STOCK-BASED COMPENSATION

12 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

NOTE 11 STOCK-BASED COMPENSATION

On March 2, 2016, the Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”) was approved by our stockholders.  The 2016 Plan, among other things, authorizes the Human Resources Committee of the Board to grant non-qualified stock options, restricted stock awards and performance share units to selected employees and to non-employee directors.  Restricted stock may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant.  Stock options expire 10 years after the grant date.  Awards outstanding under the Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan and the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan remain subject to the terms and conditions of those plans. During the fiscal year ended September 30, 2019, there were no new non-qualified stock options granted, as we have, prospectively and for fiscal year 2019, replaced stock options with performance share units as a component of our executives’ long-term equity incentive compensation. We have also eliminated stock options as an element of our director compensation program. The Board has determined to award stock-based compensation to directors solely in the form of restricted stock. During the fiscal year ended September 30, 2019, 474,775 shares of restricted stock awards and 145,153 performance share units were granted under the 2016 Plan.

A summary of compensation cost for stock-based payment arrangements recognized in contract drilling services operating expense and selling, general and administrative expense in fiscal years 2019, 2018 and 2017 is as follows:

	September 30,
(in thousands)	2019		2018		2017
Stock-based compensation expense
Stock options	$	3,721	$	7,913	$	7,439
Restricted stock	26,149		23,774		18,744
Performance share units	4,422		—		—
	$	34,292	$	31,687	$	26,183

Of the total stock-based compensation expense, $7.5 million was recorded in contract drilling services operating expense and $26.8 million in selling, general and administrative expense for fiscal year 2019 on our Consolidated Statements of Operations.

Stock Options

Vesting requirements for stock options are determined by the Human Resources Committee of our Board of Directors. Options currently outstanding began vesting one year after the grant date with 25 percent of the options vesting for four consecutive years.

We use the Black-Scholes formula to estimate the fair value of stock options granted to employees.  The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods.

	2018		2017
Risk-free interest rate (1)	2.2	%	2.0	%
Expected stock volatility (2)	36.1	%	38.9	%
Dividend yield (3)	4.7	%	3.7	%
Expected term (in years) (4)	6.0		5.5

(1) The risk-free interest rate is based on U.S. Treasury securities for the expected term of the option.

(2) Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the option.

(3) The dividend yield is based on our current dividend yield.

(4) The expected term of the options granted represents the period of time that they are expected to be outstanding. We estimate term of option granted based on historical experience with grants and exercise.

Based on these calculations, the weighted-average fair value per option granted to acquire a share of common stock was $13.17 and $20.48 per share for fiscal years 2018 and 2017, respectively.

The following summary reflects the stock option activity for our common stock and related information for fiscal years 2019, 2018 and 2017:

	2019				2018				2017
(shares in thousands)	Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price
Outstanding at October 1,	3,499		$	58.62	3,278		$	56.41	3,312		$	51.74
Granted	—		—		694		59.03		396		76.61
Exercised	(217	)	24.46		(375	)	36.88		(415	)	38.04
Forfeited/Expired	(44	)	62.14		(98	)	70.77		(15	)	68.32
Outstanding on September 30,	3,238		$	60.86	3,499		$	58.62	3,278		$	56.41
Exercisable on September 30,	2,482		$	60.38	2,193		$	56.31	2,167		$	50.87
Shares available to grant	2,999				5,140				5,624

The following table summarizes information about stock options at September 30, 2019 (shares in thousands):

	Outstanding Stock Options				Exercisable Stock Options
Range of Exercise Prices	Shares	Weighted-Average Remaining Life	Weighted-Average Exercise Price		Shares	Weighted-Average Exercise Price
$0.00 to $40.00	209	0.17	$	38.02	209	$	38.02
$40.00 to $55.00	493	2.93	51.85		468	51.78
$55.00 to $70.00	2,032	6.09	60.53		1,432	61.26
$70.00 to $85.00	504	5.95	80.49		373	80.34
	3,238				2,482

At September 30, 2019, the weighted-average remaining life of exercisable stock options was 4.47 years and the aggregate intrinsic value was $0.4 million with a weighted-average exercise price of $60.38 per share.

