Stock-Based Compensation

12 Months Ended

Dec. 31, 2013

Stock-Based Compensation [Abstract]

Stock-Based Compensation

6.           STOCK-BASED COMPENSATION

Lexmark has various stock incentive plans to encourage employees and nonemployee directors to remain with the Company and to more closely align their interests with those of the Company's stockholders. As of December 31, 2013, awards under the programs consisted of stock options, RSUs, and DSUs, as well as DEUs. The Company currently issues the majority of shares related to its stock incentive plans from the Company's authorized and unissued shares of Class A Common Stock. Approximately 59.0 million shares of Class A Common Stock have been authorized for these stock incentive plans. The Company also grants cash-based long-term incentive awards based on the Company's relative total shareholder return.

For the years ended December 31, 2013, 2012 and 2011, the Company incurred pre-tax stock-based compensation expense of $28.3 million, $23.9 million and $22.4 million, respectively, in the Consolidated Statements of Earnings. For the years ended December 31, 2013 and 2012, $1.7 million and $0.4 million, respectively, was recognized for the cash-based long-term incentive awards and is included in pre-tax stock-based compensation expense.

In connection with the retirement of an executive officer from the Company and in consideration of the executive officer's years of service to the Company, the Company's Compensation and Pension Committee accelerated the vesting of the second and third tranches of the executive officer's 2010 earned performance-based restricted stock unit award to April 29, 2011. The total incremental compensation cost resulting from the modification was $4.8 million, which was also the fair value of the award on the date of modification, since the executive officer would not have vested under the original service condition and no expense would have been recognized on a cumulative basis related to these tranches. The Company would have incurred total expense of $4.3 million over the requisite service period related to these tranches if the executive officer had vested under the terms of the original award.

The following table presents a breakout of the stock-based compensation expense recognized for the years ended December 31:

	2013		2012		2011
Cost of revenue	$	2.3	$	2.1	$	1.3
Research and development		3.6		4.1		3.5
Selling, general and administrative		22.4		17.7		17.6
Stock-based compensation expense before income taxes		28.3		23.9		22.4
Income tax benefit		(10.6	)	(9.2	)	(8.7	)
Stock-based compensation expense after income taxes	$	17.7	$	14.7	$	13.7

Stock Options

Generally, stock options expire ten years from the date of grant. No stock options were granted during 2013, 2012, or 2011.

A summary of the status of the Company's stock-based compensation plans as of December 31, 2013 and the change during the year is presented below:

	Options (In Millions)	Weighted Average Exercise Price (Per Share)		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (In Millions)
Outstanding at December 31, 2012	4.3	$	60.45	2.6	$	3.4
Granted	-
Exercised	(0.0	)	31.43
Forfeited or canceled	(1.0	)	61.01
Outstanding at December 31, 2013	3.3		60.40	2.2		11.2
Vested and expected to vest at December 31, 2013	3.3		60.82	2.2		10.6
Exercisable at December 31, 2013	3.1	$	63.10	2.0	$	7.8

For the year ended December 31, 2013, the total intrinsic value of options exercised was $0.1 million. For the year ended December 31, 2012, the total intrinsic value of options exercised was $0.3 million. For the year ended December 31, 2011, the total intrinsic value of options exercised was $0.0 million. As of December 31, 2013, the Company had $0.4 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested stock options that will be recognized over the weighted average period of 0.9 years.

Restricted Stock and Deferred Stock Units

Lexmark has granted RSUs with various vesting periods and generally these awards vest based upon continued service with the Company or continued service on the Board of Directors. As of December 31, 2013, the Company has issued DSUs to certain members of management who elected to defer all or a portion of their annual bonus into such units and to certain nonemployee directors who elected to defer all or a portion of their annual retainer, committee retainer and/or chair retainer into such units. These DSUs are 100% vested when issued. The Company has also issued supplemental DSUs to certain members of management upon the election to defer all or a portion of an annual bonus into DSUs. These supplemental DSUs vest at the end of five years based upon continued employment with the Company. The cost of the RSUs and supplemental DSUs, generally determined to be the fair market value of the shares at the date of grant, is charged to compensation expense ratably over the vesting period of the award.

During 2013, a certain number of executive officers of the Company were also granted additional RSU awards having a performance condition, which could range from 37,100 RSUs to 296,800 RSUs depending on the level of achievement. The performance measure selected to indicate the level of achievement was return on invested capital compared to the S&P Mid-Cap Technology Index. The performance period for the awards is 3 years ending on December 31, 2015. The expense for these awards is being accrued at target level. A certain number of executive officers of the Company were also granted additional RSU awards having a performance condition, which could range from 37,150 RSUs to 148,600 RSUs depending on the level of achievement. The performance measure selected to indicate the level of achievement was services and software revenue. The performance period for the awards is 1 year ending on December 31, 2013. The expense for these awards was recognized at target level. The table below includes both awards at the target level of RSUs.

During 2012, a certain number of executive officers of the Company were also granted additional RSU awards having a performance condition, which could range from 27,350 RSUs to 218,800 RSUs depending on the level of achievement. The performance measure selected to indicate the level of achievement was return on invested capital compared to the S&P 500 Technology Index. The performance period for the awards is 3 years ending on December 31, 2014. The expense for these awards is being accrued at target level. The table below includes the awards at the target level of  RSUs.

During 2011, a certain number of executive officers of the Company were also granted additional RSU awards having a performance condition, which could range from 94,650 RSUs to 283,950 RSUs depending on the level of achievement. The performance measure selected to indicate the level of achievement was free operating cash flow, defined as net cash flow provided by operating activities less net cash outflows for property plant and equipment, and acquisitions and pension contributions. The performance period ended on December 31, 2011 and, as of that date, the minimum level of the performance condition had not been satisfied. No expense for these awards was accrued.

A summary of the status of the Company's RSU and DSU grants as of December 31, 2013 and the changes during the year is presented below:

	Units (In Millions)		Weighted Average Grant Date Fair Value (Per Share)	Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (In Millions)
RSUs and DSUs at December 31, 2012	2.5	$	34.85	1.7	$	57.4
Granted	1.3		23.26
Vested	(0.8	)	32.00
Forfeited or canceled	(0.2	)	32.05
RSUs and DSUs at December 31, 2013	2.8	$	30.71	1.6	$	100.5

For the year ended December 31, 2013, the total fair value of RSUs and DSUs that vested was $19.6 million. As of December 31, 2013, the Company had $37.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to RSUs and DSUs that will be recognized over the weighted average period of 2.3 years.