
	2021		2020		2019
	(in millions, except per share data)
Decrease in operating income	$	11.0	$	7.2	$	5.5
Decrease in net income	8.0		5.5		4.3
Decrease in earnings per basic share	0.05		0.03		0.03
Decrease in earnings per diluted share	0.05		0.03		0.03

At September 30, 2021, there was approximately $8.6 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 1.4 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, 2021, 5,806,070 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 our Board of Directors (“Compensation 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 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 three 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 units	Weighted average grant date fair value per unit		Weighted average remaining contractual term (years)	Aggregate intrinsic value (millions)
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
Granted	301,979	11.55
Vested	(295,241)	11.40			$	3.4
Cancelled	(35,254)	11.48
Outstanding at September 30, 2020	408,506	11.41		0.9
Granted	220,795	12.29
Vested	(228,121)	11.62			$	2.8
Cancelled	(5,083)	11.41
Outstanding at September 30, 2021	396,097	$	11.78	0.8

Performance-Based Awards. Our performance-based awards consist of performance-based restricted stock units (“PRSUs”). 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 grant date for each year’s performance period is set when the Compensation Committee establishes performance goals for the period, normally within 90 days of the beginning of each performance period. At the end of each annual performance period, the Compensation 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 as a result of 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 2021 and 2020, 103,058 shares and 93,647 shares, respectively, vested related to PRSUs.


Award date	Settlement year	Performance period	Grant date per unit fair value		Units awarded	Units forfeited	Net units	Performance factor	Shares earned
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	$	11.26	57,104	(21,679)	35,425	0.909	32,202
November 27, 2018	2022	2019	$	10.53	110,954	(8,751)	102,203	0.645	65,921
		2020	$	11.26	110,954	(13,182)	97,772	0.909	88,875
		2021	$	11.86	110,967	(28,478)	82,489	1.161	95,770
December 3, 2019	2023	2020	$	11.26	69,988	(2,391)	67,597	0.909	61,446
		2021	$	11.86	69,989	(9,614)	60,375	1.161	70,096
		2022			69,989	(9,614)	60,375

Market-Based Awards. Our market-based awards consist of market-based restricted stock units (“MRSUs”). MRSUs represent a target number of units that may be paid out at the end of a three-fiscal year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with the TSRs of a selected peer group. Settlements in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance ranking within the peer group. The fair values of MRSUs are fixed at the date of grant and the related expense is recognized ratably over the vesting period, which is roughly three years from the date of grant.


	January 27, 2021			December 2, 2020			February 24, 2020			January 28, 2020			December 3, 2019
Fair value at grant date	$	14.26		$	15.39		$	18.17		$	16.76		$	14.94
Units granted	4,187			234,199			7,498			2,763			147,213
Variables used in determining grant date fair value:
Dividend yield	1.84		%	1.77		%	1.73		%	1.76		%	1.87		%
Risk-free rate	0.16		%	0.21		%	1.23		%	1.44		%	1.53		%
Expected term (in years)	2.67			2.83			2.60			2.67			2.83

Stock Options. Stock options generally vest on each anniversary date of the original grant ratably over three years. Compensation expense attributed to stock options is based on the fair value of the awards on their respective grant dates, as determined using a Black-Scholes model.

The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. The risk-free interest rate is based on the United States Treasury zero-coupon yield in effect at the grant date with a term equal to the expected term. The expected term represents the average period of time the options are expected to be outstanding.


	Options	Weighted average exercise price per option		Weighted average remaining contractual term (years)	Aggregate intrinsic value (millions)
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
Exercised	(534,291)	4.15			3.3
Cancelled	—	—
Outstanding at September 30, 2020	328,099	$	6.11	2.3	$	1.4
Granted	431,520	11.86
Exercised	(151,399)	4.09			1.7
Cancelled	(8,421)	—
Outstanding at September 30, 2021	599,799	$	10.67	7.8	$	2.7

Exercisable at September 30, 2021	176,700	$	7.83	2.2	$	1.3


Exercise price						Options	Weighted average exercise price		Weighted average remaining contractual term (years)	Exercisable options	Weighted average exercise price
	$	0.00	-	$	4.99	13,930	$	2.79	0.3	13,930	$	2.79
	$	5.00	-	$	9.99	162,770	8.26		2.4	162,770	8.26
	$10.00		-	$14.99		423,099	$	11.86	10.2	—	$	—
						599,799	$	10.67	7.8	176,700	$	7.83

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, 2021, 2,254,023 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 three 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 $15.22 per unit at September 30, 2021 and our accrued liability for such units was $3.5 million.


	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, 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	11.61		0.9
Granted	188,973	11.26
Vested	(118,908)				$	1.3
Cancelled	(11,744)	11.23
Outstanding at September 30, 2020	314,475	11.16		0.9
Granted	185,808	11.91
Vested	(131,182)				$	1.6
Cancelled	(24,257)	11.30
Outstanding at September 30, 2021	344,844	$	11.51	0.9