International Paper 2014 Annual Report Download - page 119

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83
The following summarizes the status of the Stock
Option Program and the changes during the three years
ending December 31, 2014:
Options
(a,b)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(years)
Aggregate
Intrinsic
Value
(thousands)
Outstanding at December 31,
2011 15,556,786 $38.13 1.55 $—
Granted 2,513 35.94
Exercised (3,200,642) 33.62
Expired (3,222,597) 40.71
Outstanding at December 31,
2012 9,136,060 38.79 1.15 1,077
Granted 4,744 48.11
Exercised (7,317,825) 38.57
Expired (70,190) 37.15
Outstanding at December 31,
2013 1,752,789 39.80 0.67 16,175
Granted 3,247 49.13
Exercised (1,634,858) 39.80
Expired (49,286) 41.50
Outstanding at December 31,
2014 71,892 $39.03 0.18 $1,046
(a) The table does not include Continuity Award tandem stock
options described below. No fair market value is assigned to
these options under ASC 718. The tandem restricted shares
accompanying these options are expensed over their vesting
period.
(b) The table includes options outstanding under an acquired
company plan under which options may no longer be granted.
PERFORMANCE SHARE PLAN
Under the Performance Share Plan (PSP), contingent
awards of International Paper common stock are
granted by the Committee. The PSP awards are earned
evenly over a three-year period. PSP awards are
earned based on the achievement of defined
performance rankings of ROI and TSR compared to
ROI and TSR peer groups of companies. Awards are
weighted 75% for ROI and 25% for TSR for all
participants except for officers for whom the awards are
weighted 50% for ROI and 50% for TSR. The ROI
component of the PSP awards is valued at the closing
stock price on the day prior to the grant date. As the
ROI component contains a performance condition,
compensation expense, net of estimated forfeitures, is
recorded over the requisite service period based on the
most probable number of awards expected to vest. The
TSR component of the PSP awards is valued using a
Monte Carlo simulation as the TSR component contains
a market condition. The Monte Carlo simulation
estimates the fair value of the TSR component based
on the expected term of the award, a risk-free rate,
expected dividends, and the expected volatility for the
Company and its competitors. The expected term is
estimated based on the vesting period of the awards,
the risk-free rate is based on the yield on U.S. Treasury
securities matching the vesting period, and the volatility
is based on the Company’s historical volatility over the
expected term.
PSP grants are made in performance-based restricted
stock units (PSU’s). PSP awards issued to certain
members of senior management are accounted for as
liability awards, which are remeasured at fair value at
each balance sheet date for the 2012 grant only. The
valuation of these PSP liability awards is computed
based on the same methodology as the PSP equity
awards. On December 8, 2014, IP eliminated the
election for executives to withhold more than the
minimum tax withholding for the 2013 and 2014 grants
making them equity awards.
The following table sets forth the assumptions used to
determine compensation cost for the market condition
component of the PSP plan:
Twelve Months Ended
December 31, 2014
Expected volatility 19.01%-55.33%
Risk-free interest rate 0.13% - 0.78%
The following summarizes PSP activity for the three
years ending December 31, 2014:
Share/Units
Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2011 8,060,059 $22.83
Granted 3,641,911 31.57
Shares issued (2,871,367)16.83
Forfeited (169,748) 28.89
Outstanding at December 31, 2012 8,660,855 28.37
Granted 3,148,445 40.76
Shares issued (3,262,760)32.48
Forfeited (429,051) 34.58
Outstanding at December 31, 2013 8,117,489 31.20
Granted 3,682,663 46.82
Shares issued (a) (4,025,111)37.18
Forfeited (499,107) 43.10
Outstanding at December 31, 2014 7,275,934 $34.98
(a) Includes 488,676 units related to retirements or terminations
that are held for payout until the end of the performance period.
EXECUTIVE CONTINUITY AND RESTRICTED STOCK AWARD
PROGRAMS
The Executive Continuity Award program provides for
the granting of tandem awards of restricted stock and/
or nonqualified stock options to key executives. Grants
are restricted and awards conditioned on attainment of
a specified age. The awarding of a tandem stock option
results in the cancellation of the related restricted
shares. The final award under this program was paid
in 2013.