Expedia 2006 Annual Report Download

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Table of contents

  • Page 1

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  • Page 3
    ... about our destinations, suppliers and travelers based on the unique position we maintain in the value chain. As it relates to global reach, Expedia, Inc. brands now operate over 70 websites in 50 countries. In 2006 our international points of sale accounted for 26% of our worldwide gross bookings...

  • Page 4
    ...92,631) $524,809 (2) According to the J.D. Power and Associates' 2006 Independent Travel Web Site Satisfaction Study , which ranked customer satisfaction when booking a hotel, airfare or rental car through an independent web site. For J.D. Power and Associates award information see www.jdpower.com.

  • Page 5
    [This Page Intentionally Left Blank]

  • Page 6
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 OR n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ...

  • Page 7
    ... ...Part III Directors and Executive Officers of the Registrant ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions ...Principal Accountant Fees and Services ... 27 28 29 45...

  • Page 8
    ..., car rental companies, destination service providers, cruise lines and other travel product and service companies. Our portfolio of brands, which is described below, includes: Expedia.com», Hotels.com», Hotwire.comTM, Worldwide Travel Exchange ("WWTE") and Interactive Affiliate Network ("IAN...

  • Page 9
    ... pricing and availability) and book travel products and services on Expedia-branded websites, including airline tickets, lodging, car rentals, cruises and many destination services - such as attractions and tours - from a large number of suppliers, on both a stand-alone and package basis. Hotels...

  • Page 10
    ... Mexico, Costa Rica, Europe, Australia, New Zealand and Tahiti. Travel agents and travelers can preview our product offering through our websites, www.classicforagents.com and www.classicvacations.com. Destination Services. Our network of travel desks located at hotels and resorts in Florida, Hawaii...

  • Page 11
    ... our international gross bookings accounted for approximately 26% of worldwide gross bookings and 28% of revenue. We currently operate over 50 branded points of sale across the globe, including Expedia-branded sites in the United States, Australia, Canada, Denmark, France, Germany, Italy, Japan, the...

  • Page 12
    ... our revenue mix beyond core air and hotel products to car rental, destination services, cruise and other product offerings, as well as by increasing the mix of revenue from advertising we derive from our travel partners and suppliers. Merchant and Agency Business Models We make travel products and...

  • Page 13
    ...gross bookings for the year ended December 31, 2006. Relationships with Travel Suppliers, Distribution and Fulfillment Partners Overview. We make travel products and services available from a variety of large and small commercial and charter airlines, lodging properties, car rental companies, cruise...

  • Page 14
    ...developed innovative technology to power our global travel marketplace. For example, our Expert Searching and Pricing Platform ("ESP Platform"), which our Expedia-branded websites use, includes two components: (1) a fare-searching engine that enables broad and deep airline fare and schedule searches...

  • Page 15
    ... fees. Our websites feature travel products and services from numerous travel suppliers (as opposed to a single supplier), and allow travelers to combine products and services from multiple providers in one transaction. We face competition from airlines, hotels, rental car companies, cruise...

  • Page 16
    ... in this Annual Report on Form 10-K. In the first quarter of 2006, we began reporting two segments: North America and Europe. The change from a single reportable segment is a result of the reorganization of our business. We have not reported segment information for the years ended December 31...

  • Page 17
    ..., particularly travel suppliers such as airlines and hotels, may offer products and services on more favorable terms such as no fees and with unique access to proprietary loyalty programs, such as points and miles. Many of these competitors, such as airlines, hotel and rental car companies, have...

  • Page 18
    ... the price of airline tickets, hotel reservations and other travel products and services. Our business depends on our relationships with travel suppliers. An important component of our business success depends on our ability to maintain our existing relationships and to build new relationships with...

  • Page 19
    ... product and service offerings and customer base. Such expansion increases the complexity of our business and places a significant strain on our management, operations, technical performance, financial resources and internal financial control and reporting functions. There can be no assurance that...

  • Page 20
    ... of technological innovations or new services by us or our competitors; • Announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; • Loss of a major supplier participant, such as an airline or hotel chain...

  • Page 21
    ... our businesses, including those relating to the internet and online commerce, consumer protection and privacy, could decrease demand for products and services, increase costs and/or subject us to additional liabilities. For example, there is, and will likely continue to be, an increasing number of...

