2. Stock-Based Compensation and Earnings Per Share

On May 12, 2009, the Company adopted The St. Joe Company 2009 Equity Incentive Plan whereby options, stock appreciation rights, restricted stock, restricted stock units and performance awards may be granted to directors and employees. The 2009 Equity Incentive Plan provides for the issuance of a maximum of 2.0 million shares of the Company’s common stock. As of June 30, 2012, 1.5 million shares remained available for issuance under the 2009 Equity Incentive Plan.

Stock-Based Compensation

The changes to the composition of the Company’s board of directors, which occurred during the first quarter of 2011, constituted a “change in control event” under the terms of certain of the Company’s incentive plans. As a result, during March 2011, the Company accelerated the vesting of approximately 300,000 restricted stock units resulting in $6.2 million in accelerated stock compensation expense.

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is typically recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period. Stock-based compensation cost may be recognized over a shorter requisite service period if an employee meets retirement eligibility requirements. Upon exercise of stock options pursuant to the Company’s employee stock purchase plan, the Company will issue new common stock. The 15% discount at which employees purchased the Company’s common stock through payroll deductions was recognized as compensation expense. The Company discontinued the employee stock purchase plan as of July 1, 2011.

Service-Based Grants

A summary of the service-based restricted stock unit activity during the six months ended June 30, 2012 is presented below:


Service Based Restricted Stock Units	Number of Units			Weighted Average Grant Date Fair Value
Balance at December 31, 2011		37,815		$	26.99
Granted		—			—
Vested		(24,076	)		23.13
Forfeited		(1,656	)		21.52

Balance at June 30, 2012		12,083		$	21.52

As of June 30, 2012, there was less than $0.1 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to restricted stock unit and stock option compensation arrangements which will be recognized over a weighted average period of four years.

Market Condition Grants

From time to time the Company has granted to select executives and other key employees restricted stock units whose vesting is based upon the achievement of certain market conditions, which are defined as the Company’s total shareholder return as compared to the total shareholder return of certain peer groups during a three year performance period.

The Company used a Monte Carlo simulation pricing model to determine the fair value of its market condition awards. The determination of the fair value of market condition awards is affected by the stock price as well as by assumptions regarding a number of other variables. These variables included expected stock price volatility over the requisite performance term of the awards, the relative performance of the Company’s stock price and shareholder returns to those companies in its peer groups and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market condition, provided the requisite service period is met.

A summary of the market condition restricted stock unit activity during the six months ended June 30, 2012 is presented below:


Market Condition Restricted Stock Units	Number of Units			Weighted Average Grant Date Fair Value
Balance at December 31, 2011		23,192		$	15.69
Granted		—			—
Vested		—			—
Forfeited		(23,192	)		15.69

Balance at June 30, 2012		—		$	—

Total stock-based compensation recognized in the consolidated statements of operations was as follows:


	Three Months Ended					Six Months Ended
	June 30, 2012		June 30, 2011			June 30, 2012		June 30, 2011
Stock-based compensation expense	$	510	$	(87	)	$	1,002	$	8,383

Included in directors fee expense for the three months ended June 30, 2012 is approximately $0.5 million in compensation related to the issuance of 29,835 immediately vested common shares issued to five members of the Board of Directors of the Company in May 2012. Included in compensation expense for the six months ended June 30, 2012 is approximately $0.6 million in compensation related to the issuance of 36,023 immediately vested common shares issued to the Chief Executive Officer of the Company in lieu of a cash bonus in January 2012.

Earnings (Loss) Per Share

Basic earnings (loss) per share are calculated by dividing net income (loss) by the average number of shares of common stock outstanding for the period. Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding for the period, including all potentially dilutive shares issuable under outstanding stock options and service-based restricted stock units. Stock options and restricted stock units are not considered in any diluted earnings per share calculations when the Company has a loss from continuing operations. Restricted stock units are treated as contingently issuable shares and are issued and outstanding only upon the satisfaction of the market conditions.

The following table presents a reconciliation of average shares outstanding:


	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Basic average shares outstanding		92,293,017		92,207,304		92,279,035		92,401,380
Net effect of stock options assumed to be exercised		—		—		—		7,004
Net effect of restricted stock units assumed to be vested		—		—		—		—

Diluted average shares outstanding		92,293,017		92,207,304		92,279,035		92,408,384