Expedia 2005 Annual Report Download - page 82

Expedia, Inc.
Notes to Consolidated Financial Statements Ì (Continued)
represents the right to receive the number of shares of IAC common stock and Expedia common stock
that the stock warrant holder would have received had the holder exercised the stock warrant immediately
prior to the Spin-Off. Under the terms of the Spin-Off between IAC and Expedia, we assumed the
obligation to deliver our common stock to the stock warrant holders upon exercise and will receive a
portion of the proceeds from exercise. This obligation represents a derivative instrument that we record at
fair value on our consolidated balance sheets with any changes in value recorded in our consolidated
statements of income. The estimated fair value of this liability fluctuates based on changes in the price of
our common stock.
NOTE 11 Ì Employee Benefit Plans
Our U.S. employees are generally eligible to participate in a retirement and savings plan that qualifies
under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 16% of
their pretax salary, but not more than statutory limits. We contribute fifty cents for each dollar a
participant contributes in this plan, with a maximum contribution of 3% of a participant's earnings. Our
contribution vests with the employee after the employee completes two years of service. Participating
employees have the option to invest in our common stock, but there is no requirement for participating
employees to invest their contribution or our matching contribution in our common stock. Our matching
contribution was $6.0 million, $4.1 million and $2.1 million for the years ended December 31, 2005, 2004
and 2003.
In connection with the Spin-Off, we established a Voluntary Employees' Beneficiary Association trust
(""VEBA trust'') to fund costs associated with self-insuring medical, dental and vision benefits that we
provide to our employees. The VEBA trust is a separate legal entity that is administered by a third-party.
Our contributions to the VEBA trust represent the employees' and employer's cost, which is based on
actuarial estimates that are calculated by an outside consulting firm on a quarterly basis. As of
December 31, 2005, the VEBA trust was appropriately funded.
NOTE 12 Ì Stock-Based Awards and Other Equity Instruments
As described below in ""Modification of Stock-Based Compensation Awards,'' certain stock options,
restricted stock, RSUs and other equity based awards granted to our employees, officers, directors and
consultants by IAC prior to the Spin-Off were converted into awards based on our common stock in
connection with the Spin-Off. We generally recognize compensation expense for these awards to the extent
that they are unvested in accordance with SFAS 123. For the period from January 1, 2005 to August 8,
2005, and for the years ended December 31, 2004 and 2003, IAC allocated to us stock-based
compensation expense that was attributable to our employees.
In connection with the Spin-Off, our Board of Directors approved our 2005 Stock and Annual
Incentive Plan. Under this plan we can grant restricted stock, restricted stock awards (""RSA''), RSUs,
stock options, and other stock-based awards to officers, employees and consultants.
RSUs, which are awards in the form of phantom shares or units that are denominated in a
hypothetical equivalent number of shares of our common stock, are our primary form of stock-based
award. At the time of grant, we determine if we will settle the RSUs in cash, stock or both. We record
RSUs that will settle in cash as a liability and we remeasure them to fair value at the end of each
reporting period. Our RSUs generally vest over five years, but may accelerate in certain circumstances,
including changes in control.
While we do not generally compensate our employees with stock options, when we do make such
grants, they are granted at an exercise price not less than the fair market value of the stock on the grant
date. The terms and conditions upon which the stock options become exercisable vary.
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