  • Page 22
    ... have an adverse effect on our businesses and financial performance. In addition, the application of various domestic and international sales, use, occupancy, value-added and other tax laws, rules and regulations to our historical and new products and services is subject to interpretation by the...

  • Page 23
    ... the purchase of travel-related keywords, to generate traffic to our websites. In a similar way, a significant amount of our European business is directed to our own websites through participation in pay-per-click advertising campaigns on internet search engines whose pricing and operating dynamics...

  • Page 24
    ..., New York, Texas and Washington, pursuant to leases with expiration dates through August 2011. We also lease approximately 320,000 square feet of office space for our international operations in various cities and locations in Australia, Belgium, Canada, China, France, Germany, Italy, Japan, Mexico...

  • Page 25
    ... current or former officers or directors of IAC or its former travel business. The complaint, which is based upon factual allegations similar to those in the securities class action, purports to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate...

  • Page 26
    ... exchange for an agreement that each side would bear its own costs. On October 25, 2006, the Court dismissed the lawsuit. Litigation Relating to Hotel Occupancy Taxes Hotels.com. On June 20, 2003, a purported class action was filed in Texas state court against certain Hotels.com-affiliated entities...

  • Page 27
    ... management conference with the Court is scheduled for March 23, 2007. Consumer Case against Various Internet Travel Companies. On February 17, 2005, a purported class action was filed in California state court against a number of internet travel companies, including Expedia Washington, Hotels.com...

  • Page 28
    ... filed a purported state wide class action in state court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia Washington. City of Findlay v. Hotels.com, L.P., et al., No. 2005-CV-673 (Court of Common Pleas of Hancock County, Ohio). The complaint alleges that the...

  • Page 29
    ... ongoing. Pitt County, North Carolina Litigation. On December 1, 2005, Pitt County, North Carolina filed a purported state wide class action in state court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia Washington. Pitt County, et al. v. Hotels.com, L.P. et...

  • Page 30
    ... South Carolina Litigation. On April 26, 2006, the city of Charleston, South Carolina filed suit in state court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia Washington. See City of Charleston, South Carolina v. Hotels.com, et al., 2:06-CV-01646-PMD (United...

  • Page 31
    ... a putative statewide class action in federal court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia Washington. See Leon County, et al. v. Hotels.com, et al., 06-CV-21878 (United States District Court, Southern District of Florida). The complaint alleges that...

  • Page 32
    ... Litigation. On August 28, 2006, the city of North Myrtle Beach, South Carolina filed a lawsuit in state court against a number of internet travel companies, including Hotels.com, Hotwire, and Expedia Washington. See City of North Myrtle Beach v. Hotels.com, et al., 4: 06-cv-03063-RBH (United States...

  • Page 33
    ... not yet been established. Dare County, North Carolina Litigation. On January 26, 2007, Dare County, North Carolina filed a lawsuit in state court against a number of internet travel companies, including Hotels.com, Hotwire, and Expedia Washington. See Dare County v. Hotels.com, L.P., et al., 07 CVS...

  • Page 34
    ...our business model and other factors that the Board of Directors may deem relevant. In addition, our Credit Agreement limits our ability to pay cash dividends under certain circumstances. Unregistered Sales of Equity Securities During the quarter ended December 31, 2006, we did not issue or sell any...

  • Page 35
    ... retail travel agents. We make available, on a stand-alone and package basis, travel products and services provided by numerous airlines, lodging properties, car rental companies, destination service providers, cruise lines and other travel product and service companies. For additional information...

  • Page 36
    ...our travel base, including Orlando, Las Vegas and New York. Higher occupancies also have historically tended to drive lower margins as hotel room suppliers have less need for third-party intermediaries to meet demand. A large number of our contracts with major chain hotel operators are scheduled for...

  • Page 37
    ... our international gross bookings accounted for approximately 26% of worldwide gross bookings and 28% of revenue. We currently operate over 50 branded points of sale across the globe, including Expedia-branded sites in the United States, Australia, Canada, Denmark, France, Germany, Italy, Japan, the...

  • Page 38
    ... travel products and services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and holiday travel. The number of bookings decreases in the fourth quarter. Because revenue in the merchant business...

  • Page 39
    ... reporting units based on the present value of the cash flows that we expect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; working...

