Stock-Based Compensation

During fiscal 2014, we adopted, and our stockholders approved, the 2014 Beazer Homes USA, Inc. Long-Term Incentive Plan (the 2014 Plan). Following adoption of the 2014 Plan, shares available for grant under our 2010 Equity Incentive Plan (the 2010 Plan) remain available for grant in accordance with the terms of that plan. However, there are no more shares available for future issuance under our Amended and Restated 1999 Stock Incentive Plan (the 1999 Plan). We issue new shares upon the exercise of stock options and the vesting of restricted stock awards. In cases of forfeitures and shares returned to us for taxes, those shares are returned to the share pool for future issuance. As of September 30, 2015, we had approximately 1.9 million shares of common stock for issuance under our various equity incentive plans, of which approximately 1.3 million shares are available for future grants.

Our total stock-based compensation expense is included in general and administrative expenses (G&A) in our consolidated statements of income. A summary of the expense related to stock-based compensation by award type is as follows for the periods presented:



	Fiscal Year Ended September 30,
(In millions)	2015			2014			2013
Stock options expense	$	0.7		$	0.8		$	0.9
Restricted stock awards expense	5.4			1.8			2.0
Before tax stock-based compensation expense	6.1			2.6			2.9
Tax benefit	(1.5		)	(0.7		)	(0.6		)
After tax stock-based compensation expense	$	4.6		$	1.9		$	2.3

Stock Options. We have issued stock options to officers and key employees under both the 2010 Plan and the 1999 Plan. Stock options have an exercise price equal to the fair market value of the common stock on the grant date, vest three years after the date of grant and may be exercised thereafter until their expiration, subject to forfeiture upon termination of employment as provided in the applicable plan. Under certain conditions of retirement, eligible participants may receive a partial vesting of stock options. Stock options generally expire on the seventh or eighth anniversary from the date such options were granted depending on the terms of the award.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. We used the following assumptions for options granted, which derived the fair value shown, during the periods presented:



	Fiscal Year Ended September 30,
	2014			2013
Expected life of options	5.1 years			5.0 years
Expected volatility	45.99		%	46.15		%
Expected dividends	—			—
Weighted average risk-free interest rate	1.42		%	0.63		%
Weighted average fair value	$	7.97		$	5.48

We have relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the current grants and an index of peer companies with similar grant characteristics to determine the expected life of the options. We considered historic returns of our stock and the implied volatility of our publicly-traded options in determining expected volatility. We assumed no dividends would be paid, since our Board of Directors has suspended payment of dividends indefinitely and payment of dividends is restricted under our Senior Note covenants. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price. Our stock options outstanding, stock options vested and expected to vest and exercisable stock options each had an intrinsic value of $0.3 million as of September 30, 2015.

The following table summarizes stock options outstanding as of September 30 and activity during the fiscal years ended September 30 for the periods presented:



	2015				2014				2013
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of period	650,223		$	18.12	560,784		$	33.01	429,973		$	48.80
Granted	—		—		161,010		19.11		160,651		13.56
Exercised	(1,209	)	12.07		(2,788	)	14.29		(681	)	10.80
Expired	—		—		(55,811	)	170.32		(22,914	)	47.65
Forfeited	(5,107	)	19.05		(12,972	)	19.85		(6,245	)	17.93
Outstanding at end of period	643,907		$	18.13	650,223		$	18.12	560,784		$	33.01
Exercisable at end of period	491,029		$	18.40	355,703		$	19.74	310,120		$	48.73
Vested or expected to vest in the future	643,877		$	18.13	649,773		$	18.12	558,519		$	33.09

The following table summarizes information about stock options outstanding and exercisable as of September 30, 2015:



	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Contractual Remaining Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Contractual Remaining Life (Years)	Weighted Average Exercise Price

$1 - $15	253,703	4.71	$	12.28	204,328	4.61	$	12.02
$16 - $20	247,781	4.20	19.30		144,278	2.84	19.43
$21- $30	142,423	1.82	26.51		142,423	1.82	26.51
$1- $30	643,907	3.88	$	18.13	491,029	3.28	$	18.40

Compensation cost arising from stock options is recognized as an expense using the straight-line method over the vesting period. As of September 30, 2015 and September 30, 2014, there was $0.5 million and $1.2 million, respectively, of total unrecognized compensation cost related to nonvested stock options. The cost remaining as of September 30, 2015 is expected to be recognized over a weighted average period of 0.7 years.

