Expedia 2007 Annual Report Download - page 52

Write-off of Long-Term Investment
In 2005, we received information regarding the deteriorating financial condition of our long-term
investment in a leisure travel company and we determined that it was not likely we would recover any of our
investment because the decline in its value was determined to be other-than-temporary. As a result, we
recorded a loss related to this impairment of $23.4 million. In 2006, we sold our investment for de minimis
consideration.
Other, net
2007 2006 2005 2007 vs 2006 2006 vs 2005
Year Ended December 31, % Change
($ in thousands)
Other, net ..................... $(18,607) $18,770 $(8,428) (199)% N/A
In 2007, other, net primarily includes net foreign exchange rate losses of $22.0 million resulting
principally from the fluctuation of exchange rates on foreign denominated assets and liabilities of U.S. dollar
functional currency subsidiaries, net losses of $5.7 million from fair value changes in and the settlement of
derivative instruments related to the Ask Jeeves Notes and certain stock warrants, as well as $2.6 million of
losses from unconsolidated equity affiliates, partially offset by a gain of $12.1 million relating to federal
excise tax refunds.
In 2006, other, net primarily includes net foreign exchange rate gains of $10.4 million resulting
principally from the fluctuation of exchange rates on foreign denominated assets and liabilities of U.S. dollar
functional subsidiaries as well as net gains of $8.1 million from the fair value changes in and the settlement of
derivative instruments related to the Ask Jeeves Notes and certain stock warrants.
In 2005, other, net primarily includes an unrealized loss of $6.0 million in the fair value changes in
derivative instruments related to the Ask Jeeves Notes and certain stock warrants.
Provision for Income Taxes
2007 2006 2005 2007 vs 2006 2006 vs 2005
Year Ended December 31, % Change
($ in thousands)
Provision for income taxes ...... $203,114 $139,451 $185,977 46% (25)%
Effective tax rate.............. 40.9% 36.2% 44.9%
In 2007, our effective tax rate was higher than the 35% statutory rate primarily due to state income taxes,
taxes related to our foreign operations and non-deductible losses related to our derivative liabilities. The 2007
effective rate increased in 2007 as compared to 2006 primarily due to higher state taxes, including increases to
state tax rates, and non-deductible losses related to our derivative liabilities compared with a gain in 2006.
In 2006, our effective tax rate was higher than the 35% statutory rate primarily due to state income taxes
and valuation allowance on certain foreign losses, partially offset by non-taxable gains related to our derivative
liabilities. The 2006 effective rate decreased as compared to 2005 due to higher non-deductible stock-based
compensation, non-deductible losses related to our derivative liabilities in 2005 compared with a gain in 2006
and higher state income taxes in 2005.
In 2005, our effective tax rate was higher than the 35% statutory rate primarily due to state taxes and an
increase in the valuation allowance related to foreign operating losses. In addition, our effective tax rate was
affected by non-deductible stock-based compensation expense, unrealized losses related to our derivative
liabilities and a loss from the write-off of our long-term investment.
Segment Operating Results
In the first quarter of 2006, we began reporting two segments; North America and Europe. The change
from a single reportable segment was a result of the reorganization of our business. We determined our
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