  • Page 40
    ... tax, or a form of sales tax, on the use or occupancy of hotel accommodations. Generally, hotels charge taxes based on the room rate paid to the hotel and remit these taxes to the various tax authorities. When a customer books a room through one of our travel services, we collect a tax recovery...

  • Page 41
    ...monitor the issue closely and provide additional disclosure, as well as adjust the level of reserves, as developments warrant. Additionally, certain of our businesses are involved in occupancy tax related litigation which is discussed in Part I, Item 3, Legal Proceedings. Stock-Based Compensation We...

  • Page 42
    ...air revenue per ticket and hotel margins. In 2005, revenue margin decreased 100 basis points in our domestic operations and 4 basis points in our international operations. Results of Operations Reclassifications For the years ended December 31, 2005 and 2004, we reclassified stock-based compensation...

  • Page 43
    ... (1) costs of our data and call centers, including telesales, (2) credit card merchant fees, (3) fees paid to fulfillment vendors for processing airline tickets and related customer services, (4) costs paid to suppliers for certain destination inventory, (5) reserves and related payments to airlines...

  • Page 44
    ... Technology and content expense consists of expenses for customizing our websites, amortization of website and internal software development costs, localization of our websites, and product development expenses such as personnel-related costs, including stock-based compensation. The year-over-year...

  • Page 45
    ...new platform, geographic expansion, data centers, redundancy, call center technology, site merchandising, content management, site monitoring, networking, corporate travel, supplier integration and other initiatives, as well as the incremental amortization of capitalized software placed into service...

  • Page 46
    ... a $79.7 million decrease to stock-based compensation expense mainly due the benefit of $44.7 million related to changes in estimated forfeiture rates and capitalization of software development costs, partially offset by a modification charge on stock option awards related to the Spin-Off. Operating...

  • Page 47
    ...such as tax rates, stock price and interest rates, we are...balances, which resulted from operating cash flow and the $500.0 million senior unsecured notes (the "Notes") that we issued in August 2006. Interest Expense Year Ended December 31, 2006 2005 2004 ($ in thousands) % Change 2006 vs 2005 2005 vs...

  • Page 48
    ... of $6.0 million in the fair value changes in derivative instruments related to the Ask Jeeves Notes and certain stock warrants. In 2004, other, net was primarily due to losses of $7.5 million from the fluctuation of exchange rates. Provision for Income Taxes Year Ended December 31, 2006 2005 2004...

  • Page 49
    ...bookings. We pay our suppliers related to these bookings generally within two weeks after completing the transaction for air travel and, for all other merchant bookings, which is primarily our merchant hotel business, after the travelers' use and subsequent billing from the supplier. Therefore there...

  • Page 50
    ... period versus our reporting currency, as well as the increase in our cash balances. On January 19, 2007, we completed a tender offer pursuant to which we acquired 30 million tendered shares of our common stock at a purchase price of $22.00 per share, for a total cost of $660 million plus fees and...

  • Page 51
    ... in interest rates, foreign exchange rates and market prices. Our exposure to market risk includes our Notes, our revolving credit facility, derivative instruments, cash and cash equivalents, merchant accounts payable and deferred merchant bookings denominated in foreign currencies. We manage our...

  • Page 52
    ...strategies. As foreign currency exchange rates fluctuate, translation of the income statements of our international businesses into U.S. dollars affects year-over-year comparability of operating results. Historically, we have not hedged foreign exchange risks; we periodically review our strategy for...

  • Page 53
    ... and Procedures Changes in Internal Control over Financial Reporting. We have been evaluating, designing and enhancing controls related to our internal controls over financial reporting and discussing these matters with our independent accountants and our Audit Committee. Based on these evaluations...

  • Page 54
    ... is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those...

  • Page 55
    ... 31, 2006, based on the COSO criteria. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2006 consolidated financial statements of Expedia, Inc. and our report dated February 26, 2007 expressed an unqualified opinion thereon...

  • Page 56
    ... 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13 Certain Relationships and Related Transactions Item 14 Principal Accountant Fees and Services Part IV...

  • Page 57
    ..., Inc. Executive Deferred Compensation Plan, effective as of August 9, 2005(7) Credit Agreement dated as of July 8, 2005, among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, Inc., a Nevada corporation, Hotels.com, a Delaware corporation and Hotwire, Inc...

