STOCKHOLDERS’ EQUITY

Stock Options

As of March 31, 2015, there were 1,985,755 stock options outstanding and 1,441,473 stock options which remain unvested. On February 24, 2015, we granted 628,000 options to certain employees at an option price of $22.58. These options will vest in one-third increments over a three-year period and have a seven-year term. On March 25, 2015, we granted 25,000 options to a new employee at an option price of $24.74. These options will vest in one-third increments over a three-year period and have a seven-year term. The value of all stock options granted in the three months ended March 31, 2015 is approximately $3.7 million.

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 24, 2015		March 25, 2015
Dividend yield	0.44	%	0.40	%
Expected volatility	32.62	%	32.35	%
Risk-free interest rate	1.13	%	1.11	%
Expected life (years)	3.6		3.7
Black-Scholes value	$5.64		$6.22

We recorded pre-tax stock-based compensation expense for stock options totaling approximately $0.3 million and $0.6 million for the three months ended March 31, 2014 and 2015, respectively. The increase in expense for the three months ended March 31, 2015 was due to a larger number of stock option grants in the first quarter of 2015 at a higher option price compared to the option grants made in the first quarter of 2014.

Employee Stock Purchase Plan

During the first quarter of 2015, employees purchased a total of 12,408 shares of common stock through the employee stock purchase plan (“ESPP”) at a weighted average price of $17.14 per share. We recorded pre-tax stock-based compensation expense for the ESPP totaling approximately $116,000 and $73,000 for the three months ended March 31, 2014 and 2015, respectively.

The fair value of the right (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:



	2015
Dividend yield	0.4	%
Expected volatility	24.35	%
Risk-free interest rate	0.02%, 0.11%, 0.18%, 0.25%
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).

Restricted Stock Grants

From time to time, we issue shares of restricted common stock to certain officers and key employees of the Company from our stock benefit plans. The restricted stock shares issued to officers and key employees vest in either one-quarter or one-third increments over four or three-year terms, respectively. During the three months ended March 31, 2015, we issued a total of 37,900 restricted stock grants that vest over a three-year period with an aggregate grant date market value of approximately $0.9 million.

Related to the vesting of restricted stock awards awarded to our officers and key employees, we recorded $0.3 million and $0.4 million of pre-tax compensation expense, which is included in general, administrative and other expenses for the three months ended March 31, 2014 and 2015, respectively.

As of March 31, 2015, we had approximately $4.7 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 2.7 years.

Director Compensation Policy

We compensate our directors through cash payments, including retainers and meeting attendance fees, and through stock-based awards. Our Director Compensation Policy provides for the following cash payments, including retainers and meeting attendance fees:



		Annual Cash Retainer		Per Meeting Cash Fee⁽²⁾
Board - Independent Director	$	40,000	⁽¹⁾	$	2,000
Board - Lead Director	$	115,000	^{(1) (3)}	$	2,000
Audit Committee
Chair	$	17,500	⁽⁴⁾	$	2,000
Member	$	—		$	2,000
Compensation Committee
Chair	$	15,000	⁽⁴⁾	$	1,600
Member	$	—		$	1,600
Corporate Governance Committee
Chair	$	15,000	⁽⁴⁾	$	1,600
Member	$	—		$	1,600


(1)	Paid on a quarterly basis. No cash retainers are paid to employee directors.


(2)	Paid for attendance at any special or regular meeting of the Board or Committee, whether attended in person or by phone. No Per Meeting Cash Fees are paid to employee directors.


(3)	The Lead Director receives this annual retainer in addition to the retainer paid to other Independent Directors.


(4)	Paid on the date of our Annual Meeting of Stockholders.

Our Director Compensation Policy provides that any new independent director will receive, upon appointment or election to our Board, a grant of $100,000 in shares of our Common Stock. Following their initial appointment or election to our Board, each independent director of our Board is entitled to an annual equity retainer of $75,000 payable in shares of Common Stock, paid on the date of our Annual Meeting of Stockholders which will be held on May 19, 2015. Common Stock grants to our independent directors are issued under our Second Amended and Restated 2006 Long-Term Incentive Plan.

We recorded $0.2 million and $0.1 million of pre-tax compensation expense, which is included in general, administrative and other expenses, for the three months ended March 31, 2014 and 2015, respectively, related to the director fees and annual retainers.

Cash Dividends

During the three months ended March 31, 2015, our Board declared a quarterly dividend of $0.025 per share, totaling approximately $0.5 million, which was paid on March 2, 2015 to record holders of our common stock as of February 13, 2015. 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, 2014	$	—
Increase in net unrealized gains associated with available-for-sale securities of the trusts	2,132
Reclassification of net unrealized gain activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus	(2,132		)
Balance at March 31, 2015	$	—