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 six months ended March 31, 2023 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
Total - Quarter ended December 31, 2022				$	12.0

Quarter ended March 31, 2023
Restricted stock units	82,769	$	13.89	$	1.1
Phantom Plan instruments	8,367	$	13.42	$	0.1
Employee stock purchase plan instruments	56,066	$	2.28	$	0.1
Total - Quarter ended March 31, 2023				$	1.3
Total - Year to date ended March 31, 2023				$	13.3

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. For these awards, compensation expense is recognized even if the awards are not earned or vested. The assumptions used to determine the grant date fair value are indicated below for awards granted to date during the current fiscal year.

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 March 31, 2023, the outstanding Phantom Plan instruments had a fair value of $13.94 per instrument and our liability for Phantom Plan instruments was $2.5 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 for awards granted to date during the current fiscal year.

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 six months ended March 31, 2023; no shares of common stock were issued to settle PRSUs vested during the three months ended March 31, 2023. Additionally, we issued 87,975 and 216,023 shares of common stock to settle restricted stock units vested during the three and six months ended March 31, 2023, respectively. Finally, we issued 24,217 and 61,951 shares of common stock to settle stock options exercised during the three and six months ended March 31, 2023. Common shares totaling 1,633 and 136,936 were surrendered to us to pay the applicable tax withholding obligations of equity award participants for the three and six months ended March 31, 2023.

Operating income included stock-based compensation expense of $3.4 million and $2.5 million during the three months ended March 31, 2023 and 2022, respectively. Operating income included stock-based compensation expense of $6.2 million and $5.1 million during the six months ended March 31, 2023 and 2022, respectively. At March 31, 2023, there was approximately $14.9 million of unrecognized compensation expense related to stock-based compensation arrangements, which will be expensed through February 2026.

We excluded 998,607 and 944,631 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended March 31, 2023 and 2022, respectively, and 1,269,484 and 563,299 for the six months ended March 31, 2023 and 2022, respectively, since their inclusion would have been antidilutive.