Stock-based Compensation Plans

12 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Share-based Payment Arrangement [Text Block]

Stock-based Compensation Plans

The effect of stock-based compensation on our statements of operations, including discontinued operations, is presented below.



	2019		2018		2017
	(in millions, except per share data)
Decrease in operating income	$	5.5	$	6.4	$	8.6
Decrease in net income	4.0		4.0		4.8
Decrease in earnings per basic share	0.03		0.03		0.03
Decrease in earnings per diluted share	0.03		0.03		0.03

We excluded 106,896, 214,435 and 238,826 instruments from the calculation of diluted earnings per share for 2019, 2018 and 2017, respectively, because the effect of including them would have been antidilutive.

At September 30, 2019, there was approximately $5.7 million of unrecognized compensation expense related to stock-based awards not yet vested. We expect to recognize this expense over a weighted average life of approximately 1.47 years.

The Mueller Water Products, Inc. 2006 Stock Incentive Plan (“2006 Plan”) authorizes an aggregate of 20,500,000 shares of common stock that may be granted through the issuance of stock-based awards. Any awards canceled are available for reissuance. Generally, all of our employees and members of our board of directors are eligible to participate in the 2006 Plan. At September 30, 2019, 7,022,737 shares of common stock were available for future grants of awards under the 2006 Plan. This total assumes that the maximum number of shares will be earned for awards for which the final number of shares to be earned has not yet been determined.

An award granted under the 2006 Plan vests at such times and in such installments as set by the Compensation and Human Resources Committee of the board of directors (“Comp. Committee”), but no award will be exercisable after the 10-year anniversary of the date on which it is granted. Management expects some instruments will be forfeited prior to vesting. Grants to members of our board of the directors are expected to vest fully. Based on historical forfeitures, we expect grants to others to be forfeited at an annual rate of 2%.

Restricted Stock Units. Depending on the specific terms of each award, restricted stock units generally vest ratably over the life of the award, usually 3 years, on each anniversary date of the original grant. Compensation expense for restricted stock units is recognized between the grant date and the vesting date (or the date on which a participant becomes Retirement-eligible, if sooner) on a straight-line basis for each tranche of each award. Fair values of restricted stock units are determined using the closing price of our common stock on the respective dates of grant.

Restricted stock unit activity under the 2006 Plan is summarized below.



	Restricted stock units		Weighted average grant date fair value per unit		Weighted average remaining contractual term (years)	Aggregate intrinsic value (millions)
Outstanding at September 30, 2016	663,448		$	9.34	1.0
Granted	343,860		13.05
Vested	(359,797	)	9.34			$	4.7
Cancelled	(21,681	)	13.26
Outstanding at September 30, 2017	625,830		11.23		0.9
Granted	276,658		12.20
Vested	(342,038	)	10.84			4.2
Cancelled	(78,888	)	11.41
Outstanding at September 30, 2018	481,562		12.14		1.0
Granted	233,830		10.10
Vested	(259,107	)	11.75			2.6
Cancelled	(19,263	)	11.43
Outstanding at September 30, 2019	437,022		11.31		0.9

Performance Shares. Performance-based restricted stock units (“PRSUs”) represent a target number of units that may be paid out at the end of a multi-year award cycle consisting of annual performance periods coinciding with our fiscal years. As determined at the date of award, PRSUs may settle in cash-value equivalent of, or directly in, shares of our common stock. Settlement will range from zero to two times the number of PRSUs granted, depending on our financial performance against predetermined targets. The Comp. Committee establishes performance goals within 90 days of the beginning of each performance period, with such date referred to as the “grant date”. At the end of each annual performance period, the Comp. Committee confirms performance against the applicable performance targets. PRSUs do not convey voting rights or earn dividends. PRSUs vest on the last day of an award cycle, unless vested sooner due to a “Change of Control” of the Company, or the death, disability or Retirement of a participant.

We recognize compensation expense for stock-settled PRSUs starting on the first day of the applicable performance period and ending on the respective vesting dates. We base the recognized compensation expense upon the number of units awarded for each performance period, the closing price of our common stock on the grant date and the estimated performance factor. In 2019 and 2018, 332,875 shares and 146,061 shares, respectively, vested related to PRSUs.

Stock-settled PRSUs activity under the 2006 Plan is summarized below.



