NOTE 10 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 and restricted stock awards 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 three months ended December 31, 2018, there were no non-qualified granted stock options, 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 eliminated stock options as an element of our Director compensation program. During the three months ended December 31, 2018, 472,987 shares of restricted stock awards were granted under the 2016 Plan. An additional 142,603 of restricted stock grants were awarded outside of the 2016 Plan in conjunction with the acquisition of MagVAR.

A summary of compensation cost for stock-based payment arrangements recognized in selling, general and administrative expense is as follows:


	Three Months Ended
	December 31,
	2018		2017
	(in thousands)
Compensation expense
Stock options	$	1,416	$	1,963
Restricted stock		5,742		5,124
	$	7,158	$	7,087

Stock Options

Prospectively, and for the fiscal year ending September 30, 2019, we have eliminated stock options as an element of our director compensation program. The Board of Directors has determined to award stock-based compensation to directors solely in the form of restricted stock.

The following summarizes the weighted-average assumptions utilized in determining the fair value of options granted during the three months ended December 31, 2017:


	2017
Risk-free interest rate (1)	2.2	%
Expected stock volatility (2)	36.1	%
Dividend yield (3)	4.8	%
Expected term (in years) (4)	6.0

(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.

A summary of stock option activity under all existing long-term incentive plans for the three months ended December 31, 2018 is presented in the following tables:


	Three Months Ended December 31, 2018
				Weighted
				Average
		Weighted		Remaining	Aggregate
		Average		Contractual	Intrinsic
	Shares	Exercise		Term	Value
	(in thousands)	Price		(in years)	(in thousands)
Outstanding at October 1, 2018	3,499	$	58.62
Granted	—		—
Exercised	(191)		22.07
Forfeited/Expired	(9)		58.43
Outstanding at December 31, 2018	3,299	$	60.74	5.92	$	2,269
Vested and expected to vest at December 31, 2018	3,299	$	60.74	5.92	$	2,269
Exercisable at December 31, 2018	2,497	$	60.23	5.15	$	2,269

The weighted-average fair value of options granted in the first quarter of fiscal year 2018 was $12.94.

The total intrinsic value of options exercised during the three months ended December 31, 2018 and 2017 was $7.6 million and $4.1 million, respectively.

As of December 31, 2018, the unrecognized compensation cost related to stock options was $5.6 million, which is expected to be recognized over a weighted-average period of 2.4 years.

Restricted Stock

Restricted stock awards consist of our common stock and are time-vested over three to six years. 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 December 31, 2018, there was $55.9 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 2.7 years.

A summary of the status of our restricted stock awards as of December 31, 2018 and changes in restricted stock outstanding during the three months then ended is presented below:


	Three Months Ended
	December 31, 2018
		Weighted Average
	Shares	Grant Date Fair
	(in thousands)	Value per Share
Outstanding at October 1, 2018	1,001	$	63.74
Granted	473		58.48
Vested (1)	(361)		64.47
Forfeited	(7)		59.59
Outstanding on December 31, 2018	1,106	$	61.27

(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 Units

We have made awards to certain employees that are subject to market-based performance conditions ("performance units"). Subject to the terms and conditions set forth in the applicable performance unit award agreements and the 2016 Plan, grants of performance 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 unit awards consist of two separate components. Performance units that comprise the first component are subject to a three-year performance cycle. Performance 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 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 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 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 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 companies’ stock, risk free rate of return, dividend yields and cross-correlations between our and our self-determined Peer Group companies. On December 14, 2018, we granted 145,153 performance units with a weighted average grant date fair value of $9.1 million. That cost is expected to be recognized over a weighted-average period of three years.