Quarterly report pursuant to Section 13 or 15(d)

Share-Based Compensation

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Share-Based Compensation
 6 Months Ended
Jun. 30, 2012
Share-based Compensation [Abstract]  
Share-Based Compensation
Note 5 – Share-Based 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 June 30, 2012, 2.2 million shares were available for grant.

SARs

Since the beginning of 2005, the Company has issued stock-settled SARs and has not issued any stock options.  During the three months and six months ended June 30, 2012, the Company granted 0.0 million and 0.4 million SARs, respectively. During the three months and six months ended July 2, 2011, the Company granted 0.0 million and 0.9 million SARs, respectively.  In the three months and six months ended June 30, 2012, there was $1.7 million and $3.5 million, respectively, of total expense after adjusting for forfeitures due to amortization of SARs granted.  In the three months and six months ended July 2, 2011, there was $3.1 million and $6.1 million, respectively, of total expense after adjusting for forfeitures due to amortization of SARs granted.  

The weighted average fair values of individual SARs granted during the first two quarters of 2012 and 2011 were $12.70 and $11.14, 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
%
 
2.8
%
Dividend yield
0.2
%
 
0.2
%
Volatility factor
58.3
%
 
52.3
%
Weighted average expected life
5.2 – 6.7 years

 
5.2 – 6.7 years



Non-Vested Stock Awards

During the three months and six months ended June 30, 2012, the Company granted 0.0 million and 0.2 million stock awards, respectively. The Company granted 0.0 million and 0.2 million of stock awards during the three months and six months ended July 2, 2011, respectively.  The Company recognizes the cost of non-vested stock awards on a straight-line basis over the requisite service period.  During the three months and six months ended June 30, 2012, $1.3 million and $2.7 million, respectively, was charged to compensation expense from the amortization of outstanding grants. During the three months and six months ended July 2, 2011, $0.9 million and $1.8 million, respectively, was charged to compensation expense from the amortization of outstanding grants.  

As of June 30, 2012, there was $6.8 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 1.3 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 are 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. Based upon current projections of probable attainment of the CFROI measure and the projected TSR modifier, $0.7 million and $1.1 million was charged to compensation expense for the three months and six months ended June 30, 2012, respectively.








The grant date fair value of the performance awards 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



As of June 30, 2012, there was $1.8 million of total unrecognized compensation cost related to performance awards granted under the Plan.  That cost is expected to be recognized over a weighted average period of 1.2 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.