Equity-Based Compensation

9 Months Ended

Oct. 02, 2011

Equity-Based Compensation [Abstract]

Equity-Based Compensation

NOTE B – Equity-Based Compensation

At October 2, 2011, CTS had five equity-based compensation plans: the 1996 Stock Option Plan (“1996 Plan”), the 2001 Stock Option Plan (“2001 Plan”), the Nonemployee Directors’ Stock Retirement Plan (“Directors’ Plan”), the 2004 Omnibus Long-Term Incentive Plan (“2004 Plan”), and the 2009 Omnibus Equity and Performance Incentive Plan (“2009 Plan”). All of these plans, except the Directors’ Plan, were approved by shareholders. As of December 31, 2009, additional grants can only be made under the 2004 and 2009 Plans. CTS believes that equity-based awards align the interest of employees with those of its shareholders.

The 2009 Plan, and previously the 1996 Plan, 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 2009 Plan and the 2004 Plan allows for grants of stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other stock awards.

The following table summarizes the compensation expense included in the Unaudited Condensed Consolidated Statements of Earnings for the three and nine months ended October 2, 2011 and October 3, 2010 relating to these plans:

	Three Months Ended				Nine Months Ended
($ in thousands)	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
Stock options	$	—	$	—	$	—	$	3
Restricted stock units		1,002		746		3,363		2,908
Total	$	1,002	$	746	$	3,363	$	2,911

The following table summarizes the status of these plans as of October 2, 2011:

	2009 Plan		2004 Plan		2001 Plan		1996 Plan
Awards originally available		3,400,000		6,500,000		2,000,000		1,200,000
Stock options outstanding		—		257,200		405,000		74,850
Restricted stock units outstanding		563,328		141,745		—		—
Options exercisable		—		257,200		405,000		74,850
Awards available for grant		2,492,104		268,500		—		—

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 the Company’s 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.

The Company 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 the Company’s 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 October 2, 2011 and October 3, 2010, and changes during the nine-month periods then ended, is presented below:

	October 2, 2011					October 3, 2010
	Options			Weighted- Average Exercise  Price		Options			Weighted- Average Exercise  Price
Outstanding at beginning of year		1,093,063		$	12.61		1,179,088		$	13.72
Exercised		(59,263	)	$	7.91		(17,000	)	$	7.70
Expired		(296,750	)	$	19.27		(47,875	)	$	42.30
Outstanding at end of period		737,050		$	10.30		1,114,213		$	12.59
Exercisable at end of period		737,050		$	10.30		1,114,213		$	12.59

The total intrinsic value of share options exercised during the nine-month periods ended October 2, 2011 and October 3, 2010 were $209,000 and $30,000, respectively. The weighted average remaining contractual life of options outstanding and options exercisable at October 2, 2011 and October 3, 2010 were 2.1 years and 2.4 years, respectively. The aggregate intrinsic value of options outstanding and options exercisable at October 2, 2011 and October 3, 2010 were approximately $79,000 and $550,000, respectively. There were no unvested stock options at October 2, 2011.

The following table summarizes information about stock options outstanding at October 2, 2011:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at 10/2/11		Weighted  Average Remaining Contractual Life (Years)		Weighted  Average Exercise Price		Number Exercisable at 10/2/11		Weighted  Average Exercise Price
$ 7.70 –11.11		615,250		1.97	$	9.53		615,250	$	9.53
$ 13.68 – 16.24		121,800		3.48	$	14.22		121,800	$	14.22

Service-Based Restricted Stock Units

Service-based restricted stock units (“RSUs”) entitle the holder to receive one share of common stock for each unit when the unit vests. RSUs are issued to officers and key employees as compensation. Generally, the RSUs vest over a three to five-year period. A summary of the status of RSUs as of October 2, 2011 and October 3, 2010, and changes during the nine-month periods then ended is presented below:

