Stock Option Plan

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Option Plan

STOCK OPTION PLAN

The Company established a stock option plan in 1993 (the “1993 Plan”) for the purpose of attracting and retaining executive officers and other key personnel. The 1993 Plan provides for grants of options to purchase up to 400,000 shares of common stock. The 1993 Plan authorizes the Compensation Committee of the Board of Directors to grant options at an exercise price which may not be less than the market value of the common stock on the date the option is granted.

At the annual meeting of the Company’s stockholders in 2004, the stockholders approved the adoption of the 2004 stock plan for the purpose of attracting and retaining executive officers, directors and other key personnel. The 2004 stock plan was subsequently amended by the Company’s stockholders at the 2008 Annual Meeting and further amended at the 2013 Annual Meeting (the “Amended 2004 Plan”). The Amended 2004 Plan, which terminates in 2023, provides for grants of options to purchase up to 2,000,000 shares of common stock as well as grants of up to 200,000 shares of common stock to directors. The Amended 2004 Plan authorizes the Compensation Committee of the Board of Directors to grant options at an exercise price which may not be less than the market value of the common stock on the date the option is granted.

Effective April 26, 2004, the Compensation Committee granted options to purchase 152,500 shares (27,500 incentive stock options and 125,000 shares of nonqualified stock options) to eleven Company officers and to the twelve Company directors (the “2004 Options”), which expire on April 25, 2014. The officers’ 2004 Options vested 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ options were immediately exercisable. The exercise price of $25.78 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2004 Options to be $359,375, of which $292,775 and $66,600 were the values assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $66,600 was expensed as of the date of grant. The expense of the officers’ options was recognized as compensation expense monthly during the four years the options vested.

Effective May 6, 2005, the Compensation Committee granted options to purchase 162,500 shares (35,500 incentive stock options and 127,000 nonqualified stock options) to twelve Company officers and to twelve Company directors (the “2005 Options”), which expire on May 5, 2015. The officers’ 2005 Options vested 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ options were immediately exercisable. The exercise price of $33.22 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2005 Options to be $484,500, of which $413,400 and $71,100 were the values assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $71,100 was expensed as of the date of grant. The expense of the officers’ options was recognized as compensation expense monthly during the four years the options vested.

Effective May 1, 2006, the Compensation Committee granted options to purchase 30,000 shares (all nonqualified stock options) to twelve Company directors (the “2006 Options”), which were immediately exercisable and expire on April 30, 2016. The exercise price of $40.35 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2006 Options to be $143,400. Because the directors’ options vested immediately, the entire $143,400 was expensed as of the date of grant. No options were granted to the Company’s officers in 2006.

Effective April 27, 2007, the Compensation Committee granted options to purchase 165,000 shares (27,560 incentive stock options and 137,440 nonqualified stock options) to thirteen Company officers and twelve Company Directors (the “2007 options”), which expire on April 26, 2017. The officers’ 2007 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ options were immediately exercisable. The exercise price of $54.17 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2007 Options to be $1.5 million, of which $1.3 million and $285,300 were the values assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $285,300 was expensed as of the date of grant. The expense for the officers’ options was recognized as compensation expense monthly during the four years the options vested.

Effective April 25, 2008, the Compensation Committee granted options to purchase 30,000 shares (all nonqualified stock options) to twelve Company directors (the “2008 Options”), which were immediately exercisable and expire on April 24, 2018. The exercise price of $50.15 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2008 Options to be $254,700. Because the directors’ options vest immediately, the entire $254,700 was expensed as of the date of grant. No options were granted to the Company’s officers in 2008.

Effective April 24, 2009, the Compensation Committee granted options to purchase 32,500 shares (all nonqualified stock options) to thirteen Company directors (the “2009 Options”), which were immediately exercisable and expire on April 23, 2019. The exercise price of $32.68 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2009 Options to be $222,950. Because the directors’ options vested immediately, the entire $222,950 was expensed as of the date of grant. No options were granted to the Company’s officers in 2009.

