STOCKHOLDERS’ EQUITY

Stock Options

As of March 31, 2016, there were 1,869,754 stock options outstanding and 799,067 stock options which remain unvested. On February 23, 2016, we granted 235,500 options to certain certain officers and key employees at an option price of $20.06. These options will vest in one-fifth increments over a five-year period and have a ten-year term. The fair value of the total options granted during the first quarter of 2016 was approximately $1.3 million. We recorded pre-tax stock-based compensation expense for stock options totaling approximately $0.6 million for the three months ended March 31, 2015 and 2016.

The fair value of the option grants were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	February 23, 2016
Dividend yield	0.5	%
Expected volatility	31.85	%
Risk-free interest rate	1.23	%
Expected life (years)	5.0
Black-Scholes value	$5.60

Performance Awards

During the first quarter of 2016, we granted 73,700 performance awards to certain certain officers and key employees, payable in shares. These awards will vest (if at all) on December 31, 2020 provided that certain criteria surrounding Adjusted Consolidated EBITDA (Adjusted Consolidated Earnings Before Interest Tax Depreciation and Amortization) and Relative Shareholder Return performance is achieved and the individual has remained continuously employed by Carriage through such date. The Adjusted Consolidated EBITDA performance represents 25% of the award and the Relative Shareholder Return performance represents 75% of the award. The fair value of these performance awards granted during the first quarter of 2016 was approximately $1.6 million. The pre-tax compensation expense associated with these awards for the three months ended March 31, 2016 was approximately $27,000.

The fair value of the performance awards are estimated on the date of the grant using a Monte-Carlo simulation pricing model with the following assumptions:



	February 23, 2016
Performance period	January 1, 2016 - December 31, 2020
Simulation period (years)	4.86
Share price at grant date	$20.06
Expected volatility	31.2	%
Risk-free interest rate	1.21	%
Forfeiture rate	2.0	%

Restricted Stock Grants

During the first quarter of 2016, we issued restricted stock awards totaling 16,900 to certain employees that vest over a three-year period and had an aggregate grant date market value of approximately $0.3 million.

Related to the vesting of restricted stock awards, we recorded approximately $0.4 million and $0.3 million of pre-tax compensation expense, which is included in general, administrative and other expenses for the three months ended March 31, 2015 and 2016, respectively.

As of March 31, 2016, we had approximately $2.5 million of total unrecognized compensation costs related to unvested restricted stock awards, which are expected to be recognized over a weighted average period of approximately 2.0 years.

Employee Stock Purchase Plan

During the first quarter of 2016, employees purchased a total of 12,472 shares of common stock through the employee stock purchase plan (“ESPP”) at a weighted average price of $18.37 per share. We recorded pre-tax stock-based compensation expense for the ESPP totaling approximately $73,000 and $77,000 for the three months ended March 31, 2015 and 2016, respectively.

The fair value of the option to purchase shares under the ESPP is estimated on the date of grant (January 1 of each year) associated with the four quarterly purchase dates using the following assumptions:



	2016
Dividend yield	0.5	%
Expected volatility	24.71	%
Risk-free interest rate	0.22%, 0.49%, 0.55%, 0.61%
Expected life (years)	0.25, 0.50, 0.75, 1.00

Expected volatilities are based on the historical volatility during the previous twelve months of the underlying common stock. The risk-free rate for the quarterly purchase periods is based on the U.S. Treasury yields in effect at the time of the purchase. The expected life of the ESPP grants represents the calendar quarters from the beginning of the year to the purchase date (end of each quarter).

Director Compensation Policy

We compensate our directors through cash payments, including retainers and meeting attendance fees, and through stock-based awards. Refer to Note 18 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2015 for a full discussion concerning our Director Compensation Policy.

We recorded approximately $92,000 and $124,000 of pre-tax compensation expense, which is included in general, administrative and other expenses, for the three months ended March 31, 2015 and 2016, respectively, related to the director fees and annual retainers.

Share Repurchase Program

On February 25, 2016, our Board of Directors (our “Board”) approved a share repurchase program authorizing us to purchase up to an aggregate of $25.0 million of our common stock in accordance with Rule 10b-18 of the Exchange Act of 1934, as amended. The shares may be purchased from time to time in the open market or in privately negotiated transactions. Purchases will be at times and in amounts as management deems appropriate based on factors such as market conditions, legal requirements and other business considerations. During the first quarter of 2016, we did not repurchase any shares of common stock.

Cash Dividends

During the three months ended March 31, 2016, our Board declared a quarterly dividend of $0.025 per share, totaling approximately $0.4 million, which was paid on March 1, 2016 to record holders of our common stock as of February 12, 2016. We have a dividend reinvestment program so that stockholders may elect to reinvest their dividends into additional shares of our common stock.

Accumulated other comprehensive income

Our components of Accumulated other comprehensive income are as follows:



	Accumulated Other Comprehensive Income
Balance at December 31, 2015	$	—
Decrease in net unrealized gains associated with available-for-sale securities of the trusts	(24,467		)
Reclassification of net unrealized gain activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus	24,467
Balance at March 31, 2016	$	—