  • Page 58
    ... the Sarbanes-Oxley Act Reflects management contracts and management and director compensatory plans. Incorporated by reference to Expedia, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. Incorporated by reference to Expedia, Inc.'s Current Report on Form 8-K, filed on...

  • Page 59
    ... on its behalf by the undersigned hereunto duly authorized. Expedia, Inc. By: /s/ DARA KHOSROWSHAHI Dara Khosrowshahi Chief Executive Officer February 28, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 60
    Signature Title /s/ PETER M. KERN Peter M. Kern /s/ JOHN C. MALONE John C. Malone Director Director 54

  • Page 61
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS Consolidated Financial Statements Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm ...Consolidated Statements of Income ...Consolidated Balance Sheets ...Consolidated Statements of Changes in Stockholders' ...

  • Page 62
    ... of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 63
    ... of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 64
    ...Statements EXPEDIA, INC. CONSOLIDATED STATEMENTS OF INCOME Year ended December 31, 2006 2005 2004 (In thousands, except per share data) Revenue ...$2,237,586 Cost of revenue(1) ...502,638 Gross profit ...Operating expenses: Selling and marketing(1) ...General and administrative(1) ...Technology and...

  • Page 65
    ... AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, merchant ...Accounts payable, other ...Short-term borrowings ...Deferred merchant bookings ...Deferred revenue ...Income taxes payable...Deferred income taxes, net ...Other current liabilities ...Total current liabilities ...Long-term...

  • Page 66
    ... taxes for stock option exercises ...Treasury stock activity related to vesting of equity instruments...Stock-based compensation expense post Spin-Off ...Balance as of December 31, 2005 ...Comprehensive income: Net income ...Net loss on derivative contracts ...Currency translation adjustment...

  • Page 67
    ... ...Accounts payable and other current liabilities ...Deferred merchant bookings ...Deferred revenue ...Other, net ...Net cash provided by operating activities ...Investing activities: Capital expenditures ...Acquisitions, net of cash acquired ...Proceeds from sale of business to a related party...

  • Page 68
    ...: Expedia, Hotels.com, Hotwire.com, our private label programs (Worldwide Travel Exchange and Interactive Affiliate Network), Classic Vacations, Expedia Corporate Travel ("ECT"), eLong, Inc. ("eLong") and TripAdvisor. In addition, many of these brands have related international points of sale...

  • Page 69
    ... travel products and services. For example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and holiday travel. The number of bookings decreases in the fourth quarter. Because revenue in the merchant business...

  • Page 70
    ... of revenue transactions. We offer travel products and services on a stand-alone and package basis primarily through two business models: the merchant model and the agency model. Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and destination services...

  • Page 71
    ...the transaction based on historical experience. Agency Air, Hotel, Car and Cruise. Our agency revenue comes from airline ticket transactions, certain hotel transactions as well as cruise and car rental reservations. We record agency revenue on air transactions when the traveler books the transaction...

  • Page 72
    ...-lived intangible assets over their fair value. We generally base our measurement of fair value of reporting units on a blended analysis of the present value of estimated future discounted cash flows and market valuation approach, which compares revenue and operating income multiples for companies...

  • Page 73
    ... tax, or a form of sales tax, on the use or occupancy of hotel accommodations. Generally, hotels charge taxes based on the room rate paid to the hotel and remit these taxes to the various tax authorities. When a customer books a room through one of our travel services, we collect a tax recovery...

  • Page 74
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) Foreign Currency Translation and Transaction Gains and Losses Our operations outside of the United States use the related local currency as their functional currency. We translate revenue and expense at average rates of exchange ...

  • Page 75
    ... compensation cost is to be recognized. The ultimate number of shares issued and the related compensation expense recognized will be based on a comparison of the final performance metrics to the specified targets. Stock Options and Warrants. We measure the value of stock options and warrants issued...

  • Page 76
    ... with travel suppliers, primarily airlines and hotels, dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud. We are highly dependent on our relationships with six major airlines in the United States. We also depend on global...

  • Page 77
    ...in eLong was 55%. eLong's American Depositary Shares ("ADS") trade on the NASDAQ under the symbol "LONG." Each ADS is equivalent to two shares of eLong common stock. TripAdvisor. In April 2004 and July 2005, we acquired 94.1% and an additional 1%, respectively, of TripAdvisor, a travel search engine...

