(8) STOCK-BASED COMPENSATION

The following tables summarize the Company’s stock-based compensation expense for liability and equity classified awards included in the condensed consolidated statements of operations.


	Three Months Ended September 30,
	2016		2015
	(in millions)
Included in:
Operating costs	$	3.3	$	6.7
Selling, general and administrative expenses		28.7		39.4
Total stock-based compensation expense	$	32.0	$	46.1

CII common units	$	4.2	$	19.5
Part A restricted stock units		21.3		10.0
Part B restricted stock units		6.2		16.4
Part C restricted stock units		0.3		0.2
Total stock-based compensation expense	$	32.0	$	46.1

CII Common Units

During the three months ended September 30, 2016 and 2015, the Company recognized $4.2 million and $19.5 million, respectively, of stock-based compensation expense related to vesting of CII common and preferred units. As of September 30, 2016, the unrecognized compensation associated with the Company component of unvested CII common units was $5.9 million.

Performance Incentive Compensation Plan (“PCIP”)

During October 2014, the Company adopted the 2014 Performance Compensation Incentive Plan (“PCIP”). The PCIP includes incentive cash compensation (ICC) and equity (in the form of restricted stock units or “RSUs”). Grants under the PCIP RSU plans are made quarterly for all participants. The PCIP was effective on October 16, 2014 and will remain in effect for a period of 10 years (or through October 16, 2024) unless it is earlier terminated by the Company’s Board of Directors.

The PCIP has the following components:

Part A

Under Part A of the PCIP, all full-time employees, including the Company’s executives, are eligible to earn quarterly awards of RSUs. Each participant in Part A of the PCIP will have a RSU annual award target value, which will be allocated to each fiscal quarter. The final Part A value awarded to a participant for any fiscal quarter is determined by the Compensation Committee subsequent to the end of the respective performance period taking into account the Company’s measured value creation for the quarter, as well as such other subjective factors that it deems relevant (including group and individual level performance factors). The number of Part A RSUs granted will be calculated based on the final award value determined by the Compensation Committee divided by the average closing price of the Company’s common stock over the last ten trading days of the respective performance period. Part A RSUs will vest assuming continuous employment fifteen months subsequent to the end of the performance period. Upon vesting, the RSUs convert to an equal number of shares of the Company’s common stock.

During the three months ended September 30, 2016 and 2015, the Company recognized $21.3 million and $10.0 million, respectively, of compensation expense associated with the vested portion of the Part A awards. The September 2016 and June 2016 quarterly awards were recorded as liabilities totaling $3.3 million and $2.0 million, as of September 30, 2016 and June 30, 2016, respectively, as the awards represent an obligation denominated in a fixed dollar amount to be settled in a variable number of shares during the subsequent quarter. The quarterly stock-based compensation liability is included in “Other long-term liabilities” in the accompanying condensed consolidated balance sheets. Upon the issuance of the RSUs, the liability is re-measured and then reclassified to additional paid-in capital, with a corresponding charge (or credit) to stock based compensation expense. The value of the remaining unvested RSUs is expensed ratably through the vesting date. At September 30, 2016, the remaining unrecognized compensation cost to be expensed over the remaining vesting period for Part A awards is $29.7 million.

The following table summarizes the Company’s Part A RSU activity for the three months ended September 30, 2016:


	Number of Part A RSUs	Weighted average grant-date fair value per share		Weighted average remaining contractual term in months
Outstanding at July 1, 2016	2,169,901	$	26.04	7.9
Granted	788,471		29.01
Vested	(419,217)		28.62
Forfeited	(126,280)		n/a
Outstanding at September 30, 2016	2,412,875	$	26.56	8.0

Part B

Under Part B of the PCIP, participants, including the Company’s executives, are awarded quarterly grants of RSUs. The number of the RSUs earned by the participants is based on the Company’s stock price performance over a performance period of one year with the starting price being the average closing price over the last ten trading days of the quarter immediately prior to the grant and vest assuming continuous employment through the end of the measurement period. The existence of a vesting provision that is associated with the performance of the Company’s stock price is a market condition, which affects the determination of the grant date fair value. Upon vesting, RSUs earned convert to an equal number of shares of the Company’s common stock.

The following table summarizes the Company’s Part B RSU activity for the three months ended September 30, 2016:


	Number of Part B RSUs	Weighted average grant-date fair value per unit		Weighted average remaining contractual term in months
Outstanding at July 1, 2016	860,936	$	29.50	6.2
Granted	200,425		47.00
Vested	(202,696)		25.26
Forfeited	(200,920)		n/a
Outstanding at September 30, 2016	657,745	$	36.12	5.9

The table below reflects the total Part B RSUs granted during Fiscal 2017 and 2016, the maximum eligible shares of the Company’s stock that the respective Part B RSU grant could be converted into shares of the Company’s common stock, and the grant date fair value per Part B RSU:


	During the three months ended
	September 30, 2016
Part B RSUs granted		200,425
Maximum eligible shares of the Company's common stock		1,030,185
Grant date fair value per Part B RSU	$	47.00


	During the three months ended
	June 30, 2016		March 31, 2016		December 31, 2015		September 30, 2015
Part B RSUs granted		312,516		284,773		282,074		272,813
Maximum eligible shares of the Company's common stock		1,606,332		1,463,733		1,449,860		1,426,812
Grant date fair value per Part B RSU	$	37.03	$	25.12	$	25.26	$	17.83
Units converted to Company's common stock at vesting date		n/a		n/a		n/a		40,182

The Company recognized stock-based compensation expense of $6.2 million and $16.4 million related to Part B awards for the three months ended September 30, 2016 and 2015, respectively.

The grant date fair value of Part B RSU grants is estimated utilizing a Monte Carlo simulation. This simulation estimates the ten-day average closing stock price ending on the vesting date, the stock price performance over the performance period, and the number of common shares to be issued at the vesting date. Various assumptions are utilized in the valuation method, including the target stock price performance ranges and respective share payout percentages, the Company’s historical stock price performance and volatility, peer companies’ historical volatility and an appropriate risk-free rate. The aggregate future value of the grant under each simulation is calculated using the estimated per share value of the common stock at the end of the vesting period multiplied by the number of common shares projected to be granted at the vesting date. The present value of the aggregate grant is then calculated under each of the simulations, resulting in a distribution of potential present values. The fair value of the grant is then calculated based on the average of the potential present values. The remaining unrecognized compensation cost associated with Part B RSU grants is $14.4 million at September 30, 2016.

Part C

Under Part C of the PCIP, independent directors of the Company are eligible to receive quarterly awards of RSUs. Independent directors electing to receive a portion of their annual director fees in the form of RSUs are granted a set dollar amount of Part C RSUs each quarter. The quantity of Part C RSUs granted is based on the average closing price of the Company’s common stock over the last ten trading days of the quarter ended immediately prior to the grant date and vest at the end of each quarter for which the grant was made. During the three months ended September 30, 2016, the Company’s independent directors were granted 10,611 Part C RSUs. Part C RSUs vest in the same quarter that they are issued. During the three months ended September 30, 2016 and 2015 the Company recognized $0.3 million and $0.2 million, respectively, of compensation expense associated with the Part C RSUs.