Annual report pursuant to Section 13 and 15(d)

Stock Plans and Management Compensation

v2.4.0.6
Stock Plans and Management Compensation
 12 Months Ended
Dec. 31, 2012
Share-based Compensation [Abstract]  
Stock Plans and Management Compensation
Note 17 – Stock Plans and Management Compensation

Under the 2003 Stock Incentive Plan (Plan), the Company may grant stock options, stock appreciation rights (SARs), non-vested stock and other types of share-based awards to executives and other management employees.  Under the Plan, the Company may issue up to 13.1 million shares from treasury shares and from authorized, but unissued, shares of common stock.  As of December 31, 2012, 2.3 million shares were available for grant.

Stock Options and SARs

Since the beginning of 2005, the Company has issued stock-settled SARs and has not issued any stock options. The exercise price of stock options and SARs issued under the Plan cannot be less than the fair market value of the underlying shares at the date of grant. Generally, stock options and SARs are exercisable over a period of 10 years, or as otherwise determined by the Human Resources and Compensation Committee of the Board of Directors, and subject to vesting periods of generally 4 years. However, with respect to stock options and SARs, all grants vest immediately: (i) in the event of a change in control; (ii) upon death or disability of the grantee; or (iii) with respect to awards granted prior to 2008, upon the sale or divestiture of the business unit to which the grantee is assigned. With respect to stock option and SAR awards granted prior to 2006, grantees continued to vest in accordance with the applicable vesting schedule even upon termination of employment if the sum of (A) the age of the grantee, and (B) the grantee's total number of years of service, equals 65 or more. With respect to SARs granted in 2006 through April 2009, grantees continue to vest in accordance with the vesting schedule even upon termination if (A) the grantee has attained the age of 62, and (B) the grantee's age plus total years of service equals 70 or more.

With respect to SARs granted in May 2009 and thereafter, grantees continue to vest in accordance with the vesting schedule even upon termination if (A) the grantee has attained the age of 62, or (B) the grantee's age plus total years of service equals 70 or more. An additional provision applies that prorates the grant in the event of termination prior to the first anniversary of the date of grant, provided the participant had met the appropriate retirement age definition of rule of 70 or age 62.
  



SARs and stock option activity for all plans for the three years ended December 31, 2012, 2011, and 2010, was as follows:
 
2012
 
2011
 
2010
(in thousands, except exercise price and terms)

SARs/Stock
Options
Outstanding
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining Contractual Term
 
Aggregate Intrinsic Value
 

SARs/Stock
Options
Outstanding
 
Weighted
Average
Exercise
Price
 

SARs/Stock
Options
Outstanding
 

Weighted
Average
Exercise
Price
Outstanding on January 1
9,347

 
$
16.66

 
 
 


 
9,168

 
$
16.53

 
8,332

 
$
18.27

Granted
400

 
$
23.80

 
 
 


 
1,105

 
$
20.45

 
1,987

 
$
11.18

Exercised
(1,120
)
 
$
11.05

 
 
 
$
14,365

 
(556
)
 
$
15.22

 
(261
)
 
$
13.36

Forfeited
(461
)
 
$
25.69

 
 
 


 
(370
)
 
$
26.66

 
(890
)
 
$
27.17

Outstanding on December 31
8,166

 
$
17.33

 
5.8 years
 
$
110,457

 
9,347

 
$
16.66

 
9,168

 
$
16.53

Exercisable on December 31
5,489

 
$
18.89

 
5.1 years
 
$
70,434

 
5,103

 
$
20.32

 
3,809

 
$
25.73



The following table summarizes information about SARs and stock options outstanding as of December 31, 2012:
 
 
Outstanding
 
Exercisable


Range of Exercise
Price
 


Number
(in thousands)
 
Weighted
Average Remaining Years of
Contractual
Life
 
Weighted
Average
Exercise
Price
 


Number
(in thousands)
 
Weighted
Average Remaining Years of
Contractual
Life
 
Weighted
Average
Exercise
Price
$3.37 to $5.99
 
2,204

 
6.1
 years
 
$
5.11

 
1,586

 
6.2
 years
 
$
5.02

$6.00 to $19.90
 
3,146

 
6.3
 years
 
$
13.59

 
2,093

 
5.9
 years
 
$
14.64

$19.91 to $39.56
 
2,446

 
5.6
 years
 
$
28.82

 
1,440

 
3.6
 years
 
$
33.36

$39.57 to $46.25
 
370

 
1.7
 years
 
$
46.02

 
370

 
1.7
 years
 
$
46.02



The weighted average fair values of individual SARs granted were $12.70, $10.59, and $5.68 during 2012, 2011, and 2010. The Company estimated the fair value of each grant on the date of grant using the Black-Scholes-Merton pricing model, utilizing the following weighted average assumptions for 2012, 2011, and 2010:
 
