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Share-Based Arrangements
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Share-based Arrangements SHARE-BASED ARRANGEMENTS
 
General

The Company accounts for stock options, RSAs, restricted stock units and PSUs as equity awards and measures the cost of all share-based payments, including stock options, at fair value on the grant date and recognizes this cost in the statement of operations. The Company also has an employee stock purchase plan which is accounted for as a liability award.

In 2021, the Company modified its long-term incentive program to increase the emphasis on equity. Beginning in the first quarter of 2021, the long-term incentive awards granted to the Company's named executive officers ("NEOs") consist of a combination of service-based RSAs and PSUs which are intended to be settled in shares, as opposed to cash-based awards that had been utilized in the past. These awards are expected to increase the alignment of interests between the Company's NEOs and shareholders and help build stock ownership for new executives, supporting both executive retention and the Company's long-term financial performance. RSAs will vest over a three-year period on each of the first three anniversaries of the date of grant. The number of PSUs that will vest will be determined based on TSR and ROIC over a three-year performance period, each of which will remain equally weighted in determining payouts. The achievement level for both factors may range from zero to 200%. The PSUs granted in 2022 and 2021 assumed a 100% achievement level. In 2022, the PSUs granted in 2021 were adjusted to a 33% achievement level.

Compensation expense for stock options, RSAs, restricted stock units and PSUs is recognized on a straight-line basis over the vesting period of the awards. Throughout the course of the vesting period, the Company monitors the achievement level for the ROIC metric of the PSUs compared to the ROIC target and adjusts the number of shares expected to be earned, and the related compensation expense recorded thereafter, to reflect the most probable outcome. Share-based compensation expense recorded for the years ended December 31, 2022, 2021 and 2020 was $7.8 million, $6.7 million and $5.0 million, respectively. Of these amounts, $0.2 million, $0.4 million and $0.4 million was recorded to restructuring and severance costs, respectively, and the remaining amounts were recorded to selling, general and administrative expenses on the Company's Consolidated Statements of Operations.
22. SHARE-BASED ARRANGEMENTS (CONTINUED)

Stock Incentive Plan

On April 17, 2013, the shareholders of the Company approved the 2013 Management Incentive Plan (the "2013 Plan"), which replaced the 2003 Stock Incentive Plan. The 2013 Plan was designed as a flexible share authorization plan, such that the Company's share authorization is based on the least costly type of award (stock options). Shares issued pursuant to “Full Value Awards” as defined in the 2013 Plan (awards other than stock options or stock appreciation rights which are settled by the issuance of shares, e.g., restricted stock, restricted stock units, performance shares, performance units if settled with stock, or other stock-based awards) count against the 2013 Plan's share authorization at a rate of 3 to 1, while shares issued upon exercise of stock options or stock appreciation rights count against the share authorization at a rate of 1 to 1. This means that every time an option is granted, the authorized pool of shares is reduced by one (1) share and every time a Full Value Award is granted, the authorized pool of shares is reduced by 3 shares. In deriving the valuation ratio used in the 2013 Plan, the Company used the Black Scholes Fair Value model as the basis for determining the approximate value of an option as compared to a "full value share." The 2013 Plan provided the Company with the ability to use equity-based awards of up to 2,250,000 authorized shares. On April 18, 2018, the shareholders of the Company approved the amendment and restatement of the 2013 Plan, which increased the number of authorized shares by 2,250,000 shares. As of December 31, 2022, there were 899,864 shares available for grant under the plan.

LTIP awards provide certain senior executives an opportunity to receive award payments in either stock or cash as determined by the Compensation Committee of the Board of Directors in accordance with the Plan, at the end of each performance cycle. Performance metrics for LTIP Awards are based on the following: (a) average return on total capital and (b) total return to shareholders, both compared to the Russell 2000 indices for the same performance period. No awards will be payable if the Company’s performance is below the 25th percentile. The maximum award is payable if performance reaches the 75th percentile of the designated indices. Awards are paid out at 100% at the 50th percentile. Awards for performance between the 25th and 75th percentiles are determined by straight-line interpolation between 0% and 200%. Generally, LTIP awards are paid in cash.

Stock options were granted with an exercise price equal to the average market price of our stock at the date of grant. Stock options and Stock Appreciation Rights ("SARs") granted under the plan generally expire ten years from the date of grant and vest 20% each year over a 5-year period on each of the first five anniversaries of the date of grant. Stock options granted in 2022 vest 33.3% each year over a 3-year period on each of the first three anniversaries of the date of grant. RSAs granted prior to 2021 were generally granted with restrictions that lapse at the rate of 20% per year over a 5-year period on each of the first five anniversaries of the date of grant. As discussed above, the RSAs granted beginning in 2021 are generally granted with restrictions that lapse at the rate of 33.3% over a 3-year period on each of the first three anniversaries of the grant. Generally, these awards are subject to forfeiture if a recipient separates from service with the Company.

