TripAdvisor 2015 Annual Report Download - page 74

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Foreign Currency Translation and Transaction Gains and Losses
OurconsolidatedfinancialstatementsarereportedinU.S.dollars.CertainofoursubsidiariesoutsideoftheUnitedStatesusetherelatedlocalcurrencyas
theirfunctionalcurrencyandnottheU.S.dollar.Thereforeassetsandliabilitiesofourforeignsubsidiariesaretranslatedatthespotrateineffectattheapplicable
reportingdate,andtheconsolidatedstatementsofoperationsaretranslatedattheaverageexchangeratesineffectduringtheapplicableperiod.Theresulting
unrealizedcumulativetranslationadjustmentisrecordedasacomponentofaccumulatedothercomprehensiveincome(loss)instockholders’equityonour
consolidatedbalancesheet.
Wealsohavesubsidiariesthathavetransactionsinforeigncurrenciesotherthantheirfunctionalcurrency.Transactionsdenominatedincurrenciesother
thanthefunctionalcurrencyarerecordedbasedonexchangeratesatthetimesuchtransactionsarise.Subsequentchangesinexchangeratesresultintransaction
gainsandlosseswhicharereflectedinourconsolidatedstatementsofoperationsasunrealized(basedontheapplicableperiod-endexchangerate)orrealizedupon
settlementofthetransactions,ininterestincomeandother,net.
Accordingly,wehaverecordedforeignexchangelossesof$4million,$10millionand$0millionfortheyearsendedDecember31,2015,2014and2013,
respectively,ininterestincomeandother,netonourconsolidatedstatementofoperations.Theseamountsalsoincludegainsandlosses,realizedandunrealized,on
foreigncurrencyforwardcontracts.
Advertising Expense
Weincuradvertisingexpense,whichincludestrafficgenerationcostsfromsearchenginesandInternetportals,otheronlineandoffline(including
television)advertisingexpense,promotionsandpublicrelationstopromoteourbusiness.Weexpensethecostsassociatedwithcommunicatingtheadvertisements
intheperiodinwhichtheadvertisementtakesplace.Weinitiallycapitalizeandthenexpensetheproductioncostsassociatedwithtelevisionadvertisementsinthe
periodinwhichtheadvertisementfirsttakesplace.FortheyearsendedDecember31,2015,2014and2013,ouradvertisingexpensewas$507million,$341
million,and$237million,respectively.AsofDecember31,2015and2014,wehad$2millionand$5millionofprepaidmarketingexpensesincludedinprepaid
expensesandothercurrentassets.Weexpecttofullyexpenseourprepaidmarketingassetof$2millionasofDecember31,2015totheconsolidatedstatementof
operationsduring2016.
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.
Theestimatedgrant-datefairvalueofstockoptionsis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twelve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.
Ourstockoptionsgenerallyhaveatermoftenyearsfromthedateofgrantandgenerallyvestequitablyoverafour-yearrequisiteserviceperiod.We
amortizethegrant-datefairvalueofourstockoption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.
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
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.
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