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Expedia, Inc.
Notes to Consolidated Financial Statements
NOTE 1 Ì Organization and Basis of Presentation
Description of Business
Expedia, Inc. and its subsidiaries provide travel products and services to leisure and corporate travelers
in the United States (""U.S.'') and abroad. These travel products and services are offered through a
diversified portfolio of brands including: Expedia-branded websites, Hotels.com, Hotwire.com, our private
label programs (Worldwide Travel Exchange and Interactive Affiliate Network), Classic Vacations,
Expedia Corporate Travel (""ECT''), eLong, Inc. (""eLong'') and TripAdvisor. We refer to Expedia, Inc.
and its subsidiaries collectively as ""Expedia,'' the ""Company,'' ""us,'' ""we'' and ""our'' in these consolidated
financial statements.
Spin-Off from IAC/InterActiveCorp
On December 21, 2004, IAC/InterActiveCorp (""IAC'') announced its plan to separate into two
independent public companies to allow each company to focus on its individual strategic objectives. We
refer to this transaction as the ""Spin-Off.'' A new company, Expedia, Inc., was incorporated under
Delaware law in April 2005, to hold substantially all of IAC's travel and travel-related businesses
(""Expedia Businesses'').
On August 9, 2005, the Spin-Off of the Expedia Businesses from IAC was completed. Shares of
Expedia, Inc. began trading on The Nasdaq Stock Market, Inc. (""NASDAQ'') under the symbol
""EXPE.'' The Spin-Off affected our consolidated financial statements as described below.
Cash Transfer. Upon the Spin-Off, we transferred to IAC all cash in excess of $100 million,
excluding the cash and cash equivalents held by eLong.
Distribution of Intercompany Receivable and Payable Balances with IAC. Upon the Spin-Off, we
extinguished all intercompany receivable and payable balances with IAC by recording a non-cash
distribution to IAC for approximately $2.5 billion.
Contribution of Airplane. In conjunction with the Spin-Off, we entered into a joint ownership and
cost sharing agreement with IAC, under which IAC transferred to us 50% ownership in an airplane, with a
value of $17.4 million, which is available for use by both companies. We will share equally in capital costs;
operating costs will be pro-rated based on actual usage. We have recorded our ownership interest in long-
term investments and other assets.
Contribution of Media Time. In conjunction with the Spin-Off, we entered into a separation
agreement with IAC, under which Expedia retained rights to media time, with a value of $17.1 million, in
IAC's media channels. The media time, if unused, expires in July 2007. We have recorded the asset rights
in prepaid expenses and other assets and recognize the related expense as we use the media time. We
currently anticipate that the media time will be substantially utilized, and expensed, in 2006.
Derivative Instruments. Upon the Spin-Off, we assumed certain obligations to IAC related to IAC's
Ask Jeeves Convertible Subordinated Notes (""Ask Jeeves Notes'') and certain IAC stock warrants. We
have recorded these obligations as derivative liabilities at their fair values on our consolidated balance
sheet. For additional information about these obligations, see Note 10, Derivative Instruments.
Modification of Stock-Based Compensation Awards. Upon the Spin-Off, we issued restricted stock
units (""RSU''), stock options and warrants to replace the IAC stock-based compensation awards. For
additional information about the modifications, see Note 12, Stock-Based Awards and Other Equity
Instruments.
Recapitalization. Upon the Spin-Off, IAC common stockholders received one share of Expedia
common stock for each share of IAC common stock they held, and IAC Class B common stockholders
F-8