Equity and Stock Based-Compensation

12 Months Ended

Dec. 31, 2011

Equity [Abstract]

EQUITY AND STOCK-BASED COMPENSATION

6. EQUITY AND STOCK-BASED COMPENSATION

2009 Incentive Stock Plan

The Company maintains the 2009 Incentive Stock Plan (the “2009 Plan”), which allows the Company to issue awards of stock options, stock grants or stock appreciation rights to employees and directors. As of December 31, 2011, 1,017,005 shares were authorized to be awarded pursuant to the 2009 Plan.

Stock Options – At December 31, 2011, the Company had 5,959,662 stock options outstanding to key employees and outside directors pursuant to the 2009 Plan. The Company typically uses authorized, unissued shares to provide shares for option exercises. The stock options have a term of 10 years from the date of grant and a vesting period of four years, except director stock options which vest immediately. Grants on or after December 11, 2006 include a stock appreciation right, which permits an employee to waive his or her right to exercise the stock option and to instead receive the value of the option in stock, net of the exercise price and tax withholding, without requiring the payment for the exercise.

In addition, the employee stock options include a retirement feature where certain employees vest immediately upon retirement. The Company accelerates expense for employees who will become eligible under this feature before the end of the vesting period. An employee who meets the requirements of the retirement feature will have the remaining original term to exercise their stock options after retirement. Employees who do not meet the retirement feature have an exercise period of one year after termination to exercise vested options.

The Company calculates the fair value of each option grant on the grant date using the Black-Scholes option-pricing model which requires the Company to provide certain inputs, as follows:

• The risk-free interest rate utilized is the interest rate on U.S. Treasury Strips or Bonds having the same life as the estimated life of the Company’s option awards.

• Expected life of the options granted is estimated based on historical data reflecting actual hold periods plus an estimated hold period for unexercised options outstanding.

• Expected volatility is based on the historical volatility of the Company’s stock over a period equal to the estimated option life.

• The assumed dividend yield is based on the Company’s expectation of an annual dividend rate for regular dividends over the estimated life of the option.

For 2011, 2010 and 2009, the Company computed the value of all stock options granted using the Black-Scholes option pricing model with the following assumptions and results:

2

		September 30,			September 30,			September 30,
	2011			2010			2009
Assumptions
Risk-free interest rate		2.37	%		2.63	%		1.94	%
Assumed dividend yield		2.95	%		5.50	%		6.00	%
Assumed lives of option awards (in years)		5.30			5.40			6.07
Assumed volatility		0.653			0.642			0.474
Results
Weighted average fair value of options granted	$	3.90		$	2.68		$	2.18

The Company recognizes compensation expense using the straight-line method over the vesting period of the options, with the offset recognized in additional paid-in capital. During 2011, 2010 and 2009, approximately $941,000, $1.6 million and $2.0 million, respectively, was recognized as compensation expense, before capitalization or income tax benefit, if any. In 2010, stock options of the former Chief Financial Officer were modified in connection with his retirement resulting in $110,000 in additional compensation expense. In 2009, stock options of the former Chief Executive Officer were modified in connection with his retirement resulting in an additional $872,000 in compensation expense.

The Company anticipates recognizing $961,000 in future compensation expense related to stock options outstanding at December 31, 2011, which will be recognized over a weighted average period of 2.5 years. During 2011, total cash proceeds from the exercise of options equaled $34,000. As of December 31, 2011, there was no intrinsic value in the options outstanding and exercisable. The intrinsic value is calculated using the exercise prices of the options compared to the market value of the Company’s stock. At December 31, 2011, the weighted-average contractual lives for the options outstanding and exercisable were 3.9 years and 3.4 years, respectively.

