STOCK-BASED COMPENSATION

The Spire 2015 Equity Incentive Plan (“EIP”) was approved by shareholders of Spire on January 29, 2015 and amended on November 9, 2017. The purpose of the EIP is to encourage directors, officers, and key employees of the Company and its subsidiaries to contribute to the Company’s success and align their interests with that of shareholders. To accomplish this purpose, the Compensation Committee (“Committee”) of the Board of Directors may grant awards under the EIP that may be earned by achieving performance objectives and/or other criteria as determined by the Committee. Under the terms of the EIP, officers and employees of the Company and its subsidiaries, as determined by the Committee, are eligible to be selected for awards. The EIP provides for restricted stock, restricted stock units, qualified and non-qualified stock options, stock appreciation rights, and performance shares payable in stock, cash, or a combination of both. The EIP generally provides a minimum vesting period of at least three years for each type of award, with pro rata vesting permitted during the minimum three-year vesting period. The maximum number of shares reserved for issuance under the EIP is 1,000,000.

The Company issues new shares to satisfy employee restricted stock awards and stock option exercises.

Restricted Stock Awards

During fiscal 2018, the Company granted 87,960 performance-contingent restricted share units to executive officers and key employees at a weighted average grant date fair value of $79.88 per share. This number represents the target shares that can be earned pursuant to the terms of the awards. The share units have a performance period ending September 30, 2021. While the participants have no interim voting rights on these share units, dividends accrue during the performance period and are paid to the participants upon vesting, but are subject to forfeiture if the underlying share units do not vest.

The number of share units that will ultimately vest is dependent upon the attainment of certain levels of earnings and other strategic goals, as well as the Company’s level of total shareholder return (“TSR”) during the performance period relative to a comparator group of companies. This TSR provision is considered a market condition under GAAP and is discussed further below. The maximum amount of shares that can be earned pursuant to the terms of the awards is 200% of the target units granted.

The weighted average grant date fair value of performance-contingent restricted share units granted during fiscal years 2017 and 2016 was $58.45 and $62.38 per share, respectively.

Fiscal 2018 activity of restricted stock units subject to performance and/or market conditions is presented below:



	Units		Weighted Average Grant Date Fair Value Per Unit
Nonvested at September 30, 2017	282,015		$	56.32
Granted	87,960		$	79.88
Vested	(81,933	)	$	47.80
Forfeited	(21,960	)	$	56.73
Nonvested at September 30, 2018	266,082		$	66.69

For the year ended September 30, 2018, the total number of shares that could be issued if all outstanding award grants attain maximum performance payout is 532,164.

During fiscal 2018, the Company granted 37,980 shares of time-vested restricted stock to executive officers and key employees at a weighted average grant date fair value of $76.60 per share. Unless forfeited based on terms of the agreements, these shares will vest in fiscal 2021. In the interim, participants receive full voting rights and dividends, which are not subject to forfeiture. The weighted average grant date fair value of time-vested restricted stock and restricted stock units awarded to employees during fiscal years 2017 and 2016 was $63.05 and $59.40 per share, respectively.

During fiscal 2018, the Company granted 9,800 shares of time-vested restricted stock to non-employee directors at a weighted average grant date fair value of $63.20 per share. These shares vested in fiscal 2018, six months after the grant date. The weighted average grant date fair value of restricted stock awarded to non-employee directors during fiscal years 2017 and 2016 was $63.45 and $63.93 per share, respectively.

Time-vested restricted stock and stock unit activity for fiscal 2018 is presented below:



	Shares/ Units		Weighted Average Grant Date Fair Value Per Share
Nonvested at September 30, 2017	110,940		$	55.85
Granted	47,780		$	73.85
Vested	(47,928	)	$	53.48
Forfeited	(7,192	)	$	65.25
Nonvested at September 30, 2018	103,600		$	64.60

For restricted stock and stock units (performance-contingent and time-vested) that vested during fiscal years 2018, 2017, and 2016, the Company withheld 34,922 shares, 35,514 shares and 30,712 shares, respectively, at weighted average prices of $81.65, $63.83 and $57.29 per share, respectively, pursuant to elections by employees to satisfy tax withholding obligations. The total fair value of restricted stock (performance-contingent and time-vested) that vested during fiscal years 2018, 2017, and 2016 was $10.5, $8.9, and $6.3, respectively, and the related tax benefit was $4.0, $3.3, and $2.4, respectively. None of the tax benefits have been realized.

Stock Option Awards

No stock options were granted during fiscal years 2018, 2017 and 2016. There was no stock option activity in fiscal 2018 or fiscal 2017, as all outstanding stock options either vested or forfeited in fiscal 2016. During fiscal 2016, cash received from the exercise of stock options was $0.7 and the related intrinsic value was $0.7. Related tax benefits were not material in any of those years.

Equity Compensation Costs

Compensation cost for performance-contingent restricted stock and stock unit awards is based upon the probable outcome of the performance conditions. For shares or units that do not vest or that are not expected to vest due to the outcome of the performance conditions (excluding market conditions), no compensation cost is recognized and any previously recognized compensation cost is reversed.

The fair value of awards of performance-contingent and time-vested restricted stock and restricted stock units, not subject to the TSR provision, are estimated using the closing price of the Company’s stock on the grant date. For those awards that do not pay dividends during the vesting period, the estimate of fair value is reduced by the present value of the dividends expected to be paid on the Company’s common stock during the performance period, discounted using an appropriate United States (“U.S.”) Treasury yield. For shares subject to the TSR provision, the estimated impact of this market condition is reflected in the grant date fair value per share of the awards. Accordingly, compensation cost is not reversed to reflect any actual reductions in the awards that may result from the TSR provision. However, if the Company’s TSR during the performance period ranks below the level specified in the award agreements, relative to a comparator group of companies, and the Committee elects not to reduce the award (or reduce by a lesser amount), this election would be accounted for as a modification of the original award and additional compensation cost would be recognized at that time. The grant date fair value of the awards subject to the TSR provision awarded during fiscal years 2018, 2017 and 2016 was valued by a Monte Carlo simulation model that assessed the probabilities of various TSR outcomes. The significant assumptions used in the Monte Carlo simulations are as follows:



	2018	2017	2016
Risk-free interest rate	1.76%	1.39%	1.14%
Expected dividend yield of stock	—	—	—
Expected volatility of stock	16.0%	16.3%	15.0%
Vesting period	2.9 years	2.8 years	2.8 years

The risk-free interest rate was based on the yield on U.S. Treasury securities matching the vesting period. A zero percent dividend yield was used, which is mathematically equivalent to the assumption that dividends are reinvested as they are paid. The expected volatility is based on the historical volatility of the Company’s stock. Volatility assumptions were also made for each of the companies included in the comparator group. The vesting period is equal to the performance period set forth in the terms of the award.

The amounts of compensation cost recognized for share-based compensation arrangements are presented below:



	2018			2017			2016
Total compensation cost	$	6.9		$	7.4		$	6.7
Compensation cost capitalized	(1.3		)	(3.3		)	(2.2		)
Prior period disallowed stock compensation capitalization	$	6.9		$	—		$	—
Compensation cost recognized in net income	12.5			4.1			4.5
Income tax benefit recognized in net income	(4.0		)	(1.5		)	(1.7		)
Compensation cost recognized in net income, net of income tax	$	8.5		$	2.6		$	2.8

As of September 30, 2018, there was $9.4 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted average period of 1.8 years.