STOCK-BASED COMPENSATION

In January 2007, the NJR 2007 Stock Award and Incentive Plan (2007 Plan) replaced the 2002 Employee and Outside Director Long-Term Incentive Plan (Long-Term Plan). Shares can be issued in the form of options, performance shares or restricted stock. As of September 30, 2011, 1,864,650 and 71,962 shares remain available for future issuance to employees and directors, respectively.

In fiscal 2011, included in operation and maintenance expense is $2.8 million related to stock-based compensation compared with $2.7 million and $3.1 million in fiscal 2010 and fiscal 2009, respectively. As of September 30, 2011, there remains $3.1 million of deferred compensation related to unvested restricted and performance shares that is expected to be recognized over the next two and a quarter years.

The following table summarizes all stock-based compensation expense recognized during the following fiscal years:



(Thousands)	2011			2010			2009
Stock-based compensation expense:
Stock options	$	—		$	—		$	148
Performance shares	915			813			475
Restricted stock	1,932			1,841			2,477
Compensation expense included in Operation and Maintenance expense	2,847			2,654			3,100
Income tax benefit	(1,163		)	(1,084		)	(1,274		)
Total, net of tax	$	1,684		$	1,570		$	1,826

Stock Options

The following table summarizes the stock option activity for the past three fiscal years:



	Shares		Weighted Average Exercise Price
Outstanding at September 30, 2008	579,143			$24.66
Granted	—			—
Exercised	(245,107	)		$22.38
Forfeited	(575	)		$18.11
Outstanding at September 30, 2009	333,461			$26.36
Granted	—			—
Exercised	(68,307	)		$23.20
Forfeited	(2,026	)		$18.32
Outstanding at September 30, 2010	263,128			$27.24
Granted	—			—
Exercised	(152,448	)		$26.86
Forfeited	(917	)		$18.11
Outstanding at September 30, 2011	109,763			$27.84
Exercisable at September 30, 2011	109,763			$27.84
Exercisable at September 30, 2010	263,128			$27.24
Exercisable at September 30, 2009	333,461			$26.36

For the stock options listed above, there are no costs related to unvested options.

The following table summarizes stock options outstanding and exercisable as of September 30, 2011:



	Outstanding and Exercisable
Exercise Price Range	Number Of Stock Options	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price	Aggregate Intrinsic Value (in thousands)
$20.05 - $26.00	26,638	3.3	$21.55		$	560
$26.01 - $29.00	23,250	5.5	$28.68		$	323
$29.01 - $30.37	59,875	5.6	$30.31		$	734
Total	109,763	5.0	$27.84		$	1,617

Performance Shares

In fiscal 2011, the Company granted to various officers 56,325 performance shares, which are market condition awards that vest on September 30, 2013, subject to certain conditions. In fiscal 2010, the Company granted to various officers 29,865 performance shares, which are market condition awards and 24,312 performance shares, which are subject to meeting certain performance milestones (performance conditions). Both performance share grants vest on September 30, 2012, subject to certain conditions. There is $1.6 million of deferred compensation related to unvested performance shares that is expected to be recognized over the next two years.

The following table summarizes the performance share activity under the 2007 Plan for the past three fiscal years:



	Shares ⁽¹⁾		Weighted Average Grant Date Fair Value
Non-vested and outstanding at September 30, 2008	61,980			$31.84
Granted	—			—
Vested	—			—
Cancelled/forfeited	—			—
Non-vested and outstanding at September 30, 2009	61,980			$31.84
Granted	54,177			$30.05
Vested ⁽²⁾	(55,905	)		$31.84
Cancelled/forfeited	(9,777	)		$31.04
Non-vested and outstanding at September 30, 2010	50,475			$31.07
Granted	56,325			$	26.24
Vested	—			$	—
Cancelled/forfeited	(773	)		$	29.74
Non-vested and outstanding at September 30, 2011	106,027			$	28.04


(1)	The number of common shares issued related to performance shares may range from zero to 150 percent of the number of shares shown in the table above based on the Company's achievement of performance goals associated with NJR total shareowner return relative to a selected peer group of companies.


(2)	The number of common shares related to performance shares earned as of September 30, 2010, was 135 percent , or 75,472 shares. The number represented on this line is the target number of 100 percent. See footnote (1) above.

The Company measures compensation expense related to performance shares based on the fair value of these awards at their date of grant. In accordance with ASC 718, compensation expense for market condition grants are recognized for awards granted, and are not adjusted based on actual achievement of the performance goals. The Company estimated the fair value of these grants on the date of grant using a lattice model. Performance condition grants are initially fair valued at the company's stock price on grant date, and are subsequently adjusted for actual achievement of the performance goals.

Restricted Stock

In fiscal 2011, the company granted 36,614 restricted shares, which vest in three equal annual installments, the first occurring on October 15, 2011, and 25,535 restricted shares, all of which will vest on November 17, 2013. In fiscal 2010, the Company issued 24,312 shares of restricted stock, which vest in three equal installments, the first installment having occurred on October 15, 2010. Also, in fiscal 2009, the Company issued 46,500 shares of restricted stock, two-thirds of which vested in October 2009 and one-third of which vested in October 2010 subsequent to meeting certain performance milestones. Also, in fiscal 2009, 1,500 shares were issued, which vest in two equal installments, the first having occurred in April 2010. Also, in fiscal 2010 and 2009 the Company issued 24,312 and 115,211 shares of restricted stock, respectively, that vested immediately, of which 106,730 were retention grants with distribution deferred until fiscal 2012. There is $1.5 million of deferred compensation related to unvested restricted stock shares that is expected to be recognized over the next two and a quarter years.

The following table summarizes the restricted stock activity under the 2007 Plan for the past three fiscal years:



	Shares		Weighted Average Grant Date Fair Value				Total Fair Value of Vested Shares (in Thousands)
Non-vested and outstanding at September 30, 2008	102,801			$	31.80			—
Granted	163,211			$	34.00			—
Vested	(154,215	)		$	(34.49	)		$	5,592
Cancelled/forfeited	—			—				—
Non-vested and outstanding at September 30, 2009	111,797			$	31.30			—
Granted	24,312			$	36.42			—
Vested	(74,888	)		$	(31.28	)		$	2,749
Cancelled/forfeited	(4,856	)		$	(33.00	)		—
Non-vested and outstanding at September 30, 2010	56,365			$	33.40			—
Granted	62,149			$	40.74			—
Vested	(41,201	)		$	(32.29	)		$	1,723
Cancelled/forfeited	(216	)		$	(36.42	)		—
Non-vested and outstanding at September 30, 2011	77,097			$	39.90			—