Stock-Based Compensation Programs

9 Months Ended

Sep. 30, 2013

Stock-Based Compensation Programs

Stock-Based Compensation Programs

14. Stock-Based Compensation Programs

The company has shareholder-approved stock plans under which options and stock-settled appreciation rights (SSARs) have been granted to employees at the market value of the company’s stock at the date of grant. In the case of stock options, payment must be made by the employee at the time of exercise in cash or with shares of stock owned by the employee, which are valued at fair market value on the date exercised. For SSARs, the employee receives the share equivalent of the difference between the fair market value on the date exercised and the exercise price of the SSARs exercised. In general, options and SSARs are exercisable in four equal installments commencing one year from the date of grant and terminating 10 years from the date of grant. A summary of stock option and SSAR activity for the nine months ended September 30, 2013, follows:

	Outstanding Options and SSARs
	Number of Shares		Weighted Average Exercise Price
Beginning of year	9,982,104		$	26.71
Granted	1,364,870		$	45.93
Exercised	(1,046,369	)	$	23.14
Canceled/forfeited	(48,625	)	$	37.62
End of period	10,251,980		$	29.59
Vested and exercisable, end of period	6,866,980		$	24.79
Reserved for future grants (a)	12,412,861

(a) On April 24, 2013, Ball’s shareholders approved the 2013 Stock and Cash Incentive Plan, which authorized 12.5 million shares for future option, SSAR and restricted share grants. This authorization replaced all previous authorizations.

The weighted average remaining contractual term for all options and SSARs outstanding at September 30, 2013, was 6.0 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $158.2 million. The weighted average remaining contractual term for options and SSARs vested and exercisable at September 30, 2013, was 4.8 years and the aggregate intrinsic value was $138.0 million.

The company received $5.2 million from options exercised during the three months ended September 30, 2013, and the intrinsic value associated with these exercises was $4.6 million. During the nine months ended September 30, 2013, the company received $14.1 million from options exercised, and the intrinsic value associated with these exercises was $13.8 million. The tax benefit associated with the company’s stock compensation programs was $10.5 million for the first nine months of 2013 and was reported as other financing activities in the unaudited condensed consolidated statement of cash flows.

These options and SSARs cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options and SSARs granted in 2013 and 2012 have estimated weighted average fair values at the grant dates of $8.69 and $9.44 per share, respectively. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option or SSAR is exercised. Consequently, there is no assurance that the value realized by an employee will be at or near the value estimated. The fair values were estimated using the following weighted average assumptions:

	January 2013	January 2012
Expected dividend yield	1.13%	1.06%
Expected stock price volatility	22.02%	30.22%
Risk-free interest rate	1.02%	0.84%
Expected life of options	5.50 years	5.26 years

In addition to stock options and SSARs, the company issues restricted shares and restricted stock units to officers and certain employees, which vest over various periods. Other than the performance-contingent grants discussed below, such restricted shares and restricted stock units generally vest in equal installments over five years. Compensation cost is recorded based upon the estimated fair value of the shares at the grant date.

The following is a summary of restricted stock activity for the nine months ended September 30, 2013:

	Number of Shares/Units		Weighted Average Grant Price
Beginning of year	1,763,636		$	28.97
Granted	185,845		46.11
Vested	(493,910	)	26.61
Canceled/forfeited	(5,502	)	34.21
End of period	1,450,069		31.95

In January 2013, the company’s board of directors granted 148,875 performance-contingent restricted stock units (RSUs) to key employees, which will vest in January 2016 depending on the company’s growth in economic valued added (EVA®) dollars using 2012 EVA® dollars generated as the minimum threshold. The number of RSUs that will vest can range between zero and 200 percent of each participant’s assigned award opportunity. Under a previous program, in January 2012 the company’s board of directors granted 223,600 performance-contingent RSUs, to key employees, which will cliff-vest if the company’s return on average invested capital during a 36-month performance period is equal to or exceeds the company’s cost of capital established at the beginning of the performance period. In both RSU programs, if the minimum performance goals are not met, the shares will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.

For the three and nine months ended September 30, 2013, the company recognized expense of $5.6 million ($3.5 million after tax) and $19.0 million ($11.6 million after tax) for share-based compensation arrangements in selling, general and administrative expenses. For the three and nine months ended September 30, 2012, the company recognized expense of $6.6 million ($4.0 million after tax) and $20.2 million ($12.3 million after tax), respectively, for such arrangements. At September 30, 2013, there were $38.9 million of unrecognized compensation costs related to nonvested share-based compensation arrangements. This cost is expected to be recognized in earnings over a weighted average period of 2.2 years.