SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2011

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

In first half2011, we granted 1,941,686 stock options, 720,120 restricted stock units, 325,736 performance share units, and 52,869 stock appreciation rights. In addition, 279,308 outstanding restricted stock unit awards vested during first half2011. A total of 2,662,393 shares of common stock were issued as a result of restricted stock unit vesting and stock option exercises.

STOCK OPTIONS

The weighted average exercise price of all of the stock options granted in first half2011 was $24.16. The vesting and post-termination vesting terms for stock options granted in the first half of 2011 were as follows:

• options vest ratably over 4 years;

• options vest or continue to vest in the event of death, disability, or retirement at an age of at least 62;

• options continue vesting for one year in the event of involuntary termination when the retirement criteria for full or continued vesting have not been met; and

• options stop vesting for all other situations including early retirement prior to age 62.

Weighted Average Assumptions Used in Estimating the Value of Stock Options Granted in First Half 2011

	OPTIONS
Expected volatility	38.56		%
Expected dividends	2.48		%
Expected term (in years)	5.73
Risk-free rate	2.65		%
Weighted average grant date fair value	$	7.54

RESTRICTED STOCK UNITS

The weighted average fair value of the restricted stock units granted in first half2011 was $23.94. The vesting provisions for restricted stock units granted in 2011 were as follows:

• restricted stock units vest ratably over 4 years;

• restricted stock units immediately vest in the event of death while employed or disability;

• restricted stock units partially vest upon retirement at an age of at least 62 or job elimination depending on the employment period after grant date; and

• restricted stock units will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.

PERFORMANCE SHARE UNITS

In 2011, as part of a new long-term incentive compensation strategy intended to tie executive compensation more closely to company performance, we granted a target number of performance share units to executives. Performance share units will be converted into shares of Weyerhaeuser stock – to the extent earned – at the end of a four-year timeframe that combines performance and market conditions with vesting requirements. The final number of shares awarded will range from 0 percent to 150 percent of each grant’s target, depending upon actual company performance.

The ultimate number of Performance Share Units earned is based on two measures:

• Weyerhaeuser’s cash flow during the first year and

• Weyerhaeuser’s relative total shareholder return (TSR) ranking in the S&P 500 during the first two years.

At the end of the performance period, performance share unit payouts would be in shares of our stock. Performance share units granted in 2011 and that are earned vest as follows:

• units vest 50 percent, 25 percent and 25 percent on the second, third and fourth anniversaries of the grant date, respectively, as long as the individual remains employed by the company;

• units fully vest in the event of death while employed or disability;

• units partially vest upon retirement at an age of at least 62 or job elimination depending on the employment period after grant date; and

• units will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.

The weighted average grant date fair value of the performance share units was $25.52. Since the award contains a market condition, the effect of the market condition is reflected in the grant date fair value which is estimated using a Monte Carlo simulation model. This model estimates the TSR ranking of the company among the S&P 500 index over the 2 year performance period. Compensation expense is based on the estimated probable number of earned awards and recognized over the four-year vesting period on an accelerated basis. Generally, compensation expense would be reversed if the performance condition is not met unless the requisite service period has been achieved.

Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted in First Half 2011

	Performance Share Units
Performance period	2/9/2011 – 2/9/2013
Valuation date closing stock price	$	24.32
Expected dividends	2.47		%
Risk-free rate	0.12% - 0.80%
Volatility	28.65% - 35.74%

STOCK APPRECIATION RIGHTS

Stock appreciation rights are remeasured to reflect the fair value at each reporting period. The following table shows the weighted average assumptions applied to all outstanding stock appreciation rights as of June 30, 2011.

Weighted Average Assumptions Used to Remeasure the Value of Stock Appreciation Rights as of June 30, 2011

	JUNE 30, 2011
Expected volatility	38.71		%
Expected dividends	2.74		%
Expected term (in years)	2.63
Risk-free rate	0.81		%
Weighted average fair value	$	4.54