Restricted Stock Awards. During our fiscal 2015, we issued several types of restricted stock awards as follows: (1) performance-based awards based on a measure of total shareholder return (TSR); (2) performance-based awards based on achievement of pre-tax income; and (3) time-based restricted stock. Each award type is discussed further below.

During our fiscal year ended September 30, 2015, we issued 201,157 shares of performance-based restricted stock (Performance Shares) to our executive officers and certain employees. Each Performance Share represents a contingent right to receive one share of the Company's common stock if vesting is satisfied at the end of the three-year performance period.

The first type of Performance Shares granted in fiscal 2015 requires a TSR that compares favorably against a peer group, measured at the end of the three-year performance period (TSR Performance Shares). Awards granted in prior periods also are dependent on the compound annual growth rate (CAGR) of the price of our common stock during the three-year performance period. The number of TSR Performance Shares that actually vest will range from 0% to 150% of the target number, based on the Company's TSR ranking relative to its peer group during the three-year performance period (and, for certain prior period awards, the CAGR achieved). TSR calculations for the Company and the peer group companies are based on the average closing price of the Company’s common stock on the NYSE for the 20 trading days immediately preceding (i) the start of the performance period and (ii) the end of the performance period. The grant of the TSR Performance Shares was valued using the Monte Carlo valuation method and our fiscal 2015 grant had an estimated fair value of $19.07 per share at the date of grant, a portion of which is attributable to the potential cash-settled liability aspect of the grant, which is included in other liabilities on our consolidated balance sheets.

A Monte Carlo simulation model requires the following inputs: (1) expected dividend yield on the underlying stock; (2) expected price volatility of the underlying stock; (3) risk-free interest rate for the period corresponding with the expected term of the award and (4) fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used, as applicable, in the Monte Carlo simulation model to determine the fair value as of the grant date for the TSR Performance Shares granted in fiscal 2015: 0% dividend yield for the Company, expected price volatility ranging from 35.0% to 59.1% and a risk-free interest rate of 0.66%. The methodology used to determine these assumptions is similar to that for the Black-Scholes Model used for stock option grants discussed above; however, the expected term is determined by the model in the Monte Carlo simulation.

The second type of Performance Shares granted in fiscal 2015 is structured to require absolute performance measured by the Company’s fiscal year 2017 pre-tax income (PTI), defined as the Company’s income from continuing operations before taxes and excluding impairments and abandonments, bond losses and such other non-recurring items as the Compensation Committee of our Board of Directors may approve (PTI Performance Shares). The PTI Performance Shares will vest in 2017, subject to determination of the Company’s actual pre-tax income performance. The PTI Performance Shares will be fully earned at a target pre-tax income level, with a 50% payout at the threshold level of pre-tax income and a payout at the maximum level of pre-tax income of either 150% or 200% depending on the individual grantee. Once the threshold 2017 pre-tax income performance level is achieved, to the extent the actual 2017 pre-tax income performance is between the threshold and target performance levels, or between the target and maximum performance levels, linear interpolation between the award opportunity percentages will be applied to determine the actual payout. These shares are valued based on the market price of the Company's common stock on the date of the grant.

Performance Shares in excess of the target number (201,157) may be settled in cash or additional shares at the discretion of the Compensation Committee. Any portion of the Performance Shares that do not vest at the end of the period will be forfeited.

During our fiscal year ended September 30, 2015, we also issued 209,035 shares of time-based restricted stock (Restricted Shares) to our executive officers and certain employees. Restricted Shares are valued based on the market price of the Company's common stock on the date of the grant. Depending on the award, the restricted stock either cliff-vests one to four years from the date of grant or vests ratably over three years from the date of grant.

Activity relating to all restricted stock awards is as follows for the periods presented:



	Fiscal Year Ended September 30,
	2015				2014				2013
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Beginning of period	746,567		$	15.76	280,416		$	12.32	323,335		$	19.61
Granted	410,192		19.01		595,567		18.68		99,413		10.95
Vested	(64,719	)	15.96		(113,320	)	22.55		(126,124	)	27.59
Forfeited	(135,757	)	7.77		(16,096	)	15.93		(16,208	)	30.57
End of period	956,283		$	18.27	746,567		$	15.76	280,416		$	12.32

Compensation cost arising from restricted stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of September 30, 2015 and September 30, 2014, there was $11.7 million and $10.0 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. The cost remaining at September 30, 2015 is expected to be recognized over a weighted average period of 2.5 years.