NOTE 13 - Equity-Based Compensation

At September 27, 2015, CTS had five equity-based compensation plans: the 2001 Stock Option Plan (“2001 Plan”), the Nonemployee Directors’ Stock Retirement Plan (“Directors’ Plan”), the 2004 Omnibus Long-Term Incentive Plan (“2004 Plan”), the 2009 Omnibus Equity and Performance Incentive Plan (“2009 Plan”), and the 2014 Performance & Incentive Plan (“2014 Plan”). Future grants can only be made under the 2014 Plan.

The 2009 Plan, and previously the 2001 Plan and 2004 Plan, provides for grants of incentive stock options or nonqualified stock options to officers, key employees, and nonemployee members of CTS’ Board of Directors. In addition, the 2014 Plan, the 2009 Plan and the 2004 Plan allow for grants of stock appreciation rights, restricted stock, RSUs, performance shares, performance units, and other stock awards.

The following table summarizes the compensation expense included in Selling, general and administrative expenses in the Consolidated Statements of Earnings related to equity-based compensation plans:


	Three Months Ended				Nine Months Ended
($ in thousands)	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Service-Based RSUs	$	295	$	397	$	1,244	$	1,080
Performance-Based RSUs		(62)		146		709		419
Market-Based RSUs		60		117		702		340
Total	$	293	$	660	$	2,655	$	1,839
Income tax benefit	$	110	$	252	$	998	$	703

The following table summarizes the unrecognized compensation expense related to non-vested RSUs by type and the weighted-average period in which the expense is to be recognized:


	Unrecognized
	compensation		Weighted-
	expense at		average
($ in thousands)	September 27, 2015		period
Service-Based RSUs	$	1,548	1.2	years
Performance-Based RSUs		1,118	1.2	years
Market-Based RSUs		614	1.0	years
Total	$	3,280

CTS recognizes expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The following table summarizes the status of these plans as of September 27, 2015:


	2014 Plan	2009 Plan	2004 Plan	2001 Plan
Awards originally available	1,500,000	3,400,000	6,500,000	2,000,000
Stock options outstanding	—	—	—	—
RSUs outstanding	78,947	240,091	131,857	—
Options exercisable	—	—	—	—
Awards available for grant	1,349,075	1,627,069	106,423	—

Stock Options

Stock options are exercisable in cumulative annual installments over a maximum 10-year period, commencing at least one year from the date of grant. Stock options are generally granted with an exercise price equal to the market price of CTS’ stock on the date of grant. The stock options generally vest over four years and have a 10-year contractual life. The awards generally contain provisions to either accelerate vesting or allow vesting to continue on schedule upon retirement if certain service and age requirements are met. The awards also provide for accelerated vesting if there is a change in control event.

CTS estimated the fair value of the stock option on the grant date using the Black-Scholes option-pricing model and assumptions for expected price volatility, option term, risk-free interest rate, and dividend yield. Expected price volatilities were based on historical volatilities of CTS’ common stock. The expected option term is derived from historical data on exercise behavior. The dividend yield was based on historical dividend payments. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of the status of stock options as of September 27, 2015, and changes during the period then ended, is presented below:


	Nine Months Ended
	September 27, 2015
		Weighted
		Average
		Exercise
	Options	Price
Outstanding at beginning of year	5,200	$	12.35
Exercised	(5,200)	$	12.35
Outstanding at end of period	—	$	—
Exercisable at end of period	—	$	—

Performance-Based Stock Options

During the second quarter of 2015, the Compensation Committee of the Board of Directors of the Company (the “Committee”) granted a total of 430,000 performance-based stock option awards (“Performance-Based Option Awards”) for certain CTS employees under the 2014 Plan. The Performance-Based Option Awards, which have a grant date of May 26, 2015 and a grant date fair value of $18.37, are subject to the terms of the 2014 Plan. The Performance-Based Option Awards generally have a term of five years and generally will become exercisable (provided the optionee remains employed by CTS or an affiliate) upon CTS’ attainment of at least $600,000,000 in revenues during any of CTS’ four-fiscal-quarter trailing periods (as determined by the Committee) during the term. CTS has not recognized any expense on these Performance-Based Option Awards for the nine months ended September 27, 2015 since the revenue target is not likely to be attained, based upon the CTS’ earnings history and forecast, at this time.

Service-Based Restricted Stock Units

Service-based RSUs entitle the holder to receive one share of common stock for each unit when the unit vests. RSUs are issued to officers, key employees and non-employee directors as compensation. Generally, the RSUs vest over a three-year period. RSUs granted to non-employee directors vest one month after granted. Upon vesting, the non-employee directors elect to either receive the stock associated with the RSU immediately, or defer receipt of the stock until their retirement from the Board of Directors. The fair value of the RSUs is equivalent to the trading value of CTS’ common stock on the grant date.

A summary of the status of RSUs is presented below:


	Nine Months Ended
	September 27, 2015
		Weighted
		Average
		Grant Date
	Units	Fair Value
Outstanding at January 1, 2015	517,965	$	12.06
Granted	125,525		17.10
Converted	(165,801)		12.41
Forfeited	(26,794)		17.20
Outstanding at September 27, 2015	450,895	$	13.03

Performance-Based Restricted Stock Units

CTS grants performance-based restricted stock unit awards for certain executives. Vesting may occur in the range from zero percent to 200% of the target amount. Vesting is subject to certification of the fiscal results of the year prior to the target year by CTS’ independent auditors. Vesting is dependent upon CTS’ achievement of either sales growth targets or cash flow targets as noted in the table below.

Performance-Based RSUs include the following components:


	Target	Vesting	Vesting	Units
Grant Date	Units	Year	Dependency	Awarded
February 11, 2013	47,164	2016	Sales growth	—
February 11, 2013	40,425	2016	Cash flow	—
February 14, 2014	15,071	2017	Sales growth	—
February 14, 2014	12,918	2017	Cash flow	—
February 13, 2015	24,150	2018	Sales growth	—
February 13, 2015	20,700	2018	Cash flow	—

Market-Based Restricted Stock Units

CTS grants market-based restricted stock unit awards for certain executives and key employees. Vesting may occur in the range from zero percent to 200% of the target amount. Vesting is subject to certification of the fiscal results of the year prior to the target year by CTS’ independent auditors. The vesting rate will be determined using a matrix based on a percentile ranking of CTS total stockholder return with peer group total shareholder return over a three-year period. Vesting is tied exclusively to CTS total stockholder return relative to peer group companies’ total stockholder return rates.

Market-Based RSUs include the following components:


			Number of
	Target	Vesting	Peer Group	Units
Grant Date	Units	Year	Companies	Awarded
February 11, 2013	40,425	2016	20	—
February 11, 2013	48,750	2016	20	—
February 14, 2014	15,071	2017	15	—
February 13, 2015	24,150	2018	23	—