2012
 
2011
 
2010
Risk-free interest rate
1.1
%
 
2.5
%
 
2.8
%
Dividend yield
0.2
%
 
0.2
%
 
0.7
%
Volatility factor (A)
58.3
%
 
53.7
%
 
53.0
%
Weighted average expected life
5.2 - 6.7 years

 
5.2 – 6.7 years

 
5.8 – 6.6 years



(A) The Company uses a combination of implied and historical volatility in calculating the fair value of each grant.

Total stock option and SARs expense was $6.9 million, $11.9 million, and $13.0 million for the years ended December 31, 2012, 2011, and 2010, respectively.

Non-vested stock awards

The Company grants both stock-settled and cash-settled non-vested stock units and awards to key employees as determined by the Human Resources and Compensation Committee of the Board of Directors. Non-vested stock units and awards have vesting periods of three or four years. Non-vested stock units and awards are eligible for dividends, which are reinvested and non-voting. All non-vested units and awards have restrictions on the sale or transfer of such awards during the vesting period.

Generally, grants of non-vested stock units and awards are forfeited if employment is terminated prior to vesting. Non-vested stock units and awards granted in 2006 and later vest pro rata if (A) the grantee has attained the age of 62, or (B) the grantee's age plus total years of service equals 70 or more.
The Company recognizes the cost of non-vested stock units and awards on a straight-line basis over the requisite service period. Additionally, cash-settled non-vested stock units and awards are recorded as a liability in the balance sheet and adjusted to fair value each reporting period through stock compensation expense. During December 31, 2012, 2011, and 2010, there was $6.5 million, $3.7 million, and $2.1 million, respectively, charged to compensation expense for non-vested stock awards.

The weighted average price per non-vested stock award at grant date was $23.79, $21.02, and $11.44 for the non-vested stock awards granted in 2012, 2011, and 2010, respectively. Non-vested stock award activity for all plans for the three years ended December 31 was as follows:
(in thousands)
2012
 
2011
 
2010
Outstanding at January 1
541

 
332

 
909

Granted
306

 
237

 
275

Released
(20
)
 
(16
)
 
(79
)
Forfeited
(29
)
 
(12
)
 
(773
)
Outstanding at December 31
798

 
541

 
332



As of December 31, 2012, there was $3.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 0.9 years.

Performance Awards

In February 2012, the Company granted performance shares to certain senior executives. The share awards are based on two performance measures--a cash flow return on investment (CFROI) measure and a total shareholder return (TSR) modifier. Target performance shares were earned during the one-year CFROI performance period, commencing January 1, 2012, and ending December 31, 2012. The target performance shares earned from CFROI performance are then subject to a TSR modifier based on performance against a predefined comparator group over the three-year performance period ending December 31, 2014. For the year ending December 31, 2012, $2.2 million was charged to compensation expense for performance awards.

The fair value of the performance awards at the grant date was $26.81, which was estimated using the Monte Carlo valuation model, and incorporated the following assumptions:
 
2012
Risk-free interest rate
0.4
%
Dividend yield
0.2
%
Volatility factor
67.9
%
Expected life of award
2.9 years



Performance award activity for the year ended December 31, 2012 was as follows:
(in thousands)
2012
Outstanding at January 1
—

Granted
99

Forfeited
(3
)
Outstanding at December 31
96



As of December 31, 2012, 22,000 share awards granted under the Plan remain unvested resulting in $0.4 million of total unrecognized compensation cost that is expected to be recognized over a weighted average period of 0.4 years.

Director Awards

The Company issues stock awards to directors in accordance with the terms and conditions determined by the Nominating and Corporate Governance Committee of the Board of Directors.  One-half of each director’s annual fee is paid in Brunswick common stock, the receipt of which may be deferred until a director retires from the Board of Directors.  Each director may elect to have the remaining one-half paid in cash, in Brunswick common stock distributed at the time of the award, or in deferred Brunswick common stock units with a 20 percent premium.  Prior to May 2009, each non-employee director also received an annual grant of restricted stock units, which is deferred until the director retires from the Board.