Expedia 2007 Annual Report Download

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Table of contents

  • Page 1

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  • Page 3
    .... A key driver of growth in 2007 was removing barriers to purchase for our travelers. There were many examples of this, but some of the most important were removing change & cancel fees at Hotels.com», reducing or eliminating air booking fees and improving hotel pricing on our European websites...

  • Page 4
    ... and accounting for 7% of Expedia's total revenue. We have a ton of work left to do on the media side of the house, with a number of initiatives underway for 2008 and beyond. But we're excited by the significant opportunity this area represents. Airlines, hoteliers and car rental companies alone...

  • Page 5
    ... No.) 3150 139th Avenue SE Bellevue, WA 98005 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (425) 679-7200 Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.001 par value Warrants to acquire one-half of...

  • Page 6
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  • Page 7
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services ... 30...

  • Page 8
    ..., includes: Expedia.com», Hotels.com», Hotwire.comTM, Worldwide Travel Exchange ("WWTE"), Interactive Affiliate Network ("IAN"), Classic Vacations, Expedia» Corporate Travel ("ECT"), eLongTM and TripAdvisor». In addition, many of these brands have corresponding international points of sale. We...

  • Page 9
    ...(including pricing, availability and traveler reviews) and book travel products and services on Expedia-branded websites, including airline tickets, lodging, car rentals, cruises and many destination services - such as airport transfers, local attractions and tours - from a large number of suppliers...

  • Page 10
    .... Our discount travel website, Hotwire.com, makes available airline tickets, hotel rooms, rental cars, cruises and vacation packages. Hotwire.com's approach matches flexible, price-sensitive travelers with suppliers who have excess seats, rooms and cars they wish to fill without affecting the public...

  • Page 11
    ... Network's offering of leading travel applications for download on Facebook.com. We intend to continue to aggressively innovate on behalf of our travelers, suppliers and advertisers, including our current efforts to build a scaleable, service-oriented technology platform for our various websites...

  • Page 12
    ...products and services available both 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 from our travel suppliers 6

  • Page 13
    ... and promotional strategies designed to increase their revenue, while simultaneously reducing their marketing transaction and customer service costs. Our Partner Services Group consists mainly of strategic account managers and local market managers who work directly with travel suppliers to increase...

  • Page 14
    ...branded credit card with Citigroup in 2007, whereby Expedia travelers can earn ThankYou reward points by purchasing select travel bookings on www.expedia.com, as well as for purchases with their co-branded card. We also make use of affiliate marketing. The Expedia.com and Hotels.com-branded websites...

  • Page 15
    ... corporate travelers including travel agencies, tour operators, travel supplier direct websites and their call centers, consolidators and wholesalers of travel products and services and other companies offering travel search engines including meta-search engines. We face these competitors in local...

  • Page 16
    ... in this Annual Report on Form 10-K, or in any other filings with, or in any information furnished or submitted to, the SEC. We make available, free of charge through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed or furnished...

  • Page 17
    ... priced travel products and services that we are able to offer, which could adversely affect our business and financial performance. Travel suppliers are increasingly seeking to lower their travel distribution costs by promoting direct online bookings through their own websites. In some cases...

  • Page 18
    ... are increasing. We believe continued investment in our brands, including Expedia.com, Hotels.com, Hotwire.com, Classic Vacation, Expedia Corporate Travel, eLong, the TripAdvisor Media Network and Expedia Local Expert, is critical to retain and expand our traveler, supplier and advertiser bases...

  • Page 19
    ...and GDS partners for bookings made through our websites. Over the last several years, air and hotel travel suppliers have generally reduced or in some cases eliminated payments to travel agents and other travel intermediaries. In addition, as our hotel remuneration varies with the room rates paid by...

  • Page 20
    ... or presentations by executives at investor and industry conferences; • Changes in our capital structure; • Changes in market valuations of other internet or online service companies; • Announcements of technological innovations or new services by us or our competitors; • Announcements by us...

  • Page 21
    ... protection laws that may impose additional burdens on online businesses generally. Adverse application of tax laws, rules or regulations could have an adverse effect on our businesses and financial performance. The application of various domestic and international sales, use, occupancy, value...

  • Page 22
    ... online advertising market. Competition could results in reduced margins on our advertising services, loss of market share or less use of our sites by travel companies and travelers. If we are not able to compete effectively with current or future competitors as a result of these and other factors...

