STOCK-BASED COMPENSATION

3 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

NOTE 12 STOCK-BASED COMPENSATION

On March 2, 2016, the Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”) was approved by our stockholders. The 2016 Plan, among other things, authorizes the Human Resources Committee of the Board to grant non-qualified stock options, restricted stock awards and performance share units to selected employees and to non-employee directors. Restricted stock may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant. Stock options expire 10 years after the grant date. Awards outstanding under the Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan and the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan remain subject to the terms and conditions of those plans. Beginning with fiscal year 2019, we replaced stock options with performance share units as a component of our executives’ long-term equity incentive compensation. As a result, there were no new non-qualified stock options granted during the three months ended December 31, 2019. We have also eliminated stock options as an element of our director compensation program. The Board has determined to award stock-based compensation to directors solely in the form of restricted stock. During the three months ended December 31, 2019, 727,009 shares of restricted stock awards and 258,857 performance share units were granted under the 2016 Plan.

A summary of compensation cost for stock-based payment arrangements recognized in contract drilling services operating expense and selling, general and administrative expense is as follows:



	Three Months Ended December 31,
(in thousands)	2019		2018
Stock-based compensation expense
Stock options	$	571	$	1,416
Restricted stock	7,370		5,742
Performance share units	2,260		—
	$	10,201	$	7,158

Of the total stock-based compensation expense, $2.4 million and $1.6 million was recorded in contract drilling services operating expense and $7.8 million and $5.6 million was recorded in selling, general and administrative expense for the three months ended December 31, 2019 and 2018, respectively, on our Unaudited Condensed Consolidated Statements of Operations.

Stock Options

A summary of stock option activity under all existing long-term incentive plans for the three months ended December 31, 2019 is presented in the following table:



	Three Months Ended December 31, 2019
(in thousands, except per share amounts and years)	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at September 30, 2019	3,238	$	60.86
Exercised	(202)	38.02
Forfeited/Expired	(8)	38.02
Outstanding at December 31, 2019	3,028	$	62.44	5.30	$	—
Vested and expected to vest at December 31, 2019	3,028	$	62.44	5.30	$	—
Exercisable at December 31, 2019	2,632	$	62.44	4.93	$	—

The total intrinsic value of options exercised during the three months ended December 31, 2019 and 2018 was $0.3 million and $7.6 million, respectively.

As of December 31, 2019, the unrecognized compensation cost related to stock options was $2.7 million, which is expected to be recognized over a weighted-average period of 1.8 years.

Restricted Stock

Restricted stock awards consist of our common stock and are time-vested over four years. Non-forfeitable dividends are paid on non-vested shares of restricted stock. We recognize compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards is determined based on the closing price of our shares on the grant date. As of December 31, 2019, there was $57.8 million of total unrecognized compensation cost related to unvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 3.1 years.

A summary of the status of our restricted stock awards as of December 31, 2019 and changes in non-vested restricted stock outstanding during the three months then ended is presented below:



	Three Months Ended December 31, 2019
(in thousands, except per share amounts)	Shares		Weighted Average Grant Date Fair Value per Share
Non-vested restricted stock outstanding at September 30, 2019	1,085		$	61.28
Granted	727		41.88
Vested (1)	(414	)	62.13
Forfeited	(2	)	60.59
Non-vested restricted stock outstanding at December 31, 2019	1,396		$	50.93


(1)	The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.

Performance Share Units

We have made awards to certain employees that are subject to market-based performance conditions ("performance share units"). Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the 2016 Plan, grants of performance share units are subject to a vesting period of three years (the “Vesting Period”) that is dependent on the achievement of certain performance goals. Such performance share unit awards consist of two separate components. Performance share units that comprise the first component are subject to a three-year performance cycle. Performance share units that comprise the second component are further divided into three separate tranches, each of which is subject to a separate one-year performance cycle within the full three-year performance cycle. The vesting of the performance share units is generally dependent on (i) the achievement of the Company’s total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies (the “Peer Group”) over the applicable performance cycle, and (ii) the continued employment of the recipient of the performance share unit award throughout the Vesting Period.

At the end of the Vesting Period, recipients receive dividend equivalents, if any, with respect to the number of vested performance share units. The vesting of units ranges from zero to 200 percent of the units granted depending on the Company’s TSR relative to the TSR of the Peer Group on the vesting date.

The grant date fair value of performance share units was determined through use of the Monte Carlo simulation method. The Monte Carlo simulation method requires the use of highly subjective assumptions. Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined Peer Group companies’ stock, risk free rate of return and cross-correlations between the Company and our Peer Group companies. The valuation model assumes dividends are immediately reinvested. As of December 31, 2019, there was $13.6 million of unrecognized compensation cost related to unvested performance share units. That cost is expected to be recognized over a weighted-average period of 2.2 years.

A summary of the status of our performance share units as of December 31, 2019 and changes in performance share units outstanding during the three months then ended is presented below:



	Three Months Ended December 31, 2019
(in thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value per Share
Non-vested performance share units outstanding at September 30, 2019	145	$	62.66
Granted	259	43.40
Non-vested performance share units outstanding at December 31, 2019	404	$	50.31

The weighted-average fair value calculations for performance share units granted during the three months ended December 31, 2019 and 2018 are based on the following weighted-average assumptions set forth in the table below.



	Three Months Ended December 31, 2019		Three Months Ended December 31, 2018
Risk-free interest rate ₍₁₎	1.6	%	2.7	%
Expected stock volatility ₍₂₎	34.8	%	35.9	%
Expected term (in years)	3.2		3.0


(1)	The risk-free interest rate is based on U.S. Treasury securities for the expected term of the performance share units.

(2)

Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates the expected term of the performance share units.