TripAdvisor 2015 Annual Report Download - page 54

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Income Taxes
Werecordincometaxesundertheassetandliabilitymethod.Deferredtaxassetsandliabilitiesreflectourestimationofthefuturetaxconsequencesof
temporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforbookandtaxpurposes.Wedeterminedeferredincometaxesbasedonthe
differencesinaccountingmethodsandtimingbetweenfinancialstatementandincometaxreporting.Accordingly,wedeterminethedeferredtaxassetorliability
foreachtemporarydifferencebasedontheenactedtaxratesexpectedtobeineffectwhenwerealizetheunderlyingitemsofincomeandexpense.Weconsiderall
relevantfactorswhenassessingthelikelihoodoffuturerealizationofourdeferredtaxassets,includingourrecentearningsexperiencebyjurisdiction,expectations
offuturetaxableincomeandthecarryforwardperiodsavailabletousfortaxreportingpurposes,aswellasassessingavailabletaxplanningstrategies.Wemay
establishavaluationallowancetoreducedeferredtaxassetstotheamountwebelieveismorelikelythannottoberealized.Duetoinherentcomplexitiesarising
fromthenatureofour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ourforeignsubsidiaries,which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.
See“Note9—Income Taxes ”inthenotestoourconsolidatedfinancialstatementsinItem8forfurtherinformationonincometaxes.
Stock-Based Compensation
Stock Options
Theexercisepriceforallstockoptionsgrantedbyustodatehasbeenequaltothemarketpriceoftheunderlyingsharesofcommonstockatthedateof
grant.Inthisregard,whenmakingstockoptionawards,ourpracticeistodeterminetheapplicablegrantdateandtospecifythattheexercisepriceshallbethe
closingpriceofourcommonstockonthedateofgrant.StockoptionsgrantedduringtheyearendedDecember31,2015haveatermoftenyearsfromthedateof
grantandgenerallyvestoverafour-yearrequisiteserviceperiod.
DuringtheyearendedDecember31,2015,weissued586,851ofprimarilyservicebasedstocknon-qualifiedstockoptionsunderthe2011IncentivePlan
withaweightedaveragegrant-datefairvalueperoptionof$33.02.Wewillamortizethefairvalue,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.Weusehistoricaldatatoestimatepre-vestingoptionforfeituresandrecordshare-basedcompensation
expenseonlyforthoseawardsthatareexpectedtovest.
Theestimatedfairvalueoftheoptionsgrantedunderthe2011IncentivePlantodate,havebeencalculatedusingaBlack-ScholesMertonoption-pricing
model(“Black-Scholesmodel”).TheBlack-Scholesmodelincorporatesassumptionstovaluestock-basedawards,whichincludestherisk-freerateofreturn,
expectedvolatility,expectedtermandexpecteddividendyield.
Ourrisk-freeinterestrateisbasedontheratescurrentlyavailableonzero-couponU.S.Treasuryissues,ineffectatthetimeofthegrant,whoseremaining
maturityperiodmostcloselyapproximatesthestockoption’sexpectedtermassumption.Ourexpectedvolatilityiscalculatedbyequallyweightingthehistorical
volatilityandimpliedvolatilityonourownstock.Historicalvolatilityisdeterminedusingactualdailypriceobservationsofourstockpriceoveraperiod
equivalenttoorapproximatetotheexpectedtermofourstockoptiongrantstodate.Impliedvolatilityrepresentsthevolatilityofouractivelytradedoptionsonour
stock,withremainingmaturitiesinexcessofsixmonthsandmarketpricesapproximatetotheexercisepricesofthestockoptiongrant.Weestimateourexpected
termusinghistoricalexercisebehaviorandexpectedpost-vestterminationdata.Ourexpecteddividendyieldiszero,aswehavenotpaidanydividendsonour
commonstocktodateanddonotexpecttopayanycashdividendsfortheforeseeablefuture.
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