  • Page 78
    ...no impairments. Our indefinite lived intangible assets relate principally to trade names and trademarks acquired in various acquisitions. Based on lower than expected year-to-date revenue growth, we determined that our indefinite lived trade name intangible asset related to Hotwire might be impaired...

  • Page 79
    ...) December 31, 2005 Accumulated Amortization (In thousands) Weighted Average Life (Years) Cost Net Cost Net Distribution agreements . . Supplier relationship ...Technology ...Customer lists ...Affiliate agreements ...Domain names ...Other ... . $177,426 . 212,101 . 196,197 . 25,396 . 33,049...

  • Page 80
    ... credit facility with a group of lenders, which was effective as of the Spin-Off, and is unconditionally guaranteed by certain Expedia subsidiaries. The facility bears interest based on our financial leverage, which as of December 31, 2006 and 2005, was equal to LIBOR plus .50%. The annual fee...

  • Page 81
    ... we would expect to receive or pay upon termination of the contracts as of the reporting date. Components of our derivative liabilities balance are as follows: December 31, 2006 2005 (In thousands) Ask Jeeves Notes ...$15,900 Cross-currency swaps ...13,060 Stock warrants ...31 $28,991 Ask Jeeves...

  • Page 82
    ... value of this liability fluctuates based on changes in the price of our common stock. NOTE 8 - Employee Benefit Plans Our U.S. employees are generally eligible to participate in a retirement and savings plan that qualifies under Section 401(k) of the Internal Revenue Code. Participating employees...

  • Page 83
    ... 2005 Stock and Annual Incentive Plan. We issue new shares to satisfy the exercise or release of stock-based awards. As described below in "Modification of Stock-Based Compensation Awards," certain stock options, restricted stock, RSUs and other equity based awards granted to our employees, officers...

  • Page 84
    ...2005 through December 31, 2006: Weighted Average Exercise Price Remaining Contractual Life (In years) Aggregate Intrinsic Value (In thousands) Options (In thousands) Granted at Spin-Off, based on conversions from IAC options ...Exercised ...Cancelled ...Balance as of December 31, 2005 ...Exercised...

  • Page 85
    ... stock-based compensation expense. The total income tax benefit related to stock-based compensation expense was $27.0 million, $31.3 million and $64.5 million for 2006, 2005 and 2004. Cash received from stock-based award exercises for the year ended December 31, 2006 was $35.3 million. Our employees...

  • Page 86
    ... all periods presented, we have computed current and deferred tax expense using our stand-alone effective tax rate. As of December 31, 2006, our current income tax payable represents amounts that we will pay to the Internal Revenue Service and other tax authorities based on our taxable income. For...

  • Page 87
    ... our current income tax payable by $34.3 million, $50.6 million and $120.8 million for the years ended December 31, 2006, 2005 and 2004, for tax deductions attributable to stock-based compensation. For 2006 and 2005, we recorded $16.9 million and $25.3 million of the related income tax benefits of...

  • Page 88
    ... a tax allocation agreement with Microsoft Corporation ("Microsoft") as well as the Tax Sharing Agreement with IAC. For additional information about these agreements, see Note 15 - Related Party Transactions. NOTE 11 - Stockholders' Equity Common Stock and Class B Common Stock Our authorized common...

  • Page 89
    ... stock at a purchase price of $22.00 per share, for a total cost of $660 million plus fees and expenses relating to the tender offer. These shares represent approximately 9.8% of the shares of common stock outstanding and 9.0% of the total number of shares of common stock and Class B common stock...

  • Page 90
    ...exercise of our warrant. NOTE 12 - Earnings Per Share Basic Earnings Per Share Basic earnings per share was calculated for the year ended December 31, 2006 using the weighted average number of common and Class B common shares outstanding during the period excluding restricted stock and stock held in...

  • Page 91
    ... to issue associated with the Ask Jeeves Notes, if converted, and other stock-based commitments. For the year ended December 31, 2004, we computed diluted earnings per share using (i) the number of shares of common stock and Class B common stock used in the basic earnings per share calculation as...

