Share-Based and Long-Term Incentive Compensation

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



	For the Year
	2015			2014			2013
	(In thousands)
Cash-settled awards	$	(3,127	)	$	(3,710	)	$	7,774
Equity-settled awards	5,026			5,168			4,281
Restricted stock	(8		)	(25		)	538
Stock options	2,355			1,984			4,216
Total share-based compensation	$	4,246		$	3,417		$	16,809
Deferred cash	228			—			—
	$	4,474		$	3,417		$	16,809

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



	For the Year
	2015		2014		2013
	(In thousands)
General and administrative	$	2,451	$	1,001	$	7,779
Other operating	2,023		2,416		9,030
	$	4,474	$	3,417	$	16,809

Excluded from share-based compensation expense in the table above are fees earned by directors in the amount of $1,203,000 for 2015, $906,000 for 2014 and $876,000 for 2013 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 $517,000 in 2015, $760,000 in 2014 and $590,000 in 2013. Unrecognized share-based compensation expense related to non-vested equity-settled awards, restricted stock and stock options is $5,109,000 at year-end 2015. 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 2015, 2014 or 2013.

In 2015 and 2014, we issued 288,089 and 215,561 shares out of our treasury stock associated with vesting of stock-based awards or exercise of stock options, net of 51,521 and 55,238 shares withheld having a value of $762,000 and $1,043,000 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. 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 2015:



	Equivalent Units		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	185		$18.49
Granted	60		13.26
Vested	(117	)	18.26
Forfeited	(11	)	18.83
Non-vested at end of period	117		16.00

The weighted average grant date fair value of cash-settled restricted stock unit awards was $18.96 per unit for 2014 and $18.70 per unit for 2013. The fair value of cash-settled restricted stock unit awards settled was $2,469,000 in 2015, $2,286,000 in 2014, and $3,780,000 in 2013. The aggregate current value of non-vested awards is $1,286,000 at year-end 2015 based on a year-end stock price of $10.94.

The following table summarizes the activity of cash-settled stock appreciation rights in 2015:



	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	458		$12.54	4	$1,732
Granted	90		14.08
Exercised	(39	)	9.29
Forfeited	(22	)	15.00
Balance at end of period	487		12.97	4	404
Exercisable at end of period	414		12.77	3	404

The intrinsic value of cash-settled stock appreciation rights settled was $206,000 in 2015, $1,181,000 in 2014 and $3,458,000 in 2013.

The fair value of accrued cash-settled awards at year-end 2015 and year-end 2014 were $3,757,000 and $9,560,000 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 2015:



	Equivalent Units		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	710		$	19.24
Granted	395		12.99
Vested	(340	)	14.23
Forfeited	(134	)	18.18
Non-vested at end of period	631		18.25

In 2015, we granted 234,000 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			2013
Expected stock price volatility	32.9		%	42.2		%	42.2		%
Risk-free interest rate	1.0		%	0.7		%	0.4		%
Expected dividend yield	—		%	—		%	—		%
Weighted average grant date fair value of MSU awards (per unit)	$	15.11		$	20.38		$	21.09

The weighted average grant date fair value of equity-settled awards (RSU, MSU, PSU) per unit in 2015, 2014 and 2013 was $12.99, $19.18 and $20.21. The fair value of equity-settled awards settled was $4,451,000, $3,119,000 and $8,000 in 2015, 2014 and 2013.

Unrecognized share-based compensation expense related to non-vested equity-settled awards is $3,258,000 at year-end 2015. The weighted average period over which this amount will be recognized is estimated to be two years.

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 2015:



	Restricted Shares		Weighted Average Grant Date Fair Value
	(In thousands)		(Per unit)
Non-vested at beginning of period	17		$	17.56
Granted	—		—
Vested	(7	)	14.59
Forfeited	(6	)	19.00
Non-vested at end of period	4		20.55

The fair value of our restricted stock awards settled in 2015, 2014 and 2013 was $88,000, $341,000 and $3,002,000.

Unrecognized share-based compensation expense related to non-vested restricted stock awards is $14,000 at year-end 2015. 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. In 2015 and 2013, options were granted with an exercise price equal to the market value of our stock on the date of grant. We did not grant any options in 2014. The following table summarizes the activity of stock option awards in 2015:



	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	1,861		$	20.74	6	$	643
Granted	413		13.86
Exercised	—		—
Forfeited	(103	)	18.01
Balance at end of period	2,171		19.56		5	156
Exercisable at end of period	1,687		20.83		4	156

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
	2015			2013
Expected stock price volatility	45.6		%	66.8		%
Risk-free interest rate	1.8		%	1.4		%
Expected life of options (years)	6			6
Expected dividend yield	—		%	—		%
Weighted average grant date fair value of options (per share)	$	6.51		$	11.47

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 utilizes our historical volatility for a period corresponding to the expected life of the options.

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:



	For the Year
	2015
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 2015, $21,000 in 2014 and $1,355,000 in 2013. The intrinsic value of options exercised was $0 in 2015, $568,000 in 2014 and $562,000 in 2013. Unrecognized share-based compensation expense related to non-vested stock options is $1,837,000 at year-end 2015. 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.

The intrinsic value of pre-spin awards exercised was $24,000 in 2015, $352,000 in 2014 and $1,382,000 in 2013.

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 2015, there were 44,000 pre-spin awards outstanding and exercisable on our stock with a weighted average exercise price of $28.89 and weighted average remaining term of one year.

Long-Term Incentive Compensation

In 2015, we granted $587,000 of long-term incentive compensation in the form of deferred cash compensation. Deferred cash will be paid out after the earlier of three years or the employee's retirement eligibility date and the expense is recognized ratably over the vesting period. The accrued liability was $225,000 at year-end 2015 and is included in other liabilities.