Note

– Stock-Based Compensation

Under the Company’s

2012

Long-Term Incentive Plan, as amended (the

2012

Plan), the Company has the ability to grant stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, other stock-based awards and cash incentive awards. Awards under the

2012

Plan have a maximum term of

ten

years from the date of grant. The compensation committee

may

provide that the vesting or payment of any award will be subject to the attainment of specified performance measures in addition to the satisfaction of any continued service requirements and the compensation committee will determine whether such measures have been achieved. The per-share exercise price of stock options and SARs granted under the

2012

Plan generally

may

not

be less than the fair market value of a share of our common stock on the date of the grant.

Employee Stock Purchase Plan

The Company’s

2012

Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase a variable number of shares of the Company’s common stock each offering period at a discount through payroll deductions of up to

percent of their eligible compensation, subject to plan limitations. The ESPP provides for

six

-month offering periods with a single purchase period ending

May

and

November

15,

respectively. At the end of each offering period, employees are able to purchase shares at

percent of the lower of the fair market value of the Company’s common stock on the

first

trading day of the offering period or on the last trading day of the offering period.

Stock-Based Compensation Expense

Stock-based compensation expense was

$3.0

million and

$2.2

million for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$8.0

million and

$6.2

million for the

nine

months ended

September 30, 2018

and

2017,

respectively.

Stock Options

The following table summarizes stock option activity during the

nine

months ended

September 30, 2018:

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2017		399,397		$	51.14
Granted		36,258			110.59
Exercised		(152,110	)		39.31
Forfeited		(22,742	)		70.00
Options outstanding at September 30, 2018		260,803		$	64.66

Exercisable at September 30, 2018		126,008		$	51.25

The outstanding options generally have a term of

ten

years. For employees, options granted become exercisable ratably over the vesting period, which is generally a period from

four

five

years, beginning on the

first

anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, options generally become exercisable in full on the

first

anniversary of the grant date.

The weighted-average grant date fair value of options that were granted during the

nine

months ended

September 30, 2018

was

$50.08.

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the

nine

months ended

September 30, 2018

and

2017:

	Nine Months Ended September 30,
	2018	2017
Risk-free interest rate	2.52 - 3.07%	2.24%
Expected life (years)	6.25	6.50
Expected volatility	41.68 - 42.22%	44.68%
Expected dividend yield	0%	0%

As of

September 30, 2018,

there was

$3.9

million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of

3.1

years.

Restricted Stock

Restricted stock awards are share-settled awards and restrictions lapse ratably over the vesting period, which is generally a period from

four

five

years, beginning on the

first

anniversary of the grant date, subject to the employee's continuing service to the Company. For directors, restrictions generally lapse in full on the

first

anniversary of the grant date.

The following table summarizes restricted stock activity during the

nine

months ended

September 30, 2018:

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Restricted stock at December 31, 2017		334,608		$	63.29
Granted		106,760			115.41
Restrictions lapsed		(83,456	)		62.85
Forfeited		(25,661	)		65.73
Restricted stock at September 30, 2018		332,251		$	79.96

As of

September 30, 2018,

there was

$23.1

million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of

3.3

years.

Performance Stock

Performance stock units (PSUs) are expressed in terms of a target number of PSUs, with anywhere between

percent and

150

percent of that target number capable of being earned and vesting at the end of a

three

-year performance period depending on the Company’s performance in the final year of the performance period and the award recipient’s continued employment.

The following table summarizes performance stock activity during the

nine

months ended

September 30, 2018:

			Weighted-
			Average
			Grant Date
	Performance		Fair Value
	Stock		Per Share
Performance stock at December 31, 2017		25,707	$	58.35
Granted		20,006		105.75
Restrictions lapsed		-		-
Performance change		6,427		58.35
Forfeited		-		-
Performance stock at September 30, 2018		52,140	$	76.54

As of

September 30, 2018,

there was

$2.5

million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average period of

2.0

years.

Employee Stock Purchase Plan

The following table presents the assumptions used to estimate the fair value of the ESPP during the

nine

months ended

September 30, 2018

and

2017:

	Nine Months Ended September 30,
	2018	2017
Risk-free interest rate	1.48 - 2.06%	0.59 - 0.97%
Expected life (months)	6.00	6.00
Expected volatility	24.49 - 31.50%	34.51 - 39.51%
Expected dividend yield	0%	0%