Expedia 2007 Annual Report Download - page 73

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Expedia, Inc.
Notes to Consolidated Financial Statements
NOTE 1 — 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 and abroad. These travel products and services are offered through a diversified portfolio of
brands including: Expedia.com», Hotels.com», Hotwire.com
TM
, our private label programs (Worldwide Travel
Exchange and Interactive Affiliate Network), Classic Vacations, Expedia»Corporate Travel (“ECT”), eLong
TM
,
Inc. (“eLong”) and TripAdvisor». In addition, many of these brands have related international points of sale.
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 indepen-
dent 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.” In conjunction
with the Spin-Off, we completed the following transactions: (1) transferred to IAC all cash in excess of
$100 million, excluding the cash and cash equivalents held by eLong; (2) extinguished all intercompany
receivable balances from IAC, which totaled $2.5 billion by recording a non-cash distribution to IAC;
(3) recorded a non-cash contribution from IAC of a joint ownership interest in an airplane, with a value of
$17.4 million; (4) recorded a non-cash contribution of media time, with a value of $17.1 million; (5) recorded
derivative liabilities for the stock warrants and Ask Jeeves Convertible Subordinated Notes (“Ask Jeeves
Notes”) with a fair value of $101.6 million; (6) recorded a modification of stock-based compensation awards
of $5.4 million; and (7) recapitalized the invested equity balance with common stock, Class B common stock
and preferred stock, whereby holders of IAC stock received shares of Expedia stock based on a formula or
cash ($50 per share plus accrued and unpaid dividends).
Basis of Presentation
The accompanying consolidated financial statements include Expedia, Inc., our wholly-owned subsidiar-
ies, and entities we control, or in which we have a variable interest and are the primary beneficiary of
expected cash profits or losses. We record our investments in entities that we do not control, but over which
we have the ability to exercise significant influence, using the equity method. We record our investments in
entities over which we do not have the ability to exercise significant influence using the cost method. We have
eliminated significant intercompany transactions and accounts.
These consolidated financial statements present our results of operations, financial position, changes in
stockholders’ equity and comprehensive income, and cash flows on a combined basis through the Spin-Off on
August 9, 2005, and on a consolidated basis thereafter. We have prepared the combined financial statements
from the historical results of operations and historical bases of the assets and liabilities with the exception of
income taxes. We have computed income taxes using our stand-alone tax rate.
We believe that the assumptions underlying our consolidated financial statements are reasonable.
However, these consolidated financial statements do not present our future financial position, the results of our
future operations and cash flows, nor do they present what our historical financial position, results of
operations and cash flows would have been prior to Spin-Off had we been a stand-alone company.
F-7