International Paper 2012 Annual Report Download - page 112

The following summarizes the status of the Stock
Option Program and the changes during the three
years ending December 31, 2012 :
Options
(a,b)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(years)
Aggregate
Intrinsic
Value
(thousands)
Outstanding at
December 31, 2009 22,217,057 $39.24 2.73 $ —
Forfeited (43,068) 34.36
Expired (3,928,736) 46.29
Outstanding at
December 31, 2010 18,245,253 37.73 2.30 —
Exercised (1,850) 32.54
Forfeited (21,070) 35.21
Expired (2,665,547) 35.45
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
(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 over a three-year period. For the 2010 and
2011 grants, one-fourth of the award is earned dur-
ing each twelve-month period, with the final one-
fourth segment earned over the full three-year
period. Beginning with the 2012 grant, the award is
earned evenly over a thirty-six-month 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 compa-
nies. 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 val-
ued at the closing stock price on the day prior to the
grant date. As the ROI component contains a per-
formance 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 simu-
lation 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 Com-
pany and its competitors. The expected term is esti-
mated based on the vesting period of the awards,
the risk-free rate is based on the yield on U.S. Treas-
ury securities matching the vesting period, and the
volatility is based on the Company’s historical vola-
tility over the expected term.
Beginning with the 2011 PSP, grants are made in
performance-based restricted stock units (PSU’s).
The PSP will continue to be paid in unrestricted
shares of Company stock.
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. The valuation of these PSP liability
awards is computed based on the same method-
ology as the PSP equity awards.
The following table sets forth the assumptions used
to determine compensation cost for the market con-
dition component of the PSP plan:
Twelve Months Ended
December 31, 2012
Expected volatility 25.25% - 55.33%
Risk-free interest rate 0.12% - 0.42%
The following summarizes PSP activity for the three
years ending December 31, 2012:
Shares/
Units
Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2009 6,066,050 $24.28
Granted 3,842,626 28.93
Shares issued (2,807,388) 33.25
Forfeited (288,694) 21.83
Outstanding at December 31, 2010 6,812,594 23.31
Granted 4,314,376 28.04
Shares issued (2,565,971) 32.43
Forfeited (500,940) 25.07
Outstanding at December 31, 2011 8,060,059 22.83
Granted 3,641,911 31.57
Shares issued (a) (2,871,367) 16.83
Forfeited (169,748) 28.89
Outstanding at December 31, 2012 8,660,855 $28.37
(a) Includes 72,798 shares/units related to retirements or termi-
nations that are held for payout until the end of the perform-
ance 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 service-based Restricted Stock Award program
(RSA), designed for recruitment, retention and special
85