Stock option activity is as follows:
OptionsWeighted average-
exercise price
Options outstanding at December 31, 2021
746,240 $55.14 
Granted39,121 31.60 
Exercised(11,842)41.90 
Forfeited or expired(62,737)54.47 
Options outstanding at December 31, 2022
710,782 $54.12 
 
The following table presents information regarding options outstanding as of December 31, 2022:
Weighted-average remaining contractual term - options outstanding (years)4.0
Aggregate intrinsic value - options outstanding (in thousands)$— 
Weighted-average exercise price - options outstanding$54.12 
Options exercisable555,216 
Weighted-average remaining contractual term - options exercisable (years)3.4
Aggregate intrinsic value - options exercisable (in thousands)$— 
Weighted-average exercise price - options exercisable$53.91 
22. SHARE-BASED ARRANGEMENTS (CONTINUED)

Stock Incentive Plan - continued

The intrinsic value represents the amount by which the market price of the stock on the measurement date exceeds the exercise price of the option. The intrinsic value of options exercised in 2022 was not material. The intrinsic value of options exercised in 2021 and 2020 was $0.3 million and $2.4 million, respectively. The Company currently has an open stock repurchase plan, which would enable the Company to repurchase shares as needed. Since 2008 the Company has generally issued shares related to option exercises, restricted stock and PSUs from its authorized but unissued common stock.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The following table indicates the weighted-average assumptions used in estimating fair value:
 202220212020
Expected option term (years)6.54.94.9
Expected volatility35.5 %35.7 %20.2 %
Risk-free interest rate2.9 %0.5 %1.4 %
Expected dividend yield2.0 %1.6 %1.3 %
Per share fair value of options granted$10.22 $14.89 $10.74 

The expected term of options granted represents the period of time option grants are expected to be outstanding based upon historical exercise patterns. Forfeitures of options are estimated based upon historical data and are adjusted based upon actual occurrences. The cumulative effect of stock award forfeitures was immaterial. The volatility assumption is based on the historical daily price data of the Company’s stock over a period equivalent to the weighted-average expected term of the options. Management evaluated whether there were factors during that period that were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. The Company relies only on historical volatility since future volatility is expected to be consistent with historical volatility.

The risk-free interest rate assumption is based upon the interpolation of various U.S. Treasury rates determined at the date of option grant. Expected dividends are based upon a historical analysis of our dividend yield over the past year.

Restricted Stock Award and Restricted Stock Unit activity is as follows:
 Restricted Stock
Awards		Weighted-
average grant
date fair value
Restricted Stock outstanding at December 31, 2021
135,351 $53.53 
Granted119,003 40.29 
Vested(80,539)49.88 
Forfeited or expired(14,294)50.46 
Restricted Stock outstanding at December 31, 2022
159,521 $45.78 
 
The grant date fair value for restricted stock is the average market price of the unrestricted shares on the date of grant. The total fair value of restricted stock awards vested during 2022, 2021 and 2020 was $3.4 million, $2.7 million and $3.1 million, respectively.

Performance stock unit activity was as follows:
 Performance StockWeighted-
average grant
date fair value
Performance Stock outstanding at December 31, 2021
70,163 $70.17 
Granted117,885 54.87 
Vested— — 
Forfeited or expired(15,904)60.93 
Performance Stock outstanding at December 31, 2022
172,144 $60.44 
22. SHARE-BASED ARRANGEMENTS (CONTINUED)

Stock Incentive Plan - continued

The fair value of the PSUs based on TSR was estimated on the date of grant using a Monte-Carlo simulation model. The following table indicates the weighted-average assumptions used in estimating fair value:
 20222021
Expected term (years)2.92.9
Expected volatility39.4 %41.3 %
Risk-free interest rate1.7 %0.2 %
Expected dividend yield1.9 %1.4 %
Per share fair value of performance stock granted$68.10 $84.49 

The Company records a tax benefit and associated deferred tax asset for compensation expense recognized on non-qualified stock options and restricted stock for which the Company is allowed a tax deduction. For 2022, 2021 and 2020, respectively, the Company recorded a tax benefit of $1.1 million, $1.4 million and $1.1 million for these two types of compensation expense.

As of December 31, 2022, future compensation costs related to non-vested stock options, restricted stock grants and performance share units is $9.6 million. The Company anticipates that this cost will be recognized over a weighted-average period of 1.7 years.

Employees Stock Purchase Plan

The Kaman Corporation Employees Stock Purchase Plan (“ESPP”) allows employees to purchase common stock of the Company, through payroll deductions, at 85% of the market value of shares at the time of purchase. The plan provides for the grant of rights to employees to purchase a maximum of 2,000,000 shares of common stock.

During 2022, 64,143 shares were issued to employees at prices ranging from $20.37 to $43.48. During 2021, 51,225 shares were issued to employees at prices ranging from $35.67 to $58.35. During 2020, 47,524 shares were issued to employees at prices ranging from $38.47 to $65.92. At December 31, 2022, there were 388,220 shares available for purchase under the plan.