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Stock Plans and Management Compensation
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Dec. 31, 2014
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| Stock Plans and Management Compensation |
Note 18 – Stock Plans and Management Compensation
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, 2014, 5.4 million shares remained available for grant.
Stock Options and SARs
Through 2004, the Company issued stock options, and between 2005 and 2012, the Company issued stock-settled SARS. The Company did not issue SARS in 2014 or 2013. 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, 2014, 2013 and 2012, was as follows:
The following table summarizes information about SARs and stock options outstanding as of December 31, 2014:
The Company did not grant SARs in 2014 or 2013. The weighted average fair value of individual SARs granted during 2012 was $12.70. 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:
(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 $1.3 million, $3.0 million and $6.4 million for the years ended December 31, 2014, 2013 and 2012, 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, 2014, 2013 and 2012, there was $10.5 million, $10.1 million and $6.4 million, respectively, charged to compensation expense for non-vested stock awards.
The weighted average price per non-vested stock award at grant date was $40.41, $34.64 and $23.79 for the non-vested stock awards granted in 2014, 2013 and 2012, respectively. Non-vested stock award activity for all plans for the three years ended December 31 was as follows:
As of December 31, 2014, there was $5.7 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 0.8 years.
Performance Awards
In February 2014, 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 based on a one-year CFROI performance period, commencing at the beginning of the calendar year of each grant. The performance shares earned from CFROI performance are then subject to a TSR modifier based on stock price performance measured 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 2014 and 2013, the Company granted 24,600 and 26,000 performance shares, respectively, to certain officers and certain senior managers based solely on the CFROI measure utilizing the same one-year performance period mentioned above. Expense related to each grant is recognized over the vesting period and is based on projections of probable attainment of the CFROI measure and the projected TSR modifier used to determine performance awards. Amounts charged to compensation expense for the years ended December 31, 2014, 2013 and 2012 were $6.5 million, $5.0 million and $2.2 million, respectively.
The fair values of the senior executives' performance share award grants with a TSR modifier at the grant date in 2014, 2013 and 2012 were $41.38, $35.93 and $26.81, respectively, which were estimated using the Monte Carlo valuation model, and incorporated the following assumptions:
The fair value of certain officers and certain senior managers' performance awards granted based solely on the CFROI performance factor was $40.44 and $34.65, which was equal to the stock price on the date of grant in 2014 and 2013, respectively.
Performance award activity for the years ended December 31, 2014, 2013 and 2012 was as follows:
As of December 31, 2014, the Company had $0.8 million of total unrecognized compensation cost related to performance awards. The Company expects this cost to be recognized over a weighted average period of 0.7 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. The Company has accounted for windfall tax benefits since the adoption of share-based accounting pronouncements in 2006. Windfall tax benefits for the years ended December 31, 2014, 2013 and 2012 were $8.4 million, $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. 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.
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