Expedia 2007 Annual Report Download - page 80

for Stock-Based Compensation — Transition and Disclosure. As a result, the adoption of SFAS 123(R) did not
have a material impact on our financial position.
We measure and amortize the fair value of restricted stock units, stock options and warrants as follows:
Restricted Stock Units. Restricted stock units (“RSU”) are stock awards that are granted to employees
entitling the holder to shares of common stock as the award vests, typically over a five-year period. We
measure the value of RSUs 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, net of estimated forfeitures, as stock-based
compensation expense over the vesting term on a straight-line basis. We record RSUs that may be settled by
the holder in cash, rather than shares, as a liability and we remeasure these instruments at fair value at the end
of each reporting period. Upon settlement of these awards, our total compensation expense recorded over the
vesting period of the awards will equal the settlement amount, which is based on our stock price on the
settlement date.
Performance-based RSUs vest upon achievement of certain company-based performance conditions. On
the date of grant, we assess whether it is probable that the performance targets will be achieved, and if
assessed as probable, we determine the fair value of the performance-based award based on the fair value of
our common stock at that time. We record compensation expense for these awards over the estimated
performance period using the accelerated method under Financial Accounting Standards Board (“FASB”)
Interpretation No. (“FIN”) 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans — an interpretation of Accounting Principles Board Opinion No. 15 and 25. At each reporting
period, we 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.
Stock Options and Warrants. We measure the value of stock options and warrants issued or modified,
including unvested options assumed in acquisitions, on the grant date (or modification or acquisition dates, if
applicable) at fair value, using the Black-Scholes option valuation model. We amortize the fair value, net of
estimated forfeitures, over the remaining vesting term on a straight-line basis.
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. In determining the estimated forfeiture rates for stock-based awards, we
periodically conduct an assessment of the actual number of equity awards that have been forfeited to date as
well as those expected to be forfeited in the future. We consider many factors when estimating expected
forfeitures, including the type of award, the employee class and historical experience. The estimate of stock
awards that will ultimately be forfeited requires significant judgment and to the extent that actual results or
updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment
in the period such estimates are revised. For additional information about the changes in estimated forfeiture
rates, see Note 9 — Stock-Based Awards and Other Equity Instruments.
We have calculated an additional paid-in capital (“APIC”) pool pursuant to the provisions of SFAS 123(R).
The APIC pool represents the excess tax benefits related to stock-based compensation that are available to
absorb future tax deficiencies. We include only those excess tax benefits that have been realized in accordance
with SFAS No. 109, Accounting for Income Taxes. If the amount of future tax deficiencies is greater than the
available APIC pool, we will record the excess as income tax expense in our consolidated statements of
F-14
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)