Stock-based Compensation

Our total stock-based compensation expense is included in general and administrative expenses (G&A) in our unaudited 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)	2016			2015			2016			2015
Stock options expense	$	135		$	171		$	385		$	528
Restricted stock awards expense	1,921			1,468			5,459			4,042
Before tax stock-based compensation expense	2,056			1,639			5,844			4,570
Tax benefit	(1,043		)	—		^(a)	(2,891		)	—		^(a)
After tax stock-based compensation expense	$	1,013		$	1,639		$	2,953		$	4,570

^(a) Tax impact is zero due to the existence of a valuation allowance on our deferred tax assets in prior year periods.

During the nine months ended June 30, 2016 and 2015, employees surrendered 15,707 shares and 10,302 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 $205,000 and $192,000 for the nine months ended June 30, 2016 and 2015, 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, 2016, the intrinsic value of our stock options outstanding and the aggregate options exercisable were both zero. As of June 30, 2016 and September 30, 2015, there was $0.6 million and $0.5 million, respectively, of total unrecognized compensation cost related to nonvested stock options. The cost remaining as of June 30, 2016 is expected to be recognized over a weighted average period of 1.6 years.

During the current quarter, the Compensation Committee of our Board of Directors approved the Employee Stock Option Program (EOP). This program is available to all full-time employees, other than our senior leadership team, and is designed to enable employees to share in potential future price appreciation of the Company's stock. The EOP matches stock purchases made by eligible employees meeting certain conditions with an option to purchase an additional share of the Company's shares on a one-to-one basis. The exercise price of the options granted is equal to the closing price of the Company's stock on the day the underlying stock is purchased. The options will vest on the second anniversary of the date of grant, but are forfeited if (1) the eligible employee no longer works for the Company or (2) the underlying shares are sold before the two-year vesting period is over. The total number of options available under the EOP is limited to 100,000, of which 74,474 options were granted during the current quarter.

During the nine months ended June 30, 2016, we issued 115,074 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 EOP. 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, 2016
Expected life of options	4.9 years
Expected volatility	46.50		%
Expected dividends	—
Weighted average risk-free interest rate	1.38		%
Weighted average fair value	$	3.98

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



	Three Months Ended				Nine Months Ended
	June 30, 2016				June 30, 2016
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of period	681,273		$	17.89	643,907		$	18.13
Granted	74,474		7.53		115,074		9.90
Forfeited	(500	)	7.32		(3,734	)	17.03
Outstanding at end of period	755,247		$	16.88	755,247		$	16.88
Exercisable at end of period	590,200		$	18.04	590,200		$	18.04
Vested or expected to vest in the future	755,247		$	16.88	755,247		$	16.88

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.

As of June 30, 2016 and September 30, 2015, there was $13.1 million and $11.7 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. The cost remaining as of June 30, 2016 is expected to be recognized over a weighted average period of 2.0 years.

During the nine months ended June 30, 2016, we issued 231,624 shares of performance-based restricted stock (2016 Performance Shares) to our executive officers and certain other employees that also have market conditions. The 2016 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 the 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 2016 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 $15.43 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, as applicable, in the Monte Carlo valuation model to determine the fair value as of the grant date for the 2016 Performance Shares: 0% dividend yield for the Company, expected price volatility ranging from 29.9% to 151.2% and a risk-free interest rate of 1.21%. 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.

Any 2016 Performance Shares earned in excess of the target number of 231,624 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.

During nine months ended June 30, 2016, we also issued 259,819 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 first anniversary of the grant, while the Restricted Shares granted to our executive officers and other employees vest ratably over three years from the date of grant.

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



	Three Months Ended				Nine Months Ended
	June 30, 2016				June 30, 2016
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Beginning of period	1,281,662		$	17.23	956,283		$	18.27
Granted	—		—		491,443		14.69
Vested	(4,156	)	18.15		(125,145	)	18.61
Forfeited	(8,099	)	17.11		(53,174	)	9.42
End of period	1,269,407		$	17.23	1,269,407		$	17.23