  • Page 23
    ... by Standard & Poor's, Moody's Investor Service or similar ratings agencies, increases in general interest rate levels or general weakening in the credit markets could increase our cost of capital. We have foreign exchange risk. As a result of our international websites and acquisitions, we conduct...

  • Page 24
    ... targets that may or may not be successful; • Difficulties and expenses in assimilating the operations, products, technology, information systems or personnel of the acquired company; • Impairment of relationships with employees, suppliers and affiliates of our business and the acquired business...

  • Page 25
    ... expiration dates through January 2015. In addition, in June 2007, we entered into a ten-year lease for approximately 348,000 square feet of office space for our new headquarters located in Bellevue, Washington. We expect the term and cash payments related to this lease to begin in November 2008. We...

  • Page 26
    ... March 31, 2008. On May 15, 2007, the plaintiffs in the securities class action filed a second amended complaint. The new pleading continues to allege that the defendants failed to disclose material information concerning problems at the Company's then-travel businesses and to assert the same legal...

  • Page 27
    ...charging customers for taxes and fees. The complaint seeks certification of a nationwide class of all persons who were assessed a charge for "taxes/fees" when booking rooms through Expedia Washington. The complaint alleges violation of the Washington Consumer Protection Act and common-law conversion...

  • Page 28
    ... of all residents of the United States to whom Hotwire charged "taxes/fees" for the facilitation of reservations for stand-alone hotel rooms on its website. The court has not yet required that Hotwire provide notice to the potential class members. A case management conference is scheduled for March...

  • Page 29
    ... continuing to litigate their tax claims. 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...

  • Page 30
    ... Court of the State of California, Los Angeles County, Central District). Orange County, Florida Litigation. On March 13, 2006, Orange County, Florida filed an action in state court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia Washington. See Orange County...

  • Page 31
    ... the complaint on August 27, 2007. Class certification discovery is ongoing. Town of Mt. Pleasant, South Carolina Litigation. On May 23, 2006, the Town of Mount Pleasant, South Carolina filed suit in state court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia...

  • Page 32
    ... 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 District Court, District of South Carolina, Florence Division). The complaint...

  • Page 33
    ...and on November 15, 2007 plaintiff filled its appellant brief. Wake County, North Carolina Litigation. On November 3, 2006, the County of Wake, North Carolina filed a lawsuit in state court against a number of internet travel companies, including Hotels.com, Hotwire, and Expedia Washington. See Wake...

  • Page 34
    ... filed an individual lawsuit in state court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia. City of Myrtle Beach v. Hotels.com, LP, et al., 2007 CP26-0738 (Court of Common Pleas, Fifteenth Judicial Circuit, County of Horry, South Carolina). The complaint...

  • Page 35
    ... Carolina filed an individual lawsuit in state court against a number of internet travel companies, including Expedia, Hotels.com, and Hotwire. County of Mecklenburg v. Hotels.com L.P., et al., (General Court of Justice, Superior Court Division, Mecklenburg County, North Carolina). The complaint...

  • Page 36
    Worldspan Litigation. On July 26, 2006, Expedia filed a lawsuit against Worldspan, L.P. in state court in Washington seeking a declaratory judgment, and other relief, regarding the rights and obligations of Expedia and Worldspan under the parties' June 2001 Amended and Restated Development Agreement...

  • Page 37
    ... of Equity Securities We did not make any purchases of our outstanding common stock during the three months ended December 31, 2007. Between January 1, 2007 and September 30, 2007, we repurchased 55 million shares of our common stock tendered through two separate tender offers for a total cost of...

  • Page 38
    ... 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. We also offer travel and non-travel advertisers access to a potential...

  • Page 39
    ... some cases, eliminated) travel agent commissions and overrides, and focused on increasing direct distribution through their lower cost, proprietary websites. In addition, in 2006 carriers succeeded in reducing payments to global distribution system ("GDS") intermediaries as those contracts expired...

  • Page 40
    .... Our Hotels.com and TripAdvisor brands also maintain both U.S. points of sale and additional points of sale outside the United States. We also offer Chinese travelers an array of products and services through our majority ownership in eLong. In 2007, our European segment gross bookings and revenue...

  • Page 41
    ...core air and hotel products to car rental, destination services, cruise and other product offerings. We are also working to increase the mix of advertising and media revenue from both the expansion of our TripAdvisor Media Network, as well as increased advertising revenue from our worldwide websites...

