STOCK-BASED COMPENSATION PLANS

On December 31, 2018, we had stock-based employee compensation plans as described below. Our total compensation expense, which includes expense related to restricted stock awards, restricted stock unit awards, performance share unit awards, stock option awards, and stock options associated with our employee stock purchase plan, was $17.7 million in 2018, $16.0 million in 2017, and $13.3 million in 2016. The income tax benefit related to stock-based employee compensation expense was $2.7 million in 2018, $5.5 million in 2017, and $4.9 million in 2016.

2016 Omnibus Stock Incentive Plan

On February 24, 2016, we replaced our previous stock compensation program, the Churchill Downs Incorporated 2007 Omnibus Stock Incentive Plan (the "2007 Incentive Plan") with a new program, the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan ("the 2016 Incentive Plan"). The 2016 Incentive Plan is intended to advance our long-term success by encouraging stock ownership among key employees and the Board of Directors. Awards may be in the form of stock options, stock appreciation rights, restricted stock ("RSA"), restricted stock units ("RSU"), performance share units ("PSU"), performance units, or performance cash. The 2016 Incentive Plan has a minimum vesting period of one year for awards granted.

Restricted Stock, Restricted Stock Units, and Performance Share Units

The 2007 Incentive Plan and the 2016 Incentive Plan (collectively "the 2007 and 2016 Plans") permit the award of RSAs, RSUs, or PSUs to directors and key employees responsible for the management, growth and protection of our business. The fair value of RSAs and RSUs that vest solely based on continued service under the 2007 and 2016 Plans is determined by the product of the number of shares granted and the grant date market price of our common stock.

RSAs and RSUs granted to employees under the 2007 and 2016 Plans generally vest either in full upon three years from the date of grant or on a pro rata basis over a three-year term. RSAs are legally issued common stock at the time of grant, with certain restrictions placed on them. RSUs granted to employees are converted into shares of our common stock at vesting. The RSUs granted to directors under the 2007 and 2016 Plans generally vest in full upon one year from the date of grant. RSUs granted to directors are converted into shares of our common stock at the time of the director's retirement.

In 2016, 2017, and 2018, the Company granted three-year performance and total shareholder return ("TSR") PSU awards (the "PSU Awards") to certain named executive officers ("NEOs"). The two performance criteria for the PSU Awards are: (1) a cumulative Adjusted EBITDA target that was set at the beginning of the plan performance period for the three year period; and (2) a cash flow metric that is the aggregate of the cash flow targets for the three individual years that is set annually at the beginning of each year. The cash flow metric is defined as cash flow from operating activities, excluding the change in restricted cash, plus distributions of capital from equity investments less capital maintenance expenditures. The Compensation Committee of the Board of Directors can make adjustments as it may deem appropriate to these metrics. Measurement against these criteria will be determined against a payout curve which provides up to 200% of performance share units based on the original award.

The TSR criteria for the PSU Awards is related to the Company’s TSR relative to the TSR of companies in the Russell 2000 index during the performance period. The PSU Awards may be adjusted based on the Company’s relative TSR performance as follows:

1.The PSU Awards will increase by 25% if the Company’s TSR is in the top quartile,

2.The PSU Awards will decrease by 25% if the Company’s TSR is in the bottom quartile, and

3.The PSU Awards will not change if the Company’s TSR is in the middle two quartiles.

The maximum number of PSU Awards, including the impact of the TSR performance, that can be earned for a performance period is 250% of the original award.

In October 2018, the Company granted RSU awards (the “2018 RSU Awards”) and TSR PSU awards (the “2018 TSR PSU Awards”) (collectively, the “7-Year Grant”) to certain NEOs. The 2018 RSU Awards contain a seven year service period and vest on a pro rata basis over a four year period beginning on the fourth anniversary of the award. The total number of 2018 TSR PSU Awards earned will vary between 0% to 200% of the award amount depending on the Company's TSR relative to the TSR of companies in the Russell 2000 index over a three-year performance period. At the end of the three year performance period, the 2018 TSR PSU Awards will vest on a pro rata basis over the remaining four year service period beginning on the fourth anniversary of the award.

