Stock-based Compensation

For the three and six months ended March 31, 2015, our total stock-based compensation included in general and administrative expenses (G&A) in our unaudited consolidated statements of income was approximately $1.5 million ($1.1 million net of tax) and $2.9 million ($2.2 million net of tax), respectively. The fair value of each stock option/SSAR granted is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes Model). The fair value of each performance-based stock grant is estimated on the date of grant using the Monte Carlo valuation method. The cash-settled component of any awards granted to employees are accounted for as a liability award and the liability is adjusted to fair value each reporting period until vested. Non-performance based stock is valued based on the market price of the common stock on the date of the grant.

During the six months ended March 31, 2015 and 2014, employees surrendered 9,899 and 21,772 shares, respectively, to us in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. We valued the stock at the market price on the date of surrender, for an aggregate value of approximately $185,000 and $414,000 for the six months ended March 31, 2015 and 2014, respectively.

Stock Options: The intrinsic value of a stock option/SSAR is the amount by which the market value of the underlying stock exceeds the exercise price. As of March 31, 2015, our stock options/SSARs outstanding had an intrinsic value of $1.4 million. The stock options/SSARs vested and expected to vest in the future had a weighted average expected life of 2.3 years. The aggregate intrinsic value of exercisable stock options/SSARs as of March 31, 2015 was $1.2 million.

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



	Three Months Ended				Six Months Ended
	March 31, 2015				March 31, 2015
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of period	650,223		$	18.12	650,233		$	18.12
Granted	—		—		—		—
Exercised	(456	)	12.07		(456	)	12.07
Expired	—		—		—		—
Forfeited	(3,137	)	20.32		(3,147	)	20.32
Outstanding at end of period	646,630		$	18.12	646,630		$	18.12
Exercisable at end of period	491,932		$	18.39	491,932		$	18.39
Vested or expected to vest in the future	646,437		$	18.12	646,437		$	18.12

Stock Awards: Compensation cost arising from stock awards granted to employees is recognized as an expense within general and administrative expenses in our unaudited consolidated statements of income using the straight-line method over the vesting period. As of March 31, 2015 and September 30, 2014, there was $14.3 million and $10.0 million, respectively, of total unrecognized compensation cost related to nonvested stock awards included in paid-in capital. The cost remaining at March 31, 2015 is expected to be recognized over a weighted average period of 2.9 years.

During the six months ended March 31, 2015, we issued 194,341 shares of performance-based restricted stock (Performance Shares) to our executive officers and certain other corporate employees. The first type of Performance Shares granted requires a total shareholder return (TSR) that compares favorably against an 11-member peer group measured at the end of a three-year performance period (TSR Performance Shares). 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. 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 (October 1, 2014) and (ii) the end of the performance period (September 30, 2017). The grants of the TSR Performance Shares were valued using the Monte Carlo valuation method and had an estimated fair value of $19.90 per share.

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: 0% dividend yield for the Company, expected price volatility ranging from 29.0% to 185.8% and a risk-free interest rate of 0.94%. 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.

The second type of Performance Shares granted are 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 200% payout at the maximum level of pre-tax income. 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.

Performance Shares in excess of the target number (194,341) 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.

Activity relating to stock awards, including the Performance Shares, for the periods presented is as follows:



	Three Months Ended				Six Months Ended
	March 31, 2015				March 31, 2015
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Beginning of period	968,439		$	18.31	746,567		$	15.76
Granted	—		—		390,870		19.07
Vested	(271	)	18.85		(63,078	)	15.90
Forfeited	(14,560	)	19.11		(120,751	)	6.39
End of period	953,608		$	18.29	953,608		$	18.29