Equity Compensation Plans:

Equity Compensation Plans

All of the Company’s outstanding stock options and restricted stock awards are covered under the 2013 Incentive Plan, 2009 Incentive Plan or the 1996 Incentive Plan. Awards under the 2013 Incentive Plan may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance awards, (vi) other share based awards, and (vii) cash. Employees, directors and consultants are eligible for awards under the 2013 Incentive Plan. The Company issued common stock under these plans from the Company’s treasury shares. As of March 31, 2018, there were 6,893,893 shares of common stock reserved and available for future issuance under the 2013 Incentive Plan. Cash received from stock option exercises for the three months ended March 31, 2018 and 2017 was $17.5 million and $7.5 million, respectively.

The Company granted equity awards to key employees of the Company. The nonqualified stock options have an exercise price equal to the closing price of the Company’s common stock on the grant date, with a ten-year contractual term. The fair value of the restricted stock is determined using the closing price of the Company’s common stock on the grant date. The restricted stock is not assignable or transferable until it becomes vested. Performance share units (“PSU”) vest at the end of a three-year performance period, subject to the recipient’s continued service. Each PSU represents the right to receive one share of Verisk common stock and the ultimate realization is based on the Company’s achievement of certain market performance criteria and may range from 0% to 200% of the recipient’s target levels established on the grant date. The fair value of performance share units is determined on the grant date using the Monte Carlo Simulation model. The Company recognizes the expense of the equity awards ratably over the vesting period. A summary of the equity awards granted for the three months ended March 31, 2018 and on April 1, 2018, is presented below.



Grant Date	Service Vesting Period	Stock Options	Restricted Stock	Performance Share Units
January 1 to March 31, 2018	Four-year graded vesting	944	194	—
April 1, 2018	Four-year graded vesting	873,383	187,462	—
April 1, 2018	Three-year cliff vesting	—	—	46,705
		874,327	187,656	46,705

The fair value of the stock options granted for the three months ended March 31, 2018 and 2017 was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table:



	2018			2017
Option pricing model		Black-Scholes			Black-Scholes
Expected volatility		18.46	%		19.16	%
Risk-free interest rate		2.58	%		1.84	%
Expected term in years		4.4			4.5
Dividend yield		—	%		—	%
Weighted average grant date fair value per stock option	$	21.18		$	16.09

The expected term for the stock options granted was estimated based on studies of historical experience and projected exercise behavior. However, for certain awards granted, for which no historical exercise pattern exists, the expected term was estimated using the simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. The volatility factor is calculated using historical daily closing prices over the most recent period that is commensurate with the expected term of the stock option award. The expected dividend yield was based on the Company’s expected annual dividend rate on the date of grant.

A summary of the stock options outstanding and exercisable as of December 31, 2017 and March 31, 2018 and changes during the interim period are presented below:



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at December 31, 2017	8,907,109		$	53.31	$	380.2
Granted	944		$	103.08
Exercised	(592,968	)	$	29.25	$	43.3
Cancelled or expired	(95,371	)	$	68.52
Outstanding at March 31, 2018	8,219,714		$	54.87	$	403.8
Exercisable at March 31, 2018	5,451,752		$	43.36	$	330.6
Exercisable at December 31, 2017	5,995,339		$	41.50	$	326.8

Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of Verisk common stock as of the reporting date. Excess tax benefits from exercised stock options were recorded as income tax benefit in the condensed consolidated statements of operations. This tax benefit is calculated as the excess of the intrinsic value of options exercised and restricted stock lapsed in excess of compensation recognized for financial reporting purposes. Stock-based compensation expense for the three months ended March 31, 2018 and 2017 was $8.8 million and $6.5 million, respectively.

The Company estimates expected forfeitures of equity awards at the date of grant and recognizes compensation expense only for those awards that the Company expects to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Changes in the forfeiture assumptions may impact the total amount of expense ultimately recognized over the requisite service period and may impact the timing of expense recognized over the requisite service period.

A summary of the status of the restricted stock awarded under the 2013 Incentive Plan as of December 31, 2017 and March 31, 2018 and changes during the interim period are presented below:



	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2017	604,464		$	78.28
Granted	194		$	103.08
Vested	(3,161	)	$	82.82
Forfeited	(15,442	)	$	77.38
Outstanding at March 31, 2018	586,055		$	78.26

The Company’s employee stock purchase plan (“ESPP”) offers eligible employees the opportunity to purchase shares of the Company’s common stock at a discount of its fair market value at the time of purchase. During the three months ended March 31, 2018 and 2017, the Company issued 7,218 and 8,325 shares of common stock at a weighted discounted price of $98.80 and $77.08 for the ESPP, respectively.

As of March 31, 2018, there was $58.6 million of total unrecognized compensation costs, exclusive of the impact of vesting upon retirement eligibility, related to nonvested share-based compensation arrangements granted under the 2009 and 2013 Incentive Plans. That cost is expected to be recognized over a weighted average period of 2.38 years. As of March 31, 2018, there were 2,765,462 and 586,033 nonvested stock options and restricted stock, respectively, of which 2,326,388 and 497,125 are expected to vest. The total grant date fair value of options vested during the three months ended March 31, 2018 and 2017 was $3.7 million and $3.6 million, respectively. The total grant date fair value of restricted stock vested during the three months ended March 31, 2018 and 2017 was $4.2 million and $3.8 million, respectively.