Expedia 2007 Annual Report Download - page 100

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NOTE 15 — Related Party Transactions
Expenses Allocated from IAC
Prior to Spin-Off, our operating expenses include allocations from IAC for accounting, treasury, legal,
tax, corporate support, human resource functions and internal audit. Expenses allocated from IAC were
$5.0 million for the period from January 1, 2005 to August 8, 2005. We recorded the expense allocation from
IAC in general and administrative expense in our consolidated statements of income.
Additional allocations from IAC prior to the Spin-Off related to stock-based compensation expense
attributable to our employees. Stock-based compensation expense allocated from IAC was $56.5 million for
the period from January 1, 2005 to August 8, 2005.
Interest Income from IAC
The interest income from IAC recorded in our consolidated statements of income for the year ended
December 31, 2005 arose from intercompany receivable balances from IAC. The interest income from IAC
ceased upon Spin-Off on August 9, 2005.
Relationship Between IAC and Expedia, Inc. after the Spin-Off
In connection with the Spin-Off, we entered into various agreements with IAC, a related party due to
common ownership, to provide for an orderly transition and to govern our ongoing relationships with IAC.
These agreements include the following:
• a Separation Agreement that sets forth the arrangements between IAC and Expedia with respect to the
principal corporate transactions necessary to complete the Spin-Off, and a number of other principles
governing the relationship between IAC and Expedia following the Spin-Off;
• a Tax Sharing Agreement that governs the respective rights, responsibilities and obligations of IAC and
Expedia after the Spin-Off with respect to tax liabilities and benefits, tax attributes, tax contests and
other matters regarding income taxes, other taxes and related tax returns;
• an Employee Matters Agreement that governs a wide range of compensation and benefit issues,
including the allocation between IAC and Expedia of responsibility for the employment and benefit
obligations and liabilities of each company’s current and former employees (and their dependents and
beneficiaries); and
• a Transition Services Agreement that governs the provision of transition services from IAC to Expedia.
In addition, 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, which is available for
use by both companies. We share equally in capital costs; operating costs are pro-rated based on actual usage.
In May 2006, the airplane was placed in service and is being depreciated over 10 years. As of December 31,
2007 and 2006, the net basis in our ownership interest was $18.9 million and $19.7 million recorded in long-
term investments and other assets on our consolidated balance sheets. In 2007 and 2006, operating and
maintenance costs paid directly to IAC for the airplane were $0.4 million and $0.6 million. We had
$0.3 million in related accounts payable as of December 31, 2006. There was no such payable as of
December 31, 2007.
Commercial Agreements with IAC
Since the Spin-Off, we have continued to work with some of IAC’s businesses pursuant to a variety of
commercial relationships. These commercial agreements generally include (i) distribution agreements, pursuant
to which certain subsidiaries of IAC distribute their respective products and services via arrangements with
F-34
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)