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, 2015

On May 7, 2014, the Company's shareholders approved the Brunswick Corporation 2014 Stock Incentive Plan (Plan), which replaced the Company's 2003 Stock Incentive Plan. Under the Plan, the Company may grant stock options, stock appreciation rights (SARs), non-vested stock awards and performance awards to executives, other employees and non-employee directors, with 5.0 million shares from treasury shares and from authorized, but unissued, shares of common stock initially available for grant, in addition to any shares reacquired by the Company through the forfeiture of past awards, or settlement of such awards in cash. As of December 31, 2015, 5.3 million shares remained available for grant.

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 are 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, 2015, 2014 and 2013, the Company charged $13.6 million, $10.5 million and $10.1 million, respectively, to compensation expense for non-vested stock awards.

The weighted average price per non-vested stock award at grant date was $53.77, $40.41 and $34.64 for the non-vested stock awards granted in 2015, 2014 and 2013, respectively. Non-vested stock award activity for all plans for the three years ended December 31 was as follows:



(in thousands)	2015		2014		2013
Outstanding at January 1	880		815		798
Granted	258		322		298
Released	(293	)	(220	)	(266	)
Forfeited	(11	)	(37	)	(15	)
Outstanding at December 31	834		880		815

As of December 31, 2015, there was $5.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. The Company expects this cost to be recognized over a weighted average period of 1.1 years.

Stock Options and SARs

Through 2004, the Company issued stock options, and between 2005 and 2012, the Company issued stock-settled SARs. 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.

In addition, 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, 2015, 2014 and 2013, was as follows:



	2015							2014				2013
(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	2,705		$	16.91				3,825		$	19.09	8,166		$	17.33
Granted	—		$	—				—		$	—	—		$	—
Exercised	(464	)	$	22.15		$	14,615	(1,084	)	$	24.02	(4,156	)	$	14.80
Forfeited	(7	)	$	29.99				(36	)	$	35.10	(185	)	$	37.38
Outstanding on December 31	2,234		$	15.78	4.1 years	$	77,580	2,705		$	16.91	3,825		$	19.09
Exercisable on December 31	2,151		$	15.47	4.1 years	$	75,372	2,294		$	16.03	2,607		$	19.73
Vested and expected to vest on December 31	2,234		$	15.78	4.1 years	$	77,580	2,705		$	16.91	3,825		$	19.09

The following table summarizes information about SARs and stock options outstanding as of December 31, 2015:



	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	274	3.2	years	$	5.21	274	3.2	years	$	5.21
$6.00 to $19.90	1,093	3.9	years	$	12.20	1,093	3.9	years	$	12.20
$19.91 to $39.56	867	4.7	years	$	23.64	784	4.6	years	$	23.63

Total stock option and SARs expense was $0.3 million, $1.3 million and $3.0 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Performance Awards

In February 2015, 2014 and 2013, the Company granted performance shares to certain senior executives. The 2015 share awards are based on three performance measures: a cash flow return on investment (CFROI) measure, an operating margin (OM) measure and a total shareholder return (TSR) modifier. The 2014 and 2013 share awards are based on a CFROI measure and a TSR modifier. Performance shares are earned based on a three-year performance period and a one-year performance period, commencing at the beginning of the calendar year of each grant, for the 2015 and 2014 share grants, respectively. The performance shares are then subject to a TSR modifier based on stock returns measured against stock returns of 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 2015, 2014 and 2013, the Company granted 22,990, 24,600, and 26,000 performance shares, respectively, to certain officers and certain senior managers based on the respective measures and performance periods described above but excluding a TSR modifier.

Based on projections of probable attainment of the performance measures and the projected TSR modifier used to determine the performance awards, $8.0 million was charged to compensation expense for the twelve months ended December 31, 2015. In the twelve months ended December 31, 2014 and 2013, $6.5 million and $5.0 million, respectively, was charged to compensation expense based on projections of probable attainment of the CFROI measure and the projected TSR modifier used to determine the performance awards.

The fair values of the senior executives' performance share award grants with a TSR modifier at the grant date in 2015, 2014 and 2013 were $56.17, $41.38 and $35.93, respectively, which were estimated using the Monte Carlo valuation model, and incorporated the following assumptions:



	2015		2014		2013
Risk-free interest rate	1.0	%	0.6	%	0.4	%
Dividend yield	0.9	%	1.0	%	0.1	%
Volatility factor	39.2	%	43.7	%	53.0	%
Expected life of award	2.9 years		2.9 years		2.9 years

The fair value of certain officers and certain senior managers' performance awards granted based solely on the CFROI performance factor was $52.39, $40.44 and $34.65, which was equal to the stock price on the date of grant in 2015, 2014 and 2013, respectively.

Performance award activity for the years ended December 31, 2015, 2014 and 2013 was as follows:



(in thousands)	2015		2014		2013
Outstanding at January 1	376		249		96
Granted	167		152		153
Released	(116	)	—		—
Forfeited	(3	)	(25	)	—
Outstanding at December 31	424		376		249

As of December 31, 2015, the Company had $1.6 million of total unrecognized compensation cost related to performance awards. The Company expects this cost to be recognized over a weighted average period of 1.6 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, which is 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. Windfall tax benefits for the years ended December 31, 2015, 2014 and 2013 were $7.0 million, $8.4 million and $37.2 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. A portion 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 portion 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.