NOTE 10 — Stock-Based Awards and Other Equity Instruments

Pursuant to the Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan, we may grant restricted stock, restricted stock awards, RSUs, stock options and other stock-based awards to directors, officers, employees and consultants. As of December 31, 2016, we had approximately 15 million shares of common stock reserved for new stock-based awards under the 2005 Stock and Annual Incentive Plan. We issue new shares to satisfy the exercise or release of stock-based awards.

The following table presents a summary of our stock option activity:



	Options		Weighted Average Exercise Price		Remaining Contractual Life	Aggregate Intrinsic Value
	(In thousands)				(In years)	(In thousands)
Balance as of January 1, 2014	15,427		$	36.03
Granted	4,113		78.70
Exercised	(3,804	)	25.66
Cancelled	(1,301	)	53.69
Balance as of December 31, 2014	14,435		49.33
Granted	7,572		94.13
Exercised	(4,201	)	34.57
Cancelled	(751	)	74.06
Balance as of December 31, 2015	17,055		71.77
Granted	5,670		105.37
Exercised	(2,686	)	47.57
Cancelled	(1,198	)	91.62
Balance as of December 31, 2016	18,841		84.07		4.7	$	552,445
Exercisable as of December 31, 2016	5,770		58.27		3.1	317,909
Vested and expected to vest after December 31, 2016⁽¹⁾	18,841		84.07		4.7	552,445

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(1)	As of our adoption of the new share-based payment accounting standard in 2016, we no longer include a forfeiture rate in our vested and expected to vest calculation unless necessary for a performance condition award.

The aggregate intrinsic value of outstanding options shown in the stock option activity table above represents the total pretax intrinsic value at December 31, 2016, based on our closing stock price of $113.28 as of the last trading date in 2016. The total intrinsic value of stock options exercised was $181 million, $314 million and $208 million for the years ended December 31, 2016, 2015 and 2014. Included within options granted for 2015 are 2.7 million options awarded to our Chief Executive Officer with his entry into a new five-year employment agreement, of which 1.1 million options are subject to a stock price performance goal.

During the three years ended December 31, 2016, 2015 and 2014, we awarded stock options as our primary form of stock-based compensation. The fair value of stock options granted during the years ended December 31, 2016, 2015 and 2014 were estimated at the date of grant using appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models, assuming the following weighted average assumptions:



	2016			2015			2014
Risk-free interest rate	0.97		%	1.19		%	1.13		%
Expected volatility	39.06		%	41.48		%	42.97		%
Expected life (in years)	3.59			4.06			4.04
Dividend yield	0.91		%	0.78		%	0.76		%
Weighted-average estimated fair value of options granted during the year	$	29.48		$	30.56		$	25.80

In addition to the Expedia, Inc. stock plan, there were certain shares held by trivago employees which were originally awarded in the form of stock options pursuant to the trivago employee stock option plan and subsequently exercised by such employees. During 2016, we exercised our call right on these shares and elected to do so at a premium to fair value, which resulted in an incremental stock-based compensation charge of approximately $49 million pursuant to liability award treatment.

The following table presents a summary of RSU activity:



	RSUs		Weighted Average Grant-Date Fair Value
	(In thousands)
Balance as of January 1, 2014	432		$	50.64
Granted	108		80.94
Vested	(159	)	45.90
Cancelled	(44	)	55.52
Balance as of December 31, 2014	337		61.97
Granted	1,643		123.42
Vested	(493	)	103.73
Cancelled	(91	)	67.11
Balance as of December 31, 2015	1,396		119.20
Granted	691		109.38
Vested	(516	)	118.71
Cancelled	(222	)	117.84
Balance as of December 31, 2016	1,349		114.58

RSUs, which are stock awards that are granted to employees entitling the holder to shares of our common stock as the award vests, were our primary form of stock-based award prior to 2009. Our RSUs generally vest over three or four-years, but may accelerate in certain circumstances, including certain changes in control. During 2015, in connection with the acquisitions disclosed in NOTE 3 — Acquisitions and Other Investments, we replaced certain unvested employee RSUs of the acquiree with Expedia awards the amount of which is included within granted in the above table.

The total market value of shares vested during the years ended December 31, 2016, 2015 and 2014 was $57 million, $60 million and $12 million.

In 2016, 2015 and 2014, we recognized total stock-based compensation expense of $242 million, including amounts related to trivago discussed above, $178 million and $85 million. The total income tax benefit related to stock-based compensation expense was $56 million, $45 million and $20 million for 2016, 2015 and 2014.

Cash received from stock-based award exercises for the years ended December 31, 2016 and 2015 was $128 million and $89 million. Our employees that held vested Expedia options prior to the TripAdvisor, Inc. (“TripAdvisor”) spin-off on December 20, 2011 received vested stock options in both Expedia and TripAdvisor. As these TripAdvisor stock options are exercised, we receive a tax deduction. Total current income tax benefits during the years ended December 31, 2016 and 2015 associated with the exercise of TripAdvisor and Expedia stock-based awards held by our employees were $76 million and $130 million.

During 2015, our Chairman and Senior Executive exercised options to purchase 1.9 million shares. 0.5 million shares were withheld and concurrently cancelled by the Company to cover the weighted average exercise price of $30.38 per share and 0.8 million shares were withheld and concurrently cancelled to cover tax obligations, with a net delivery of 0.6 million shares.

As of December 31, 2016, there was approximately $385 million of unrecognized stock-based compensation expense related to unvested stock-based awards, which is expected to be recognized in expense over a weighted-average period of 2.7 years.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (“ESPP”), which allows shares of our common stock to be purchased by eligible employees at three-month intervals at 85% of the fair market value of the stock on the last day of each three-month period. Eligible employees are allowed to contribute up to 10% of their base compensation. During 2016, 2015 and 2014, approximately 139,000, 95,000, and 102,000 shares were purchased under this plan for an average price of $95.63, $93.30 and $68.70 per share. As of December 31, 2016, we have reserved approximately 1.1 million shares of our common stock for issuance under the ESPP.