Share-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement, Noncash Expense [Abstract]

We have three share-based compensation plans as of December 31, 2019: (1) the 2019 Stock Option and Incentive Plan (the "2019 Plan"), (2) the 2014 Stock Option and Incentive Plan (the "2014 Plan"), and (3) the Amended and Restated 1999 Stock Option and Incentive Plan (the "1999 Plan"). The 2019 Plan was adopted by our Board of Directors (subject to shareholder approval) on February 20, 2019 and approved by our shareholders at the Company's annual meeting on May 9, 2019. As of May 9, 2019, no new awards will be granted under either the 2014 Plan or the 1999 Plan. As a result, any shares subject to outstanding awards under the 2014 Plan and the 1999 Plan that expire, are canceled or otherwise terminate, or are withheld to satisfy tax withholding obligations will not be available for award grant purposes under the 2019 Plan. All plans permit the grant of the following types of awards to our officers, other employees and non-employee directors: incentive stock options, nonqualified stock options, deferred stock awards, restricted stock awards, restricted stock unit ("RSU") awards, unrestricted stock awards, performance share awards, cash based awards, stock appreciation rights ("SARs") and dividend equivalent rights. The 2019 Plan provides for the issuance of up to 1,000,000 shares of common stock (subject to adjustment for stock splits and

similar events). Under the 2019 Plan, shares issued for all awards count against the aggregate share limit as 1.0 share for every share actually issued. All stock options and RSUs granted under the 1999 Plan are either 100% vested or have been terminated. RSUs granted under the 2014 Plan and the 2019 Plan generally vest within three years. RSUs will be settled in shares of our common stock. As of December 31, 2019, there were 952,825 shares available for grant under the 2019 Plan.

As of December 31, 2019, there were 712,500 stock options (including the CEO stock option award noted below) and 381,561 RSUs outstanding. As of December 31, 2019, there were 11,135 RSUs outstanding that contain rights to nonforfeitable dividend equivalents and are considered participating securities that are included in our computation of basic and fully diluted earnings per share. There is no difference in the earnings per share amounts between the two class method and the treasury stock method, which is why we continue to use the treasury stock method.

We measure the cost of all share-based payments, including stock options, at fair value on the grant date and recognize this cost in the Consolidated Statement of Operations, net of actual forfeitures. Compensation expense related to our share-based plans for the years ended December 31, 2019, 2018 and 2017 was $5.4 million, $5.0 million and $3.8 million respectively. Expenses related to non-share based compensation are generally recorded as selling, general and administrative expense. As of December 31, 2019, there was $8.1 million of total unrecognized compensation cost related to our outstanding share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 1.8 years. This compares to $7.6 million for 2018, and $6.8 million for 2017, respectively.

Stock Options

During the year ended December 31, 2019, we granted stock option awards for the purchase of 153,726 shares of our common stock, compared with 127,704 in 2018 and 142,428 in 2017.

On April 9, 2013, we granted a stock option to purchase 200,000 shares of common stock to our President and Chief Executive Officer at an exercise price of $41.17 per share. This award included a service period and a market performance vesting condition. In 2014, certain of these targets were achieved and 150,000 shares vested and remain exercisable. The remaining 50,000 shares were canceled in 2018 due to lack of performance achievement.

On March 5, 2014, we granted a stock option to purchase 100,000 shares of common stock to our President and Chief Executive Officer at an exercise price of $70.42 per share. This option award includes a service period and a market performance vesting conditions which were not met and all 100,000 shares were canceled in the year ended December 31, 2018.

The Company uses the Black Scholes pricing model to value the option awards. The average fair value of stock options granted during the years ended December 31, 2019, 2018, and 2017 of $11.84, $14.68, and $19.36, respectively, was estimated using the following weighted-average assumptions:



	Year Ended December 31,
	2019		2018		2017
Risk-free interest rate	2.6	%	2.5	%	1.7	%
Expected life (years)	4.3		4.3		4.4
Expected stock volatility	38.1	%	37.2	%	35.1	%
Expected dividend yield	—	%	—	%	0.2	%

Restricted Stock Units

We account for RSU awards by expensing the weighted average fair value to selling, general and administrative expenses ratably over vesting periods generally ranging up to three years. During the years ended December 31, 2019 and December 31, 2018, we granted 205,291 and 167,480 RSUs, respectively, with approximate fair values of $32.92 and $42.87 per RSU award, respectively. During 2019 and 2018, the Company granted performance-based RSUs as part of the overall mix of RSU awards. In 2019, these performance-based RSUs included metrics for achieving adjusted operating margin and adjusted free cash flow with target payouts of 0% to 200%. In 2018 and prior years, these performance-based RSUs included metrics for achieving return on invested capital and adjusted operating margin with the same target payout ranges. Of the 205,291 RSUs granted during 2019, 67,362 are performance-based RSU awards. This compares to 48,080 performance-based RSU awards granted in 2018.

