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Long-Term Incentive Plans | 12 Months Ended
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Dec. 31, 2012
Long-Term Incentive Plans | Note 16: Long-term Incentive Plans Plan Description The Company maintains the MBIA Inc. 2005 Omnibus Incentive Plan, as amended on May 7, 2009 (the “Omnibus Plan”). Under the Omnibus Plan a maximum of 10,000,000 shares of the Company’s common stock can be used for any type of award including stock options, performance shares, performance units, restricted stock, restricted stock units and dividend equivalents. On May 1, 2012, the Company’s shareholders approved an increase in the total number of shares of common stock reserved and available for issuance under the Omnibus Plan from 10,000,000 shares to 14,000,000. Any shares issued under the Omnibus Plan in connection with stock options shall be counted against this limit as one share covered by such option. For all awards other than stock options, any shares issued shall be counted against this limit as 1.28 shares for every share issued after the May 1, 2012 amendment and two shares for every share issued prior to the May 1, 2012 amendment. The stock option component of the Omnibus Plan enables key employees of the Company and its subsidiaries to acquire shares of common stock of the Company or to benefit from appreciation in the price of the common stock of the Company. The stock option grants, which may be awarded every year, provide the right to purchase shares of common stock at the fair value of the stock on the date of the grant. Options granted will either be Incentive Stock Options (“ISOs”), where they qualify under Section 422(a) of the Internal Revenue Code, or Non-Qualified Stock Options (“NQSOs”). ISOs and NQSOs are granted at a price not less than 100% of the fair value, defined as the closing price on the grant date, of the Company’s common stock. Options are exercisable as specified at the time of grant depending on the level of the recipient (generally four or five years) and expire either seven or ten years from the date of grant (or shorter if specified or following termination of employment). Under the restricted stock component of the Omnibus Plan, certain employees are granted restricted shares of the Company’s common stock. These awards have a restriction period lasting three, four or five years depending on the type of award, after which time the awards fully vest. During the vesting period, these shares may not be sold. Restricted stock may be granted to all employees. Following the effective date of the Omnibus Plan, no new options or awards were granted under any of the prior plans authorized by the shareholders and all shares authorized but unissued were canceled. All stock awards granted under the prior plans and subsequently canceled or expired after the effective date of the Omnibus Plan, become available for grant under the Omnibus Plan. In 2012, no options were granted and 461,805 options were canceled or expired. In 2012, 2,689,542 restricted shares were granted, no restricted share units were granted, 180,665 restricted shares were forfeited and no restricted share units were canceled. There were 10,131,530 shares available for future grants under the Omnibus Plan as of December 31, 2012. The Board of Directors of the Company approved restricted share grants for certain key employees in December 2012. The vesting schedules of these grants are linked to the Company’s market value performance. For further information regarding performance based awards, please refer to the “Performance Based Awards” section of this note. In accordance with accounting guidance for share-based payments, the Company expenses the fair value of employee stock options and other forms of stock-based compensation. In addition, the guidance classifies share-based payment awards as either liability awards, which are remeasured at fair value at each balance sheet date, or equity awards, which are measured on the grant date and not subsequently remeasured. Generally, awards with cash-based settlement, repurchase features or that are settled at a fixed dollar amount are classified as liability awards, and changes in fair value will be reported in earnings. Awards with net-settlement features or that permit a cashless exercise with third-party brokers are classified as equity awards and changes in fair value are not reported in earnings. The Company’s long-term incentive plans include features which result in both liability and equity awards. For liability awards, the Company remeasures these awards at each balance sheet date. In addition, the guidance requires the use of a forfeiture estimate. The Company uses historical employee termination information to estimate the forfeiture rate applied to current stock-based awards. The Company maintains voluntary retirement benefits as discussed in “Note 15: Pension and Profit Sharing Plans.” One of the components of the retirement program for those employees that are retirement eligible is to continue to vest all performance-based