STOCKHOLDERS’ EQUITY

Stock-Based Compensation Plans

During the six months ended June 30, 2017, we had two stock benefits plans in effect under which restricted stock, stock options and performance awards have been granted or remain outstanding: the Second Amended and Restated 2006 Long-Term Incentive Plan (the “Amended and Restated 2006 Plan”) and the 2017 Omnibus Incentive Plan (the “2017 Plan”). The Amended and Restated 2006 Plan was terminated upon the approval of the 2017 Plan at the annual shareholders meeting on May 17, 2017. The termination of the Amended and Restated 2006 Plan does not affect the awards previously issued and outstanding.

All stock-based plans are administered by the Compensation Committee appointed by our Board of Directors (the “Board”). The 2017 Plan provides for grants of options as non-qualified options or incentive stock options, restricted stock and performance awards. The 2017 Plan expires on May 17, 2027.

The status of each of the plans at June 30, 2017 is as follows (shares in thousands):



	Shares Reserved ⁽¹⁾	Shares Available to Issue	Options Outstanding
Amended and Restated 2006 Plan	—	—	1,967
2017 Plan	1,559	1,529	16
Total	1,559	1,529	1,983




(1)	Amount includes 6,200 shares granted from the Amended and Restated 2006 Plan that were returned to the Company due to cancellations.

Restricted Stock

During the second quarter of 2017, we issued 5,000 restricted stock grants to a new employee of the leadership team that vest over a five-year period with an aggregate grant date market value of approximately $0.1 million. During the first quarter of 2017, we issued a total of 22,250 restricted stock grants that vest over a three-year period with an aggregate grant date market value of approximately $0.6 million.

During the three months ended June 30, 2016 and 2017, we recorded approximately $0.3 million and $0.2 million, respectively, of pre-tax compensation expense related to the vesting of restricted stock awards, which is included in general, administrative and other expenses. During the six months ended June 30, 2016 and 2017, we recorded pre-tax compensation expense of approximately $0.6 million and $0.4 million, respectively.

As of June 30, 2017, we had approximately $1.4 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 1.9 years.

Stock Options

As of June 30, 2017, there were 1,983,016 stock options outstanding and 715,739 stock options which remain unvested. During the second quarter of 2017, we granted 16,250 options to a new employee of the leadership team at an exercise price of $26.89. These options will vest in one-fifth increments over a five-year period and have a ten-year term. The fair value of the options granted during the second quarter of 2017 was approximately $0.1 million. During the first quarter of 2017, we granted 445,450 options to our leadership team and key employees at a weighted average exercise price of $26.54. 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 2017 was approximately $3.2 million. During the three months ended June 30, 2016 and 2017, we recorded approximately $0.6 million and $0.3 million, respectively, of pre-tax stock-based compensation expense for stock options. During the six months ended June 30, 2016 and 2017, we recorded approximately $1.1 million and $0.8 million, respectively, of pre-tax compensation expense for stock options.

The fair value of the option grants during the second quarter of 2017, were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



Dividend yield	0.74	%
Expected volatility	29.08	%
Risk-free interest rate	1.79	%
Expected life (years)	5.0
Black-Scholes value	$7.11

Performance Awards

During the second quarter of 2017, we granted 4,500 performance awards to a new employee of the leadership team, payable in shares. The fair value of these performance awards granted during the second quarter of 2017 was approximately $0.1 million. These awards will vest (if at all) on June 30, 2022, provided that certain criteria surrounding Adjusted Consolidated EBITDA (Adjusted Earnings Before Interest Tax Depreciation and Amortization) and Adjusted Consolidated EBITDA Margin performance is achieved and the individual has remained continuously employed by Carriage through such date. The Adjusted Consolidated EBITDA performance represents 50% of the award and the Adjusted Consolidated EBITDA Margin performance represents 50% of the award. During the first quarter of 2017, we granted 101,040 performance awards to our leadership team and key employees, payable in shares. The fair value of these performance awards granted during the first quarter of 2017 was approximately $2.7 million. We recorded pre-tax compensation expense for performance awards totaling $81,000 and $202,000 for the three months ended June 30, 2016 and 2017, respectively, and $108,000 and $257,000 for the six months ended June 30, 2016 and 2017, respectively.

Employee Stock Purchase Plan

During the second quarter of 2017, employees purchased a total of 9,425 shares of common stock through our employee stock purchase plan (“ESPP”) at a weighted average price of $22.92 per share. We recorded pre-tax stock-based compensation expense for the ESPP totaling approximately $67,000 and $48,000 for the three months ended June 30, 2016 and 2017, respectively, and $144,000 for both the six months ended June 30, 2016 and 2017.

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:



	2017
Dividend yield	0.75	%
Expected volatility	18.82	%
Risk-free interest rate	0.53%, 0.65%, 0.77%, 0.89%
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

We recorded pre-tax compensation expense related to director compensation, which is included in general, administrative and other expenses, totaling $82,000 and $90,000 , for the three months ended June 30, 2016 and 2017, respectively, and $212,000 and $180,000 for the six months ended June 30, 2016 and 2017, respectively.

Share Repurchase

On February 25, 2016, 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the three and six months ended June 30, 2017, we did not repurchase any shares of common stock pursuant to this share repurchase program.

Cash Dividends

On April 27, 2017 our Board declared a dividend of $0.05 per share, totaling approximately $0.8 million, which was paid on June 1, 2017 to record holders of our common stock as of May 15, 2017. During the three months ended 2016, we paid a quarterly dividend of $0.025 per share, totaling approximately $0.4 million. For the six months ended June 30, 2016 and 2017, we paid total dividends of approximately $0.8 million and $1.7 million, respectively.

Accumulated other comprehensive income

Our components of accumulated other comprehensive income are as follows (in thousands):



	Accumulated Other Comprehensive Income
Balance at December 31, 2016	$	—
Decrease in net unrealized gains associated with available-for-sale securities of the trusts	(667		)
Reclassification of net unrealized gain activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus	667
Balance at June 30, 2017	$	—