Effective May 7, 2010, the Compensation Committee granted options to purchase 32,500 shares (all nonqualified stock options) to thirteen Company directors (the “2010 Options”), which were immediately exercisable and expire on May 6, 2020. The exercise price of $38.76 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2010 Options to be $287,950. Because the directors’ options vested immediately, the entire $287,950 was expensed as of the date of grant. No options were granted to the Company’s officers in 2010.

Effective May 13, 2011, the Compensation Committee granted options to purchase 195,000 shares (65,300 incentive stock options and 129,700 nonqualified stock options) to fifteen Company officers and thirteen Company Directors (the “2011 options”), which expire on May 12, 2021. The officers’ 2011 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ 2011 options were immediately exercisable. The exercise price of $41.82 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2011 Options to be $1.6 million, of which $1.3 million and $297,375 were assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $297,375 was expensed as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four years the options vest.

Effective May 4, 2012, the Compensation Committee granted options to purchase 277,500 shares (26,157 incentive stock options and 251,343 nonqualified stock options) to fifteen Company officers and fourteen Company Directors (the “2012 options”), which expire on May 3, 2022. The officers’ 2012 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ 2012 Options were immediately exercisable. The exercise price of $39.29 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2012 Options to be $1.7 million, of which $1.4 million and $244,388 were assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $244,388 was expensed as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four years the options vest.

Effective May 10, 2013, the Compensation Committee granted options to purchase 237,500 shares (35,592 incentive stock options and 201,908 nonqualified stock options) to fifteen Company officers and fourteen Company Directors (the "2013 options"), which expire on May 10, 2023. The officers' 2013 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors' 2013 options were immediately exercisable. The exercise price of $44.42 per share was the closing market price of the Company's common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2013 Options to be $1.5 million, of which $1.3 million and $0.3 million were assigned to the officer options and director options, respectively. Because the directors' options vested immediately, the entire $0.3 million was expensed as of the date of grant. The expense for the officers' options is being recognized as compensation expense monthly during the four years the option was vested.

The following table summarizes the amount and activity of each grant, the total value and variables used in the computation and the amount expensed and included in general and administrative expense in the Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011:

