We grant various forms of stock-based compensation, including market-based restricted stock units (“MRSUs”), restricted stock units, stock options and performance-based restricted stock units (“PRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”), Phantom Plan instruments under our Mueller Water Products, Inc. 2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan. Grants issued during the three months ended December 31, 2022 are as follows:


	Number granted	Weighted average grant date fair value per instrument		Total grant date fair value (in millions)












Quarter ended December 31, 2022
MRSUs	166,284	$	15.08	$	2.5
PRSUs	166,284	$	11.41	$	1.9
Restricted stock units	228,692	$	11.39	$	2.6
Phantom Plan instruments	267,093	$	11.41	$	3.0
Non-qualified stock options	573,279	$	3.31	$	1.9
Employee stock purchase plan instruments	47,463	$	2.56	$	0.1
				$	12.0

An MRSU award represents a target number of units that may be paid out at the end of a three-year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with the TSR of a selected peer group. Settlements, in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance relative to that of the peer group.

Compensation expense attributed to MRSUs is based on the fair value of the awards on their respective grant dates, as determined using a Monte Carlo model. The assumptions used to determine the grant date fair value are indicated below.


	November 29, 2022
Variables used in determining grant date fair value:
Dividend yield	2.20	%
Risk-free rate	4.20	%
Expected term (in years)	2.8

The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the expected term. The expected term represents the average period of time the units are expected to be outstanding.

At December 31, 2022, the outstanding Phantom Plan instruments had a fair value of $10.76 per instrument and our liability for Phantom Plan instruments was $1.4 million and is included within Other current and Other noncurrent liabilities.

Stock options generally vest ratably over three years on each anniversary date. Compensation expense attributed to stock options is based on the fair value of the awards on their respective grant dates, using a Black-Scholes model. The assumptions used to determine the grant date fair value are indicated below.

A PRSU award consists of a target number of units that may be paid out at the end of a three-year award cycle. Settlements, in our common shares, will range from zero to two times the number of PRSUs granted, depending on our financial performance relative to the targets.

We issued 282,472 shares of common stock to settle PRSUs vested during the three months ended December 31, 2022. Additionally, we issued 128,048 and 37,734 shares of common stock to settle restricted stock units vested and stock options exercised, respectively, during the three months ended December 31, 2022. Additionally, 131,670 shares of common stock were surrendered to us to pay the withholding obligations of equity award participants.

Operating income included stock-based compensation expense of $2.7 million and $2.6 million during the three months ended December 31, 2022 and 2021, respectively. At December 31, 2022, there was approximately $15.8 million of unrecognized compensation expense related to stock-based compensation arrangements, which will be expensed through December 2025.

We excluded 1,274,371 and 277,344 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended December 31, 2022 and 2021, respectively, since their inclusion would have been antidilutive.