14.Stock‑Based Compensation

On April 16, 2003, the Company’s Board of Directors adopted and approved the 2003 Long Term Incentive Compensation Plan (the “2003 Plan”). On May 22, 2003, the Company’s shareholders approved the 2003 Plan. The 2003 Plan was effective June 1, 2003 and permitted the grant of options to purchase common stock and other market‑based and performance‑based awards. Up to 12,000,000 shares of common stock were available for awards under the 2003 Plan. The 2003 Plan provided for the granting of both incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified stock options, which do not so qualify. The exercise price per share may be no less than (i) 100% of the fair market value of the common stock on the date an option is granted for incentive stock options and (ii) 85% of the fair market value of the common stock on the date an option is granted for nonqualified stock options. However, the shares which remained available for issuance under such plan as of November 12, 2008 are no longer available for issuance and all future equity awards will be pursuant to the 2008 Long Term Incentive Compensation Plan (the “2008 Plan”) described below.

On August 20, 2008, the Company’s Board of Directors adopted and approved the 2008 Plan. On November 12, 2008, the Company’s shareholders approved the 2008 Plan. The 2008 Plan permits the Company to issue stock options (incentive and/or non‑qualified), stock appreciation rights (“SARs”), restricted stock, phantom stock units (“PSUs”) and other equity and cash awards to employees. Non‑ employee directors are eligible to receive all such awards, other than incentive stock options. On June 9, 2011, the Company’s shareholders approved an amendment to the 2008 Plan to increase the aggregate number of shares of common stock that may be issued by 2,350,000 to 9,250,000, and on June 12, 2014 the Company’s shareholders approved an amendment to increase the aggregate number of shares of common stock that may be issued from 9,250,000 to 16,350,000. Awards of stock options and stock appreciation rights will be counted against the 16,350,000 limit as one share of common stock for each share granted. However, each share awarded in the form of restricted stock, or any other full value stock award, will be counted as issuing 2.44 shares of common stock for purposes of determining the number of shares available for issuance under the plan. Any awards that are not settled in shares of common stock shall not count against this limit. At December 31, 2017, there were 1,436,348 shares available for future grants under the 2008 Plan.

On February 9, 2016, the Company’s Compensation Committee of the Board of Directors adopted a Performance Share Program (the “Performance Share Program”) pursuant to the 2008 Plan, which contains performance‑based vesting for a meaningful portion of restricted stock awards. The Performance Share Program was adopted to provide key executives with equity‑based compensation tied directly to Company performance to further align their interests with those of shareholders, and to provide compensation only if the designated performance goal is met for the applicable performance period. The Company’s named executive officers and other key executives are eligible to participate in the Performance Share Program. An aggregate of 172,245 and 189,085 performance shares were awarded on February 17, 2017 and February 9, 2016, respectively, with each award having a three-year award period consisting of three one-year performance periods and a three-year service period. The performance goal for each performance period will be an adjusted EBITDA goal established for each one-year performance period. The awards will potentially be earned between 0% and 150% of the shares awarded in one-third increments depending on achievement of the annual performance goals, but remain subject to vesting for the full three-year service term.

At December 31, 2017, the adjusted EBITDA target for the third tranche of the 2016 performance awards and the second and third tranches of the 2017 performance awards were not yet established and therefore the Company concluded a grant date has not occurred under ASC 718. Stock based compensation expense will be measured for each tranche based on the fair value of the restricted stock awards using Penn’s closing stock price on the grant date since all key terms for the specific tranche were established and mutually understood by the Company and the individuals receiving the awards. At each reporting period, accruals of stock based compensation expense are based on the probable outcome of the performance condition.

Stock options that expire between July 8, 2018 and August 7, 2024, have been granted to officers, directors, employees, and predecessor employees to purchase common stock at prices ranging from $6.96 to $20.75 per share. All options were granted at the fair market value of the common stock on the date the options were granted (as defined in the respective plan document) and have contractual lives ranging from 4 to 10 years. The Company issues new authorized common shares to satisfy stock option exercises as well as lapses of forfeiture of restrictions on restricted stock.

