Expedia 2008 Annual Report Download - page 87

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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 determine the fair value of the performance-based award based on the fair value of our
common stock at that time and we assess whether it is probable that the performance targets will be achieved.
If assessed as probable, we record compensation expense for these awards over the estimated performance
period using the accelerated method. 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.
Earnings Per Share
We compute basic earnings per share by taking net income (loss) available to common shareholders
divided by the weighted average number of common and Class B common shares outstanding during the
period excluding restricted stock and stock held in escrow. Diluted earnings per share include the potential
dilution that could occur from stock-based awards and other stock-based commitments using the treasury stock
or the as if converted methods, as applicable. For additional information on how we compute earnings per
share, see Note 12 — Earnings Per Share.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents and short-term
investments reported on our consolidated balance sheets approximate fair value as we maintain them with
various high-quality financial institutions. The accounts receivable are short-term in nature and are generally
settled shortly after the sale.
Certain Risks and Concentrations
Our business is subject to certain risks and concentrations including dependence on relationships with
travel suppliers, primarily airlines and hotels, dependence on third-party technology providers, exposure to
F-15
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)