(9) Stock-Based Compensation

Expedia Holdings Incentive Plan

In connection with the Expedia Holdings Split-Off, the holder of an outstanding option (“Award”) to purchase shares of Liberty Interactive’s Liberty Ventures Series A and Series B common stock (a “Liberty Ventures Award”) received an Award to purchase shares of the corresponding series of Expedia Holdings common stock (an “Expedia Holdings Award”) and an adjustment to the exercise price and number of shares subject to the original Liberty Ventures Award (as so adjusted, an “adjusted Liberty Ventures Award”). The exercise prices of and number of shares subject to the new Expedia Holdings Award and the adjusted Liberty Ventures Award were determined based on (1) the exercise price and number of shares subject to the original Liberty Ventures Award, (2) the redemption ratios used in the Expedia Holdings Split-Off, (3) the pre-Expedia Holdings Split-Off trading price of Liberty Ventures common stock and (4) the relative post-Expedia Holdings Split-Off trading prices of Liberty Ventures common stock and Expedia Holdings common stock, such that the pre-Expedia Holdings Split-Off intrinsic value of the original Liberty Ventures Award was allocated between the new Expedia Holdings Award and the adjusted Liberty Ventures Award. The terms and conditions of the Expedia Holdings Awards are governed by the Liberty Expedia Holdings, Inc. Transitional Stock Adjustment Plan (the “Transitional Plan”) in respect of a maximum of 2.0 million shares of Expedia Holdings common stock. No additional grants may be made pursuant to the Transitional Plan.

Following the Expedia Holdings Split-Off, employees of Liberty Interactive hold Awards in both Liberty Ventures common stock and Expedia Holdings common stock. The compensation expense relating to employees of Liberty Interactive is recorded at Liberty Interactive. Therefore, compensation expense related to Awards resulting from the Expedia Holdings Split-Off will not be recognized in the Company’s consolidated financial statements.

Except as described above, all other terms of an adjusted Liberty Ventures Award and a new Expedia Holdings Award (including, for example, the vesting terms thereof) are in all material respects, the same as those of the corresponding original Liberty Ventures Award.

Pursuant to the Liberty Expedia Holdings, Inc. 2016 Omnibus Incentive Plan, the Company may grant Awards to be made in respect of a maximum of 3.7 million shares of Expedia Holdings common stock. Awards generally vest over 4- 5 years and have a term of 7-10 years. Expedia Holdings issues new shares upon exercise of equity awards.

Expedia Holdings – Grants of Stock Options

The Company has calculated the grant-date fair value for all of its equity classified awards and any subsequent remeasurement of its liability classified awards using the Black-Scholes Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data. For the grant made in 2016, the expected term was 5.9 years. Since Expedia Holdings common stock has not traded on the stock market for a significant length of time, the volatility used in the calculation for Awards is based on the historical volatility of Liberty Ventures common stock and the implied volatility of publicly traded Liberty Ventures options. For the grant made in 2016, the volatility was 25.9%. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject option.

During the year ended December 31, 2016 and pursuant to the Transitional Plan, the Company granted 6 thousand options to purchase shares of Series A common stock to its non-employee directors. Such options had a weighted average grant-date fair value of $12.40 per share and cliff vest over a 1-year vesting period. There were no options to purchase shares of Series B common stock granted during the period.

Expedia Holdings – Outstanding Awards

The following table presents the number and weighted average exercise price (“WAEP”) of Awards to purchase Expedia Holdings common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining life and aggregate intrinsic value of the Awards.


				Weighted
				average		Aggregate
				remaining		intrinsic
	Series A	WAEP		contractual life		value
	(in thousands)					(in millions)
Outstanding at January 1, 2016	—	$	—
Expedia Holdings Split-Off adjustment	1,330	$	24.34
Granted	6	$	41.40
Exercised	(19)	$	21.59
Forfeited/Cancelled	—	$	—
Outstanding at December 31, 2016	1,317	$	24.46	3.4	years	$	21
Exercisable at December 31, 2016	1,022	$	19.77	2.5	years	$	20


				Weighted
				average		Aggregate
				remaining		intrinsic
	Series B	WAEP		contractual life		value
	(in thousands)					(in millions)
Outstanding at January 1, 2016	—	$	—
Expedia Holdings Split-Off adjustment	659	$	38.48
Granted	—	$	—
Exercised	—	$	—
Forfeited/Cancelled	—	$	—
Outstanding at December 31, 2016	659	$	38.48	5.2	years	$	2
Exercisable at December 31, 2016	123	$	40.46	5.9	years	$	—

As of December 31, 2016, the total unrecognized compensation cost related to unvested Expedia Holdings Awards was approximately $67 thousand. Such amount will be recognized in the Company’s consolidated statements of operations over a weighted average period of approximately 1 year.

