Expedia 2006 Annual Report Download - page 41

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regulations that impose these taxes were established before the growth of the internet and e-commerce. It is
possible that some jurisdictions may introduce new legislation regarding the imposition of occupancy taxes on
businesses that arrange the booking of hotel accommodations. We continue to work with the relevant tax
authorities and legislators to clarify our obligations under new and emerging laws and regulations. We will
continue to 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 record stock-based compensation expense net of estimated forfeitures. In determining the estimated
forfeiture rates for stock-based awards, we periodically conduct an assessment of the actual number of equity
awards that have been forfeited to date as well as those expected to be forfeited in the future. We consider
many factors when estimating expected forfeitures, including the type of award, the employee class and
historical experience. The estimate of stock awards that will ultimately be forfeited requires significant
judgment and to the extent that actual results or updated estimates differ from our current estimates, such
amounts will be recorded as a cumulative adjustment in the period such estimates are revised. In 2005, we
recognized significant changes in estimates related to our forfeiture rate.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 — Significant Accounting Policies, in
the notes to consolidated financial statements.
Operating Metrics
Our operating results are affected by certain metrics that represent the selling activities generated by our
travel products and services. As travelers have increased their use of the internet to book their travel
arrangements, we have seen our gross bookings increase, reflecting the growth in the online travel industry
and our business acquisitions. Gross bookings represent the total retail value of transactions booked for both
agency and merchant transactions, recorded at the time of booking reflecting the total price due for travel,
including taxes, fees and other charges, and are generally not reduced for cancellations and refunds.
Operating Metrics Reclassifications
For the years ended December 31, 2005 and 2004, we adjusted allocations for certain points of sale to
conform to the current period presentation. The allocation adjustment impacted domestic and international
gross bookings, revenue and revenue margin but did not impact gross bookings, revenue or revenue margin on
a consolidated basis.
The increase in domestic and international gross bookings for 2006 compared to 2005 was 6% and 26%
and would have been 5% and 29% under our prior allocation method. The change in domestic and
international revenue for 2006 compared to 2005 was flat and an increase of 24% and would have been a
decrease of 3% and an increase of 36% under our prior allocation method. The change in domestic and
international revenue margin for 2006 compared to 2005 was a decrease of 76 basis points and 19 basis points
and would have been a decrease of 103 basis points and an increase of 75 basis points under the prior
allocation method.
The allocation adjustment did not have an impact on the change in domestic and international gross
bookings for 2005 compared to 2004. The increase in domestic and international revenue for 2005 compared
to 2004 was 7% and 50% versus 8% and 48% under our prior allocation method. The decline in domestic and
international revenue margin for 2005 compared to 2004 was 100 basis points and 4 basis points versus 90
basis points and 21 basis points under the prior allocation method.
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