 for 866,000 awards and at year-end 2011 was $11.31 for 895,000 awards.

The fair value of awards settled in cash was $7,237,000 in 2013, $5,299,000 in 2012 and $197,000 in 2011. At year-end 2013, the fair value of accrued cash-settled awards is $16,737,000 and is included in other liabilities. The aggregate current value of non-vested awards is $5,112,000 at year-end 2013 based on a year-end stock price of $21.27.

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, 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 2013:



	Equivalent Units		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	409		$	18.99
Granted	275		20.21
Vested	(88	)	19.73
Forfeited	(15	)	17.49
Non-vested at end of period	581		19.50

In 2013, we granted 136,000 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 204,000 shares if our stock price increases by 50 percent or more, to 68,000 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. 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.

The weighted average grant date fair value of our non-vested equity-settled awards at year-end 2012 was $18.99 for 409,000 non-vested restricted shares and at year-end 2011 was $20.74 for 159,000 non-vested restricted shares.

Unrecognized share-based compensation expense related to non-vested equity-settled awards is $4,182,000 at year-end 2013. The weighted average period over which this amount will be recognized is estimated to be two years.

Restricted stock

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 2013:



	Restricted Shares		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	211		$	16.95
Granted	8		20.55
Vested	(162	)	17.80
Forfeited	(10	)	15.02
Non-vested at end of period	47		14.99

The weighted average grant date fair value of our non-vested restricted stock awards at year-end 2012 was $16.95 for 211,000 non-vested restricted shares and at year-end 2011 was $15.02 for 399,000 non-vested restricted shares.

Unrecognized share-based compensation expense related to non-vested restricted stock awards is $255,000 at year-end 2013. The weighted average period over which this amount will be recognized is estimated to be two years.

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 2013:



	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	1,756		$	20.53	7	$	1,956
Granted	373		18.70
Exercised	(85	)	16.25
Forfeited	(38	)	24.39
Balance at end of period	2,006		20.30		7	6,433
Exercisable at end of period	1,133		22.35		5	3,251

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



	For the Year
	2013			2012			2011
Expected stock price volatility	66.8		%	60.2		%	56.2		%
Risk-free interest rate	1.4		%	1.3		%	2.4		%
Expected life of options (years)	6			6			6
Expected dividend yield	—		%	—		%	—		%
Weighted average estimated fair value of options at grant date	$	11.47		$	9.22		$	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. The 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.

Unrecognized share-based compensation expense related to non-vested stock options is $3,596,000 at year-end 2013. 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. As a result of Temple-Inland’s merger with International Paper 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 year-end 2013, there were 57,000 pre-spin awards outstanding and exercisable on our stock with a weighted average exercise price of $26.68, weighted average remaining term of two years and aggregate intrinsic value of $23,000.

The intrinsic value of options exercised was $51,000 in 2013, $64,000 in 2012 and $766,000 in 2011.