As of December 31, 2016, Expedia Holdings reserved 2.0 million shares of Series A and Series B common stock for issuance under exercise privileges of outstanding stock Awards.

Expedia Holdings – Exercises

The aggregate intrinsic value of all options exercised during the year ended December 31, 2016 was $426 thousand.

Expedia Holdings – Restricted Shares

The aggregate fair value of all Series A and Series B restricted shares of Expedia Holdings common stock that vested during the year ended December 31, 2016 was $283 thousand.

As of December 31, 2016, the Company had approximately 67 thousand unvested restricted shares of Series A and Series B Expedia Holdings common stock held by certain directors, officers and employees of the Company with a weighted average grant-date fair value of $29.31 per share.

Expedia - Stock-based Compensation

Pursuant to the Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan (“Expedia Stock Plan”), Expedia may grant restricted stock, restricted stock awards, RSUs, stock options and other stock-based awards to its directors, officers, employees and consultants. Expedia issues new shares to satisfy the exercise or release of stock-based awards.

The following table presents a summary of Expedia’s stock option activity:


				Weighted
				average		Aggregate
				remaining		intrinsic
	Options	WAEP		contractual life		value
	(in thousands)					(in millions)
Outstanding at January 1, 2016	—	$	—
Awards outstanding upon Expedia Holdings Split-Off on November 4, 2016	19,081	$	83.69
Granted	63	$	126.58
Exercised	(207)	$	52.41
Forfeited/Cancelled	(96)	$	95.21
Outstanding at December 31, 2016	18,841	$	84.07	4.7	years	$	552
Exercisable at December 31, 2016	5,770	$	58.27	3.1	years	$	318

The total intrinsic value of stock options exercised was $15 million from the date of the Expedia Holdings Split-Off, November 4, 2016, through December 21, 2016.

The fair value of stock options granted during the period from November 4, 2016 through December 31, 2016 was 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:


Risk-free interest rate		1.38%
Expected volatility		37.48%
Expected life		3.5 years
Expected dividend yield		0.82%

The weighted average grant-date fair value of options granted during the period from November 4, 2016 through December 31, 2016 was $34.59 per share.

The following table presents a summary of RSU activity:


		Weighted Average
		Grant-Date Fair
	RSUs	Value
	(in thousands)
Balance as of January 1, 2016	—	$	—
Awards outstanding upon Expedia Holdings Split-Off on November 4, 2016	1,302		113.98
Granted	113		125.20
Vested	(58)		122.12
Cancelled	(8)		120.30
Balance as of December 31, 2016	1,349	$	114.58

Expedia’s RSUs generally vest over three or four years, but may accelerate in certain circumstances, including certain changes in control. The total market value of shares vested during the period from November 4, 2016 through December 31, 2016 was approximately $7 million.

In addition to the Expedia 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, Expedia exercised its 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 stock-based compensation recognized by Expedia Holdings related to Expedia stock options and restricted stock awards was $48 million, including amounts related to trivago discussed above, for the period from November 4, 2016 through December 31, 2016. As of December 31, 2016, the total unrecognized compensation cost related to unvested Expedia stock options was $385 million and will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.7 years.

Expedia also has an Employee Stock Purchase Plan (“ESPP”), which allows shares of EXPE 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, subsequent to the Expedia Holdings Split-Off, approximately 36 thousand shares were purchased under this plan for an average price of $105.44 per share. As of December 31, 2016, Expedia has reserved approximately 1.1 million shares of EXPE for issuance under the ESPP.

Vitalize Stock Appreciation Rights

Vitalize maintains certain stock appreciation rights (“SAR”) plans under which officers and key employees are granted SARs. SARs granted under Vitalize’s SAR plans generally vest over a period of three to five years and expire seven years from the date of issuance. SARs are cash settled and recorded as liability awards. The total stock-based compensation recorded related to Vitalize’s outstanding SARs was less than $1 million, $2 million and $2 million for each of the years ended December 31, 2016, 2015 and 2014, respectively. The total intrinsic value of SARs exercised during the years ended December 31, 2016, 2015 and 2014 was $2 million, $2 million and less than $1 million, respectively, which equals the total cash used to settle the exercised units. As of December 31, 2016, the total unrecognized compensation cost related to 866 thousand shares of unvested Vitalize SARs was approximately $5.5 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.9 years.