Brunswick Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock Plans and Management Compensation

Stock Plans and Management Compensation

12 Months Ended

Dec. 31, 2013

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, 2013, 2.0 million shares remained available for grant.

Stock Options and SARs

Between 2005 and 2012, the Company issued stock-settled SARs and has not issued any stock options since 2004. 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, 2013, 2012, and 2011, was as follows:



	2013							2012				2011
(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	8,166		$	17.33				9,347		$	16.66	9,168		$	16.53
Granted	—		$	—				400		$	23.80	1,105		$	20.45
Exercised	(4,156	)	$	14.80		$	109,660	(1,120	)	$	11.05	(556	)	$	15.22
Forfeited	(185	)	$	37.38				(461	)	$	25.69	(370	)	$	26.66
Outstanding on December 31	3,825		$	19.09	5.3 years	$	103,164	8,166		$	17.33	9,347		$	16.66
Exercisable on December 31	2,607		$	19.73	4.7 years	$	68,654	5,489		$	18.89	5,103		$	20.32

The following table summarizes information about SARs and stock options outstanding as of December 31, 2013:



	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	501	5.0	years	$	5.25	501	5.0	years	$	5.25
$6.00 to $19.90	1,631	5.7	years	$	12.46	1,102	5.6	years	$	12.83
$19.91 to $39.56	1,407	5.7	years	$	26.22	718	4.4	years	$	29.89
$39.57 to $46.25	286	1.1	years	$	46.04	286	1.1	years	$	46.04

The company did not grant SARs in 2013. The weighted average fair values of individual SARs granted were $12.70 and $10.59 during 2012 and 2011, respectively. 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 and 2011:



	2012		2011
Risk-free interest rate	1.1	%	2.5	%
Dividend yield	0.2	%	0.2	%
Volatility factor ^(A)	58.3	%	53.7	%
Weighted average expected life	5.2 - 6.7 years		5.2 – 6.7 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 $2.9 million, $6.9 million, and $11.9 million for the years ended December 31, 2013, 2012, and 2011, 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. 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, 2013, 2012, and 2011, there was $10.2 million, $6.5 million, and $3.7 million, respectively, charged to compensation expense for non-vested stock awards.

The weighted average price per non-vested stock award at grant date was $34.64, $23.79, and $21.02 for the non-vested stock awards granted in 2013, 2012, and 2011, respectively. Non-vested stock award activity for all plans for the three years ended December 31 was as follows:



(in thousands)	2013		2012		2011
Outstanding at January 1	798		541		332
Granted	298		306		237
Released	(266	)	(20	)	(16	)
Forfeited	(15	)	(29	)	(12	)
Outstanding at December 31	815		798		541

As of December 31, 2013, there was $5.0 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 both February 2013 and 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 are earned during a one-year CFROI performance period, commencing at the beginning of the calendar year of each grant. The target performance shares earned from CFROI performance are then subject to a TSR modifier based on performance against a predefined comparator group over a three-year performance period which starts at the beginning of the calendar year of each grant. Additionally, in February 2013, the Company granted 26,000 performance shares to non-executive officers and certain senior managers based solely on the CFROI measure utilizing the same one-year performance period mentioned above. For the years ended December 31, 2013 and December 31, 2012, $5.0 million and $2.2 million, respectively, was charged to compensation expense for performance awards.

The fair values of the senior executives' performance awards with a TSR modifier at the grant date in 2013 and 2012 were $35.93 and $26.81, which were estimated using the Monte Carlo valuation model, and incorporated the following assumptions:



	2013		2012
Risk-free interest rate	0.4	%	0.4	%
Dividend yield	0.1	%	0.2	%
Volatility factor	53.0	%	67.9	%
Expected life of award	2.9 years		2.9 years

The fair value of the non-executive officers and certain senior managers' performance awards granted based solely on the CFROI performance factor was $34.65.

Performance award activity for the year ended December 31, 2013 was as follows:



(in thousands)	2013	2012
Outstanding at January 1	96	—
Granted	153	99
Forfeited	—	(3	)
Outstanding at December 31	249	96

As of December 31, 2013, the Company had $0.9 million of total unrecognized compensation cost related to performance awards. The Company expects this cost to be recognized over a weighted average period of 2.0 years. As of December 31, 2013, 15,400 share awards granted in 2012 remain unvested resulting in $0.1 million of total unrecognized compensation cost that is expected to be recognized over a weighted average period of 1.0 years.

Excess Tax Benefits

For tax purposes, share-based compensation expense is deductible in the year of exercise or release based on the intrinsic value of the award on the date of exercise or release. For financial reporting purposes, share-based compensation expense is based upon grant-date fair value and amortized over the vesting period. Excess or "windfall" tax benefits represent the excess tax deduction received by the Company resulting from the difference between the share-based compensation expense deductible for tax purposes and the share-based compensation expense recognized for financial reporting purposes. Windfall tax benefits are recorded directly to Additional paid-in capital in Shareholders' equity on the Company's Consolidated Balance Sheets. The Company has accounted for windfall tax benefits since the adoption of share-based accounting in 2006. Windfall tax benefits for the years ended December 31, 2013 and 2012 were $37.2 million and $5.3 million, respectively, and are netted out of cash from operating activities and are reflected as a cash inflow from financing activities in the Consolidated Statements of Cash Flows.

Director Awards

The Company issues stock awards to non-employee 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.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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