(9)  Stock-Based Compensation

TripCo Incentive Plans

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 1-5 years and have a term of 7-10 years.  TripCo issues new shares upon exercise of equity awards.

TripCo - Grants

During the years ended December 31, 2018, 2017 and 2016, TripCo granted 59 thousand, 105 thousand and 67 thousand options, respectively, to purchase shares of Series A common stock to its non-employee directors.  Such options had a weighted average grant-date fair value (“GDFV”) of $8.83,  $4.11 and $6.63 per share, respectively, and cliff vest over a 1-year vesting period.  There were no options to purchase shares of Series B common stock granted and no exercises, forfeitures or cancellations of Series B common stock during the year ended December 31, 2018.

The Company has calculated the GDFV 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 2018, 2017 and 2016, the range of expected terms was 4.8 years to 5.7 years.  The volatility used in the calculation for Awards is based on the historical volatility of TripCo common stock and the implied volatility of publicly traded TripCo options.  For grants made in 2018, 2017 and 2016, the range of volatilities was 40.6% to 49.5%.  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 tables present 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, 2018, the total unrecognized compensation cost related to unvested equity Awards was $5 million. Such amount will be recognized in the Company’s statements of operations over a weighted average period of approximately 1 year.

As of December 31, 2018, TripCo reserved 2.4 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, 2018, 2017 and 2016 was $117 thousand, $478 thousand and $1.2 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, 2018, 2017 and 2016 was $9 thousand, $13 thousand and $284 thousand, respectively.

As of December 31, 2018, the Company had approximately 20 thousand unvested restricted shares of Series A TripCo common stock held by certain directors, officers and employees of the Company with a weighted average GDFV of $9.42 per share.

TripAdvisor Equity Grant Awards

On June 21, 2018, TripAdvisor’s stockholders approved the 2018 Stock and Annual Incentive Plan (the “2018 Plan”) primarily for the purpose of providing sufficient reserves of shares of TripAdvisor’s common stock to ensure its ability to continue to provide new hires, employees and management with equity incentives. The number of shares reserved and available for issuance under the 2018 Plan is 6,000,000 plus the number of shares available for issuance (and not subject to outstanding awards) under the Amended and Restated 2011 Stock and Annual Incentive Plan (the “2011 Plan”), as of the effective date of the 2018 Plan. Both plans provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and other stock-based awards to TripAdvisor’s directors, officers, employees and consultants, although no additional awards will be granted pursuant to the 2011 Plan. Grants were valued using a volatility of 41.9% and the applicable risk free rate for an expected term of 5.5 years for the year ended December 31, 2018, volatility of 42.1% and the applicable risk free rate for an expected term of 6.1 years for the year ended December 31, 2017 and 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.

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, WAEP and aggregate intrinsic value of stock options to purchase TripAdvisor common stock granted under their 2011 Plan and 2018 Plan:

 

The weighted average GDFV of service based stock options under their 2011 Plan and 2018 Plan was $18.11 for the year ended December 31, 2018. These stock options generally have a term of ten years from the date of grant and typically vest equally over a four year requisite service period. As of December 31, 2018, the total number of shares reserved for future stock-based awards under the 2018 Plan is approximately 13.5 million shares. TripAdvisor related stock-based compensation for the year ended December 31, 2018 was approximately $118 million. As of December 31, 2018, the total unrecognized compensation cost related to unvested TripAdvisor stock options was approximately $37 million and will be recognized over a weighted average period of approximately 2.8 years.

Restricted Stock Units and Market-based 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 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 GDFV of the award that is vested at that date.

Market-based restricted stock units (“MSUs”) vest upon achievement of specified levels of market conditions. The fair value of the MSUs is estimated at the date of grant using a Monte-Carlo simulation model. The probabilities of the actual number of market-based performance units expected to vest and resultant actual number of shares of common stock expected to be awarded are reflected in the grant date fair values; therefore, the compensation expense for these awards will be recognized assuming the requisite service period is rendered and are not adjusted based on the actual number of awards that ultimately vest.

During the year ended December 31, 2018, TripAdvisor granted approximately 3 million of primarily service-based RSUs and market-based MSUs under the 2018 Plan and the 2011 Plan. The RSUs’ fair value was measured based on the quoted price of TripAdvisor common stock at the date of grant. As the MSUs provide for vesting based upon TripAdvisor’s total shareholder return, or “TSR,” performance, the potential outcomes of future stock prices and TSR of TripAdvisor and the Nasdaq Composite Total Return Index, was used to calculate the GDFV of these awards. The weighted average GDFV for RSUs and MSUs granted during 2018 was $43.38 per share. As of December 31, 2018, the total unrecognized compensation cost related to 7 million unvested TripAdvisor RSUs and MSUs outstanding was approximately $225 million which will be recognized over the remaining vesting term of approximately 2.6 years.