stock options and restricted share awards beyond the retirement date in accordance with the original vesting terms and to immediately vest all outstanding time-based stock options and restricted share grants. The accounting guidance for share-based payment requires compensation costs for those employees to be recognized from the date of grant through the retirement eligible date, unless there is a risk of forfeiture, in which case the compensation cost is recognized in accordance with the original vesting schedule. Accelerated expense, if any, relating to this retirement benefit for both stock option awards and restricted stock awards has been included in the compensation expense amounts. Restricted Stock The fair value of the restricted shares awarded, determined on the grant date, was $21 million and $2 million, and the fair value of the restricted shares canceled was $2 million and $1 million for 2012 and 2011, respectively. Restricted shares have been recorded as unearned compensation, which is a component of paid-in capital within shareholders’ equity on the Company’s consolidated balance sheets and have been included in “Share-based compensation” on the Company’s consolidated statements of changes in shareholders’ equity. The amount of unearned compensation, net of estimated forfeitures, was $20 million as of December 31, 2012, which is expected to be recognized as expense over a weighted average period of 2.5 years. Unearned compensation is amortized to expense over the appropriate three-to five-year vesting period (except for a minor portion granted to members of the MBIA Inc. Board of Directors which is amortized over a ten-year period). Compensation expense related to the restricted shares, net of estimated forfeitures, was $11 million, $9 million and $6 million for the years ended December 31, 2012, 2011 and 2010, respectively. The tax benefit related to the restricted share awards during 2012, 2011 and 2010 was $1 million, $2 million and $2 million, respectively. In addition, during 2011 and 2010 there was a tax charge of $1 million, respectively, for each of the years in paid-in capital related to the restricted shares that vested at a lower market value in comparison to the market value on the date of grant. A summary of the Company’s restricted shares outstanding as of December 31, 2012, 2011 and 2010, and changes during the years ended on those dates, is presented in the following table:
|  | Restricted Share Activity |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Outstanding at beginning of year |  |  | 4,881,782 |  |  |  | 5,013,890 |  |  |  | 5,169,193 |
Granted |  |  | 2,689,542 |  |  |  | 235,050 |  |  |  | 805,776 |
Vested |  |  | (70,549) |  |  |  | (308,692) |  |  |  | (48,009) |
Forfeited |  |  | (180,665) |  |  |  | (58,466) |  |  |  | (913,070) |
Outstanding at end of year |  |  | 7,320,110 |  |  |  | 4,881,782 |  |  |  | 5,013,890 |
The following table presents the total number of restricted share awards granted during the last three years. The proxy officers are disclosed in the Company’s proxy statement.
|  | Number of Restricted Shares Granted |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Proxy officers |  |  | 2,097,752 |  |  |  | — |  |  |  | 600,000 |
Other |  |  | 591,790 |  |  |  | 235,050 |  |  |  | 205,776 |
Total |  |  | 2,689,542 |  |  |  | 235,050 |  |  |  | 805,776 |
Stock Options The Company determines the fair value for stock option awards at the date of grant and is estimated using the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions, are fully transferable and contain both service and some performance conditions. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. During 2012 and 2011, no stock option awards were granted. The number of significant options granted and the assumptions used for valuing such option grants during 2010 are shown in the following table:
|  | March |
|  | 2010 |
Number of options granted |  |  | 1,100,000 |
Exercise price |  | $ | 5.05 |
Dividend yield |  |  | 0.000% |
Expected volatility |  |  | 0.9938 |
Risk-free interest rate |  |  | 2.585% |
Expected option term (in years) |  |  | 5.00 |
Employee stock option compensation expense, net of estimated forfeitures, for the years ended December 31, 2012, 2011, and 2010 totaled $3 million, $4 million and $2 million, respectively. During 2012, 2011, and 2010 there were no stock option awards exercised. During 2012, 2011, and 2010, the Company wrote off a deferred tax asset of $6 million, $3 million and $2 million, respectively, related to the cancellation of fully vested stock option awards as a charge to paid-in capital. As of December 31, 2012, there was $2 million of total unrecognized compensation cost related to non-vested stock options. This amount is expected to be recognized as expense over a weighted average period of 1.4 years. During the years ended December 31, 2012 and 2011, no stock option awards were granted. The following table presents the total number of options granted during 2010. The proxy officers are disclosed in the Company’s proxy statement.
