Stock Based Awards and Other Equity Instruments | 6 Months Ended |
Jun. 30, 2014 |
Stock Based Awards and Other Equity Instruments | ' |
NOTE 4: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS |
Stock-Based Compensation Expense |
The following table presents the amount of stock-based compensation expense related to stock-based awards, primarily stock options and RSUs, on our unaudited consolidated statements of operations during the periods presented: |
|
| | Three months ended | | | Six months ended | |
| | June 30, | | | June 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | (in millions) | | | (in millions) | |
Selling and marketing | | $ | 3 | | | $ | 2 | | | $ | 6 | | | $ | 5 | |
Technology and content | | | 6 | | | | 4 | | | | 12 | | | | 10 | |
General and administrative | | | 6 | | | | 4 | | | | 11 | | | | 9 | |
Total stock-based compensation | | | 15 | | | | 10 | | | | 29 | | | | 24 | |
Income tax benefit from stock-based compensation | | | (6 | ) | | | (4 | ) | | | (11 | ) | | | (9 | ) |
Total stock-based compensation, net of tax effect | | $ | 9 | | | $ | 6 | | | $ | 18 | | | $ | 15 | |
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Stock-Based Award Activity and Valuation |
2014 Stock Option Activity |
During the six months ended June 30, 2014, we have issued 490,508 of service-based non-qualified stock options under the TripAdvisor, Inc. 2011 Stock and Incentive Plan, as amended (the “2011 Plan”). These stock options have a term of ten years from the date of grant and generally vest equitably over a four-year requisite service period. We will amortize the fair value of the 2014 grants, net of estimated forfeitures, 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. |
A summary of the status and activity for stock option awards relating to our common stock for the six months ended June 30, 2014, is presented below: |
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| | | | | | Weighted | | | Weighted | | | | | |
| | | | | | Average | | | Average | | | | | |
| | | | | | Exercise | | | Remaining | | | Aggregate | |
| | Options | | | Price Per | | | Contractual | | | Intrinsic | |
| | Outstanding | | | Share | | | Life | | | Value | |
| | (in thousands) | | | | | | | (in years) | | | (in millions) | |
Options outstanding at January 1, 2014 | | | 9,470 | | | $ | 40.18 | | | | | | | | | |
Granted | | | 491 | | | | 96.45 | | | | | | | | | |
Exercised (1) | | | (834 | ) | | | 33.46 | | | | | | | | | |
Cancelled or expired | | | (217 | ) | | | 44.99 | | | | | | | | | |
Options outstanding at June 30, 2014 | | | 8,910 | | | $ | 43.79 | | | | 5.5 | | | $ | 578 | |
Exercisable as of June 30, 2014 | | | 3,984 | | | $ | 31.79 | | | | 3.2 | | | $ | 306 | |
Vested and expected to vest after June 30, 2014 | | | 8,282 | | | $ | 43.01 | | | | 5.3 | | | $ | 544 | |
-1 | Inclusive of 432,283 options which were not converted into shares due to net share settlement in order to cover the aggregate exercise price and the minimum amount of required employee withholding taxes. Potential shares that had been convertible under stock options that were withheld under net share settlement remain in the authorized but unissued pool under the 2011 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the unaudited consolidated statements of cash flows. | | | | | | | | | | | | | | | |
Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on NASDAQ as of June 30, 2014 was $108.66. The total intrinsic value of stock options exercised for the six months ended June 30, 2014 and 2013 was $51 million and $27 million, respectively. |
The fair value of stock option grants under the 2011 Plan has been estimated at the date of grant using the Black–Scholes option pricing model with the following weighted average assumptions for the periods presented: |
|
| | Three months ended | | | Six months ended | |
| | June 30, | | | June 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Risk free interest rate | | | 1.98 | % | | | 1.07 | % | | | 1.97 | % | | | 1.07 | % |
Expected term (in years) | | | 6.25 | | | | 6.25 | | | | 6.38 | | | | 6.25 | |
Expected volatility | | | 47.32 | % | | | 51.82 | % | | | 48.07 | % | | | 51.73 | % |
Expected dividend yield | | — % | | | — % | | | — % | | | — % | |
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The weighted-average grant date fair value of options granted was $47.25 and $23.15 for the six months ended June 30, 2014 and 2013, respectively. The total fair value of stock options vested for the six months ended June 30, 2014 and 2013 was $24 million and $20 million, respectively. |
2014 RSU Activity |
During the six months ended June 30, 2014, we issued 512,884 RSUs under the 2011 Plan for which the fair value was measured based on the quoted price of our common stock on the date of grant. These RSUs generally vest over a four-year requisite service period. We will amortize the fair value of the 2014 grants, net of estimated forfeitures, 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. |
The following table presents a summary of RSU activity on our common stock during the six months ended June 30, 2014: |
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| | | | | | Weighted | | | | | | | | | |
| | | | | | Average | | | | | | | | | |
| | | | | | Grant- | | | Aggregate | | | | | |
| | RSUs | | | Date Fair | | | Intrinsic | | | | | |
| | Outstanding | | | Value Per Share | | | Value | | | | | |
| | (in thousands) | | | | | | | (in millions) | | | | | |
Unvested RSUs outstanding as of January 1, 2014 | | | 1,135 | | | $ | 49.64 | | | | | | | | | |
Granted | | | 513 | | | | 96 | | | | | | | | | |
Vested and released (1) | | | (250 | ) | | | 44.86 | | | | | | | | | |
Cancelled | | | (80 | ) | | | 64.27 | | | | | | | | | |
Unvested RSUs outstanding as of June 30, 2014 | | | 1,318 | | | $ | 67.69 | | | $ | 143 | | | | | |
-1 | Inclusive of 89,494 RSUs withheld to satisfy employee minimum tax withholding requirements due to net share settlement. Potential shares which had been convertible under RSUs that were withheld under net share settlement remain in the authorized but unissued pool under the 2011 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the unaudited consolidated statements of cash flows. | | | | | | | | | | | | | | | |
Unrecognized Stock-Based Compensation |
A summary of our remaining unrecognized stock-based compensation expense, net of estimated forfeitures, and the weighted average remaining amortization period at June 30, 2014 related to our non-vested stock options and RSU awards is presented below (in millions): |
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| | Stock | | | | | | | | | | | | | |
| | Options | | | RSUs | | | | | | | | | |
Unrecognized compensation expense (net of forfeitures) | | $ | 91 | | | $ | 55 | | | | | | | | | |
Weighted average period remaining (in years) | | | 3 | | | | 3.2 | | | | | | | | | |
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