  • Page 42
    ... identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting units. We believe the weighted use of discounted cash flows...

  • Page 43
    ... to the group of assets, the time period for which they will be held and used as well as a discount rate to incorporate the time value of money and the risks inherent in future cash flows. The use of different estimates or assumptions in determining the fair value of our definite-lived intangible...

  • Page 44
    ...states and localities impose a transient occupancy or accommodation 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...

  • Page 45
    ... products and services to corporate customers in North America and Europe. Expedia Asia Pacific provides online travel information and reservation services primarily through eLong in China, localized Expedia websites in Australia, Japan and New Zealand, as well as localized versions of Hotels.com in...

  • Page 46
    ... service fees versus the prior year period. Package revenue grew 7% in 2007 compared to the prior year primarily due to higher European package bookings. The remaining worldwide revenue other than merchant hotel and air discussed above, which includes advertising and media, agency hotel, car rental...

  • Page 47
    ...indirect costs, including stock-based compensation costs and market manager staffing in our Partner Services Group ("PSG"), Expedia Corporate Travel, Expedia Local Expert and TripAdvisor Media Network. In 2007, the increase in selling and marketing was primarily due to increased direct online search...

  • Page 48
    ..., redundancy, call center technology, site merchandising, content management, site monitoring, networking, corporate travel, supplier integration and other initiatives, we expect technology and content expense to increase in absolute dollars and as a percentage of revenue in 2008 as compared to 2007...

  • Page 49
    ...based compensation expense includes a benefit of $44.7 million related to changes in estimated forfeiture rates for stock options and RSUs and capitalization of software development costs, partially offset by a modification charge on stock option awards related to the Spin-Off. In 2005, we completed...

  • Page 50
    ... corresponds more closely to the cash operating income generated from our core operations by excluding significant non-cash operating expenses, such as stock-based compensation; and • It provides greater insight into management decision making at Expedia, as OIBA is our primary internal metric for...

  • Page 51
    ... million draw on our revolving credit facility in August 2007 to fund a portion of the tender offer completed in the third quarter of 2007. At December 31, 2007 and 2006 our long-term indebtedness totaled $1.085 billion and $500.0 million. In 2006, interest expense increased compared to 2005 due to...

  • Page 52
    ... non-deductible stock-based compensation, non-deductible losses related to our derivative liabilities in 2005 compared with a gain in 2006 and higher state income taxes in 2005. In 2005, our effective tax rate was higher than the 35% statutory rate primarily due to state taxes and an increase in the...

  • Page 53
    ... of cash from travelers to payments to suppliers, our working capital benefits could be reduced, as was the case to a certain degree in 2006 as we increased the efficiency of our supplier payment process. Seasonal fluctuations in our merchant hotel bookings affect the timing of our annual cash flows...

  • Page 54
    ... a reduced benefit from working capital. We made tax payments of $126.1 million, an increase of $115.7 million over 2005, reducing cash provided by operations due primarily to IAC's payment of taxes on behalf of Expedia prior to our becoming an independent public company after which point we became...

  • Page 55
    ... consist of stand-by LOCs and guarantees. We use our stand-by LOCs to secure payment for hotel room transactions to particular hotel properties. The outstanding balance of our stand-by LOCs directly reduces the amount available to us from our revolving credit facility. In addition, we provide a 49

  • Page 56
    ... to the aviation authority of one country to protect against potential non-delivery of our packaged travel services sold within that country. This country holds all travel agents and tour companies to the same standard. The letter of credit amounts in the following table represent the amount...

  • Page 57
    ... actions and other factors. These changes, if material, could cause us to adjust our financing and operating 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...

  • Page 58
    ... Based on this evaluation, management has concluded that, as of December 31, 2007, the Company's internal control over financial reporting was effective. Management has reviewed its assessment with the Audit Committee. Ernst & Young, LLP, an independent registered public accounting firm, has audited...

  • Page 59
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2007 consolidated financial statements of Expedia, Inc. and our report dated February 20, 2008 expressed an unqualified opinion thereon. /s/ Seattle, Washington February 20, 2008 53 Ernst & Young...

  • Page 60
    ... 2008 annual meeting of stockholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2007. Item 10 Directors, Executive Officers and Corporate Governance Item 11 Executive Compensation Item 12 Security Ownership of...

