Stock-Based Compensation

A summary of stock-based compensation expense for the nine months ended September 30, 2017 and 2016 is as follows:



	Nine Months Ended September 30,
	2017		2016
	(in thousands)
Stock options	$	2,885	$	2,399
Restricted stock and restricted stock units	888		412
Employee Stock Purchase Plan	365		302
Total pre-tax stock-based compensation expense charged against income ⁽¹⁾	$	4,138	$	3,113


⁽¹⁾	Stock-based compensation expense is recorded in selling, general and administrative expense in the Company’s Consolidated Statements of Comprehensive Income.

At September 30, 2017, the unrecognized compensation cost related to unvested stock options and awards was $12.7 million. The weighted average period over which these awards will vest is approximately 3.0 years.

2012 Equity Incentive Plan

The Company’s 2012 Equity Incentive Plan (the “Plan”) provides that current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock, restricted stock units and other stock awards. The Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company.

As of September 30, 2017, 3.4 million shares of common stock were reserved for issuance under the Plan, including 0.8 million shares available for future grant. No stock award will have a term in excess of ten years. All awards granted under the Plan become vested and exercisable ratably over a five year period on each yearly anniversary of the grant date.

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the terms of the grants in accordance with the Plan.

Stock Options

A summary of stock options outstanding under the Plan as of December 31, 2016 and changes during the nine months ended September 30, 2017 is as follows:



	Stock Options Outstanding
	Number of Shares		Weighted Average Exercise Price
	(in thousands)
December 31, 2016	2,615		$	24.61
Granted	544		$	39.38
Canceled	(93	)	$	33.66
Exercised	(513	)	$	20.39
September 30, 2017	2,553		$	28.27

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2017 and 2016 was $8.52 and $7.46 per common share, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2017 and 2016 was $13.3 million and $4.6 million, respectively.

The fair value of stock option awards granted in 2017 and 2016 was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:



	Nine Months Ended
	2017		2016
Risk-free interest rate	2.0	%	2.0	%
Weighted average expected life (years)	5.8 years		5.8 years
Expected volatility	25.1	%	26.0	%
Dividend yield	1.9	%	2.0	%

The following table summarizes other information about the stock options at September 30, 2017:



	September 30, 2017
	(in thousands, except per share data)
Outstanding:
Aggregate intrinsic value	$	65,589
Weighted average remaining contractual life (years)	6.5 years
Exercisable:
Number of options	1,123
Weighted average exercise price	$	21.05
Aggregate intrinsic value	$	36,950
Weighted average remaining contractual life (years)	4.5 years

Restricted Stock

During the nine months ended September 30, 2017, the Company did not grant any restricted stock. During the nine months ended September 30, 2016, the Company granted 44 thousand shares of restricted stock with a weighted average grant date fair value of $34.14 per share. Fair value is determined based on the market price of the shares on the date of grant.

A summary of the outstanding restricted stock awards as of December 31, 2016 and changes during the nine months ended September 30, 2017 is as follows:



	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
December 31, 2016	74		$	32.09
Granted	—		$	—
Vested	(18	)	$	31.41
Forfeited	—		$	—
September 30, 2017	56		$	32.30

Restricted Stock Units

During the nine months ended September 30, 2017, the Company granted 88 thousand restricted stock units with a weighted average grant date fair value of $40.16 per unit. Fair value is determined based on the market price of the underlying shares on the date of grant. During the nine months ended September 30, 2016, there were no grants of restricted stock units.

A summary of the outstanding restricted stock units as of December 31, 2016 and changes during the nine months ended September 30, 2017 is as follows:



	Units	Weighted Average Grant Date Fair Value
	(in thousands)
December 31, 2016	—	$	—
Granted	88	$	40.16
Vested	—	$	—
Forfeited	—	$	—
September 30, 2017	88	$	40.16

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan ("ESPP") is currently available through 2021 to all eligible employees. All full-time and part-time employees who work an average of 20 hours per week and have completed two years of continuous service with the Company are eligible to participate. Annual offerings commence and terminate on the respective year’s first and last calendar day.

Under the ESPP, the Company is authorized to issue up to 4.1 million shares of its common stock to its employees. Pursuant to such authorization, there are 2.3 million shares available for future grant at September 30, 2017.

The stock-based compensation expense associated with the options granted under the ESPP during the nine months ended September 30, 2017 and 2016 was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:



	Nine Months Ended September 30,
	2017	2016
Risk-free interest rate	1.05%	0.58%
Weighted average expected life (years)	1.0	1.0
Expected volatility	21.2%	19.7%
Dividend yield	1.9%	2.0%

Deferred Compensation Plan

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for certain key executives and employees. The SERP allows participants to defer a portion of their earned income on a pre-tax basis and as of the last day of each plan year, each participant will be credited with a match of a portion of their deferral in the form of the Company’s common stock based on the then-current market value. Under the SERP, the Company is authorized to issue 1.0 million shares of its common stock to its employees. Pursuant to such authorization, the Company has 0.4 million shares available for future grant at September 30, 2017. At the time of issuance, such shares are accounted for at cost as treasury stock.

The following table summarizes information about the SERP during the nine months ended September 30, 2017 and 2016:



	Nine Months Ended September 30,
	2017		2016
	(in thousands)
SERP expense⁽¹⁾	$	460	$	443
Unrealized gain recorded in SERP liability account	$	3,375	$	1,114

⁽¹⁾ Both the SERP match and the deferrals are included in the selling, general and administrative caption in the consolidated statements of comprehensive income.