The following is a summary of stock option activity for the year ended December 31, 2011:

		September 30,			September 30,
	Number of
	Options			Weighted Average
	(000s)			Exercise Price Per Option
Outstanding, beginning of year		6,460		$	21.30
Granted		213		$	8.43
Exercised		(4	)	$	8.35
Forfeited/Expired		(709	)	$	21.49
Outstanding, end of year		5,960		$	20.83
Options exercisable at end of year		5,396		$	22.17

Stock Grants – The 2009 Plan provides for stock grants, which may be subject to specified performance and vesting requirements, and have historically been in the form of restricted stock. In 2011, the Company made stock grants of 214,206 shares, which vest ratably over three years, and 29,411 shares, which cliff vest three years from the date of grant. Stock grants awarded on February 15, 2010 also cliff vest three years from the date of grant. The remaining stock grants vest ratably over a four-year period. In 2011, the Company also granted 52,416 shares of stock to independent members of the board of directors which vested immediately on the grant date. All stock grants receive dividends and have voting rights during the vesting period. The Company records the restricted stock in Common Stock and Additional Paid-in Capital at fair value on the grant date, with the offsetting deferred compensation also recorded in Additional Paid-in-Capital. The Company records compensation expense over the vesting period. Compensation expense related to restricted stock, before capitalization or income tax benefit, if any, was approximately $1.2 million, $747,000 and $433,000 in 2011, 2010 and 2009, respectively. In conjunction with the retirement of the Company’s former Chief Financial Officer in 2010, all of his unvested shares of restricted stock vested, and the Company recognized approximately $129,000 in additional compensation expense as a result. As part of the retirement of the Company’s former Chief Executive Officer, all of his unvested shares of restricted stock vested, and the Company recognized $298,000 in additional compensation expense in 2009 as a result.

As of December 31, 2011, the Company had recorded $1.9 million of unrecognized compensation cost included in Additional Paid-in Capital related to restricted stock, which will be recognized over a weighted average period of 1.8 years. The total fair value of the restricted stock which vested during 2011 was approximately $43,000. The following table summarizes restricted stock activity during 2011:

		September 30,			September 30,
				Weighted-
	Number of			Average
	Shares			Grant Date
	(000s)			Fair Value
Non-vested restricted stock at beginning of year		220		$	7.60
Granted		244		$	8.43
Vested		(6	)	$	23.42
Forfeited		(19	)	$	7.66
Non-vested restricted stock at end of year		439		$	7.83

2005 Restricted Stock Unit Plan

The Company also maintains the 2005 Restricted Stock Unit Plan (the “RSU Plan”), as amended. An RSU is a right to receive a payment in cash equal to the fair market value, as defined, of one share of the Company’s stock on the vesting date. The Company records compensation expense for RSUs over the vesting period and adjusts the expense and related liability based upon the market value, as defined, of the Company’s common stock at each reporting period. The RSU Plan also has a retirement feature where employees who meet the requirements of the retirement feature vest fully in their RSUs outstanding upon retirement. The Company accelerates the vesting period for employees who will become eligible under this feature before the end of their original vesting period, even if the employee has not retired. The Company has issued performance- and non-performance-based RSUs. Each of these RSU awards is described as follows:

Regular RSUs. The Company’s non-performance-based RSUs (“Regular RSUs”) are granted to directors and key employees. In 2011, the Company awarded 401 RSUs to a new director and 56,845 RSUs to employees, both of which cliff vest three years from the date of grant. In 2010, the Company granted 21,442 in Regular RSUs to directors, 20,368 of which have a three-year cliff vest. All other RSU grants vest ratably over a four-year period. Regular RSU holders receive cash dividend payments for each RSU held during the vesting period equal to the common dividends per share paid by the Company. These dividends are also recorded in compensation expense. The total cash paid for Regular RSU vesting and dividend payments in 2011 was approximately $445,000.

The following table summarizes Regular RSU activity for 2011 (in thousands):

	September 30,
Outstanding at beginning of year	144
Granted	57
Vested	(55	)
Forfeited	(3	)
Outstanding at end of year	143

Special Performance-Based RSUs. In 2006, the Company awarded performance-based RSUs to two executives which vested five years from the date of grant, if certain performance, service and market conditions were met. These performance-based RSUs did not receive dividends and 172,489 of these RSUs were outstanding at December 31, 2010. In 2011, the performance metrics were not met, and the awards were forfeited.

