Share-Based Compensation

A summary of stock-based compensation expense and related tax benefits for the years ended December 31, 2017, 2016 and 2015 is as follows:



	Year Ended December 31,
	2017		2016		2015
	(in thousands)
Stock options	$	3,740	$	3,193	$	2,781
Restricted stock and restricted stock units	1,205		550		252
Employee Stock Purchase Plan	1,040		509		508
Total pre-tax stock-based compensation expense charged against income ⁽¹⁾	$	5,985	$	4,252	$	3,541

Total recognized tax benefit related to stock-based compensation	$	5,709	$	2,773	$	1,873


⁽¹⁾	Stock-based compensation expense is recorded in the selling, general and administrative caption in the Consolidated Statements of Comprehensive Income.

At December 31, 2017, the unrecognized compensation cost related to unvested stock options and awards was $11.4 million. The weighted average period over which these awards will vest is approximately 2.7 years.

2012 Equity Incentive Plan

The Company’s 2012 Equity Incentive Plan (the “Plan”) provides that current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock, restricted stock units and other stock awards. The Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company.

As of December 31, 2017, 3.2 million shares of Common Stock were reserved for issuance under the Plan, including 0.8 million shares available for future grant. No stock award will have a term in excess of ten years. All awards granted under the Plan become vested and exercisable ratably over a five year period on each yearly anniversary of the grant date.

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the individuals who will be granted stock awards, the number of stock awards each individual will receive and the terms of the grants in accordance with the Plan.

Stock Options

A summary of stock options outstanding under the Plan as of December 31, 2017 and changes during 2017 is as follows:



	Number of Shares		Weighted Average Exercise Price
	(in thousands, except per share data)
December 31, 2016	2,615		$	24.61
Granted	544		$	39.38
Exercised	(682	)	$	18.95
Forfeited	(100	)	$	34.10
Expired	(3	)	$	23.49
December 31, 2017	2,374		$	29.22

The weighted average grant-date fair value of stock options granted during the years ended 2017, 2016 and 2015 were $8.52, $7.46 and $6.64 per common share, respectively. The total intrinsic value of options exercised during the years ended 2017, 2016 and 2015 were $19.5 million, $4.9 million and $6.5 million, respectively.

The tax benefit realized from stock options exercised during 2017 was $5.3 million.

The fair value of the stock option awards granted during 2017, 2016 and 2015 were estimated on the dates of grant using the Black-Scholes option valuation model and the following assumptions:



	Year Ended December 31,
	2017		2016		2015
Risk-free interest rate	2.0	%	2.0	%	1.9	%
Weighted average expected life	5.8 years		5.8 years		5.8 years
Expected volatility	25.1	%	26.0	%	27.2	%
Dividend yield	1.9	%	2.0	%	2.2	%

The following table summarizes other information about the stock options at December 31, 2017:



	December 31, 2017
	(dollars in thousands, except per share data)
Outstanding:
Aggregate intrinsic value	$	55,789
Weighted average remaining contractual life	6.5 years
Exercisable:
Number of options	954
Weighted average exercise price	$	22.19
Aggregate intrinsic value	$	29,134
Weighted average remaining contractual life	4.7 years

Restricted Stock

A summary of the restricted stock outstanding under the Plan as of December 31, 2017 and changes during 2017 are as follows:



	Number of Restricted Shares		Weighted Average Grant-Date Fair Value
	(in thousands, except per share data)
December 31, 2016	74		$	32.09
Granted	—		$	—
Vested	(17	)	$	31.41
Forfeited	—		$	—
December 31, 2017	57		$	32.30

There were no grants of restricted stock during 2017. The weighted average grant-date fair values and total fair values of restricted stock vested during 2017, 2016 and 2015 are as follows:



	Year Ended December 31,
	2017		2016		2015
	(in thousands, except per share data)
Weighted average grant-date fair value of restricted stock granted	$	—	$	34.14	$	30.30
Total fair value of restricted stock vested	$	690	$	311	$	123

Fair value is determined based on the market price of the shares on the date of grant. The weighted average remaining vesting period for the unvested restricted stock is 2.5 years.