The CIRCOR Management Stock Purchase Plan ("MSPP"), which is a component of all three of our share-based compensation plans, provides that eligible employees may elect to receive RSUs in lieu of all or a portion of their pre-tax annual incentive bonus and, in some cases, make after-tax contributions in exchange for RSUs (“RSU MSPs”). Each RSU MSP represents a right to receive one share of our common stock after a three-year vesting period. RSU MSPs are granted at a discount of 33% from the fair market value of the shares of common stock on the date of grant. This discount is amortized as compensation expense, to selling, general and administrative expenses, over a four-year period. RSU MSPs totaling 56,379 and 34,937 with per unit discount amounts representing fair values of $11.10 and $14.06, respectively, were granted under the MSPP during the years ended December 31, 2019 and December 31, 2018, respectively.

A summary of the status of all stock options and RSU awards granted to employees and non-employee directors as of December 31, 2019 and changes during the year are presented in the table below:



	December 31, 2019
	Stock Options				RSU Awards				RSU MSPs
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Options and awards outstanding at beginning of period	742,658		$	50.26	226,683		$	45.66	72,113		$	32.25
Granted	153,726		$	33.63	205,291		$	32.92	56,379		$	22.53
Exercised	(6,516	)	$	38.89	(59,450	)	$	44.06	(16,866	)	$	28.81
Forfeited	(108,013	)	$	68.79	(97,565	)	$	39.99	(5,024	)	$	26.34
Expired	(69,355	)	$	52.35	—				—		—
Options and awards outstanding at end of period	712,500		$	43.76	274,959		$	38.51	106,602		$	28.06
Options and awards exercisable at end of period	457,778		$	46.12	5,689		$	51.71	5,446		$	31.90

The weighted average contractual term for stock options outstanding and exercisable as of December 31, 2019 was 4.1 years and 3.2 years, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was $0.0 million, $0.2 million and $0.4 million, respectively. The aggregate fair value of stock-options vested during the years ended December 31, 2019, 2018 and 2017 was $1.8 million, $2.1 million and $1.6 million, respectively. The aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2019 was $4.0 million and $1.9 million, respectively. As of December 31, 2019, there was $2.0 million of total unrecognized compensation cost related to stock options expected to be recognized over a weighted average period of 1.8 years.

The aggregate intrinsic value of RSU awards settled during the 12 months ended December 31, 2019, 2018 and 2017 was $2.0 million, $1.2 million, and $1.7 million, respectively. The aggregate fair value of RSU awards vested during the 12 months ended December 31, 2019, 2018 and 2017 was $2.6 million, $1.5 million and $1.4 million, respectively. The aggregate intrinsic value of RSU awards outstanding and exercisable as of December 31, 2019 was $12.7 million and $0.3 million, respectively. As of December 31, 2019, there was $5.6 million of total unrecognized compensation cost related to RSU awards that is expected to be recognized over a weighted average period of 1.8 years.

There were 5,446 RSU MSPs exercisable as of December 31, 2019 compared to 7,972 as of December 31, 2018, and none as of December 31, 2017. The aggregate intrinsic value of RSU MSPs settled during the years ended December 31, 2019, 2018, and 2017 was $0.0 million, $0.4 million and $0.3 million, respectively. The aggregate fair value of RSU MSPs vested during the years ended December 31, 2019, 2018, and 2017 was $0.2 million, $0.6 million and $0.5 million, respectively. The aggregate intrinsic value of RSU MSPs outstanding as of December 31, 2019 was $1.9 million. As of December 31, 2019, there was $0.6 million of total unrecognized compensation costs related to RSU MSPs that is expected to be recognized over a weighted average period of 1.9 years.

The following table summarizes information about equity awards outstanding at December 31, 2019:



	Equity Awards Outstanding					Equity Awards Exercisable
(shares and aggregate intrinsic value in thousands)	Awards	Average Share Price *	Aggregate Intrinsic Value		Remaining Term **	Awards	Average Share Price *	Aggregate Intrinsic Value		Remaining Term **
Stock Options	712,500	43.76	$	4,042	4.1	457,778	46.12	$	1,874	3.2
Restricted Stock Unit Awards	274,959	38.51	$	12,714	1.7	5,689	51.71	$	263	0.5
RSU MSPs	106,602	28.06	$	1,938	1.4	5,446	31.90	$	78	0.1
* Weighted-average exercise price per share for options and weighted- average grant date price for RSUs.
** Weighted-average contractual remaining term in years.

We also grant cash settled stock unit awards to our international employee participants. During 2019 and 2018, the vesting schedule was updated so that cash settled stock unit awards granted vest ratably over a three year period. In 2017 and prior years, these cash settled stock unit awards would typically cliff-vest in three years. All of these awards are settled in cash based on the closing price of our common stock at the time of vesting. As of December 31, 2019, there were 45,681 cash settled stock unit awards outstanding compared with 50,907 cash settled stock unit awards outstanding as of December 31, 2018. During 2019, the aggregate cash used to settle cash settled stock unit awards was $0.9 million. As of December 31, 2019, the Company had $0.9 million in accrued expenses classified as current liabilities for cash settled stock unit awards compared with $0.6 million as of December 31, 2018. In 2019, cash settled stock unit award related compensation costs for the twelve month period ended December 31, 2019 totaled $1.4 million and was recorded as follows: $1.1 million in selling, general and administrative expense and $0.3 million as special charges related to the sale of our EV business. In 2018 and 2017, cash settled stock unit award-related compensation costs totaling $0.0 million and $0.2 million, respectively, were recorded as selling, general and administrative expense. The increase in compensation costs in 2019 as compared to 2018 and 2017 is due primarily to a higher ending stock price.