Stock-Based Compensation Plans

The Company's Second Amended and Restated 2009 Equity Incentive Plan (the “2009 Plan”) includes an authorization to issue shares of the Company's common stock, par value $0.01 per share. At December 31, 2018, the Company had 7,509,205 shares remaining available to issue under the 2009 Plan, exclusive of shares that may be issued to satisfy currently outstanding awards such as stock options or performance awards. In addition, any awards that were outstanding under the Company's 1994 Stock Option and Incentive Plan (the “1994 Plan”) on May 21, 2009, the date the Company adopted the 2009 Plan, that are subsequently forfeited, canceled, surrendered or terminated (other than by exercise) will become available for awards under the 2009 Plan. The 2009 Plan provides for various types of equity awards to associates, officers, non-employee directors and other key personnel of the Company and its subsidiaries. The types of awards that may be granted under the 2009 Plan include restricted stock, restricted stock units, stock options that qualify as incentive stock options (“ISOs”) under Section 422 of the Code, non-qualified stock options, stock appreciation rights and performance awards, among others. No grants of stock options and other awards will be made after May 15, 2027, and no grants of incentive stock options will be made after February 16, 2027.

Information with respect to stock options granted under the 2009 and 1994 Plans is as follows:



	2009 Plan shares		Weighted average exercise price per share		1994 Plan shares		Weighted average exercise price per share
Options Outstanding, December 31, 2015	249,178		$	122.17	82,195		$	103.27
Exercised	(71,845	)	117.04		(59,654	)	112.85
Granted	—		—		—		—
Forfeited	—		—		—		—
Options Outstanding, December 31, 2016	177,333		$	124.25	22,541		$	77.91
Exercised	(27,360	)	110.47		(14,763	)	93.35
Granted	—		—		—		—
Forfeited	—		—		—		—
Options Outstanding, December 31, 2017	149,973		$	126.77	7,778		$	48.60
Exercised	(32,756	)	126.24		(7,778	)	48.60
Granted (1)	6,995		161.10		—		—
Forfeited	—		—		—		—
Options Outstanding, December 31, 2018	124,212		$	128.84	—		$	—
Options Exercisable:
December 31, 2016	177,333		$	124.25	22,541		$	77.91
December 31, 2017	149,973		$	126.77	7,778		$	48.60
December 31, 2018	117,217		$	126.91	—		$	—

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(1)	Options granted during the year ended December 31, 2018 are a result of recipient elections to receive a portion of earned performance awards and time-vesting restricted stock in the form of stock options.

The following summarizes the exercise prices and contractual lives of options outstanding as of December 31, 2018:



2009 Plan Number of Options	Range—Exercise Price			Weighted Average Remaining Contractual Term (in years)
4,380	$70.00	-	$79.99	1.1
7,865	$110.00	-	$119.99	2.1
29,862	$120.00	-	$129.99	4.2
75,110	$130.00	-	$139.99	3.8
6,995	$160.00	-	$169.99	9.1
124,212

Options outstanding and exercisable at December 31, 2018 had an intrinsic value of $5,616,000 and $5,525,000, respectively. Options exercisable had a weighted average contractual life of 4.0 years. The intrinsic value of options exercised under the 2009 and 1994 Plans during 2018, 2017 and 2016 was $3,016,000, $3,592,000 and $9,187,000, respectively. There were no stock options granted in 2018, 2017 and 2016, other than those elected under the Company's performance award plan discussed below.

The Company has a compensation framework under which share-based compensation granted is composed of annual restricted stock awards for which one third of the award vests annually over a three year period, and multi-year long term incentive performance awards. For annual restricted stock awards, in lieu of time-vesting restricted stock, the recipient may elect to receive up to 25% of the award value in the form of stock options, for which one third of the award vests annually over a three year period. Under the Company's multi-year long term incentive compensation framework, the Company grants a target number of performance awards, with the ultimate award determined by the total shareholder return of the Company's common stock and/or operating performance metrics, measured in each case over a measurement period of up to three years. Performance awards granted in 2017 or earlier are earned in the form of time-vesting restricted stock following the end of the three-year performance period, provided that the predetermined goals have been achieved. Performance awards granted after 2017 are fully vested for the recipient following the measurement period.

For performance awards with performance periods beginning on or after January 1, 2015, after the first year of the performance period, if the employee's employment terminates on account of death, disability, retirement, or termination without cause, the employee shall vest in a pro rata portion of the award (based on the employee's service time during the performance period), with such vested portion to be earned and converted into shares at the end of the performance period based on actual achievement under the performance award. For other terminating events, performance awards are generally forfeited.

