Expedia 2005 Annual Report Download - page 92

Expedia, Inc.
Notes to Consolidated Financial Statements Ì (Continued)
Commercial Agreements
We continue to work with some of the businesses that comprise IAC after the Spin-Off 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 Expedia, and vice versa, (ii) services agreements, pursuant to which certain
subsidiaries of IAC provide Expedia with various services and vice versa and (iii) office space lease
agreements. The distribution agreements typically involve the payment of fees, usually on a fixed amount-
per-transaction, revenue share or commission basis, from the party seeking distribution of the product or
service to the party that is providing the distribution. From August 8, 2005 to December 31, 2005, we
received $0.8 million from IAC and paid $10.7 million to IAC. At December 31, 2005, amounts
receivable from IAC totaled $0.6 million; amounts payable to IAC totaled $3.6 million. These amounts are
included in accounts and notes receivable and accounts payable, trade, respectively.
Agreements with Microsoft Corporation
We have various agreements with Microsoft Corporation (""Microsoft''), which is currently the
beneficial owner of more than 5% of our outstanding common stock, including an agreement that
maintains our presence as the provider of travel shopping services on MSN.com and several international
MSN websites and, in 2004 and 2003, a data center services agreement. Total fees we paid with respect to
these agreements were $20.0 million, $12.6 million and $20.5 million for the years ended December 31,
2005, 2004 and 2003. Amounts payable related to these agreements was $6.2 million and $3.4 million as of
December 31, 2005 and 2004.
Prior to November 1999, Microsoft owned 100% of our outstanding common stock. Concurrent with
our separation from them, we entered into a number of agreements with them to facilitate the separation.
Currently, we have a tax allocation agreement where we must pay Microsoft for a portion of the tax
savings resulting from the exercise of certain stock options. We have recorded $36.3 million in other long-
term liabilities on our consolidated balance sheets as of December 31, 2005 and 2004, related to this
agreement. We will pay Microsoft under this agreement when we realize the tax savings on our tax return.
As of December 31, 2005, we have not realized the tax savings related to the exercise of these stock
options.
NOTE 18 Ì Segment Information
We determine our operating segments based on how our chief operating decision makers manage our
businesses, including making operating decisions and evaluating operating performance. We operate in
several operating segments; however, there is only one reportable segment as the significant operating
segments exhibit similar economic characteristics and meet the aggregation criteria pursuant to
SFAS No. 131, ""Disclosures about Segments of an Enterprise and Related Information.'' As such, we
have aggregated them for reporting purposes. Each of the significant operating segments is a supplier of
travel services whether by a merchant model or as an agency model.
In conjunction with the reorganization of our business, which we began in 2005, our chief operating
decision makers have been assessing our operations to determine how we will manage the business and
report our financial results. We expect, beginning with the first quarter of 2006 financial statements, that
we will report our results based primarily on geographic location.
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