|  | Number of Options Granted in 2010 |
Proxy officers |  |  | 600,000 |
Other senior officers |  |  | — |
Senior officers |  |  | 600,000 |
Other |  |  | 500,000 |
Total |  |  | 1,100,000 |
A summary of the Company’s stock options outstanding as of December 31, 2012, 2011 and 2010, and changes during the years ended on those dates, is presented in the following tables:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Options |  | Number of Shares |  |  | Weighted Average Price Per Share |  |  | Number of Shares |  |  | Weighted Average Price Per Share |  |  | Number of Shares |  |  | Weighted Average Price Per Share |
Outstanding at beginning of year |  |  | 6,425,073 |  |  | $ | 21.3330 |  |  |  | 6,650,947 |  |  | $ | 22.1713 |  |  |  | 7,044,820 |  |  | $ | 25.3110 |
Granted |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,100,000 |  |  |  | 5.0500 |
Expired or canceled |  |  | (461,805) |  |  |  | 50.8330 |  |  |  | (225,874) |  |  |  | 46.0164 |  |  |  | (1,493,873) |  |  |  | 24.3703 |
Outstanding at end of year |  |  | 5,963,268 |  |  | $ | 19.0485 |  |  |  | 6,425,073 |  |  | $ | 21.3330 |  |  |  | 6,650,947 |  |  | $ | 22.1713 |
Exercisable at end of year |  |  | 1,751,173 |  |  | $ | 45.0174 |  |  |  | 2,211,878 |  |  | $ | 46.1478 |  |  |  | 2,050,252 |  |  | $ | 53.1172 |
Weighted average fair value per share of options granted during the year |  |  |  |  |  | $ | — |  |  |  |  |  |  | $ | — |  |  |  |  |  |  | $ | 3.79 |
The following table summarizes information about outstanding stock options as of December 31, 2012:
|  | Stock Options Outstanding |  |  | Stock Options Exercisable |
Range of Average Exercise Price |  | Number of Options |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Weighted Average Exercise Price |  |  | Aggregate Intrinsic Value (in millions) |  |  | Number of Options |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Weighted Average Exercise Price |  |  | Aggregate Intrinsic Value (in millions) |
$4.02-$12.50 |  |  | 4,550,000 |  |  |  | 3.03 |  |  | $ | 7.8101 |  |  | $ | 9 |  |  |  | 350,000 |  |  |  | 3.12 |  |  | $ | 4.0200 |  |  | $ | 1 |
$36.69-$55.60 |  |  | 409,707 |  |  |  | 0.31 |  |  |  | 39.7103 |  |  |  | — |  |  |  | 401,612 |  |  |  | 0.32 |  |  |  | 39.5601 |  |  |  | — |
$57.10-$70.86 |  |  | 1,003,561 |  |  |  | 1.61 |  |  |  | 61.5665 |  |  |  | — |  |  |  | 999,561 |  |  |  | 1.62 |  |  |  | 61.5654 |  |  |  | — |
Total |  |  | 5,963,268 |  |  |  | 2.60 |  |  | $ | 19.0485 |  |  | $ | 9 |  |  |  | 1,751,173 |  |  |  | 1.62 |  |  | $ | 45.0174 |  |  | $ | 1 |
Performance Based Awards During 2012, the Company granted 2 million restricted shares to certain key employees which have a vesting schedule dependent on the achievement of certain stock price targets of the Company. The grant and corresponding compensation expense has been included in the above restricted stock disclosure. As permitted by the accounting guidance for share-based payments, the Company estimates the fair value of awards that contain only market performance conditions at the date of grant using a binomial lattice model with a Monte Carlo simulation. The binomial lattice model can better incorporate assumptions about a stock price path because the model can accommodate a large number of potential stock prices over the award’s term in comparison to the Black-Scholes model. During 2010, the Board of Managers of Cutwater established the Cutwater Asset Management Equity Participation Plan (“the Plan”). The purpose of the Plan is to promote the interests of Cutwater and its equity security holders and is designed to provide compensation tied to the value of Cutwater by the grant of equity participation units. Each unit represents the contractual right to receive cash payments based on the value of Cutwater. These grants have a restriction period lasting five years, after which time the awards fully vest providing the participant is continuously employed by Cutwater or one of its affiliates during that period. The maximum number of units available for grant under the Plan is 350,000. During 2012, no new units were granted and 12,534 were canceled. As of December 31, 2012, 231,646 units were outstanding and 118,354 units were available for future grants under the Plan. In accordance with the accounting guidance for awards that include a cash-based settlement feature, the Plan is classified as a liability award. The original value of the award was determined on the date of grant and remeasured at each balance sheet date. A liability is accrued over the vesting period of the Plan and reflects the present value of the award as of each balance sheet date. Any change is reflected in earnings. Compensation cost related to the Plan for the years ended December 31, 2012 and 2011 was a benefit of $3 million and $2 million, respectively. The benefits were due to declines in the present value of the award. Compensation cost related to the Plan for the year ended December 31, 2010 was $5 million. Deferred Cash Awards During 2011 and 2010, the Company granted deferred cash-based long-term incentive awards. These grants have a vesting period of either three or five years, after which time the award fully vests. Payment is generally contingent on the employee’s continuous employment with the Company through the payment date. The deferred cash awards are granted to employees from the vice-president level up. There were no deferred cash-based long-term incentive awards granted in 2012. Compensation expense related to the deferred cash awards was $3 million, $9 million and $7 million for the years ended December 31, 2012, 2011 and 2010, respectively.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 + Details
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