Share-based Payments

9 Months Ended

Jun. 30, 2014

Share-based Payments

Share-based Payments

11. Share-based Payments

The fair value of the Company’s employee stock option awards is estimated on the date of grant. The expected term of awards granted represents the period of time the awards are expected to be outstanding. The risk-free interest rate is based on U.S. Treasury bond rates with maturities equal to the expected term of the option on the grant date. The Company uses historical data as a basis to estimate the probability of forfeitures.

Stock option activity for the nine months ended June 30 was as follows:

	2014				2013
	Shares of stock under options		Weighted average exercise price		Shares of stock under options		Weighted average exercise price
	(in millions)				(in millions)
Outstanding at September 30, prior year	1.6		$	24.73	2.5		$	22.81
Options granted	0.6		31.62		—		—
Options exercised	(0.4	)	22.99		(0.6	)	17.55
Options forfeited or expired	(0.1	)	26.86		(0.2	)	26.95
Outstanding at June 30	1.7		27.57		1.7		24.32
Vested and expected to vest in the future as of June 30	1.7		$	27.57	1.7		$	24.32

The Company grants stock units to employees under its Performance Earnings Program (PEP), whereby units are earned and issued dependent upon meeting established cumulative performance objectives over a two or three-year period. Additionally, the Company issues restricted stock units to employees which are earned based on service conditions. Total compensation expense related to share-based payments was $26.0 million and $27.4 million during the nine months ended June 30, 2014 and 2013, respectively. Unrecognized compensation expense related to total share-based payments outstanding was $68.9 million and $52.6 million as of June 30, 2014 and September 30, 2013, respectively, to be recognized on a straight-line basis over the awards’ respective vesting periods which are generally three years.

Cash flows attributable to tax benefits resulting from tax deductions in excess of compensation cost recognized for those stock options (excess tax benefits) is classified as financing cash flows. Excess tax benefits of $0.6 million and $1.8 million for the nine months ended June 30, 2014 and 2013, respectively, have been classified as financing cash inflows in the consolidated statements of cash flows.