NOTE 7—Equity Award Plans

The stockholders of the Company approved the 2002 Long-Term Incentive Award Plan (the "2002 Plan"), under which an aggregate of 4.3 million shares of the Company's common stock have been reserved for grant and issuance of incentive and non-qualified stock options, stock appreciation rights and stock awards.

Under the 2002 Plan, an option becomes exercisable at such times and in such installments as set by the Compensation Committee of the Board of Directors (generally, vesting occurs over three years in equal annual increments), but no option will be exercisable after the tenth anniversary of the date on which it is granted. The Company may also issue restricted stock awards. The Company has issued restricted stock awards which generally fully vest after three years of continuous employment or over three years in equal annual increments.

Upon completion of the Western Coal acquisition, all of the outstanding options to purchase Western Coal common shares that were not exercised prior to the acquisition were exchanged for fully-vested and immediately exercisable Walter Energy stock options. The Company issued 193,498 stock options in exchange for the Western Coal stock options outstanding as of April 1, 2011.

For the years ended December 31, 2013, 2012 and 2011, the Company recorded stock-based compensation expense for its continuing operations related to equity awards totaling approximately $10.1 million, $7.3 million, and $9.2 million, respectively. These amounts are included in selling, general and administrative expenses and have been allocated to the reportable segments. The total income tax benefits in the Company's continuing operations recognized in the statements of operations for share-based compensation arrangements were $3.8 million, $2.7 million, and $3.2 million during 2013, 2012 and 2011, respectively.

A summary of activity related to stock options during the year ended December 31, 2013, is presented below:

			Weighted Average Exercise Price			Aggregate Intrinsic Value ($000)

Outstanding at December 31, 2012	541,369		$	46.58
Granted	267,624		$	28.60
Exercised	(26,390	)	$	10.87
Forfeited or expired	(28,134	)	$	57.47


Outstanding at December 31, 2013	754,469		$	41.04	6.1	$	363.9




Exercisable at December 31, 2013	437,282		$	44.30	3.9	$	244.4

Weighted average assumptions used to determine the grant-date fair value of options granted were:

	For the year ended December 31,

	2013			2012			2011(1)
Risk free interest rate		1.13	%		0.85	%		0.88	%
Dividend yield		1.10	%		0.55	%		0.52	%
Expected life (years)		4.98			4.95			2.46
Volatility		73.54	%		75.79	%		57.51	%

(1): Includes fully vested replacement stock options issued on April 1, 2011 in connection with the acquisition of Western Coal described in Note 3, which significantly reduced the expected life as compared with prior periods.

The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant with a term equal to the expected life. The expected dividend yield is based on the Company's estimated annual dividend payout at grant date. The expected term of the options represents the period of time the options are expected to be outstanding. Expected volatility is based on historical volatility of the Company's share price for the expected term of the options.

A summary of activity related to restricted stock units during the year ended December 31, 2013, is as follows:

				Aggregate Intrinsic Value ($000)

Outstanding at December 31, 2012	149,271
Granted	121,364
Vested	(38,908	)
Forfeited or expired	(17,719	)


Outstanding at December 31, 2013	214,008		8.18	$	3,644.7

The weighted-average grant-date fair values of stock options granted during the years ended December 31, 2013, 2012 and 2011 were $15.83, $36.97 and $81.82, respectively. The weighted-average grant-date fair values of restricted stock units granted during the years ended December 31, 2013, 2012 and 2011 were $34.03, $63.17 and $133.15, respectively. The total amount of cash received from exercise of stock options was $0.3 million, $0.2 million and $8.9 million for the years ended December 31, 2013, 2012 and 2011, respectively. The total intrinsic value of stock options exercised and restricted stock vested during 2013 was $0.5 million and $0.6 million, respectively, and the total intrinsic value of stock options exercised and restricted stock vested during 2012 was $1.4 million and $1.6 million, respectively. The total intrinsic value of stock options exercised and restricted stock vested during 2011 was $24.2 million and $7.7 million, respectively. The total fair value of restricted stock units vested during 2013, 2012 and 2011 was $3.4 million, $2.1 million and $4.5 million, respectively.

Performance-Based Share Units

During 2013, the Board of Directors approved the grant of 53,874 performance-based share units, all of which remain outstanding as of December 31, 2013. The performance-based share units are awarded to executive officers and key employees and generally cliff vest after two or three years (with accelerated vesting upon a change of control). Performance-based share units granted represent the number of shares of common stock to be awarded based on the achievement of targeted performance levels related to total shareholder return goals over a two or three year period and may range from 0% to 200% of the targeted amount. The grant date fair value of the awards is based upon a Monte Carlo simulation and is amortized over the performance period. At each reporting date the Company reassesses whether achievement of each of the performance conditions is probable, as well as estimated forfeitures. Upon vesting of performance-based share units, the Company issues authorized and unissued shares of the Company's common stock to the recipient.

A summary of activity related to performance-based share units during the year ended December 31, 2013, is as follows:

		Weighted Average Grant Date Fair Value

Outstanding at December 31, 2012	—
Granted	53,874	$	52.38
Vested	—
Forfeited or expired	—


Outstanding at December 31, 2013	53,874

Unrecognized compensation costs related to restricted stock units granted were approximately $2.4 million as of December 31, 2013. These costs are to be recognized over a weighted average period of 1.5 years. Unrecognized compensation costs related to stock options granted were approximately $2.3 million and are to be recognized over a weighted average period of 2.1 years. Unrecognized compensation costs related to performance-based share units compensation arrangements granted were approximately $1.3 million and are to be recognized over a weighted average period of 1.7 years.

Employee Stock Purchase Plan

All full-time employees of the Company who have attained the age of majority in the country in which they reside are eligible to participate in the employee stock purchase plan, which was adopted in January 1996 and amended in April 2004. The Company contributes a sum equal to 15% (20% after five years of continuous participation) of each participant's actual payroll deduction as authorized, and remits such funds to a designated brokerage firm that purchases shares of the Company's common stock for the accounts of the participants, in the open market. The total number of shares that may be purchased under the plan is 3.5 million. Shares purchased under the plan during the years ended December 31, 2013, 2012 and 2011 were approximately 217,900, 86,200 and 29,500, respectively, and the Company's contributions recognized as expense were approximately $0.3 million, $0.5 million and $0.4 million, respectively, during such years.