Expedia 2007 Annual Report Download - page 91

benefit related to stock-based compensation expense was $21.7 million, $27.0 million and $31.3 million for
2007, 2006 and 2005.
In 2005, due to the Spin-off from IAC and the then actual and expected turnover of our employees, we
performed assessments of forfeiture rates used in the determination of our stock-based compensation expense
(the “2005 assessments”). Prior to the 2005 assessments, which were specific to the Expedia spin-off group,
forfeiture estimates had been determined at the IAC consolidated level. The 2005 assessments included
analyses of the actual number of awards that were vested or forfeited through December 31, 2005 and an
estimate of forfeitures to be incurred in the future, using historical rates, as well as reviews of the forfeiture
characteristics by award type. As part of the assessments we stratified award forfeitures by semi-annual
increments to determine the impact time remaining to vest had on forfeiture activity. These analyses resulted
in forfeiture rate ranges from 4% to 34% depending on each respective award’s time remaining to vest, and
award type, versus an estimated flat rate of 7% prior to the 2005 assessments. The change in forfeiture rate
estimate resulted in a cumulative benefit of approximately $43.4 million and corresponding reduction of stock-
based compensation expense during 2005. We evaluate our forfeiture rates, on a periodical and at least semi-
annual basis, and update the rates we use in the determination of our stock-based compensation expense.
Cash received from stock-based award exercises for the years ended December 31, 2007 and 2006 was
$55.0 million and $35.3 million. Our employees that held vested stock options prior to the Spin-Off received
vested stock options in both Expedia and IAC. As these stock options are exercised, we receive a tax
deduction. Total current income tax benefits during the years ended December 31, 2007 and 2006 associated
with the exercise of IAC and Expedia stock-based awards held by our employees were $120.8 million and
$34.3 million, of which we recorded approximately $9.4 million and $16.9 million as a reduction of goodwill.
In October 2007, our Chairman and Senior Executive exercised options to purchase 9.5 million shares.
2.3 million shares were withheld and concurrently cancelled by the Company to cover the exercise price of
$8.59 per share and 3.5 million shares were withheld and concurrently cancelled to cover tax obligations, with
a net delivery of 3.7 million shares.
As of December 31, 2007, there was approximately $166.4 million of unrecognized stock-based
compensation expense, net of estimated forfeitures, related to unvested stock-based awards, which is expected
to be recognized in expense over a weighted-average period of 3.34 years.
Modification of Stock-Based Awards
In connection with the Spin-Off, all existing IAC stock-based awards, which included RSUs, stock
options and warrants, were converted as follows:
• each vested stock option to purchase shares of IAC common stock converted into an option to purchase
shares of IAC common stock and an option to purchase shares of Expedia common stock;
• each unvested stock option to purchase shares of IAC common stock converted into a stock option to
purchase shares of common stock of the applicable company for which the employee worked following
the Spin-Off;
• all RSUs converted into RSUs of the applicable company for which the employee worked following the
Spin-Off; and
• each vested and unvested warrant converted into a warrant to purchase shares of IAC common stock
and a warrant to purchase shares of Expedia common stock.
The adjustments to the number of shares subject to each option and the option exercise prices were based
on the relative market capitalization of IAC and Expedia immediately following the Spin-Off. These
modifications resulted in a one-time expense of $5.4 million due to the increase in the estimated fair value of
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Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)