Mercury Insurance 2011 Annual Report Download - page 95

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES STATEMENTS TO CONSOLIDATED FINANCIAL—(Continued)
January 1, 2006 is based on the estimated grant-date fair value. The Company recognizes these compensation
costs on a straight-line basis over the requisite service period of the award, which is the option vesting term of
four or five years for options granted prior to 2008 and four years for options granted subsequent to January 1,
2008, for only those shares expected to vest. The fair value of stock option awards is estimated using the Black-
Scholes option pricing model with the grant-date assumptions and weighted-average fair values, as discussed in
Note 15.
Under its 2005 Incentive Award Plan (the “2005 Plan”), the Compensation Committee of the Company’s
Board of Directors granted performance vesting restricted stock units to the Company’s senior management and
key employees in March 2011. The restricted stock units vest at the end of a three-year performance period, and
then only if, and to the extent that, the Company’s cumulative underwriting income during such three-year
performance period ending December 31, 2013 achieves the 2011 defined threshold performance levels
established by the Compensation Committee. The aggregate target number of shares of common stock for which
the restricted stock units may vest is 80,000. However, the restricted stock units may vest for up to 120,000
shares of common stock if and to the extent that the Company’s three-year performance exceeds the target
established by the Compensation Committee. The Compensation Committee granted 55,000 shares of restricted
stock and restricted stock units in 2010 which will vest at the end of a three-year performance period ending
December 31, 2012 if, and to the extent that, the Company’s cumulative underwriting income during the three-
year performance period ending December 31, 2012 achieves the 2010 defined threshold performance levels.
The fair value of the restricted share grant was determined based on the market price on the date of grant.
Compensation cost has been recognized based on management’s best estimate that performance goals will be
achieved. If such goals are not met, no compensation cost would be recognized and any recognized compensation
cost would be reversed. See Note 15 for additional disclosures.
Recently Issued Accounting Standards
In December 2011, the FASB issued a new standard which indefinitely defers certain provisions of a
previously issued standard that revised the manner in which entities present comprehensive income in financial
statements. One of the previously issued standard’s provisions required entities to present reclassification
adjustments out of accumulated other comprehensive income by component in both the statement in which net
income is presented and the statement in which other comprehensive income is presented. Accordingly, this
requirement is indefinitely deferred and will be further deliberated by the FASB at a future date. The amendment
will be effective for fiscal years and interim periods within those years that begin after December 15, 2011.
In June 2011, the FASB issued a new standard which revises the manner in which entities present
comprehensive income in their financial statements. The new standard removes the presentation options and
requires entities to report components of comprehensive income in either a continuous statement of
comprehensive income or two separate but consecutive statements. The new standard does not change the items
that must be reported in other comprehensive income and will be effective for fiscal years and interim periods
within those years that begin after December 15, 2011. The adoption of the new standard will not have a material
impact on the Company’s consolidated financial statements.
In September 2011, the FASB issued a new standard which amends the current guidance on testing goodwill
for impairment. Under the revised guidance, the two-step goodwill impairment test is not required if entities
qualitatively determine that, more likely than not, the fair value exceeds the carrying amount of a reporting unit.
The new standard does not change how goodwill is calculated or assigned to reporting units, nor does it revise
the requirement to assess goodwill annually for impairment. The amendment will be effective for fiscal years and
interim periods within those years that begin after December 15, 2011 and may be adopted early. The Company
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