STOCKHOLDERS’ EQUITY

Stock-Based Compensation Plans

During the nine months ended September 30, 2018, we had two stock benefits plans 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 under the Amended and Restated 2006 Plan.

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 September 30, 2018 is as follows (shares in thousands):



	Shares Reserved		Shares Available to Issue	Options Outstanding	Performance Awards Outstanding ⁽²⁾
Amended and Restated 2006 Plan	—		—	1,435	297
2017 Plan	1,953	⁽¹⁾	1,405	223	229
Total	1,953		1,405	1,658	526




(1)	Amount includes approximately 398,000 shares granted from the Amended and Restated 2006 Plan that were returned to the Company due to cancellations, to pay taxes on restricted stock vestings and to pay option price and taxes on option exercises.
(2)	Performance Awards are reserved at 200% of shares granted which is equal to the maximum payout in shares.

Restricted Stock

During the nine months ended September 30, 2018, we issued restricted stock to our leadership team and certain key employees totaling 86,260 shares that vest over a three-year period and had an aggregate grant date market value of approximately $2.2 million at a weighted average stock price of $25.18. We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for restricted stock awards of $174,000 and $215,000, during the three months ended September 30, 2017 and 2018, respectively. We recorded stock-based compensation expense for restricted stock awards of $547,000 and $681,000, during the nine months ended September 30, 2017 and 2018, respectively.

Stock Options

During the nine months ended September 30, 2018, we granted 212,853 options to our leadership team and certain key employees at a weighted average exercise price of $25.43. These options will vest in one-fifth increments over a five-year period and have a ten-year term. The fair value of these options was approximately $1.4 million.

The fair value of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	2018
Dividend yield	1.18	%
Expected volatility	27.08	%
Risk-free interest rate	2.65	%
Expected holding period (years)	5.0
Black-Scholes value	$6.38

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for stock options of approximately $335,000 and $238,000, during the three months ended September 30, 2017 and 2018, respectively. We recorded stock-based compensation expense for stock options of approximately $1,154,000 and $955,000, during the nine months ended September 30, 2017 and 2018, respectively.

Performance Awards

During the nine months ended September 30, 2018, we granted 113,320 performance awards to our leadership team and certain key employees, payable in shares. These awards will vest (if at all) on December 31, 2022, provided that certain criteria, including but not limited to, 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. The fair value of these performance awards was approximately $2.9 million and was determined by using the stock price on the grant date of $25.43.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for performance awards of $208,000 and $344,000 during the three months ended September 30, 2017 and 2018, respectively. We recorded stock-based compensation expense for performance awards of $465,000 and $964,000 during the nine months ended September 30, 2017 and 2018, respectively.

Employee Stock Purchase Plan

During the three months ended September 30, 2018, employees purchased a total of 12,506 shares of common stock through our ESPP at a weighted average price of $18.32 per share. During the nine months ended September 30, 2018, employees purchased a total of 36,947 shares of common stock through our ESPP at a weighted average price of $20.46 per share. We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for the ESPP totaling approximately $60,000 and $58,000 for the three months ended September 30, 2017 and 2018, respectively. We recorded stock-based compensation expense for the ESPP totaling approximately $204,000 and $208,000 for the nine months ended September 30, 2017 and 2018, respectively.

The fair value of the right (option) to purchase shares under the ESPP is estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:



	2018
Dividend yield	0.01	%
Expected volatility	20.89	%
Risk-free interest rate	1.44%, 1.61%, 1.72%, 1.83%
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

Effective May 16, 2018, our Board revised the Director Compensation Policy such that any Director may elect to receive their annual retainer, which is paid in quarterly installments, in unrestricted shares of our common stock, $0.01 par value by providing written notice as set forth in the Director Compensation Policy. The number of shares of such common stock shall be determined by dividing the cash amount of the retainer by the closing price of our common stock on the date of grant, which shall be the last business day of each quarter. Such common stock shall vest immediately upon grant. Any written notice to receive the retainer in common stock shall remain effective until notice otherwise is made in writing. Our Board also revised the Director Compensation Policy such that the new Director grant of $25,000 shall vest immediately. Prior to this change, the stock grant vested 50% immediately and 25% on each of the first and second anniversaries of admission.

Pursuant to the revised Director Compensation Policy described above, for the nine months ended September 30, 2018, we granted 3,926 shares of our common stock to three Directors, which were valued at approximately $88,205 at a weighted average stock price of $22.47.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, related to annual retainers and restricted stock awards of $90,000 and $133,000 for the three months ended September 30, 2017 and 2018, respectively. We recorded stock-based compensation expense related to annual retainers and restricted stock awards of $271,000 and $336,000 for the nine months ended September 30, 2017 and 2018, respectively.

Share Repurchase

At September 30, 2018, we had approximately $26.0 million available for repurchases under our share repurchase program. During the three and nine months ended September 30, 2018, we did not purchase any shares of common stock pursuant to our share repurchase program.

Cash Dividends

For the nine months ended September 30, 2017 and 2018, our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):



2017	Per Share		Dollar Value
March 1st	$	0.050	$	833
June 1st	$	0.050	$	835
September 1st	$	0.050	$	835

2018	Per Share		Dollar Value
March 1st	$	0.075	$	1,207
June 1st	$	0.075	$	1,433
September 4th	$	0.075	$	1,436

Accumulated other comprehensive income

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



	Accumulated Other Comprehensive Income
Balance at December 31, 2017	$	—
Decrease in net unrealized gains associated with available-for-sale securities of the trusts	(34		)
Reclassification of net unrealized gain activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus	34
Balance at September 30, 2018	$	—