2011 Performance-Based RSUs. During 2011, the Company awarded two types of performance-based RSUs to key employees based on the following performance metrics: (1) Total Stockholder Return of the Company, as defined, as compared to the companies in the SNL US REIT Office index as of January 1, 2011 (“SNL RSUs”), and (2) ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share (“FFO RSUs”). The performance period for both awards is January 1, 2011 to December 31, 2013, and the targeted number of SNL RSUs and FFO RSUs outstanding at December 31, 2011 is 96,149 and 61,810, respectively. The ultimate payout of these awards can range from 0% to 200% of the targeted number of units depending on the achievement of the performance metrics described above. Both of these types of RSUs cliff vest on February 14, 2014 and are dependent upon the attainment of required service and performance criteria. The number of RSUs vesting will be determined at that date, and the payout per unit will be equal to the average closing price on each trading day during the 30-day period ending on December 31, 2013. The Company expenses an estimate of the fair value of the SNL RSUs over the vesting period using a quarterly Monte Carlo valuation. The Company expenses the FFO RSUs over the vesting period using the fair market value of the Company’s stock at the reporting date multiplied by the anticipated number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting. Dividend equivalents on the RSUs will also be paid based upon the percentage vested. The dividend equivalent payments will equal the total cash dividends that would have been paid during the performance period, and assuming dividends had been reinvested in Company stock.

2010 Performance-Based RSUs. In 2010, the Company awarded two types of performance-based RSUs to key employees. The first RSU is based on total stockholder return of the Company, as defined, compared to the companies in the MSCI US REIT index as of January 1, 2010 (the “MSCI RSU”). The second RSU is based on the ratio of total debt, as defined, to the trailing 12-month calculation of earnings before interest, taxes, depreciation and amortization, as defined (the “EBITDA RSU”). The performance period for both RSUs is January 1, 2010 to December 31, 2012, and the target number of MSCI RSUs and EBITDA RSUs outstanding as of December 31, 2011 is 76,324 and 109,898, respectively. The ultimate payout of these awards can range from 0% to 200% of the target number of units depending on the achievement of the performance metrics described above and the attainment of certain service requirements. Both of these types of RSUs cliff vest on February 15, 2013. The number of each type of RSU to be issued will be determined upon vesting, and the payout per unit will be equal to the 30-day average closing price of the Company’s stock ending on December 31, 2012. The Company expenses an estimate of the fair value of the MSCI RSUs over the vesting period using a Monte Carlo valuation. The EBITDA RSUs are expensed over the vesting period using the Company’s stock price at the reporting period multiplied by the anticipated number of units to be paid based on the current estimate of the debt-to-EBITDA ratio upon vesting. Dividend equivalents on both the EBITDA and MSCI RSUs will be paid based upon the percentage vested. The dividend equivalent payments will equal the total dividends that would have been paid during the performance period, assuming the dividends had been reinvested in Company stock.

The following table summarizes the combined performance-based RSU activity for 2011 (in thousands):

	September 30,
Outstanding at beginning of year	367
Granted — 100% of target	164
Forfeited — 100% of target	(15	)
Forfeited — special performance-based RSUs	(172	)
Outstanding at end of year	344

Combined RSU activity. The Company estimates future expense for all types of RSUs outstanding at December 31, 2011 to be approximately $1.4 million (using stock prices and estimated target percentages as of December 31, 2011), which will be recognized over a weighted-average period of 1.9 years.

During 2011, 2010 and 2009, approximately $1.0 million, $1.2 million and $1.1 million, respectively, was recognized as compensation expense related to RSUs for employees and directors, before capitalization or income tax benefit, if any. The retirement agreements with the Company’s former Chief Financial and Chief Executive Officers also allowed for all of their unvested RSUs to become vested upon retirement. Accordingly, the Company recognized an additional $153,000 and $413,000 in compensation expense in 2010 and 2009, respectively, related to these agreements.

Other Long-Term Compensation Information — In 2009, the Company granted an additional long-term incentive compensation award, which will be settled in cash if the Company’s stock price achieves a specified level of growth at the testing dates and the service requirement is met. This award is valued using the Monte Carlo method. The Company reversed approximately $767,000 in expense in 2011, and recognized approximately $805,000 and $500,000 in compensation expense related to this plan in 2010 and 2009, respectively, before capitalization or income tax benefit, if any. The achievement of the award will be tested at specified dates in 2012, 2013 and 2014. If the stock value growth condition has not been met as of the last possible testing date in 2014 or, except as described for a change in control, if the employee terminates employment before this vesting condition is met on a testing date, the award is automatically forfeited.

