TripAdvisor 2013 Annual Report Download - page 92

Restricted Stock Units. RSUs are stock awards that are granted to employees entitling the holder to shares
of our common stock as the award vests. RSUs are measured at fair value based on the number of shares granted
and the quoted price of our common stock at the date of grant. We amortize the fair value of stock options and
RSUs, net of estimated forfeitures, as stock-based compensation expense over the vesting term of generally four
years 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. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by employees who receive these awards,
and subsequent events are not indicative of the reasonableness of our original estimates of fair value. We use
historical data to estimate pre-vesting stock option and RSU forfeitures and record share-based compensation
expense only for those awards that are expected to vest. Changes in estimated forfeitures are recognized through
a cumulative catch-up adjustment in the period of change which also impacts the amount of stock compensation
expense to be recognized in future periods.
Performance-based stock options and RSUs vest upon achievement of certain company-based performance
conditions and a requisite service period. On the date of grant, the fair value of performance-based awards is
determined based on the fair value, which is calculated using the same method as our service based stock options
and RSUs described above. We then assess whether it is probable that the performance targets would be
achieved. If assessed as probable, compensation expense will be recorded for these awards over the estimated
performance period. At each reporting period, we will reassess the probability of achieving the performance
targets and the performance period required to meet those targets. The estimation of whether the performance
targets will be achieved and of the performance period required to achieve the targets requires judgment, and to
the extent actual results or updated estimates differ from our current 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 ultimate
number of shares issued and the related compensation expense recognized will be based on a comparison of the
final performance metrics to the specified targets.
Deferred Merchant Payables
We receive cash from travelers at the time of booking related to our vacation rental and transaction-based
businesses and we record these amounts, net of commissions, on our consolidated balance sheets as deferred
merchant payables. We pay the hotel or vacation rental owners after the travelers’ use and subsequent billing
from the hotel or vacation rental owners. Therefore, we receive cash from the traveler prior to paying the hotel or
vacation rental owners, and this operating cycle represents a working capital source of cash to us. As long as our
transaction-based businesses grow, we expect that changes in working capital related to these transactions will
positively impact operating cash flows. As of December 31, 2013, our deferred merchant payables balance was
$29.6 million and for the year ended December 31, 2013, the related transactions generated positive operating
cash flow of $16.8 million. A payable balance of $11.5 million was acquired with our business acquisitions
during the year ended December 31, 2013, and therefore is included within investing activities in our
consolidated and combined cashflow statements. For additional information on our business acquisitions refer to
“Note 3—Acquisitions” below. The deferred merchant payables balance at December 31, 2012 was $1.3 million.
Credit Risk and Concentrations
Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of cash
and cash equivalents, corporate debt securities, foreign exchange contracts, accounts receivable and customer
concentrations. We maintain some cash and cash equivalents balances with financial institutions that are in
excess of Federal Deposit Insurance Corporation insurance limits. Our cash and cash equivalents are primarily
composed of prime institutional money market funds as well as bank account balances primarily denominated in
U.S. dollars, Euros, British pound sterling, Chinese renminbi and Singapore dollars. We invest in highly-rated
corporate debt securities, and our investment policy limits the amount of credit exposure to any one issuer,
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