NOTE 10. STOCK-BASED COMPENSATION

On May 21, 2014, we adopted the 2014 Equity Incentive Plan (the “2014 Plan”). The purposes of the 2014 Plan are to attract and retain the best available personnel, to provide additional incentives to employees, directors and consultants and to promote the success of the Company’s business. The 2014 Plan is an “omnibus plan” under which stock options, stock appreciation rights, performance awards, dividend equivalents, restricted stock, and restricted stock units can be awarded to employees, directors and consultants of the Company. The 2014 Plan serves as the successor to our 1993 Employee Stock Option Plan, 1993 Executive Long-Term Incentive Plan and 1993 Directors’ Stock Option Plan (which plan terminated on June 13, 2013) (the “Predecessor Plans”). The 2014 Plan became effective as of May 21, 2014 and the remaining two Predecessor Plans terminated on that date (except with respect to awards previously granted under the Predecessor Plans that remain outstanding).

The share reserve under the 2014 Plan and the Amendment No. 1 to the 2014 Plan includes 2,200,000 new shares and the shares available for grant or subject to outstanding awards under the Predecessor Plans, for an aggregate amount of up to 3,293,331 common shares as of December 31, 2018. By its terms, the 2014 Plan will expire in May 2024 after which no options may be granted unless the 2014 Plan is amended or replaced.

Pursuant to the terms of the 2014 Plan, either the Board or a committee designated by the Board is authorized to administer the plan. The administrator has the authority, in its discretion, to select employees, consultants and directors to whom awards under the 2014 Plan may be granted from time to time, to determine whether and to what extent awards are granted, to determine the number of shares or the amount of other consideration to be covered by each award (subject to certain limitations), to approve award agreements for use under the 2014 Plan, to determine the terms and conditions of any award (including the vesting schedule applicable to the award), to amend the terms of any outstanding award granted under the 2014 Plan (subject to certain limitations), to construe and interpret the terms of the 2014 Plan and awards granted, and to take such other action not inconsistent with the terms of the 2014 Plan as the administrator deems appropriate.

A summary of the stock option activity as of and for the year ended December 31, 2018 is presented below:


		Weighted Average
				Remaining		Aggregate
		Exercise		Contractual		Intrinsic
Stock Options	Shares	Price		Term		Value
Stock Option Shares outstanding at beginning of period	1,990,471	$	21.09	—			—
Stock Option Shares granted	499,301		42.41	—			—
Stock Option Shares exercised	(159,575)		14.75	—			—
Stock Option Shares forfeited	(93,333)		23.46	—			—
Stock Option Shares expired	—		—	—			—
Stock Option Shares outstanding at end of period	2,236,864	$	26.21	7.3	yrs.	$	30,294,694
Stock Option Shares exercisable at end of period	970,552	$	15.72	5.1	yrs.	$	21,881,342

A summary of the status of the Company’s nonvested stock option shares as of, and for the year ended, December 31, 2018 is presented below:


		Weighted-Average
		Grant Date Fair
Nonvested Stock Option Shares	Shares	Value
Nonvested at January 1, 2018	1,202,967	$	8.07
Granted	499,301		13.52
Vested	(342,623)		6.07
Forfeited	(93,333)		7.14
Nonvested at December 31, 2018	1,266,312	$	10.83

Expense Measurement and Recognition:

The Company recognizes stock-based compensation for all current stock option award grants and for the unvested portion of previous stock option award grants based on grant date fair values. Unrecognized costs related to all stock option awards outstanding at December 31, 2018 totaled approximately $9.9 million and is expected to be recognized over a weighted average period of 2.7 years.

The Company uses historical data and projections to estimate expected employee, executive and director behaviors related to stock option exercises and forfeitures.

The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes valuation model incorporating the assumptions noted in the following table. Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate. Option valuation assumptions for options granted during each year were as follows (dollars in thousands):


	Year ended December 31,
	2018			2017			2016
Weighted average expected volatility for options granted		32.98	%		35.54	%		35.81	%
Expected dividends		—			—			—
Expected life (in years)
Directors’ plan		3.04			2.99			2.73
Executives plan		5.07			5.05			4.71
Employees plan		4.12			4.14			4.10
Weighted average risk free rate		2.76	%		1.83	%		1.14	%

Weighted average grant date fair value per share of options granted	$	13.52		$	11.92		$	6.67
Total fair value of shares vested	$	2,080		$	1,324		$	1,758
Total intrinsic value of options exercised	$	4,659		$	5,819		$	3,276
Cash received for all stock option exercises	$	2,354		$	5,813		$	2,934
Tax benefit realized from stock awards exercised	$	978		$	2,037		$	1,146

The risk-free interest rate is based on the U.S. Treasury security rate in effect as of the date of grant. The expected lives of options are based on historical data of the Company. The Company has determined that an implied volatility is more reflective of market conditions and a better indicator of expected volatility as compared to the Company’s experience.

On January 1, 2017, the Company adopted ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Subsequent to the adoption, the Company records any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Income in the reporting periods in which vesting occurs. As a result, the Company’s income tax expense and associated effective tax rate are impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards. This guidance of requiring recognition of excess tax benefits and deficits in the income statement was applied prospectively with the adoption of ASU 2016-09.

For year ended December 31, 2018, the effect of the adoption of ASU 2016-09 was a decrease of tax expense by $0.7 million, resulting in an increase of basic and diluted earnings per share of $0.05. For year ended December 31, 2017, the effect of the adoption of ASU 2016-09 was a decrease of tax expense by $1.4 million resulting in an increase of basic and diluted earnings per share of $0.08.

The Company has elected to keep the accounting policy of estimated forfeitures, rather than account for forfeitures as they occur. The amendments in the guidance that require application using a modified retrospective transition method did not impact the Company. Therefore, there was no cumulative-effect adjustment to retained earnings recognized as of January 1, 2017.

ASU 2016-09 also changes the classification and presentation of the excess tax benefit from stock-based compensation in the statement of cash flows. The Company applied the amendments in this guidance relating to classification on its consolidated statement of cash flows prospectively.

Reported stock-based compensation expense was classified as follows (in thousands):



	For the Year ended December 31,
	2018		2017		2016
Casino	$	129	$	114	$	95
Food and beverage		137		92		101
Hotel		66		33		37
Selling, general and administrative		2,799		2,005		1,448
Total stock-based compensation, before taxes		3,131		2,244		1,681
Tax benefit		(657)		(785)		(588)
Total stock-based compensation, net of tax	$	2,474	$	1,459	$	1,093