STOCK-BASED COMPENSATION

In January 2007, the NJR 2007 Stock Award and Incentive Plan replaced the 2002 Employee and Outside Director Long-Term Incentive Plan. Shares can be issued in the form of options, performance shares or restricted stock. As of September 30, 2013, 1,669,541 and 44,976 shares remain available for future issuance to employees and directors, respectively.

Included in O&M expense during fiscal 2013 is $2.1 million related to stock-based compensation compared with $2.6 million and $2.8 million in fiscal 2012 and fiscal 2011, respectively. As of September 30, 2013, there remains $2 million of deferred compensation related to unvested restricted and performance shares that is expected to be recognized over the next two years.

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



(Thousands)	2013			2012			2011
Stock-based compensation expense:
Performance shares	$	1,049		$	1,276		$	915
Restricted stock	1,081			1,362			1,932
Compensation expense included in operation and maintenance expense	2,130			2,638			2,847
Income tax benefit	(870		)	(1,078		)	(1,163		)
Total, net of tax	$	1,260		$	1,560		$	1,684

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, 2010	263,128			$27.24
Granted	—			—
Exercised	(152,448	)		$26.86
Forfeited	(917	)		$18.11
Outstanding at September 30, 2011	109,763			$27.84
Granted	—			—
Exercised	(28,138	)		$25.30
Forfeited	—			—
Outstanding at September 30, 2012	81,625			$28.71
Granted	—			—
Exercised	(15,000	)		$25.08
Forfeited	—			—
Outstanding at September 30, 2013	66,625			$29.53
Exercisable at September 30, 2013	66,625			$29.53
Exercisable at September 30, 2012	81,625			$28.71
Exercisable at September 30, 2011	109,763			$27.84

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

The following table summarizes stock options outstanding and exercisable as of September 30, 2013:



	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)
$25.12 - $28.65	17,250	1.2	$27.75		$	479
$28.66 - $30.37	49,375	1.6	$30.15		$	1,489
Total	66,625	1.5	$29.53		$	1,968

Performance Shares

In fiscal 2013, the Company granted to various officers 49,904 performance shares, which are market condition awards that vest on September 30, 2015, subject to the Company meeting certain performance conditions. In fiscal 2012, the Company granted to various officers 28,418 performance shares, which vest on September 30, 2014, subject to the Company meeting certain performance conditions. 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. There is $1.5 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 NJR 2007 Stock Award and Incentive Plan for the past three fiscal years:



	Shares ⁽¹⁾		Weighted Average Grant Date Fair Value
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
Granted	28,418			$47.17
Vested ⁽²⁾	(49,702	)		$30.08
Cancelled/forfeited	—			—
Non-vested and outstanding at September 30, 2012	84,743			$33.26
Granted	49,904			$30.74
Vested	—			—
Cancelled/forfeited ⁽³⁾	(56,325	)		$26.24
Non-vested and outstanding at September 30, 2013	78,322			$36.70


(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)	As certified by the Company's Leadership and Compensation Committee on November 13, 2012, the number of common shares related to performance shares and market condition shares earned was 68.8 percent , or 15,427 shares and 70 percent, or 19,095 shares, respectively. The number represented on this line is the target number of 100 percent. See footnote (1) above.


(3)	As certified by the Company's Leadership and Compensation Committee on November 12, 2013, the number of common shares granted in fiscal 2011 related to performance shares and market condition shares earned was zero percent. 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 2013, the company granted 67,295 deferred restricted shares that vested immediately and 2,139 shares of restricted stock that will vest in October 2015. Both of these grants will be distributed in a lump sum in October 2015. In fiscal 2012, the company granted 49,171 deferred restricted shares that vested immediately and 1,929 shares of restricted stock that will vest in October 2014. Both of these grants will be distributed in a lump sum in October 2014. In fiscal 2011, the company granted 36,614 restricted shares, which vest in three equal annual installments, the first installment having occurred on October 15, 2011, and 25,535 restricted shares, all of which will vest on November 17, 2013. There is $452,000 of deferred compensation related to unvested restricted stock shares that is expected to be recognized over the next two years.

The following table summarizes the restricted stock activity under the NJR 2007 Stock Award and Incentive 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, 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		—
Granted	51,100			$47.17		—
Vested ⁽¹⁾	(68,851	)		$(44.86)		$	3,198
Cancelled/forfeited	—			—		—
Non-vested and outstanding at September 30, 2012	59,346			$40.40
Granted	69,434			$40.62
Vested ⁽¹⁾	(86,975	)		$(40.28)		$	3,622
Cancelled/forfeited	(2,550	)		$(40.74)
Non-vested and outstanding at September 30, 2013	39,255			$41.05


(1)	A total of 4,673 previously granted and vested deferred restricted shares were forfeited prior to distribution due to non compliance with the terms of the agreement.