EQUITY BASED COMPENSATION

Stock Options

Under the company’s incentive plans, stock options are typically granted at prices equal to the fair value on the grant date and have a maximum term of 10 years. Stock options generally vest over a three-year period from the grant date. No stock options were granted or exercised during fiscal years 2015 and 2014. During fiscal year 2013, the company granted 350,000 stock options to the then-Chief Executive Officer as a hiring incentive. These options vest based on the satisfaction of certain service and market performance conditions. The fair value of this option award was $1.3 million at the grant date with a derived service period of 12 months.

The following is a rollforward of stock options for fiscal year 2015 (shares in thousands, exercise price and remaining contractual term represent weighted averages and aggregate intrinsic values in millions):



	Shares	Exercise Price		Remaining Contractual Life (years)	Aggregate Intrinsic Value
Outstanding — beginning of year	650	$	10.32
Cancelled or expired	—	—
Outstanding — end of year	650	$	10.32	2.0	—
Exercisable — end of year	533	$	10.79	1.7	—

The following table provides additional information about outstanding stock options at September 30, 2015 (shares in thousands, exercise price represents a weighted average):



	Outstanding				Exercisable
	Shares	Remaining Contractual Life (years)	Exercise Price		Shares	Exercise Price
$8.00 to $12.00	350	3.0	$	8.22	233	$	8.22
$12.01 to $16.00	300	0.8	12.78		300	12.78
Total	650				533

Stock-based compensation is measured at the grant date based on the fair value of the award and is generally recognized as expense ratably on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited.

Compensation expense is recognized for the non-vested portion of previously issued stock options. No compensation expense associated with the expensing of stock options was recognized in fiscal year 2015. During fiscal year 2014, the company recognized $1.2 million in compensation expense associated with the expensing of stock options. Compensation expense associated with the expensing of stock options was not significant in fiscal year 2013. No options were exercised in fiscal years 2015, 2014 and 2013.

The fair market value of the service and market performance-based option award was determined using the Monte Carlo simulation method. The Monte Carlo simulation method is subject to variability as several factors utilized must be estimated, including the derived service period, which is estimated based on the company’s judgment of likely future stock price performance as well as the company’s stock price volatility. The weighted-average fair value of options granted in fiscal year 2013 was $3.69 per share. The fair value of each option was estimated using the following assumptions:



	2013
Risk-free interest rate	1.7	%
Expected dividend yield	—	%
Expected volatility	60.4	%
Expected life (years)	5.0

Restricted Stock and Restricted Units

The company has granted shares of restricted stock and restricted share units to certain employees and non-employee members of the Board of Directors in accordance with the existing plans. The company measures the grant price fair value of these stock-based awards at the market price of the company’s common stock as of the date of the grant. Employee awards typically vest at the end of three years and are subject to continued employment by the employee. Compensation cost associated with stock-based awards is recognized ratably over the vesting period. Cash dividends on the restricted stock, if any, are reinvested in additional shares of common stock during the vesting period.

The following is a rollforward of the company’s non-vested restricted stock and restricted share units as of September 30, 2015, and the activity during fiscal year 2015 is summarized as follows (shares in thousands):



Non-vested Shares	Number of Shares		Weighted-Average Grant-Date Fair Value
Non-vested - beginning of year	2,038		$	7.16
Granted	528		13.91
Vested	(1,064	)	6.27
Forfeited	(55	)	5.23
Non-vested - end of year	1,447		8.23

In fiscal years 2015, 2014 and 2013, the company granted 0.5 million, 0.2 million, and 1.0 million restricted stock and restricted share units, respectively. The grant date weighted average fair value of these restricted share units was $13.91, $9.23, and $4.43 for restricted share units granted in fiscal years 2015, 2014 and 2013, respectively. The number of non-vested restricted shares and restricted share units as of September 30, 2015 was 1.4 million. The per share weighted average fair value of these non-vested shares was $8.23.

As of September 30, 2015, there was $6 million of total unrecognized compensation costs related to non-vested restricted shares and restricted share units. These costs are expected to be recognized over a weighted average period of 2 years. Total compensation expense recognized for restricted stock and restricted share units was $4 million in fiscal year 2015, $4 million in fiscal year 2014, and $5 million in fiscal year 2013.

Performance Share Units

The company has granted performance share units to all executives eligible to participate in the LTIP. The company measures the grant price fair value of these units-based awards at the market price of the company’s common stock as of the date of the grant. Compensation cost associated with these stock based awards is recognized ratably over the vesting period.

On November 8, 2014, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the LTIP. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit is $13.74, which was the company’s share price on the grant date of December 1, 2014. The Board of Directors also approved a grant of 0.4 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances.

The actual number of performance share units that will vest depends upon the company’s performance relative to the established performance metrics for the three-year performance period of October 1, 2014 to September 30, 2017, measured at the end of the performance period. The number of performance share units will depend on Adjusted EBITDA margin and Adjusted diluted earnings per share from continuing operations at the following weights: 75% associated with achieving an Adjusted EBITDA margin target and 25% associated with achieving an Adjusted diluted earnings per share from continuing operations target.

On November 7, 2013, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the long-term incentive plan. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each share unit is $7.97, the company’s share price on the grant date of December 1, 2013. The number of shares that vest will be between 0% and 200% of the estimated grant date amount of 1.8 million units including incremental performance share units that were issued subsequent to the December 1, 2013 grant date. The plan allows for incremental performance share units to be issued for executive promotions on a quarterly basis.

The actual number of performance share units that will vest will depend upon the company’s performance relative to the established M2016 goals for the three-year performance period of October 1, 2013 to September 30, 2016, measured at the end of the performance period. The number of potential performance units will depend on meeting the established M2016 goals at the following weights: 50% associated with achieving an Adjusted EBITDA margin target, 25% associated with achieving a net debt including retirement benefit liabilities target, and 25% associated with achieving an incremental booked revenue target.

The following is a rollforward of the company’s non-vested performance share units as of September 30, 2015, and the activity during fiscal year 2015 is summarized as follows (shares in thousands):



Non-vested Shares	Number of Shares		Weighted-Average Grant-Date Fair Value
Non-vested - beginning of year	1,635		$	8.27
Granted	749		13.76
Vested	—		—
Forfeited	(74	)	9.56
Non-vested - end of year	2,310		10.01

There were 0.7 million performance share units granted during fiscal 2015 and 2.3 million of non-vested performance shares as of September 30, 2015. The per share weighted average fair value of the performance share units was $10.01 as of September 30, 2015.

For the year ended September 30, 2015 and September 30, 2014, compensation cost recognized related to the performance share units was $8 million and $4 million, respectively. As of September 30, 2015, there were $14 million of total unrecognized compensation costs related to non-vested performance share unit equity compensation arrangements. These costs are expected to be recognized over a weighted average period of 2 years.