SAUL CENTERS, INC. Notes to Consolidated Financial Statements
Stock options issued
	Directors
Grant date	4/26/2004			5/6/2005			5/1/2006				4/27/2007			4/25/2008			4/24/2009			5/7/2010			5/13/2011			5/4/2012			5/10/2013			Subtotals
Total grant	30,000			30,000			30,000				30,000			30,000			32,500			32,500			32,500			35,000			35,000			317,500
Vested	30,000			30,000			30,000				30,000			30,000			32,500			32,500			32,500			35,000			35,000			317,500
Exercised	25,000			22,500			5,000				—			—			17,500			5,000			5,000			5,000			2,500			87,500
Forfeited	—			—			2,500				7,500			7,500			—			2,500			2,500			—			—			22,500
Exercisable at December 31, 2013	5,000			7,500			22,500				22,500			22,500			15,000			25,000			25,000			30,000			32,500			207,500
Remaining unexercised	5,000			7,500			22,500				22,500			22,500			15,000			25,000			25,000			30,000			32,500			207,500
Exercise price	$	25.78		$	33.22		$	40.35			$	54.17		$	50.15		$	32.68		$	38.76		$	41.82		$	39.29		$	44.42
Volatility	0.183			0.198			0.206				0.225			0.237			0.344			0.369			0.358			0.348			0.333
Expected life (years)	5.0			10.0			9.0				8.0			7.0			6.0			5.0			5.0			5.0			5.0
Assumed yield	5.75		%	6.91		%	5.93		%		4.39		%	4.09		%	4.54		%	4.23		%	4.16		%	4.61		%	4.53		%
Risk-free rate	3.57		%	4.28		%	5.11		%		4.65		%	3.49		%	2.19		%	2.17		%	1.86		%	0.78		%	0.82		%
Total value at grant date	$	66,600		$	71,100		$	143,400			$	285,300		$	254,700		$	222,950		$	287,950		$	297,375		$	244,388		$	262,946		$	2,136,709
Forfeited options	—			—			—				—			—			—			—			—			—			—			—
Expensed in previous years	66,600			71,100			143,400				285,300			254,700			222,950			287,950			—			—			—			1,332,000
Expensed in 2011	—			—			—				—			—			—			—			297,375			—			—			297,375
Expensed in 2012	—			—			—				—			—			—			—			—			244,388			—			244,388
Expensed in 2013	—			—			—				—			—			—			—			—			—			262,946			262,946
Future expense	—			—			—				—			—			—			—			—			—			—			—
	Officers
Grant date	4/26/2004			5/6/2005			4/27/2007				5/13/2011			5/4/2012			5/10/2013						Subtotals									Grand Totals
Total grant	122,500			132,500			135,000				162,500			242,500			202,500						997,500									1,315,000
Vested	115,000			118,750			67,500				67,500			28,125			—						396,875									714,375
Exercised	103,750			69,500			—				16,250			1,875			—						191,375									278,875
Forfeited	7,500			13,750			67,500				41,250			130,000			—						260,000									282,500
Exercisable at December 31, 2013	11,250			49,250			67,500				51,250			26,250			—						205,500									413,000
Remaining unexercised	11,250			49,250			67,500				105,000			110,625			202,500						546,125									753,625
Exercise price	$	25.78		$	33.22		$	54.17			$	41.82		$	39.29		$	44.42
Volatility	0.183			0.207			0.233				0.330			0.315			0.304
Expected life (years)	7.0			8.0			6.5				8.0			8.0			8.0
Assumed yield	5.75		%	6.37		%	4.13		%		4.81		%	5.28		%	5.12		%
Risk-free rate	4.05		%	4.15		%	4.61		%		2.75		%	1.49		%	1.49		%
Total value at grant date	$	292,775		$	413,400		$	1,258,848			$	1,277,794		$	1,442,148		$	1,254,164					$	5,939,129								$	8,075,838
Forfeited options	17,925			35,100			—				252,300			813,800			—						1,119,125									1,119,125
Expensed in previous years	274,850			378,300			1,153,957				—			—			—						1,807,107									3,139,107
Expensed in 2011							104,891				186,347			—			—						291,238									588,613
Expensed in 2012							—				270,391			104,724			—						375,115									619,503
Expensed in 2013	—			—			—				235,350			157,083			209,027						601,460									864,406
Future expense	—			—			—				333,406			366,541			1,045,137						1,745,084									1,745,084
Weighted average term of remaining future expense							2.8			years

The table below summarizes the option activity for the years 2013, 2012, and 2011:

	2013				2012				2011
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at January 1	570,840		$	41.04	674,585		$	40.40	532,881		$	39.12
Granted	237,500		44.42		277,500		39.29		195,000		41.82
Exercised	(49,715	)	33.15		(149,995	)	31.03		(40,796	)	29.03
Expired/Forfeited	(5,000	)	52.16		(231,250	)	43.56		(12,500	)	45.05
Outstanding December 31	753,625		42.55		570,840		41.04		674,585		40.40
Exercisable at December 31	413,000		42.42		377,715		41.41		512,085		39.96

The intrinsic value of options exercised in 2013, 2012, and 2011, was $0.6 million, $1.6 million, and $0.7 million, respectively. The intrinsic value of options outstanding and exercisable at year end 2013 was $4.5 million and $2.8 million, respectively. The intrinsic value measures the difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. The date of exercise was the measurement date for shares exercised during the period. At December 31, 2013, the final trading day of calendar 2013, the closing price of $47.73 per share was used for the calculation of aggregate intrinsic value of options outstanding and exercisable at that date. Options having an exercise price in excess of the December 31, 2013 closing price have no intrinsic value. The weighted average remaining contractual life of the Company’s exercisable and outstanding options at December 31, 2013 are 5.1 and 6.8 years, respectively.