Information with respect to performance awards granted is as follows:



	Performance awards		Weighted average grant date fair value per award
Outstanding at December 31, 2015	238,266		$	119.65
Granted (1)	94,054		141.92
Change in awards based on performance (2)	36,091		101.52
Converted to restricted stock	(115,618	)	94.67
Forfeited	(1,630	)	141.98
Outstanding at December 31, 2016	251,163		$	136.74
Granted (3)	81,708		176.59
Change in awards based on performance (2)	49,323		119.26
Converted to restricted stock	(128,482	)	118.75
Forfeited	(1,942	)	159.39
Outstanding at December 31, 2017	251,770		$	155.25
Granted (4)	100,965		155.31
Change in awards based on performance (2)	5,990		148.79
Converted to restricted stock	(88,477	)	148.79
Forfeited	(3,119	)	160.33
Outstanding at December 31, 2018	267,129		$	157.21

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(1)	The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s common stock for 61,039 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 33,015 performance awards.


(2)	Represents the change in the number of performance awards earned based on performance achievement for the performance period.


(3)	The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s common stock for 49,374 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 32,334 performance awards.


(4)	The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s common stock for 62,043 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 38,922 performance awards.

The Company used a Monte Carlo model to assess the compensation cost associated with the portion of the performance awards granted for which achievement will be determined by using total shareholder return measures. The assumptions used are as follows:



	2018	2017	2016
Dividend yield	3.7%	3.2%	3.3%
Estimated volatility over the life of the plan (1)	11.8% - 18.7%	15.3% - 19.7%	15.2% - 22.8%
Risk free rate	1.86% - 2.46%	0.69% - 1.61%	0.44% - 0.88%
Estimated performance award value based on total shareholder return measure	$151.67	$175.86	$131.24

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(1)	Estimated volatility of the life of the plan is using 50% historical volatility and 50% implied volatility.

For the portion of the performance awards granted for which achievement is determined by using financial metrics, the compensation cost was based on a weighted average grant date value of $161.10, $179.07 and $161.66, for the years ended December 31, 2018, 2017 and 2016, respectively, and the Company's estimate of corporate achievement for the financial metrics.

Information with respect to restricted stock granted is as follows:



	Restricted stock shares		Restricted stock shares weighted average grant date fair value per share		Restricted stock shares converted from performance awards
Outstanding at December 31, 2015	147,884		$	146.21	98,347
Granted - restricted stock shares	81,400		162.38		115,618
Vested - restricted stock shares	(88,712	)	141.38		(36,872	)
Forfeited	(3,867	)	162.43		(395	)
Outstanding at December 31, 2016	136,705		$	158.51	176,698
Granted - restricted stock shares	73,342		179.58		128,482
Vested - restricted stock shares	(73,683	)	153.86		(70,595	)
Forfeited	(2,731	)	173.42		(657	)
Outstanding at December 31, 2017	133,633		$	172.33	233,928
Granted - restricted stock shares	98,713		161.58		88,297
Vested - restricted stock shares	(67,832	)	171.22		(112,230	)
Forfeited	(4,103	)	166.40		(757	)
Outstanding at December 31, 2018	160,411		$	166.33	209,238

Total employee stock-based compensation cost recognized in income was $19,707,000, $17,085,000 and $14,666,000 for the years ended December 31, 2018, 2017 and 2016, respectively, and total capitalized stock-based compensation cost was $10,208,000, $9,474,000 and $9,266,000 for the years ended December 31, 2018, 2017 and 2016, respectively. At December 31, 2018, there was a total unrecognized compensation cost of $28,116,000 for unvested restricted stock and performance awards, which does not include forfeitures, and is expected to be recognized over a weighted average period of 2.5 years.

As of January 1, 2017, the Company adopted the provisions of ASU 2016-09, electing to account for forfeitures as they occur. Prior to the adoption of ASU 2016-09, the Company was required to estimate the forfeiture of stock options and recognized compensation cost net of the estimated forfeitures. The estimated forfeitures included in compensation cost were adjusted to reflect actual forfeitures at the end of the vesting period. The actual forfeiture rate for the years ended December 31, 2018 and 2017 were 0.6% and 0.7%, respectively. The application of estimated forfeitures did not materially impact compensation expense for the year ended December 31, 2016.

Employee Stock Purchase Plan

In October 1996, the Company adopted the 1996 Non-Qualified Employee Stock Purchase Plan (as amended, the “ESPP”). Initially 1,000,000 shares of common stock were reserved for issuance under this plan. There are currently 668,329 shares remaining available for issuance under the ESPP. Employees of the Company generally are eligible to participate in the ESPP if, as of the last day of the applicable purchase period, they have been employed by the Company for at least one month. Under the ESPP, eligible employees are permitted to acquire shares of the Company's common stock through payroll deductions, subject to maximum purchase limitations, during two purchase periods. The first purchase period begins January 1 and ends June 10, and the second purchase period begins July 1 and ends December 10. The purchase price for common stock purchased under the plan is 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable purchase period or the last day of the applicable purchase period. The offering dates, purchase dates and duration of purchase periods may be changed if the change is announced prior to the beginning of the affected date or purchase period. The Company issued 12,955, 11,528 and 11,348 shares and recognized compensation expense of $436,000, $418,000 and $289,000 under the ESPP for the years ended December 31, 2018, 2017 and 2016, respectively. The Company accounts for transactions under the ESPP using the fair value method prescribed by accounting guidance applicable to entities that use employee share purchase plans.