Expedia 2005 Annual Report Download - page 40

Stock-Based Compensation
We record stock-based compensation expense net of estimated forfeitures. In determining the
estimated forfeiture rates, we periodically conduct an assessment of the actual number of instruments 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 estimation 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. In 2005, we
recognized changes in estimates related to our forfeiture rate.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 4, New Accounting Pronouncements,
in the notes to consolidated financial statements.
Operating Metrics
Our operating results are affected by certain metrics that represent the selling activities generated by
our travel products and services. As travelers have increased their use of the internet to book their travel
arrangements, we have seen our gross bookings increase, reflecting the growth in the online travel industry
and our business acquisitions. Gross bookings include the total price due from travelers, including taxes,
fees and other charges, and are generally not reduced for cancellations and traveler refunds.
Year Ended December 31, % Change
2005 2004 2003 2005 vs 2004 2004 vs 2003
($ in thousands)
Gross bookings ÏÏÏÏÏÏÏÏÏ $15,551,504 $12,773,879 $9,569,296 22% 33%
Revenue margin (on a
comparable net basis) 14% 14% 15%
Gross bookings increased $2.8 billion, or 22%, in 2005 compared to 2004, and $3.2 billion, or 33%, in
2004 compared to 2003. Gross bookings represent the total retail value of transactions recorded for both
agency and merchant transactions at the time of booking. In 2005, domestic gross bookings increased 15%
and international gross bookings increased 50%, compared to 2004. In 2004, domestic gross bookings
increased 24% and international gross bookings increased 103%, compared to 2003. The increases in 2005
and 2004 were primarily due to increases in transaction volumes and acquisitions.
Beginning January 1, 2004, as part of the integration of our businesses, Hotels.com conformed its
merchant hotel business practices with those of our other businesses. As a result, we commenced
prospectively reporting revenue for Hotels.com on a net basis. We have presented certain of our 2003
information in the table above on an as reported and comparable net basis.
Revenue margin, which is defined as revenue as a percentage of gross bookings, decreased 80 basis
points in 2005 compared to 2004. The decrease was primarily due to a decrease in air revenue per ticket
and hotel margins. In 2005, revenue margin decreased 90 basis points in our domestic operations and
21 basis points in our international operations. Revenue margin decreased by 20 basis points in 2004
compared to 2003 due primarily to the decline in merchant hotel raw margins and lower air revenue per
transaction. This decrease was partially offset by higher merchant hotel average daily room rates and
acquisitions.
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