Expedia 2005 Annual Report Download - page 76

Expedia, Inc.
Notes to Consolidated Financial Statements Ì (Continued)
We generally obtain a third-party valuation of identifiable intangible assets acquired to support our
allocation of the purchase price to these assets. We based the net purchase price for our acquisitions on
historical as well as expected performance metrics, which include net income and cash flow. In certain
situations, we agreed to a purchase price that resulted in a significant amount of goodwill for the following
reasons: (1) the acquisitions' market leading position and brand, (2) business model which complements
the business models of our other brands, and (3) growth opportunities in the markets in which they
operate. As a result, we based the predominant portion of purchase price on the expected financial
performance of the business acquisition, and not the net asset value on the books at the time of the
acquisition. As a result, a significant amount of the purchase price was allocated to goodwill. Generally,
none of the amounts allocated to goodwill or intangible assets are tax deductible.
eLong
In August 2004, we purchased a 30% ownership interest in eLong, a publicly-traded Cayman Island
company, whose principal business is the operation of an internet-based travel business in the People's
Republic of China, for approximately $59.0 million in cash, which we accounted for under the equity
method. eLong's American Depositary Shares (""ADS'') trade on the NASDAQ under the symbol
""LONG.'' Each ADS is equivalent to two shares of eLong capital stock. Concurrent with this investment,
eLong issued a warrant to allow us to acquire additional shares, with an exercise price of approximately
$6.21 per share, or $108 million.
In January 2005, we exercised the warrant that increased our ownership interest to 59% and total
voting rights to approximately 96%. We accounted for the transaction under the purchase method and have
consolidated the operating results of eLong since the date of the warrant exercise. The aggregate purchase
price of $170.6 million included our initial investment, exercise of the warrant and related transaction
costs. Of the consideration paid on the exercise of the warrant, we used approximately $54 million to
purchase newly issued eLong common shares and approximately $54 million to purchase shares from
existing eLong shareholders. Net cash inflow as a result of cash paid on the warrant exercise, less the
equity infusion on the purchase of new common shares and acquisition of eLong's existing cash balance of
approximately $78 million, was approximately $19 million. As of December 31, 2005, our ownership
interest in eLong was 57%.
TripAdvisor
In April 2004 and July 2005, we acquired 94.1% and an additional 1%, respectively, of TripAdvisor, a
travel search engine and directory that enables consumers to research their travel and destination place
through the internet. The aggregate purchase price for our acquisition in April 2004 was $219.3 million.
Egencia
In April 2004, we acquired 91.4% of the ownership of Egencia (renamed ECT-Europe), an online
corporate travel agency in France, for an aggregate purchase price of $65.7 million.
Hotwire.com
In November 2003, we completed our acquisition of Hotwire.com, a discount travel website for
$666.7 million in cash, plus the assumption of options to acquire approximately 0.5 million shares of IAC
common stock, warrants to acquire approximately 0.1 million shares of IAC common stock and 0.3 million
restricted stock units.
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