The following table contains information on stock options issued under the plans for the year ended December 31, 2017:


				Weighted-
				Average
				Remaining	Aggregate
	Number of Option	Weighted-Average		Contractual	Intrinsic Value
	Shares	Exercise Price		Term (in years)	(in thousands)
Outstanding at December 31, 2016	6,326,593	$	11.17
Granted	1,486,790		14.26
Exercised	(1,226,345)		8.81
Canceled	(35,724)		14.38
Outstanding at December 31, 2017	6,551,314	$	12.29	3.98	$	124,709

The weighted‑average grant‑date fair value of options granted during the years ended December 31, 2017 and 2016 were $4.48 and $3.97, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 2015 was $15.8 million, $10.3 million, and $19.5 million, respectively. At December 31, 2017, there were 3,106,177 shares that were exercisable, with a weighted‑average exercise price of $10.94, a weighted‑average remaining contractual term of 2.67 years, and an aggregate intrinsic value of $63.3 million.

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


	Exercise Price Range						Total
	$6.96 to		$11.12 to		$16.59 to		$6.96 to
	$10.41		$16.02		$20.75		$20.75
Outstanding options
Number outstanding		1,178,054		5,283,711		89,549		6,551,314
Weighted-average remaining contractual life (years)		0.77		4.67		5.48		3.98
Weighted-average exercise price	$	8.16	$	13.11	$	18.36	$	12.29
Exercisable options
Number outstanding		1,176,804		1,915,712		13,661		3,106,177
Weighted-average exercise price	$	8.16	$	12.60	$	16.59	$	10.94

The following table contains information on restricted stock awards issued under the plans for the year ended December 31, 2017:


		Number of Award
		Shares
Outstanding at December 31, 2016		175,886
Awarded		176,865
Released		(68,257)
Canceled		(16,839)
Outstanding at December 31, 2017		267,655

Stock-based compensation expenses for the years ended December 31, 2017, 2016 and 2015 totaled $7.8 million, $6.9 million and $8.2 million, respectively, and are included within the consolidated statements of operations under general and administrative expense.

At December 31, 2017, 2016 and 2015, the total compensation cost related to nonvested awards not yet recognized equaled $12.2 million, $11.6 million and $11.2 million, respectively, including $9.8 million, $9.9 million and $8.8 million for stock options, respectively, and $2.4 million, $1.7 million and $2.4 million for restricted stock, respectively. This cost is expected to be recognized over the remaining vesting periods, which will not exceed four years.

The Company’s PSUs, which vest over a period of three to four years, entitle employees and directors to receive cash based on the fair value of the Company’s common stock on the vesting date. The PSUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period in accordance with ASC 718-30, “Compensation—Stock Compensation, Awards Classified as Liabilities.” The Company has a liability, which is included in accrued salaries and wages within the consolidated balance sheets, associated with its PSUs of $4.8 million and $5.6 million at December 31, 2017 and 2016, respectively.

For PSUs held by Penn employees and directors, there was $5.7 million of total unrecognized compensation cost at December 31, 2017 that will be recognized over the grants remaining weighted average vesting period of 2.36 years. For the years ended December 31, 2017, 2016 and 2015, the Company recognized $11.9 million, $8.5 million, and $14.1 million of compensation expense associated with these awards, respectively. The reason for the increase was primarily due to an increase in the stock price of Penn common stock during 2017. Amounts paid by the Company for the years ended December 31, 2017, 2016, and 2015 on these cash-settled awards totaled $12.7 million, $10.7 million, and $14.5 million, respectively.

For the Company’s SARs, the fair value of the SARs is calculated during each reporting period and estimated using the Black-Scholes option pricing model based on the various inputs discussed in Note 3. The Company’s SARs, which vest over a period of four years, are accounted for as liability awards since they will be settled in cash. The Company has a liability, which is included in accrued salaries and wages within the consolidated balance sheets, associated with its SARs of $24.0 million and $7.3 million at December 31, 2017 and 2016, respectively.

For SARs held by Penn employees, there was $17.5 million of total unrecognized compensation cost at December 31, 2017 that will be recognized over the awards remaining weighted average vesting period of 2.50 years. For the years ended December 31, 2017, 2016 and 2015, the Company recognized $21.9 million, $2.4 million and $5.1 million of compensation expense associated with these awards. The reason for the increase was primarily due to an increase in the stock price of Penn common stock during 2017. Amounts paid by the Company for the years ended December 31, 2017, 2016 and 2015 on these cash-settled awards totaled $6.2 million, $3.3 million and $3.4 million, respectively.