Stock-based Compensation

Our total stock-based compensation expense is included in 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:



	Three Months Ended June 30,						Nine Months Ended June 30,
(In thousands)	2017			2016			2017			2016
Stock options expense	$	53		$	135		$	215		$	385
Restricted stock awards expense	2,757			1,921			7,112			5,459
Before tax stock-based compensation expense	2,810			2,056			7,327			5,844
Tax benefit	(1,001		)	(1,043		)	(2,608		)	(2,891		)
After tax stock-based compensation expense	$	1,809		$	1,013		$	4,719		$	2,953

During the nine months ended June 30, 2017 and 2016, employees surrendered 31,359 shares and 15,707 shares, respectively, to us in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. We valued this stock at the market price on the date of surrender, for an aggregate value of approximately $403,000 and $205,000 for the nine months ended June 30, 2017 and 2016, respectively.

Stock Options. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes Model). The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price. As of June 30, 2017, the intrinsic value of our stock options outstanding, vested and expected to vest and exercisable were $0.8 million, $0.8 million and $0.4 million, respectively. As of June 30, 2017 and September 30, 2016, there were $0.3 million and $0.4 million, respectively, of total unrecognized compensation cost related to nonvested stock options. The cost remaining as of June 30, 2017 is expected to be recognized over a weighted-average period of 1.6 years.

During the nine months ended June 30, 2017, we issued 29,410 stock options, each for one share of the Company's stock. These stock options typically vest ratably over three years from the date of grant, or two years from the date of grant if issued under the Employee Stock Option Program (EOP; refer to Note 16 of the notes to the consolidated financial statements in our 2016 Annual Report). We used the following assumptions for stock options granted, which derived the weighted average fair value shown, for the period presented:



	Nine Months Ended
	June 30, 2017
Expected life of options	5.4 years
Expected volatility	50.10		%
Expected dividends	—
Weighted average risk-free interest rate	1.85		%
Weighted average fair value	$	5.83

We 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 granted. 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.

Activity related to stock options for the periods presented is as follows:



	Three Months Ended				Nine Months Ended
	June 30, 2017				June 30, 2017
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of period	688,175		$	16.39	672,669		$	16.49
Granted	—		—		29,410		12.50
Expired	(84,976	)	28.45		(84,976	)	28.45
Forfeited	(3,085	)	7.54		(16,989	)	11.93
Outstanding at end of period	600,114		$	14.73	600,114		$	14.73
Exercisable at end of period	478,967		$	15.93	478,967		$	15.93
Vested or expected to vest in the future	596,309		$	14.78	596,309		$	14.78

Restricted Stock Awards. The fair value of each restricted stock award with any market conditions is estimated on the date of grant using the Monte Carlo valuation method. The fair value of any restricted stock awards without market conditions is based on the market price of the Company's common stock on the date of grant. If applicable, the cash-settled component of any awards granted to employees is accounted for as a liability, which is adjusted to fair value each reporting period until vested.

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 June 30, 2017 and September 30, 2016, there was $11.2 million and $11.0 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. The cost remaining as of June 30, 2017 is expected to be recognized over a weighted average period of 1.7 years.

We issued two types of restricted stock awards during the nine months ended June 30, 2017 as follows: (1) performance-based restricted stock awards with a payout based on the Company's performance and certain market conditions; and (2) time-based restricted stock awards. Each award type is discussed further below.

Performance-Based Restricted Stock Awards. During the nine months ended June 30, 2017, we issued 263,696 shares of performance-based restricted stock (2017 Performance Shares) to our executive officers and certain other employees that also have market conditions. The 2017 Performance Shares are structured to be awarded based on the Company's performance under three pre-determined financial metrics at the end of the three-year performance period. After determining the number of shares earned based on these financial metrics, which can range from 0% to 175% of the targeted number of shares, the award will be subject to further upward or downward adjustment by as much as 20% based on the Company's relative total shareholder return (TSR) compared against the S&P Homebuilders Select Industry Index during the three-year performance period. The 2017 Performance Shares were valued using the Monte Carlo valuation model due to the existence of the TSR market condition and had an estimated fair value of $13.60 per share on the date of grant.

A Monte Carlo valuation model requires the following inputs: (1) the expected dividend yield on the underlying stock; (2) the expected price volatility of the underlying stock; (3) the risk-free interest rate for the period corresponding with the expected term of the award; and (4) the fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used in the Monte Carlo valuation model to determine the fair value as of the grant date for the 2017 Performance Shares: 0% dividend yield for the Company; expected price volatility ranging from 32.6% to 66.0%; and a risk-free interest rate of 1.30%. The methodology used to determine these assumptions is similar to the Black-Scholes Model; however, the expected term is determined by the model in the Monte Carlo simulation.

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. Any 2017 Performance Shares earned in excess of the target number of 263,696 shares may be settled in cash or additional shares at the discretion of the Compensation Committee of our Board of Directors. Any portion of these that do not vest at the end of the period will be forfeited.

Time-Based Restricted Stock Awards. During nine months ended June 30, 2017, we also issued 271,855 shares of time-based restricted stock (Restricted Shares) to our directors, executive officers and certain other employees. The Restricted Shares granted to our non-employee directors vest on the one-year anniversary of the date of grant, while the Restricted Shares granted to our executive officers and other employees vest ratably on each anniversary over three years from the date of grant.

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



	Three Months Ended June 30, 2017
	Performance-Based Restricted Stock			Time-Based Restricted Stock				Total Restricted Stock
	Shares	Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Beginning of period	683,699	$	15.72	891,703		$	16.43	1,575,402		$	16.12
Granted	—	—		2,453		11.89		2,453		11.89
Vested	—	—		(3,416	)	17.77		(3,416	)	17.77
End of period	683,699	$	15.72	890,740		$	16.42	1,574,439		$	16.12



	Nine Months Ended June 30, 2017
	Performance-Based Restricted Stock				Time-Based Restricted Stock				Total Restricted Stock
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Beginning of period	448,693		$	16.71	807,124		$	17.52	1,255,817		$	17.23
Granted	263,696		13.60		271,855		12.50		535,551		13.04
Vested	—		—		(187,146	)	15.53		(187,146	)	15.53
Forfeited	(28,690	)	11.65		(1,093	)	19.07		(29,783	)	11.92
End of period	683,699		$	15.72	890,740		$	16.42	1,574,439		$	16.12