Expedia 2007 Annual Report Download - page 101

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.
In 2007, we received $0.1 million from IAC businesses, and paid $8.2 million to IAC businesses. In
2006, we received $1.9 million from IAC businesses, and paid $31.3 million to IAC businesses. From August 9,
2005 to December 31, 2005, we received $0.8 million from IAC businesses and paid $10.7 million to IAC
businesses. Amounts payable to IAC businesses, which are included in accounts payable, other, totaled
$1.0 million and $1.1 million as of December 31, 2007 and 2006.
Other Transactions with IAC
In the fourth quarter of 2006, eLong sold one of its businesses to a subsidiary of IAC for $14.6 million.
Agreements with Microsoft Corporation
We have various agreements with Microsoft, which was the beneficial owner of more than 5% of our
outstanding common stock prior to 2007. One of these agreements maintains our presence as the provider of
travel shopping services on MSN.com and several international MSN websites. Total fees we paid with respect
to these agreements were $26.5 million and $20.0 million for the years ended December 31, 2006 and 2005.
Prior to November 1999, Microsoft owned 100% of our outstanding common stock. Concurrent with our
separation from them, we entered into a tax allocation agreement whereby we were required to pay Microsoft
for a portion of the tax savings resulting from the exercise of certain stock options when realized on our tax
return. As of December 31, 2006 our obligation related to this agreement was $30.3 million, classified as
“accrued expenses” on our consolidated balance sheets. During 2007 and 2006 we realized $30.3 million and
$6.0 million of tax savings on our tax returns, and remitted an equivalent amount to Microsoft during these
periods. We have no remaining obligation to Microsoft under this agreement as of December 31, 2007.
NOTE 16 — Segment Information
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 determined our segments
based on how our chief operating decision makers manage our business, make operating decisions and evaluate
operating performance. Our primary operating metric for evaluating segment performance is “Operating
Income Before Amortization” (defined below), which includes allocations of certain expenses, primarily cost
of revenue and facilities, to the segments. We base the allocations primarily on transaction volumes and other
usage metrics; this methodology is periodically evaluated and may change. We do not allocate certain shared
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 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 and TripAdvisor. Our Europe segment
provides travel services primarily through localized Expedia websites in Austria, Denmark, France, Germany,
Ireland, Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom, as well as localized versions
of Hotels.com in various European countries.
Corporate and Other includes ECT, Expedia Asia Pacific and unallocated corporate functions and
expenses. ECT provides travel 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
F-35
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)