  • Page 61
    ... Form Incorporated by Reference SEC File No. Exhibit Filing Date 4.2 4.3 4.4 4.5 4.6 10.1 10.2 10.3 10.4 10.5 10.6 Stockholder Equity Warrant Agreement for Warrants to Purchase up to 11,450,182 Shares of Common Stock, between Expedia, Inc. and Mellon Investor Services LLC, as Equity...

  • Page 62
    ... as of August 7, 2007 Office Building Lease by and between Tower 333 LLC, a Delaware limited liability company, and Expedia, Inc., a Washington corporation, dated June 25, 2007 Expedia, Inc. 2005 Stock and Annual Incentive Plan Expedia, Inc. Non-Employee Director Deferred Compensation Plan Form of...

  • Page 63
    ... 2005 Stock and Annual Incentive Plan 10.29* Employment Agreement by and between Pierre Samec and Expedia, Inc., effective August 7, 2007 21 Subsidiaries of the Registrant 23.1 Consent of Independent Registered Public Accounting Firm 31.1 Certifications of the Chairman and Senior Executive Pursuant...

  • Page 64
    ... its behalf by the undersigned hereunto duly authorized. Expedia, Inc. By: /s/ DARA KHOSROWSHAHI Dara Khosrowshahi Chief Executive Officer February 21, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of...

  • Page 65
    Signature Title /s/ PETER M. KERN Peter M. Kern /s/ JOHN C. MALONE John C. Malone Director Director 59

  • Page 66
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  • Page 67
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS Consolidated Financial Statements Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Income ...Consolidated Balance Sheets ...Consolidated Statements of Changes in Stockholders' Equity and ...

  • Page 68
    ... (revised 2004), Share-Based Payment, effective January 1, 2006. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Expedia, Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established...

  • Page 69
    ... available to common stockholders: Basic ...Diluted ...Shares used in computing earnings per share: Basic ...Diluted ...(1) Includes stock-based compensation as follows: Cost of revenue ...Selling and marketing ...General and administrative ...Technology and content ...$ ...1.00 0.94 296,640 314...

  • Page 70
    ...Income taxes payable ...Other current liabilities ...Total current liabilities ...Long-term debt ...Credit facility ...Deferred income taxes, net ...Other long-term liabilities ...Minority interest ...Commitments and contingencies Stockholders' equity: Preferred stock $.001 par value ...Authorized...

  • Page 71
    ... ...Withholding 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...

  • Page 72
    ... Credit facility repayments ...(170,000) Proceeds from issuance of long-term debt, net of issuance costs ...- Changes in restricted cash and cash equivalents ...(6,494) Proceeds from exercise of equity awards...55,038 Excess tax benefit on equity awards ...95,702 Withholding taxes for stock option...

  • Page 73
    ... United States and abroad. These travel products and services are offered through a diversified portfolio of brands including: Expedia.com», Hotels.com», Hotwire.comTM, our private label programs (Worldwide Travel Exchange and Interactive Affiliate Network), Classic Vacations, Expedia» Corporate...

  • Page 74
    ... 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 75
    ... 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 from our travel suppliers and...

  • Page 76
    ...Statements - (Continued) revenue on hotel reservations, cruise and car rental reservations either on an accrual basis for payments from a commission clearinghouse, or on receipt of commissions from an individual supplier. We record an allowance for cancellations and chargebacks on this revenue based...

  • Page 77
    ...-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 78
    ...states and localities impose a transient occupancy or accommodation 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...

  • Page 79
    ... of the redemption option. Marketing Promotions We periodically provide incentive offers to our customers to encourage booking of travel products and services. Generally, our incentive offers are as follows: Current Discount Offers. These promotions include dollar off discounts to be applied against...

  • Page 80
    ... Stock Units. Restricted stock units ("RSU") are stock awards that are granted to employees entitling the holder to shares of common stock as the award vests, typically over a five-year period. We measure the value of RSUs at fair value based on the number of shares granted and the quoted price...

  • Page 81
    ... dependence on relationships 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 also rely on global distribution system partners and third-party service providers...

  • Page 82
    ... beginning of the first annual reporting period beginning on or after December 15, 2008. We are in the process of evaluating the impact of the adoption of SFAS 141R on our consolidated financial statements. In December 2007, the FASB issued SFAS No. 160, Accounting and Reporting on Non-controlling...

