Note 9— Stock-Based Compensation

The components of the Company’s stock-based compensation expense for the nine months ended September 30, 2018 and 2017 are as follows:



	Nine Months Ended September 30,
	2018		2017
	(in thousands)
Stock options	$	2,231	$	2,885
Restricted stock and restricted stock units	1,943		888
Employee Stock Purchase Plan	432		365
Total pre-tax stock-based compensation expense charged against income ⁽¹⁾	$	4,606	$	4,138


⁽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, 2018, the unrecognized compensation cost related to unvested stock options and awards was $15.3 million. The weighted average period over which these awards will vest is approximately 2.7 years.

2012 Equity Incentive Plan

The Company’s Second Amended and Restated 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, 2018, 2.9 million shares of common stock were reserved for issuance under the Plan, including 0.5 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, 2017 and changes during the nine months ended September 30, 2018 is as follows:



	Stock Options Outstanding
	Number of Shares		Weighted Average Exercise Price
	(in thousands)
December 31, 2017	2,374		$	29.22
Granted	169		$	52.06
Exercised	(262	)	$	26.07
Forfeited	(60	)	$	35.45
Expired	(4	)	$	25.41
September 30, 2018	2,217		$	31.17

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2018 and 2017 was $10.48 and $8.52 per common share, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2018 and 2017 was $5.9 million and $13.3 million, respectively.

The fair value of stock option awards granted in 2018 and 2017 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:



	Nine Months Ended September 30,
	2018		2017
Risk-free interest rate	2.1	%	2.0	%
Weighted average expected life	5.8 years		5.8 years
Expected volatility	21.4	%	25.1	%
Dividend yield	1.5	%	1.9	%

The following table summarizes other information about the stock options at September 30, 2018:



	September 30, 2018
	(amounts in thousands, except per share data)
Outstanding:
Aggregate intrinsic value	$	22,856
Weighted average remaining contractual life	6.1 years
Exercisable:
Number of options	1,141
Weighted average exercise price	$	24.98
Aggregate intrinsic value	$	17,837
Weighted average remaining contractual life	4.7 years

Restricted Stock Units and Restricted Stock

The fair value of outstanding restricted stock units and restricted stock was determined based on the market price of the shares on the date of grant. During the nine months ended September 30, 2018, the Company granted 139,000 restricted stock units with a weighted average grant date fair value of $52.06 per unit. During the nine months ended September 30, 2017, the Company granted 88,000 restricted stock units with a weighted average grant date fair value of $40.16 per share.

During the nine months ended September 30, 2018 and 2017, the Company did not grant any restricted stock.

A summary of the outstanding restricted stock units and restricted stock as of December 31, 2017 and changes during the nine months ended September 30, 2018 is as follows:



	Restricted Stock Units and Restricted Stock
	Number		Weighted Average Grant Date Fair Value
	(in thousands)
December 31, 2017	145		$	37.07
Granted	139		$	52.06
Vested	(36	)	$	35.79
Forfeited	(5	)	$	52.06
September 30, 2018	243		$	45.55

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, 2018.

The expense associated with the options granted under the ESPP during the nine months ended September 30, 2018 and 2017 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:



	Nine Months Ended September 30,
	2018	2017
Risk-free interest rate	1.89%	1.05%
Weighted average expected life (years)	1.0	1.0
Expected volatility	20.8%	21.2%
Dividend yield	1.4%	1.9%

Deferred Compensation Plan

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for executives and certain key 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, 2018. 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, 2018 and 2017:



	Nine Months Ended September 30,
	2018		2017
	(in thousands)
SERP expense⁽¹⁾	$	490	$	460
Unrealized gain recorded in SERP liability account	$	2,692	$	3,375


⁽¹⁾	Both the SERP match and the deferrals are included in the selling, general and administrative caption in the Consolidated Statements of Comprehensive Income.