Restricted Stock Units

For the year ended December 31, 2017, the Company granted 0.1 million restricted stock units with a weighted average grant date fair value of $40.16 per unit. Fair value is determined based on the market price of the underlying shares on the date of grant. During 2016 and 2015, there were no grants of restricted stock units.

A summary of the outstanding restricted stock units as of December 31, 2017 and changes during 2017 is as follows:



	Number of Restricted Units	Weighted Average Grant Date Fair Value
	(in thousands, except per share data)
December 31, 2016	—	$	—
Granted	88	$	40.16
Vested	—	$	—
Forfeited	—	$	—
December 31, 2017	88	$	40.16

The weighted average remaining vesting period for the unvested restricted stock units is 4.1 years.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan ("ESPP") is currently available through 2021 to all eligible employees. All full-time and part-time employees who work an average of 20 hours per week and have completed two years of continuous service with the Company are eligible to participate. Annual offerings commence and terminate on the respective year’s first and last calendar day.

Under the ESPP, the Company is authorized to issue up to 4.1 million shares of Common Stock to its employees. Pursuant to such authorization, there are 2.3 million shares available for future grant at December 31, 2017 (after deducting the 2017 funding of the 54,000 shares delivered in 2018). Under the terms of the ESPP, participants may contribute through payroll deductions up to $21,250 (85% of IRS limitation) of their compensation toward the purchase of the Company’s Common Stock. No employee may purchase Common Stock which exceeds $25,000 in fair market value (determined on the option date) for each calendar year. The option price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or 85% of the fair market price on the last day of the offering period.

The following table summarizes information about the Company’s ESPP annual offerings for the years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017		2016		2015
	(in thousands, except per share data)
Common shares purchased	54		53		59
Per common share purchase price	$	33.29	$	29.64	$	26.29

Deferred Compensation Plan

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for certain key executives and employees. The SERP is not qualified under Section 401 of the Internal Revenue Code. The SERP allows participants to defer up to 25% of their earned income on a pre-tax basis and as of the last day of each plan year, each participant will be credited with a 25% match of up to 15% of their deferral in the form of Company Common Stock based on the then-current market value. SERP participants fully vest in the Company’s matching contribution three years from the first day of the initial year of participation. The income deferred and the matching contributions are unsecured and subject to the claims of the Company’s general creditors.

Under the SERP, the Company is authorized to issue up to 1.0 million shares of Common Stock to its employees. Pursuant to such authorization, there are 0.4 million shares available for future grant at December 31, 2017 (after deducting the 2017 funding of 9,000 shares delivered in 2018). At the time of issuance, such shares were accounted for at cost as treasury stock. At December 31, 2017, approximately 0.3 million of such shares are vested and remain in the respective active participants’ accounts with the trustee.

The following table summarizes information about the SERP for the plan years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017		2016		2015
	(in thousands)
SERP expense⁽¹⁾	$	503	$	511	$	538
Treasury shares issued to fund SERP expense⁽²⁾	9		13		15
SERP trust account balance at December 31 ⁽³⁾	$	42,467	$	34,599	$	37,765
Unrealized gain (loss) recorded in SERP liability account	$	4,534	$	1,495	$	(62	)


⁽¹⁾	Both the SERP match and the deferrals are included in the selling, general and administrative caption in the Consolidated Statements of Comprehensive Income.


⁽²⁾	Shares related to the SERP match for each year are funded at the beginning of the subsequent year.

⁽³⁾

SERP trust account investments are recorded at their fair value which is based on quoted market prices. Differences between such amounts in the table above and the deferred compensation funding asset reported on the Consolidated Balance Sheets represent the value of Company Common Stock held in the Plan participants’ trust accounts and reported by the Company as treasury stock in the Consolidated Balance Sheets.