  • Page 83
    ... closing date forward; their effect on consolidated net revenue and operating income during 2007 was not significant. During 2007 we also acquired a 50% ownership interest in a travel company for $26.0 million in cash. We include this investment in Long-term investments and other assets and account...

  • Page 84
    ... and $92.4 million. For the years ended December 31, 2007, 2006 and 2005, we recorded amortization of capitalized software development costs of $35.9 million, $28.3 million and $38.6 million, most of which is included in technology and content expenses. NOTE 5 - Goodwill and Intangible Assets, Net...

  • Page 85
    ...) Cost December 31, 2006 Accumulated Amortization (In thousands) Net Weighted Average Life (In years) Distribution agreements ...$177,426 $(154,091) $ 23,335 Supplier relationship ...212,514 (206,464) 6,050 Technology ...203,028 (183,082) 19,946 Customer lists ...26,549 (20,723) 5,826 Affiliate...

  • Page 86
    ...of the borrowing approximates its fair value as of December 31, 2007. The facility bears interest based on market interest rates plus a spread, which is determined based on our financial leverage. The interest rate was 5.70% as of December 31, 2007. The annual fee to maintain the facility is 0.1% on...

  • Page 87
    ... of this swap, we pay Euro at a rate of the six-month EURIBOR plus 0.90% on Euro 38.2 million and we receive 5.47% interest on $45.9 million in U.S. dollars. Upon maturity, these cross-currency swap agreements call for the exchange of notional amounts. These swaps have been designated as cash flow...

  • Page 88
    ... 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 89
    ... a certain number of shares of our common stock or a fraction thereof. The following table presents a summary of our stock warrants (equivalent shares) from December 31, 2006 through December 31, 2007: Weighted Average Exercise Price Outstanding Warrants at December 31, 2006 Exercised Cancelled (In...

  • Page 90
    ... of our stock option transactions from August 9, 2005 through December 31, 2007: Options (In thousands) Weighted Average Exercise Price Remaining Contractual Life (In years) Aggregate Intrinsic Value (In thousands) Granted at Spin-Off, based on conversions from IAC options ...Exercised ...Cancelled...

  • Page 91
    ... by the Company to cover the exercise price of $8.59 per share and 3.5 million shares were withheld and concurrently cancelled to cover tax obligations, with a net delivery of 3.7 million shares. As of December 31, 2007, there was approximately $166.4 million of unrecognized stock-based compensation...

  • Page 92
    ...to be refundable from the Internal Revenue Service and other tax authorities. For the period January 1, 2005 through the Spin-Off date, we were a member of the IAC consolidated tax group. Accordingly, IAC filed a federal income tax return and certain state income tax returns on a combined basis with...

  • Page 93
    ...Net operating loss and tax credit carryforwards ...Capitalized R&D expenditures ...Stock-based compensation ...Investment impairment ...Other ...Total deferred tax assets ...Less valuation allowance...Net deferred tax assets ...Deferred tax liabilities: Prepaid merchant bookings and prepaid expenses...

  • Page 94
    ...and Senior Executive's exercises of stock options during 2007 and 2005. If the IRS were to make a final determination that IAC and not Expedia were entitled to such deductions, then under the terms of our Tax Sharing Agreement, IAC would pay to Expedia an amount equal to any such tax benefit at such...

  • Page 95
    ... 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 $660.0 million plus fees and expenses relating to the tender offer. We funded the purchase price for the shares using cash...

  • Page 96
    ... Per Share Basic earnings per share was calculated for the years ended December 31, 2007 and 2006 using the weighted average number of common and Class B common shares outstanding during the period excluding restricted stock and stock held in escrow. As of December 31, 2007 and 2006 we had 751 and...

  • Page 97
    ...Diluted Earnings Per Share For the years ended December 31, 2007, 2006 and 2005, 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 indicated above (ii) if dilutive, the incremental common...

  • Page 98
    ... expire at various dates with the latest maturity in 2018. In June 2007, we entered into a ten-year lease for approximately 348,000 square feet of office space for our new headquarters located in Bellevue, Washington. We expect the term and cash payments related to this lease to begin in F-32

  • Page 99
    ... any securities law litigation relating to conduct prior to the Spin-Off of the businesses or entities that comprise Expedia following the Spin-Off. This case arises out of IAC's August 4, 2004, announcement of its earnings for the second quarter of 2004. Litigation relating to the IAC/Hotels.com...

