Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Under the Company's 1993 Stock Incentive Plan (“1993 Plan”), the Company granted options to purchase shares of the Company's common stock at the fair market value on the date of grant. The options vested over periods up to three years and have a term of ten years from date of grant. As of December 31, 2003, there were no options available for future grants under the 1993 Plan. The 1993 Plan expired at the end of 2003 and was replaced by the Company's 2004 Stock Incentive Plan, which was amended at the Company's 2009 Annual Stockholders Meeting, among other things, to increase the number of shares available for issuance under the Plan. Under the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan (“2004 Stock Incentive Plan”), 12.5 million shares were authorized for grant, of which 1.9 million shares are available for future award.

Stock options A summary of the Company’s stock option activity for the nine months ended September 30, 2012 is as follows:

	Shares under option (thousands)		Weighted average exercise price		Weighted average remaining contractual life (in years)	Aggregate intrinsic value (in millions)
Outstanding and exercisable at December 31, 2011	2,220		$	29.36	4.1	$	76.3
Exercised	(602	)	$	26.97
Outstanding and exercisable at March 31, 2012	1,618		$	30.19	4.0	$	87.6
Exercised	(31	)	$	28.14
Outstanding and exercisable at June 30, 2012	1,587		$	30.23	3.7	$	56.1
Exercised	(105	)	$	27.26
Outstanding and exercisable at September 30, 2012	1,482		$	30.43	3.6	$	57.3

Restricted stock At its November 2007 meeting, the Company's Compensation Committee decided that restricted common stock awards and stock units ("restricted stock") would be awarded in place of stock options for long-term incentive award grants to employees. Restricted stock granted to employees vests 50% after two years and the remainder after three years from the date of grant. Restricted stock granted to non-employee directors generally vests on the anniversary date of the grant.

The value of restricted stock is determined by the market value of the Company’s common stock at the date of grant. In 2012, restricted stock in the amount of 328,138 shares was granted to employees under the 2004 Stock Incentive Plan. In 2012, restricted stock in the amount of 9,677 shares was granted to non-employee directors under the 2004 Stock Incentive Plan. The value of the awards is recorded as unearned compensation within capital in excess of par value in equity and is amortized as compensation expense over the restriction periods.

Restricted stock compensation expense recorded in the Condensed Consolidated Statements of Operations is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(millions of dollars)	2012		2011		2012		2011
Restricted stock compensation expense	$	5.0	$	3.4	$	14.9	$	11.0
Restricted stock compensation expense, net of tax	$	3.7	$	2.6	$	10.9	$	8.4

A summary of the Company’s nonvested restricted stock for the nine months ended September 30, 2012 is as follows:

	Shares subject to restriction (thousands)		Weighted average price
Nonvested at December 31, 2011	1,430		$	39.02
Granted	327		$	78.27
Vested	(631	)	$	26.42
Forfeited	(23	)	$	42.49
Nonvested at March 31, 2012	1,103		$	57.79
Granted	11		$	82.33
Vested	(25	)	$	38.82
Forfeited	(4	)	$	58.72
Nonvested at June 30, 2012	1,085		$	58.47
Vested	(8	)	$	45.88
Forfeited	(21	)	$	55.83
Nonvested at September 30, 2012	1,056		$	58.62

Performance share plans The 2004 Stock Incentive Plan provides for awarding of performance shares to members of senior management at the end of successive three-year periods based on the Company's performance in terms of total shareholder return relative to a peer group of automotive companies. In the first quarter of 2012, the Company modified all outstanding Performance Share Award Agreements to allow for the payment of these awards entirely in the Company's common stock, rather than 40% in cash and 60% in the Company's common stock. Using the lattice model (Monte Carlo simulation) at the date of modification, the Company determined the first quarter 2012 compensation expense associated with the modification to be negligible. Within the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2011, the Company's $15.1 million of expense associated with the 40% cash portion of the award was included in the changes in accounts payable and accrued expenses and other non-current assets and liabilities line items.