STOCK-BASED COMPENSATION

The Laclede Group 2006 Equity Incentive Plan (the 2006 Plan) was amended and approved at the annual meeting of shareholders of Laclede Group on January 26, 2012. The purpose of the 2006 Plan is to encourage directors, officers, and 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 2006 Plan that may be earned by achieving performance objectives and/or other criteria as determined by the Committee. Under the terms of the 2006 Plan, officers and employees of the Company and its subsidiaries, as determined by the Committee, are eligible to be selected for awards. Effective February 1, 2012, members of the Company’s Board of Directors are also eligible to participate in the 2006 Plan and no additional awards will be granted under the Restricted Stock Plan for Non-Employee Directors. The 2006 Plan 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 2006 Plan 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 2006 Plan is 1,250,000. The 2006 Plan replaced the Laclede Group Equity Incentive Plan (the 2003 Plan). Shares reserved under the 2003 Plan, other than those needed for currently outstanding awards, were canceled upon shareholder approval of the 2006 Plan.

The Company issues new shares to satisfy employee restricted stock awards and stock option exercises. Prior to February 1, 2012, shares for non-employee directors were purchased on the open market.

Restricted Stock Awards

During fiscal year 2014, the Company granted 125,727 performance-contingent restricted share units to executive officers and key employees at a weighted average grant date fair value of $37.21 per share. This number represents the maximum shares that can be earned pursuant to the terms of the awards. The share units have a performance period ending September 30, 2016. 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 weighted average grant date fair value of performance-contingent restricted shares and share units granted during fiscal years 2013 and 2012 was $34.49 and $36.55 per share, respectively.

Fiscal year 2014 activity of restricted stock and restricted stock units subject to performance and/or market conditions is presented below:



	Shares/ Units		Weighted Average Grant Date Fair Value
Nonvested at September 30, 2013	242,268		$	34.15
Granted (maximum shares that can be earned)	125,727		$	37.21
Vested	(52,954	)	$	32.16
Forfeited	(22,022	)	$	29.35
Nonvested at September 30, 2014	293,019		$	36.18

During fiscal year 2014, the Company granted 59,468 shares of time-vested restricted stock to executive officers and key employees at a weighted average grant date fair value of $45.66 per share. These shares were awarded between December 2013 and August 2014 and vest between December 2014 and July 2017 based on terms of the agreements. 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 year 2013 and 2012 was $40.03 and $39.72 per share, respectively.

During fiscal year 2014, the Company granted 17,100 shares of time-vested restricted stock to non-employee directors at a weighted average grant date fair value of $46.02 per share. The weighted average grant date fair value of restricted stock awarded to non-employee directors during fiscal years 2013 and 2012 was $39.92 and $41.36 per share, respectively. The awards granted in fiscal 2012 were pursuant to the Restricted Stock Plan for Non-Employee Directors and vesting is dependent upon the participant’s age when entering the plan and years of service as a director. The plan’s trustee acquired the shares for the awards in the open market and holds the shares as trustee for the benefit of the non-employee directors until the restrictions expire. In the interim, the participants receive full dividends and voting rights. As discussed above, effective February 1, 2012, any awards to non-employee directors will be made pursuant under The Laclede Group 2006 Equity Incentive Plan.

Time-vested restricted stock and stock unit activity for fiscal year 2014 is presented below:



	Shares/ Units		Weighted Average Grant Date Fair Value
Nonvested at September 30, 2013	119,404		$	38.64
Granted	76,568		$	45.74
Vested	(35,579	)	$	40.46
Forfeited	(19,300	)	$	38.78
Nonvested at September 30, 2014	141,093		$	42.02

During fiscal year 2014, 88,533 shares of restricted stock and stock units (performance-contingent and time-vested), awarded on December 1, 2010, September 1, 2011, October 1, 2012, January 30, 2014 and February 21, 2014 vested. The Company withheld 23,776 of the vested shares at a weighted average price of $45.96 per share pursuant to elections by employees to satisfy tax withholding obligations. During fiscal year 2013, 91,221 shares of restricted stock and stock units (performance-contingent and time-vested), awarded on November 4, 2008, December 1, 2009, January 4, 2010, May 3, 2010 and July 1, 2010, vested. The Company withheld 23,311 of these vested shares at a weighted average price of $39.96 per share pursuant to elections by employees to satisfy tax withholding obligations. During fiscal year 2012, 90,839 shares of restricted stock (performance-contingent and time vested) awarded on February 14, 2008, November 5, 2008, and March 31, 2009, vested. The Company withheld 30,052 of these vested shares at a weighted average price of $40.02 per share pursuant to elections by employees to satisfy tax withholding obligations.

The total fair value of restricted stock (performance-contingent and time-vested) vested during fiscal years 2014, 2013, and 2012 was $4.1, $3.8, and $4.2, respectively, and the related actual tax benefit realized was $1.6, $1.4 and $1.6, respectively.

Stock Option Awards

No stock options were granted during fiscal years 2014, 2013, and 2012. Stock option activity for fiscal year 2014 is presented below:



	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($Millions)
Outstanding at September 30, 2013	133,500		$	31.87
Granted	—		$	—
Exercised	(53,750	)	$	31.07
Forfeited	—		$	—
Expired	—		$	—
Outstanding at September 30, 2014	79,750		$	32.42	1.1	$	1.1
Fully Vested and Expected to Vest at September 30, 2014	79,750		$	32.42	1.1	$	1.1
Exercisable at September 30, 2014	79,750		$	32.42	1.1	$	1.1

Exercise prices of options outstanding at September 30, 2014 range from $30.46 to $34.95. During fiscal year 2014, cash received from the exercise of stock options was $1.7, the intrinsic value of the options exercised was $0.9 and the related actual tax benefit realized was $0.3. During fiscal year 2013, cash received from the exercise of stock options was $2.7, the intrinsic value of the options exercised was $1.0 and the related actual tax benefit realized was $0.4. During fiscal year 2012, cash received from the exercise of stock options was $2.5, the intrinsic value of the options exercised was $1.0 and the related actual tax benefit realized was $0.4.

The closing price of the Company’s common stock was $46.40 at September 30, 2014.

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, is estimated using the closing price of the Company’s stock on the date of the grant. 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 US 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 2014, 2013, and 2012 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:



	2014	2013	2012
Risk free interest rate	0.53%	0.32%	0.39%
Expected dividend yield of stock	—	—	—
Expected volatility of stock	18.00%	19.60%	23.21%
Vesting period	2.8 years	2.8 years	2.8 years

The risk free interest rate was based on the yield on US Treasury securities matching the vesting period. 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:



($ Millions)	2014			2013			2012
Total equity compensation cost	$	5.8		$	4.5		$	2.7
Compensation cost capitalized	(1.8		)	(1.4		)	(0.8		)
Compensation cost recognized in net income	$	4.0		$	3.1		$	1.9
Income tax benefit recognized in net income	(1.5		)	(1.2		)	(0.7		)
Compensation cost recognized in net income, net of income tax	$	2.5		$	1.9		$	1.2

As of September 30, 2014, there was $7.0 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.0 years.