
19.	INCENTIVE STOCK PLANS

At December 31, 2011, the Company had two stock-based employee compensation plans. The 1994 Rayonier Incentive Stock Plan ("the 1994 Plan") provided for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, performance shares and restricted stock, subject to certain limitations. The Company no longer issues shares under the 1994 Plan. The Rayonier Incentive Stock Plan ("the Stock Plan") provides for up to 10.0 million shares to be granted for incentive stock options, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and restricted stock units, subject to certain limitations. At December 31, 2011, a total of 2.2 million shares were available for future grants under the Stock Plan. Under the Stock Plan, shares available for issuance are reduced by 1 share for each option or right granted and by 2.27 shares for each performance share, restricted share or restricted stock unit granted. The Company issues new shares of stock upon the exercise of stock options, the granting of restricted stock, and the vesting of performance shares.

Total stock-based compensation cost recorded in "Selling and general expenses" was $16.2 million, $14.9 million and $15.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. For the years ended December 31, 2011, 2010 and 2009, stock-based compensation expense of $0, $0.3 million and $0.4 million, respectively, was recorded in "Cost of sales."

Tax benefits recognized related to stock-based compensation expense for the three years ended December 31, 2011 were $4.3 million, $4.2 million and $3.6 million, respectively.

Fair Value Calculations by Award

Restricted Stock

Restricted stock granted under the Stock Plan generally vests upon completion of a one to three year period. The fair value of each share granted is equal to the share price of the Company’s stock on the date of grant. As of December 31, 2011, there was $0.7 million of unrecognized compensation cost related to the Company’s outstanding restricted stock. This cost is expected to be recognized over a weighted average period of 0.6 years.

A summary of the Company’s restricted shares is presented below:



	2011		2010		2009
Restricted shares granted	20,535		42,180		22,907
Weighted average price of restricted shares granted	$	43.55	$	29.91	$	24.50
(Amounts in millions)
Intrinsic value of restricted stock outstanding (a)	$	3.4	$	4.9	$	5.9
Fair value of restricted stock vested	$	2.6	$	3.2	$	0.6
Cash used to pay the minimum withholding tax requirements in lieu of receiving common shares	$	0.8	$	0.8	$	—

(a) Intrinsic value of restricted stock outstanding is based on the market price of the Company's stock at December 31, 2011.



	2011
	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested Restricted Shares at January 1,	140,675		$	30.09
Granted	20,535		43.55
Vested	(85,025	)	30.25
Non-vested Restricted Shares at December 31,	76,185		33.55

Performance Share Units

The Company’s performance share units generally vest upon completion of a three-year period. The number of shares, if any, that are ultimately awarded is contingent upon Rayonier’s total shareholder return versus selected peer group companies. The performance share payout is based on a market condition and as such, the awards are valued using a Monte Carlo simulation model. The model generates the fair value of the award at the grant date, which is then amortized over the vesting period.

The Stock Plan allows for the cash settlement of the minimum required withholding tax on performance share unit awards. As of December 31, 2011, there was $11.4 million of unrecognized compensation cost related to the Company’s performance share unit awards. This cost is expected to be recognized over a weighted average period of 1.3 years.

A summary of the Company's performance share units is presented below:



	2011		2010		2009
Common shares of Company stock reserved for performance shares	470,820		606,180		916,362
Weighted average fair value of performance share units granted	$	51.57	$	39.25	$	21.76
(Amounts in millions)
Intrinsic value of outstanding performance share units (a)	$	46.0	$	40.3	$	34.3
Fair value of performance shares vested	$	9.9	$	19.7	$	16.0
Cash used to pay the minimum withholding tax requirements in lieu of receiving common shares	$	7.1	$	5.3	$	1.4

(a) Intrinsic value of outstanding performance share units is based on the market price of the Company's stock at December 31, 2011.



	2011
	Number of Units		Weighted Average Grant Date Fair Value
Outstanding Performance Share units at January 1,	1,150,532		$	29.74
Granted	235,410		51.57
Units Distributed	(358,737	)	32.64
Cancelled/Adjustments	2,870		32.64
Outstanding Performance Share units at December 31,	1,030,075		33.73

Expected volatility and dividend yield were estimated using daily returns on the Company’s common stock for the three-year period ending on the grant date. The following chart provides a tabular overview of the assumptions used in calculating the fair value of the awards granted for the three years ended December 31, 2011:



	2011			2010			2009
Expected volatility	51.3	%		51.7	%		43.6	%
Dividend yield	n/a		(a)	n/a		(a)	6.4	%
Risk-free rate	1.0	%	(b)	1.4	%	(b)	1.1	%

(a) The 2011 and 2010 awards receive dividend equivalents, so the dividend yield was not used to calculate the fair value.

(b) Based on the 3-year U.S. treasury rate on the date of the award.

Non-Qualified Employee Stock Options

The exercise price of each non-qualified stock option granted under both the 1994 and Stock Plans are equal to the closing market price of the Company’s stock on the grant date. Under the 1994 Plan, the maximum term is 10 years and two days from the grant date while under the Stock Plan, the maximum term is 10 years from the grant date. Awards vest ratably over three years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The expected volatility is based on historical volatility for each grant and is calculated using the historical change in the daily market price of the Company’s common stock over the expected life of the award. The expected life is based on prior exercise behavior. The Company has elected to value each grant in total and recognize the expense for stock options on a straight-line basis over three years.

The following chart provides a tabular overview of the weighted average assumptions and related fair value calculations of options granted for the three years ended December 31, 2011:



	2011			2010			2009
Expected volatility	38.2		%	37.8		%	34.1		%
Dividend yield	3.9		%	4.7		%	6.6		%
Risk-free rate	2.6		%	3.2		%	1.9		%
Expected life (in years)	6.5			6.7			6.6
Fair value per share of options granted	$	9.99		$	7.07		$	3.15
Fair value of options granted (in millions)	3.0			2.8			2.3

A summary of the status of the Company’s stock options as of and for the year ended December 31, 2011 is presented below:



	2011
	Number of Shares		Weighted Average Exercise Price (per common share)		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Options outstanding at January 1,	2,633,158		$	24.90
Granted	296,490		37.05
Exercised	(572,283	)	23.61
Cancelled	(10,914	)	27.47
Options outstanding at December 31,	2,346,451		$	26.77	6.3	$	41.9
Options vested and expected to vest	2,344,871		$	26.77	6.3	$	41.9
Options exercisable at December 31,	1,711,739		$	25.80	5.7	$	32.2

A summary of additional information pertaining to the Company’s stock options is presented below:



	2011		2010		2009
(Amounts in millions)
Intrinsic value of options exercised (a)	$	10.4	$	15.6	$	12.0
Fair value of options vested	$	2.5	$	2.4	$	2.5

(a) Intrinsic value of options exercised is the amount by which the fair value of the stock on the exercise date exceeded the exercise price of the option.

As of December 31, 2011, there was $2.0 million of unrecognized compensation cost related to the Company’s stock options. This cost is expected to be recognized over a weighted average period of 1.0 year.