	October 2, 2011					October 3, 2010
	RSUs			Weighted- average Grant-Date Fair Value		RSUs			Weighted- average Grant-Date Fair Value
Outstanding at beginning of year		807,601		$	8.39		854,745		$	8.47
Granted		241,100		$	11.70		282,200		$	7.59
Converted		(299,304	)	$	8.54		(282,895	)	$	9.01
Forfeited		(44,324	)	$	9.07		(73,552	)	$	7.49
Outstanding at end of period		705,073		$	9.42		780,498		$	8.39
Weighted-average remaining contractual life		6.4 years					5.3 years

CTS recorded compensation expense of approximately $574,000 and $1,986,000 related to service-based restricted stock units during the three and nine month periods ended October 2, 2011, respectively. CTS recorded compensation expense of approximately $471,000 and $2,015,000 related to service-based restricted stock units during the three and nine month periods ended October 3, 2010, respectively.

As of October 2, 2011, there was $2.2 million of unrecognized compensation cost related to nonvested RSUs. That cost is expected to be recognized over a weighted-average period of 1.2 years. 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.

Performance-Based Restricted Stock Units

On February 6, 2007, CTS granted performance-based restricted stock unit awards for certain executives. Executives received a total of 17,100 units based on achievement of year-over-year sales growth and free cash flow performance goals for fiscal year 2007. These units cliff vested and converted one-for-one to CTS common stock on December 31, 2010.

On February 2, 2010, CTS granted performance-based restricted stock unit awards for certain executives. Vesting may occur in the range from zero percent to 200% of the target amount of 78,000 units in 2012 subject to certification of the 2011 fiscal year results by CTS’ independent auditors. Vesting is dependent upon CTS’ achievement of sales growth targets.

On February 3, 2011, CTS granted performance-based restricted stock unit awards for certain executives. Vesting may occur in the range from zero percent to 200% of the target amount of 53,200 units in 2013 subject to certification of the 2012 fiscal year results by CTS’ independent auditors. Vesting is dependent upon CTS’ achievement of sales growth targets.

CTS recorded compensation expense of approximately $157,000 and $500,000 related to performance-based restricted stock units during the three and nine month periods ended October 2, 2011, respectively. CTS recorded compensation expense of approximately $87,000 and $264,000 related to performance-based restricted stock units during the three and nine month periods ended October 3, 2010, respectively. As of October 2, 2011 there was approximately $568,000 of unrecognized compensation cost related to performance-based RSUs. That cost is expected to be recognized over a weighted-average period of 0.9 years.

Market-Based Restricted Stock Units

On July 2, 2007, CTS granted a market-based restricted stock unit award for an executive officer. An aggregate of 25,000 units may be earned in performance years ending in the following three consecutive years on the anniversary of the award date. Vesting may occur in the range from zero percent to 150% of the target award on the end date of each performance period and is tied exclusively to CTS total stockholder return relative to 32 enumerated peer group companies’ total stockholder return rates. 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. During the year ended December 31, 2010, 12,500 units were earned and awarded to the executive officer.

On February 4, 2009, CTS granted 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 of 128,000 units in 2011. Vesting is dependent upon CTS total stockholder return relative to 28 enumerated peer group companies’ stockholder return rates. No awards were vested as the vesting criterion was not met.

On February 2, 2010, CTS granted 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 of 117,000 units in 2012. Vesting is dependent upon CTS total stockholder return relative to 28 enumerated peer group companies’ stockholder return rates.

On February 3, 2011, CTS granted 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 of 79,800 units in 2013. Vesting is dependent upon CTS total stockholder return relative to 28 enumerated peer group companies’ stockholder return rates.

CTS recorded compensation expense of approximately $271,000 and $877,000 related to market-based restricted stock units during the three and nine month periods ended October 2, 2011, respectively. CTS recorded compensation expense of approximately $188,000 and $629,000 related to market-based restricted stock units during the three and nine month periods ended October 3, 2010, respectively. As of October 2, 2011, there was approximately $989,000 million of unrecognized compensation cost related to market-based RSUs. That cost is expected to be recognized over a weighted-average period of 1.0 years.

Stock Retirement Plan

The Directors’ Plan provides for a portion of the total compensation payable to nonemployee directors to be deferred and paid in CTS stock. The Directors’ Plan was frozen effective December 1, 2004. All future grants will be from the 2009 Plan.