  • Page 92
    ...amount of packaged travel sold be bonded. Our LOCs consist of stand-by LOCs, underwritten by a group of lenders, which we primarily issue to certain hotel properties to secure our payment for hotel room transactions. There were no claims made against any stand-by LOCs during the years ended December...

  • Page 93
    ... and municipality litigation involving hotel occupancy taxes. 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...

  • Page 94
    ... 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...

  • Page 95
    ... expenses to reportable segments such as partner services, product development, accounting, human resources and legal. We include these expenses in Corporate and Other. Our North America segment provides a full range of travel services to customers in the United States, Canada and Mexico. This...

  • Page 96
    ... to our operating segments, we do not report the assets or related depreciation expense as it would not be meaningful, nor do we regularly provide such information to our chief operating decision makers. Year Ended December 31, 2006 North America Europe Corporate and Other Total (In thousands) 2005...

  • Page 97
    ... United States, Australia, Belgium, Canada, China, France, Germany, Italy, Japan, Mexico, the Netherlands, Spain, the United Kingdom and other international territories. The following table presents revenue by geographic area, the United States and all other countries, for the years ended December...

  • Page 98
    ..., net United States ...All other countries ... $120,483 16,661 $137,144 $77,390 13,594 $90,984 NOTE 17 - Valuation and Qualifying Accounts We accrue the cost associated with purchases made on our website related to the use of fraudulent credit cards "charged-back" due to payment disputes and...

  • Page 99
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) NOTE 18 - Quarterly Financial Information (Unaudited) March 31 Three Months Ended June 30 September 30 December 31 (In thousands, except per share data) Year ended December 31, 2006 Revenue ...Gross profit ...Operating income ...

  • Page 100
    ...-owned subsidiaries using the equity method. CONDENSED CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2006 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries (In thousands) Eliminations Consolidated Revenue...$ Cost of revenue ...Gross profit ...Operating expenses: Selling and...

  • Page 101
    ... STATEMENT OF INCOME Year Ended December 31, 2005 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations (In thousands) Consolidated Revenue ...$ Cost of revenue ...Gross profit ...Operating expenses: Selling and marketing ...General and administrative ...Technology and content...

  • Page 102
    ...STATEMENT OF INCOME Year Ended December 31, 2004 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations (In thousands) Consolidated Revenue ...Cost of revenue ...Gross profit ...Operating expenses: Selling and marketing ...General and administrative ...Technology and content ...Amortization...

  • Page 103
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2006 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries (In thousands) Eliminations Consolidated Total current assets ...Investment in subsidiaries ...Intangible assets, ...

  • Page 104
    ... costs ...Treasury stock activity ...Other, net ...Net cash provided by financing activities ...Effect of exchange rate changes on cash and cash equivalents ...Net increase in cash and cash equivalents ...Cash and cash equivalents at beginning of year ...Cash and cash equivalents at end of year...

  • Page 105
    ... ...Net cash provided by (used in) financing activities . . Effect of exchange rate changes on cash and cash equivalents ...Net increase in cash and cash equivalents ...Cash and cash equivalents at beginning of year ...Cash and cash equivalents at end of year ...$ 3,096 - - (3,096) (3,096) $ 849...

  • Page 106
    ...net ...Net cash provided by (used in) financing activities ...Effect of exchange rate changes on cash and cash equivalents ...Net increase (decrease) in cash and cash equivalents ...Cash and cash equivalents at beginning of year ...Cash and cash equivalents at end of year ...$ 109,311 5,468 114,779...

  • Page 107
    ..., Inc. Executive Deferred Compensation Plan, effective as of August 9, 2005(7) Credit Agreement dated as of July 8, 2005, among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, Inc., a Nevada corporation, Hotels.com, a Delaware corporation and Hotwire, Inc...

  • Page 108
    ... as of October 25, 2006(5) Expedia, Inc. Restricted Stock Unit Agreement (Second Agreement) between Expedia, Inc. and Burke Norton, dated as of October 25, 2006(5) Subsidiaries of the Registrant Consent of Ernst and Young LLP, Independent Registered Public Accounting Firm Consent of Ernst and Young...

  • Page 109
    ...December 11, 2006. (10) Incorporated by reference to Expedia, Inc.'s Amended No. 3 to Schedule TO (File No. 005-80935), filed on December 22, 2006. (11) Incorporated by reference to Expedia, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. (12) Incorporated by reference...

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