Stock-based Compensation

Stock-based compensation expense is included in G&A expenses in the condensed 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 March 31,						Six Months Ended March 31,
(In thousands)	2018			2017			2018			2017
Stock options expense	$	73		$	55		$	133		$	162
Restricted stock awards expense	2,525			2,286			5,075			4,355
Before tax stock-based compensation expense	2,598			2,341			5,208			4,517
Tax benefit	(659		)	(833		)	(1,321		)	(1,607		)
After tax stock-based compensation expense	$	1,939		$	1,508		$	3,887		$	2,910

During the six months ended March 31, 2018 and 2017, employees surrendered 62,330 shares and 30,018 shares, respectively, to the Company in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. The aggregate value of surrendered shares based on the the market price on the date of surrender was approximately $1.3 million and $0.4 million for the six months ended March 31, 2018 and 2017, respectively.

Stock Options

The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option-pricing model (Black-Scholes Model). As of March 31, 2018, the intrinsic value of our stock options outstanding, vested and expected to vest, and exercisable were $1.6 million, $1.6 million, and $1.0 million, respectively. As of March 31, 2018 and September 30, 2017, total unrecognized compensation cost related to nonvested stock options was $0.3 million and $0.3 million, respectively. The cost remaining as of March 31, 2018 is expected to be recognized over a weighted-average period of 2.0 years.

During the six months ended March 31, 2018, we issued 23,680 stock options, each for one share of the Company's stock. These stock options typically vest ratably over three years from the grant date or two years from the grant date if issued under the Employee Stock Option Program (EOP; refer to Note 16 of the notes to the consolidated financial statements in our 2017 Annual Report). Following are the assumptions used to value stock options granted, which derived the weighted average fair value shown, for the period presented:



	Six Months Ended
	March 31, 2018
Expected life of options	5.0 years
Expected volatility	44.71		%
Expected dividends	—
Weighted average risk-free interest rate	2.06		%
Weighted average fair value	$	8.49

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				Six Months Ended
	March 31, 2018				March 31, 2018
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of period	556,159		$	14.11	593,753		$	14.76
Granted	—		—		23,680		20.46
Exercised	—		—		(1,666	)	7.56
Expired	—		—		(56,967	)	23.65
Forfeited	(5,900	)	7.48		(8,541	)	9.46
Outstanding at end of period	550,259		$	14.18	550,259		$	14.18
Exercisable at end of period	435,432		$	14.81	435,432		$	14.81
Vested or expected to vest in the future	550,222		$	14.18	550,222		$	14.18

Restricted Stock Awards

The fair value of restricted stock awards with market conditions is estimated on the grant date using a Monte Carlo valuation model. The fair value of 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 March 31, 2018 and September 30, 2017, there was $12.9 million and $8.8 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. The cost remaining as of March 31, 2018 is expected to be recognized over a weighted average period of 1.8 years.

We issued two types of restricted stock awards during the six months ended March 31, 2018 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 six months ended March 31, 2018, we issued 165,085 shares of performance-based restricted stock with market conditions (2018 Performance Shares) to our executive officers and certain other employees. The 2018 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 2018 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 $22.40 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 2018 Performance Shares: 0% dividend yield for the Company; expected price volatility ranging from 21.1% to 50.0%; and a risk-free interest rate of 1.81%. 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 2018 Performance Shares earned in excess of the target number of 165,085 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 six months ended March 31, 2018, we also issued 211,165 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 over three years on each anniversary from the date of grant.

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



	Six Months Ended March 31, 2018
	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	668,766		$	15.72	872,181		$	16.47	1,540,947		$	16.14
Granted	165,085		22.40		211,165		20.20		376,250		21.17
Vested	—		—		(225,608	)	14.01		(225,608	)	14.01
Forfeited	(188,058	)	18.96		(15,685	)	16.35		(203,743	)	18.76
End of period	645,793		$	16.48	842,053		$	18.07	1,487,846		$	17.38