  • Page 100
    ... taxes 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...

  • Page 101
    ... in Corporate and Other. Our North America segment provides a full range of travel and/or advertising services to customers primarily located in the United States, Canada and Mexico. This segment operates through a variety of brands including Classic Vacations, Expedia.com, Hotels.com, Hotwire.com...

  • Page 102
    ...) China, localized Expedia websites in Australia, Japan and New Zealand, as well as localized versions of Hotels.com in various Asian countries. In addition, we record amortization of intangible assets and any related impairment, as well as stock-based compensation expense in Corporate and Other...

  • Page 103
    ..., including stock-based compensation, non-cash payments to partners, acquisition-related accounting and certain one-time items, if applicable. Due to the high variability and difficulty in predicting certain items that affect net income, such as tax rates, stock price and interest rates, we are...

  • Page 104
    .... Notes to Consolidated Financial Statements - (Continued) Geographic Information The following table presents revenue by geographic area, the United States and all other countries, for the years ended December 31, 2007, 2006 and 2005: 2007 Year Ended December 31, 2006 2005 (In thousands) Revenue...

  • Page 105
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) 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 cancellation fees. The ...

  • Page 106
    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, 2007 Revenue ...Gross profit ...Operating income ...

  • Page 107
    ... account for investments in their wholly-owned subsidiaries using the equity method. CONDENSED CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2007 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries (In thousands) Eliminations Consolidated Revenue...$ Cost of revenue ...Gross...

  • Page 108
    ...Cost of revenue ...Gross profit ...Operating expenses: Selling and marketing ...General and administrative ...Technology...Total other income, net ...Income (loss) before income taxes and minority interest ...Provision for income taxes ...Minority interest in (income) loss of consolidated subsidiaries,...

  • Page 109
    ... Cost of revenue ...Gross profit ...Operating expenses: Selling and marketing ...General and administrative ...Technology and content ...Amortization of intangible assets ...Amortization of non-cash distribution and marketing ...Operating income (loss) ...Other income (expense): Equity in pre-tax...

  • Page 110
    ...970,757 - 6,006,338 - 272,672 $(7,030,786) $8,295,422 LIABILITIES AND STOCKHOLDERS' EQUITY Total current liabilities ...$ 337,588 $1,631,601 $126,718 Long-term debt ...500,000 - - Credit facility ...585,000 - - Other liabilities and minority interest ...- 538,962 79,027 Stockholders' equity...4,818...

  • Page 111
    ...Transfers (to) from related parties ...Excess tax benefit on equity awards ...Withholding taxes for stock option exercises ...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...

  • Page 112
    ...-term borrowings, net ...Proceeds from issuance of long-term debt, net of issuance 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...

  • Page 113
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) ...taxes for stock option exercises ...Distribution to IAC/InterActiveCorp, net ...Other, net ...Net cash provided by (used in) financing activities . . Effect of exchange rate changes on cash and cash equivalents ...Net increase...

  • Page 114
    ...January 19, 2007, among Expedia, Inc., the Subsidiary Guarantors party thereto and The Bank of New York Trust Company, N.A., as Trustee Registration Rights Agreement dated August 21, 2006 by and among Expedia, Inc., the Subsidiary Guarantors listed therein, and J.P. Morgan Securities Inc. and Lehman...

  • Page 115
    ... as of August 7, 2007 Office Building Lease by and between Tower 333 LLC, a Delaware limited liability company, and Expedia, Inc., a Washington corporation, dated June 25, 2007 Expedia, Inc. 2005 Stock and Annual Incentive Plan Expedia, Inc. Non-Employee Director Deferred Compensation Plan Form of...

  • Page 116
    ... SEC File No. Exhibit Filing Date 10.16* 10.17* 10.18* 10.19* 10.20* 10.21* 10.22* 10.23* 10.24* 10.25* 10.26* 10.27* 10.28* 10.29* 21 23.1 31.1 31.2 31.3 Summary of Expedia, Inc. Non-Employee Director Compensation Arrangements Expedia, Inc. Executive Deferred Compensation Plan...

  • Page 117
    ... the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 X X X * Indicates a management contract or compensatory plan or arrangement. ** Indicates reference to filing of...

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