Other Stockholder Investment Information

Preferred Stock — At December 31, 2011, the Company had 2,993,090 shares outstanding of its 7.75% Series A Cumulative Redeemable Preferred Stock (liquidation preference of $25 per share), and 3,791,000 shares outstanding of its 7.50% Series B Cumulative Redeemable Preferred Stock (liquidation preference of $25 per share). The Series A preferred stock may be redeemed on or after July 24, 2008, and the Series B preferred stock may be redeemed on or after December 17, 2009, both at the Company’s option at $25 per share plus all accrued and unpaid dividends through the date of redemption. None of the Series A or Series B preferred stock has been redeemed as of December 31, 2011, although some has been repurchased as described below. Dividends on both the Series A and Series B preferred stock are payable quarterly in arrears on February 15, May 15, August 15 and November 15.

Stock Repurchase Plan — The Company had a stock repurchase plan that allowed the Company to purchase up to five million shares of its common stock through May 9, 2011. The repurchase plan also allowed for the repurchase of all Series A and B preferred shares outstanding. There were no repurchases in 2011, 2010 or 2009. Historically, the Company has repurchased 3,570,082 common shares for an aggregate price of $86.8 million, and 1,006,910 shares of its Series A preferred stock and 209,000 shares of its Series B preferred stock for an aggregate price of $15.8 million. The repurchase plan expired May 9, 2011, and there is currently no authorized repurchase plan for common or preferred stock.

Director Fees — Outside directors may elect to receive some of their director fees in stock, based on 95% of the average market price on the date of service. Outside directors elected to receive 30,005, 35,040, and 29,007 shares of stock in lieu of cash for director fees in 2011, 2010 and 2009, respectively.

Ownership Limitations — In order to minimize the risk that the Company will not meet one of the requirements for qualification as a REIT, Cousins’ Articles of Incorporation include certain restrictions on the ownership of more than 3.9% of the Company’s total common and preferred stock.

Distribution of REIT Taxable Income — The following reconciles dividends paid and dividends applied in 2011, 2010 and 2009 to meet REIT distribution requirements (in thousands):

		September 30,			September 30,			September 30,
	2011			2010			2009
Common and preferred dividends paid	$	31,556		$	49,365		$	55,328
Dividends treated as taxable compensation		(71	)		(79	)		(28	)
Portion of dividends declared in current year, and paid in current year, which was applied to the prior year distribution requirements		(304	)		(1,606	)		—
Portion of dividends declared in subsequent year, and paid in subsequent year, which apply to current year distribution requirements		1,075			304			1,606
Dividends applied to meet current year REIT distribution requirements	$	32,256		$	47,984		$	56,906

Tax Status of Dividends — The following summarizes the components of the taxability of the Company’s dividends for the years ended December 31, 2011, 2010 and 2009:

		September 30,		September 30,		September 30,		September 30,
			Type
	Total Dividends Per Share		Ordinary Dividends		Long-Term Capital Gain		Unrecaptured Section 1250 Gain (A)
Common:
2011	$	0.180000	$	0.067853	$	0.112147	$	0.042574
2010	$	0.360000	$	0.059447	$	0.300553	$	0.073937
2009	$	0.740000	$	0.549006	$	0.190994	$	—
Series A Preferred:
2011	$	1.937500	$	0.730053	$	1.207447	$	0.458393
2010	$	1.937500	$	0.315868	$	1.621632	$	0.399714
2009	$	1.937500	$	1.290594	$	0.646906	$	—
Series B Preferred:
2011	$	1.875000	$	0.706502	$	1.168498	$	0.443606
2010	$	1.875000	$	0.305678	$	1.569322	$	0.386819
2009	$	1.875000	$	1.248962	$	0.626038	$	—

(A) Represents a portion of the dividend allocated to long-term capital gain.