The number of options vested or expected to vest at September 30, 2019 was 755,761 with an aggregate intrinsic value of zero and a weighted-average exercise price of $62.42 per share.

As of September 30, 2019, the unrecognized compensation cost related to the stock options was $3.2 million. That cost is expected to be recognized over a weighted-average period of 2 years.

The total intrinsic value of options exercised during fiscal years 2019, 2018 and 2017 was $7.9 million, $9.9 million and $13.1 million, respectively.

The grant date fair value of shares vested during fiscal years 2019, 2018 and 2017 was $8.0 million, $8.8 million and $6.7 million, respectively.

Restricted Stock

Restricted stock awards consist of our common stock and are time-vested over four years. Non-forfeitable dividends are paid on non-vested shares of restricted stock. We recognize compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards is determined based on the closing price of our shares on the grant date. As of September 30, 2019, there was $34.9 million of total unrecognized compensation cost related to unvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 2.3 years.

A summary of the status of our restricted stock awards as of September 30, 2019, and of changes in restricted stock outstanding during the fiscal years ended September 30, 2019, 2018 and 2017, is as follows:

	2019				2018				2017
(shares in thousands)	Shares		Weighted-Average Grant Date Fair Value per Share		Shares		Weighted-Average Grant Date Fair Value per Share		Shares		Weighted-Average Grant Date Fair Value per Share
Outstanding at October 1,	1,001		$	63.74	659		$	70.76	648		$	64.24
Granted	475		58.45		626		59.53		292		78.69
Vested (1)	(371	)	64.32		(258	)	70.60		(271	)	63.81
Forfeited	(20	)	60.85		(26	)	66.73		(10	)	68.09
Outstanding on September 30,	1,085		$	61.28	1,001		$	63.74	659		$	70.76

(1) The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.

Performance Share Units

We have made awards to certain employees that are subject to market-based performance conditions ("performance share units"). Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the 2016 Plan, grants of performance share units are subject to a vesting period of three years (the “Vesting Period”) that is dependent on the achievement of certain performance goals. Such performance share unit awards consist of two separate components. Performance share units that comprise the first component are subject to a three-year performance cycle. Performance share units that comprise the second component are further divided into three separate tranches, each of which is subject to a separate one-year performance cycle within the full three-year performance cycle.  The vesting of the performance share units is generally dependent on (i) the achievement of the Company’s total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies (the “Peer Group”) over the applicable performance cycle, and (ii) the continued employment of the recipient of the performance share unit award throughout the Vesting Period.

At the end of the Vesting Period, recipients receive dividend equivalents, if any, with respect to the number of vested performance share units. The vesting of units ranges from zero to 200% of the units granted depending on the Company’s TSR relative to the TSR of the Peer Group on the vesting date.

The grant date fair value of performance share units was determined through use of the Monte Carlo simulation method. The Monte Carlo simulation method requires the use of highly subjective assumptions. Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined Peer Group's stock, risk free rate of return and cross-correlations between the Company and our Peer Group. The valuation model assumes dividends are immediately reinvested. As of September 30, 2019, there was $4.7 million of unrecognized compensation cost related to unvested performance share units. That cost is expected to be recognized over a weighted-average period of 1.9 years.

A summary of the status of our performance share units as of the fiscal year ended September 30, 2019 is presented below:

	Shares	Weighted-Average Grant Date Fair Value per Share
Outstanding at October 1,	—	$	—
Granted	145	62.66
Outstanding on September 30,	145	$	62.66

The weighted-average fair value calculations for performance share units granted within the fiscal period are based on the following weighted-average assumptions set forth in the table below. 

	2019
Risk-free interest rate (1)	2.7	%
Expected stock volatility (2)	35.9	%
Expected term (in years)	3.0

(1) The risk-free interest rate is based on U.S. Treasury securities for the expected term of the performance share units.

(2)

Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the performance share units.