The total compensation cost recognized for PSU Awards and 2018 TSR PSU Awards is determined using the Monte Carlo valuation methodology, which factors in the value of the TSR when determining the grant date fair value of the award. Compensation cost for the PSU Awards is recognized during the three year performance and service period based on the probable achievement of the two performance criteria. Compensation cost for the TSR PSU Awards is recognized during the seven year service period. All PSUs awards are converted into shares of our common stock at the time the award value is finalized.

A summary of the 2018 RSAs, RSUs, and PSUs granted to certain NEOs, employees, and directors is presented below (shares/units in thousands):



Grant Year	Award Type	Number of Shares/Units Awarded⁽¹⁾	Vesting Terms
2018	RSA	56	Vest equally over three service periods ending in 2019, 2020, and 2021
2018	RSU	10	Vest over one service period ending in 2019
2018	RSU	48	Vest equally over three service periods ending in 2018, 2019, and 2020
2018	RSU	79	Vest equally over four service periods ending in 2022, 2023, 2024 and 2025
2018	PSU	49	Three year performance and service period ending in 2020
2018	PSU	207	Vest equally over four service periods ending in 2022, 2023, 2024 and 2025 and a three year TSR period ending in 2021

(1) PSUs presented are based on the target number of units for the original PSU grant.

Activity for our RSAs, RSUs, and PSUs is presented below (shares/units in thousands):



	PSUs				RSAs and RSUs				Total
(in thousands, except grant date values)	Number of Shares/Units		Weighted Average Grant Date Fair Value		Number of Shares/Units		Weighted Average Grant Date Fair Value		Number of Shares/Units		Weighted Average Grant Date Fair Value
Balance as of December 31, 2015	51		$	51.00	804		$	23.99	855		$	27.90
Granted	59		$	47.01	188		$	44.68	247		$	45.24
Vested	—		$	—	(501	)	$	22.54	(501	)	$	22.54
Canceled/forfeited	—		$	—	(11	)	$	29.64	(11	)	$	29.64
Balance as of December 31, 2016	110		$	48.86	480		$	36.90	590		$	37.23
Granted	65		$	55.75	173		$	52.31	238		$	53.25
Performance adjustment⁽¹⁾	45		$	51.00	—		$	—	45		$	51.00
Vested	(96	)	$	51.00	(334	)	$	36.79	(430	)	$	39.98
Canceled/forfeited	—		$	—	(3	)	$	41.92	(3	)	$	41.92
Balance as of December 31, 2017	124		$	51.59	316		$	45.51	440		$	47.23
Granted	256		$	68.32	193		$	84.78	449		$	75.39
Performance adjustment⁽¹⁾	70		$	47.01	—		$	—	70		$	47.01
Vested	(129	)	$	47.01	(217	)	$	46.35	(346	)	$	46.60
Canceled/forfeited	—		$	—	(17	)	$	54.49	(17	)	$	54.49
Balance as of December 31, 2018	321		$	65.77	275		$	72.03	596		$	68.66

(1) Adjustment to number of target units awarded for PSUs based on achievement of performance and TSR goals.

The fair value of shares and units vested was $32.4 million in 2018, $29.6 million in 2017, and $24.3 million in 2016.

A summary of total unrecognized stock-based compensation expense related to RSAs, RSUs, and PSUs (based on current performance estimates), at December 31, 2018 is presented below:



(in millions, except years)	December 31, 2018		Weighted Average Remaining Vesting Period (Years)
Unrecognized RSA expense	$	2.9	1.41
Unrecognized RSU expense	8.5		4.26
Unrecognized PSU expense	17.8		4.27
Total	$	29.2	3.99

Employee Stock Options

All remaining stock options under the 2007 Incentive Plan were exercised during 2017. No stock options have been awarded under the 2016 Incentive Plan. Compensation expense related to stock options was not material for any year included in our accompanying consolidated statements of comprehensive income.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (the "ESP Plan"), we are authorized to sell, pursuant to short-term stock options, shares of our common stock to our full-time and qualifying part-time employees at a discount from our common stock’s fair market value. The ESP Plan operates on the basis of recurring, consecutive one-year periods. Each period commences on August 1 and ends on the following July 31. Compensation expense related to the ESP Plan was not material for any year included in our accompanying consolidated statements of comprehensive income.