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, 2017, we had approximately 13 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. In 2017, we introduced an equity choice program for annual awards that allows for the choice of stock options or RSUs with certain limitations. During 2016 and 2015, we awarded stock options as our primary form of stock-based compensation.

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, 2015	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
Granted	3,618		124.08
Exercised	(3,422	)	62.67
Cancelled	(3,384	)	96.86
Balance as of December 31, 2017	15,653		95.23		4.4	$	402,509
Exercisable as of December 31, 2017	5,903		74.64		3.1	266,849
Vested and expected to vest after December 31, 2017	15,653		95.23		4.4	402,509

The aggregate intrinsic value of outstanding options shown in the stock option activity table above represents the total pretax intrinsic value at December 31, 2017, based on our closing stock price of $119.77 as of the last trading date in 2017. The total intrinsic value of stock options exercised was $249 million, $181 million and $314 million for the years ended December 31, 2017, 2016 and 2015.

The fair value of stock options granted during the years ended December 31, 2017, 2016 and 2015 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:



	2017			2016			2015
Risk-free interest rate	1.58		%	0.97		%	1.19		%
Expected volatility	32.47		%	39.06		%	41.48		%
Expected life (in years)	3.65			3.59			4.06
Dividend yield	0.92		%	0.91		%	0.78		%
Weighted-average estimated fair value of options granted during the year	$	30.17		$	29.48		$	30.56

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, 2015	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
Granted	1,350		123.24
Vested	(492	)	115.29
Cancelled	(266	)	116.26
Balance as of December 31, 2017	1,941		120.19

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, 2017, 2016 and 2015 was $65 million, $57 million and $60 million.

In 2017, we recognized total stock-based compensation expense of $149 million, which included the reversal of $41 million of previously recognized stock-based compensation as a result of the departure of our former CEO and the related forfeiture of certain of his stock-based awards within general and administrative expense. In 2016 and 2015, we recognized total stock-based compensation expense of $242 million, including amounts related to trivago discussed above, and $178 million. The total income tax benefit related to stock-based compensation expense was $38 million, $56 million and $45 million for 2017, 2016 and 2015.

Cash received from stock-based award exercises for the years ended December 31, 2017 and 2016 was $213 million and $128 million. Total current income tax benefits during the years ended December 31, 2017 and 2016 associated with the exercise of stock-based awards held by our employees were $100 million and $76 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, 2017, there was approximately $410 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 2.6 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 2017, 2016 and 2015, approximately 141,000, 139,000, and 95,000 shares were purchased under this plan for an average price of $112.31, $95.63 and $93.30 per share. As of December 31, 2017, we have reserved approximately 1 million shares of our common stock for issuance under the ESPP.