Expedia 2009 Annual Report Download - page 52

Download and view the complete annual report

Please find page 52 of the 2009 Expedia annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

payment we retain. Some jurisdictions have questioned our practice in this regard. While the applicable tax
provisions vary among the jurisdictions, we generally believe that we are not required to collect and remit such
occupancy taxes. We are engaged in discussions with tax authorities in various jurisdictions to resolve this issue.
Some tax authorities have brought lawsuits or have levied assessments asserting that we are required to collect
and remit occupancy tax. The ultimate resolution in all jurisdictions cannot be determined at this time. Certain
jurisdictions may require us to pay tax assessments, including occupancy tax assessments, prior to contesting any
such assessments.
We have established a reserve for the potential settlement of issues related to hotel occupancy taxes for prior
and current periods, consistent with applicable accounting principles and in light of all current facts and
circumstances. A variety of factors could affect the amount of the liability (both past and future), which factors
include, but are not limited to, the number of, and amount of revenue represented by, jurisdictions that ultimately
assert a claim and prevail in assessing such additional tax or negotiate a settlement and changes in relevant
statutes.
We note that there are more than 7,000 taxing jurisdictions in the United States, and it is not feasible to analyze
the statutes, regulations and judicial and administrative rulings in every jurisdiction. Rather, we have obtained the
advice of state and local tax experts with respect to tax laws of certain states and local jurisdictions that represent a
large portion of our hotel revenue. Many of the fundamental statutes and regulations that impose these taxes were
established before the growth of the internet and e-commerce. It is possible that some jurisdictions may introduce
new legislation regarding the imposition of occupancy taxes on businesses that arrange the booking of hotel
accommodations. We continue to work with the relevant tax authorities and legislators to clarify our obligations
under new and emerging laws and regulations. We will continue to monitor the issue closely and provide additional
disclosure, as well as adjust the level of reserves, as developments warrant. Additionally, certain of our businesses
are involved in occupancy tax related litigation which is discussed in Part I, Item 3, Legal Proceedings.
Stock-Based Compensation
In the first quarter of 2009, we awarded stock options as our primary form of employee stock-based
compensation. We measure the value of stock option awards on the date of grant at fair value using the Black-
Scholes option valuation model. We amortize the fair value, net of estimated forfeitures, over the remaining term
on a straight-line basis. The Black-Scholes model requires various highly judgmental assumptions including
volatility and expected option term. If any of the assumptions used in the Black-Scholes model change
significantly, stock-based compensation expense may differ materially in the future from that recorded in the
current period.
We record stock-based compensation expense net of estimated forfeitures. 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.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 — Significant Accounting Policies in the
notes to consolidated financial statements.
Segments
Beginning in the first quarter of 2009, we have three reportable segments: Leisure, the TripAdvisor Media
Network and Egencia. The change from two reportable segments, North America and Europe, was a result of the
reorganization of our business around our global brands. We determined our segments based on how our chief
operating decision makers manage our business, make operating decisions and evaluate operating performance.
46