Award date	Settlement year	Performance period	Grant date per unit fair value		Units awarded	Units forfeited		Net units	Performance factor	Shares earned
December 2, 2014	2018	2015	$	9.78	80,233	(3,835	)	76,398	0.000	—
		2016	9.38		80,229	(6,447	)	73,782	1.021	75,327
		2017	13.26		80,229	(11,673	)	68,556	1.000	68,556
December 1, 2015	2019	2016	9.38		77,823	(3,998	)	73,825	1.021	75,375
		2017	13.26		77,824	(3,997	)	73,827	1.000	73,827
		2018	12.50		77,824	(61,841	)	15,983	1.357	21,689
November 29, 2016	2020	2017	13.26		59,285	(5,279	)	54,006	1.000	54,006
		2018	12.50		59,286	(39,910	)	19,376	1.357	26,294
		2019	10.53		59,290	(39,909	)	19,381	0.645	12,501
January 23, 2017	2020	2017	13.15		19,012	—		19,012	1.000	19,012
		2018	12.50		19,011	—		19,011	1.357	25,798
		2019	10.53		19,011	—		19,011	0.645	12,263
November 28, 2017	2021	2018	12.50		57,092	—		57,092	1.357	77,474
		2019	10.53		57,092	(4,793	)	52,299	0.645	33,733
		2020			57,104	(4,796	)	52,308
November 27, 2018	2022	2019	$	10.53	110,954	(8,751	)	102,203	0.645	65,921
		2020			110,954	(8,751	)	102,203
		2021			110,967	(8,755	)	102,212

Stock Options. Stock options generally vest ratably over 3 years on each anniversary date of the original grant. Stock options granted since November 2007 also vest upon the Retirement of a participant. Compensation expense for stock options is recognized between the grant date and the vesting date (or the date on which a participant becomes Retirement-eligible, if sooner) on a straight-line basis for each tranche of each award. No stock options were granted since 2015.

Stock option activity under the 2006 Plan is summarized below.



	Options		Weighted average exercise price per option		Weighted average remaining contractual term (years)	Aggregate intrinsic value (millions)
Outstanding at September 30, 2016	3,554,308		$	5.99	3.4	$	23.8
Exercised	(905,834	)	4.71			7.3
Cancelled	(207,820	)	14.72
Outstanding at September 30, 2017	2,440,654		5.72		2.5	17.3
Exercised	(851,628	)	7.00			3.8
Cancelled	—		—
Outstanding at September 30, 2018	1,589,026		5.03		1.9	10.3
Exercised	(726,636	)	5.20			4.4
Cancelled	—		—
Outstanding at September 30, 2019	862,390		$	4.89	2.0	$	5.5

Exercisable at September 30, 2019	862,390		$	4.89	2.0	$	5.5

Stock option exercise prices are equal to the closing price of our common stock on the relevant grant date.

The ranges of exercise prices for stock options outstanding at September 30, 2019 are summarized below.



Exercise price						Options	Weighted average exercise price		Weighted average remaining contractual term (years)	Exercisable options	Weighted average exercise price
	$	0.00	-	$	4.99	454,850	$	3.24	1.5	454,850	$	3.24
	$	5.00	-	$	9.99	407,540	6.73		2.5	407,540	6.73
						862,390	$	4.89	2.0	862,390	$	4.89

Employee Stock Purchase Plan. The Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan (“ESPP”) authorizes the sale of up to 5,800,000 shares of our common stock to employees. Generally, all full-time, active employees are eligible to participate in the ESPP, subject to certain restrictions. Employee purchases are funded through payroll deductions, and any excess payroll withholdings are returned to the employee. The price for shares purchased under the ESPP is 85% of the lower of the closing price on the first day or the last day of the offering period. At September 30, 2019, 2,583,129 shares were available for issuance under the ESPP.

Phantom Plan. Under the Mueller Water Products, Inc. Phantom Plan adopted in 2012 (“Phantom Plan”), we have awarded “phantom units” to certain non-officer employees. A phantom unit settles in cash equal to the price of one share of our common stock on the vesting date. Phantom units vest ratably over 3 years on each anniversary date of the original grant. We recognize compensation expense for phantom units on a straight-line basis for each tranche of each award based on the closing price of our common stock at each balance sheet date. The outstanding phantom units had a fair value of $11.24 per unit at September 30, 2019 and our accrued liability for such units was $1.8 million.

Phantom Plan activity is summarized below.



	Phantom Plan units		Weighted average grant date fair value per unit		Weighted average remaining contractual term (years)	Aggregate intrinsic value (millions)
Outstanding at September 30, 2016	534,026		$	9.60	0.9
Granted	199,260		13.22
Vested	(278,000	)				$	3.7
Cancelled	(103,279	)	10.87
Outstanding at September 30, 2017	352,007		11.36		0.9
Granted	163,199		12.40
Vested	(170,675	)				2.1
Cancelled	(81,758	)	12.10
Outstanding at September 30, 2018	262,773		12.12		0.6
Granted	180,747		10.53
Vested	(132,289	)				1.4
Cancelled	(55,077	)	11.61
Outstanding at September 30, 2019	256,154		11.39		0.9