TripAdvisor 2012 Annual Report Download - page 67

businesses, future changes in income tax law, tax sharing agreements or variances between our actual and
anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could
materially vary from these estimates.
We record liabilities to address uncertain tax positions we have taken in previously filed tax returns or that
we expect to take in a future tax return. The determination for required liabilities is based upon an analysis of
each individual tax position, taking into consideration whether it is more likely than not that our tax position,
based on technical merits, will be sustained upon examination. For those positions for which we conclude it is
more likely than not it will be sustained, we recognize the largest amount of tax benefit that is greater than 50%
likely of being realized upon ultimate settlement with the taxing authority. The difference between the amount
recognized and the total tax position is recorded as a liability. The ultimate resolution of these tax positions may
be greater or less than the liabilities recorded.
We have not provided for deferred U.S. income taxes on undistributed earnings of certain foreign
subsidiaries that we intend to reinvest permanently outside the United States. Should we distribute earnings of
foreign subsidiaries in the form of dividends or otherwise, we may be subject to U.S. income taxes. Due to
complexities in tax laws and various assumptions that would have to be made, it is not practicable, at this time, to
estimate the amount of unrecognized deferred U.S. taxes on these earnings.
Stock-Based Compensation
TripAdvisor Equity Grants Assumed at Spin-Off
All stock-based compensation included in our consolidated and combined financial statements prior to the
Spin-Off relates to Expedia common stock options and restricted stock units (“RSUs”) held by TripAdvisor
employees prior to the Spin-Off. The following methods were used to measure the fair value of these awards and
we will continue to amortize the fair value thereof as follows for all pre-Spin-Off equity grants:
Stock Options. The value of stock options issued or modified, including unvested options assumed in
acquisitions, on the grant date (or modification or acquisition dates, if applicable) were measured at fair value,
using the Black-Scholes option valuation model. The Black-Scholes model incorporates various assumptions
including expected volatility, expected term, dividend yield and risk-free interest rates. The expected volatility
was based on historical volatility of Expedia’s common stock and other relevant factors. The expected term
assumptions were based on historical experience and on the terms and conditions of the stock awards granted to
employees. We will continue to amortize the fair value, net of estimated forfeitures, over the remaining 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 majority of these stock options
vest over four years.
Restricted Stock Units. RSUs are stock awards granted to employees entitling the holder to shares of
common stock as the award vests, typically over a five-year period. RSUs were measured at fair value based on
the number of shares granted and the quoted price of Expedia’s common stock at the date of grant. We will
continue to amortize the fair value of these awards, 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.
TripAdvisor Equity Grants Awards Issued Subsequent to the Spin-Off
We adopted the TripAdvisor, Inc. 2011 Stock and Annual Incentive Plan, or the 2011 Incentive Plan, as of
December 21, 2011, under which we may grant restricted stock, restricted stock awards, RSUs, stock options and
other stock-based awards to our directors, officers, employees and consultants. Refer to “Note 4—Stock Based
Awards and Other Equity Instruments” in the notes to our consolidated and combined financial statements for
further information on the 2011 Incentive Plan.
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