(9) Stock-Based Compensation

TripCo Incentive Plans

In connection with the TripCo Spin-Off, the holder of an outstanding option or stock appreciation right (collectively “Award”) to purchase shares of Liberty Ventures Series A and Series B common stock on the record date (a “Liberty Ventures Award”) received an Award to purchase shares of the corresponding series of TripCo common stock 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”).  Following the TripCo Spin-Off, employees of Liberty hold Awards in both Liberty Ventures common stock and TripCo common stock.  The compensation expense relating to employees of Liberty is recorded at Liberty. Therefore, compensation expense related to Awards resulting from the TripCo Spin-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 TripCo 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 TripAdvisor Holdings, Inc. 2014 Omnibus Incentive Plan (Amended and Restated as of March 11, 2015) (the “2014 Plan”), the Company may grant Awards in respect of a maximum of 6.7 million shares of TripCo common stock.  Awards generally vest over 4-5 years and have a term of 7-10 years.  TripCo issues new shares upon exercise of equity awards.

TripCo - Grants

During the year ended December 31, 2016 and pursuant to the 2014 Plan, TripCo granted 67 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 $6.63 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.

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-Merton Model.  The Company estimates the expected term of the Awards based on historical exercise and forfeiture data.  For grants made in 2016, 2015 and 2014, the range of expected terms was 5.7 years to 7.3 years.  Since TripCo 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 a blend of the historical volatility of TripCo and TripAdvisor common stock and the implied volatility of publicly traded TripCo and TripAdvisor options; as the most significant asset within TripCo, the volatility of TripAdvisor was considered in the overall volatility of TripCo.  For grants made in 2016, 2015 and 2014, the range of volatilities was 40.6% to 45.9%.  The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options. The Company recognizes the cost of an Award over the period during which the employee is required to provide service (usually the vesting period of the Award).

TripCo - Outstanding Awards

The following table presents the number and weighted average exercise price (“WAEP”) of Awards to purchase TripCo 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.

 

 

 

 

As of December 31, 2016, the total unrecognized compensation cost related to unvested equity Awards was $15 million. Such amount will be recognized in the Company’s statements of operations over a weighted average period of approximately 2 years.

As of December 31, 2016, TripCo reserved 2.5 million shares of Series A and Series B common stock for issuance under exercise privileges of outstanding stock Awards.

TripCo - Exercises

The aggregate intrinsic value of all TripCo options exercised during the years ended December 31, 2016, 2015 and 2014 was $1.2 million, $7.3 million and $10.7 million, respectively.

TripCo — Restricted Stock

The aggregate fair value of all restricted shares of TripCo common stock that vested during the years ended December 31, 2016, 2015 and 2014 was $1.2 million.

As of December 31, 2016, the Company had approximately 16,000 unvested restricted shares of Series A TripCo common stock held by certain directors, officers and employees of the Company with a weighted average grant-date fair value of $6.19 per share.

 

TripAdvisor Equity Grant Awards

Pursuant to TripAdvisor’s Amended and Restated 2011 Stock and Annual Incentive Plan (the “2011 Incentive Plan”), TripAdvisor may grant restricted stock, restricted stock awards, restricted stock units (“RSUs”), stock options and other stock-based awards to TripAdvisor directors, officers, employees and consultants. Grants were valued using a volatility of 41.8% and the applicable risk free rate for an expected term of 4.9 years for the year ended December 31, 2016, volatility of 41.8% and the applicable risk free rate for an expected term of 5.4 years for the year ended December 31, 2015 and a volatility of 44.0% and the applicable risk free rate for an expected term of 5.8 years for the year ended December 31, 2014.

Performance-based stock options and RSUs vest upon achievement of certain TripAdvisor company-based performance conditions and a requisite service period. On the date of grant, the fair value of stock options is calculated using a Black-Scholes-Merton model, which incorporates assumptions to value stock-based awards, including the risk-free rate of return, expected volatility, expected term and expected dividend yield. If, upon grant, TripAdvisor assesses the achievement of performance targets as probable, compensation expense is recorded for the awards over the estimated performance period on a straight-line basis. At each reporting period, the probability of achieving the performance targets and the performance period required to meet those targets is assessed. To the extent actual results or updated estimates differ from TripAdvisor’s estimates, the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised, or the change in estimate will be applied prospectively depending on whether the change affects the estimate of total compensation cost to be recognized or merely affects the period over which compensation cost is to be recognized.

The following table presents the number, weighted average exercise price (“WAEP”) and aggregate intrinsic value of stock options to purchase TripAdvisor common stock granted under their 2011 Incentive Plan:

 

 

During the year ended December 31, 2016, TripAdvisor granted 1 million of service based stock options under their 2011 Incentive Plan, with a weighted average estimated grant-date fair value per option of $63.43. These stock options generally have a contractual term of ten years from the date of grant and generally vest over a four year requisite service period. As of December 31, 2016, the total number of shares available under the 2011 Incentive Plan is 15,051,221 shares. TripAdvisor related stock-based compensation for the year ended December 31, 2016 was approximately $85 million. As of December 31, 2016, the total unrecognized compensation cost related to unvested TripAdvisor stock options was approximately $48 million and will be recognized over a weighted average period of approximately 2.3 years.

Restricted Stock Units 

RSUs are stock awards that are granted to employees entitling the holder to shares of TripAdvisor common stock as the award vests. RSUs are measured at fair value based on the number of shares granted and the quoted price of TripAdvisor common stock at the date of grant. The fair value of RSUs is amortized as stock-based compensation expense over the vesting term on a straight-line basis, with the amount of compensation expense recognized at any date at least equaling the portion of the grant-date fair value of the award that is vested at that date.

During the year ended December 31, 2016, TripAdvisor granted 2 million service based RSUs under their 2011 Incentive Plan for which the fair value was measured based on the quoted price of TripAdvisor common stock at the date of grant. The weighted average grant date fair value for RSUs granted during 2016 was $63.71 per share. The unvested TripAdvisor RSUs had a weighted average grant date fair value of $69.35 as of December 31, 2016. As of December 31, 2016, the total unrecognized compensation cost related to 2.9 million unvested TripAdvisor RSU’s outstanding was approximately $149 million which will be recognized over the remaining vesting term of approximately 2.8 years.