Expedia 2008 Annual Report Download

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venere
com
TM CLASSIC
VACATIONS

Table of contents

  • Page 1
    TM venere CLASSIC V A C AT I O N S com

  • Page 2

  • Page 3
    ... hotels best position their offers and maximize the value they get from the global Expedia marketplace. Suppliers further benefit from our evolving portfolio of scaleable revenue management, payment, and connectivity tools. The acquisition of VenereTM, a leading European agency model hotel business...

  • Page 4
    ... are confident that over time we'll attract investors consistent with our values and goals. We are clearly the most diversified online travel company, with revenues from transactions and advertising across a strong portfolio of leading consumer brands. As we've said, the test for us is to emerge out...

  • Page 5
    ... executive office) (Zip Code) Registrant's telephone number, including area code: (425) 679-7200 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Common stock, $0.001 par value The NASDAQ Global Select Market Warrants...

  • Page 6
    (This page intentionally left blank)

  • 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 ... 35...

  • Page 8
    ... used by a broad range of leisure and corporate travelers, offline retail travel agents and travel service providers. 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...

  • Page 9
    ... vacation to individual travelers arranging a quick weekend getaway. Travelers can search for, compare information about (including pricing, availability and traveler reviews) and book travel products and services on Expediabranded websites, including airline tickets, lodging, car rentals, cruises...

  • Page 10
    ..., Europe, Australia, New Zealand, Fiji and Tahiti. Travel agents and travelers can preview our product offering through our websites, www.classicforagents.com and www.classicvacations.com. Expedia Local Expert. Our network of travel desks located at hotels and resorts in Hawaii, Las Vegas, Mexico...

  • Page 11
    ... and search engine optimization. Global Reach. Our Expedia, hotels.com and TripAdvisor Media Network brands operate both in North America and internationally. We also offer Chinese travelers an array of products and services through our majority ownership in eLong, and we offer hotels to European...

  • 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...

  • Page 13
    ... online hotel business in Europe. Although net revenue per transaction is lower compared to the merchant model, due to the high volume of airline tickets sold our agency gross bookings accounted for 57% of total gross bookings for the year ended December 31, 2008. Relationships with Travel Suppliers...

  • Page 14
    ... companies, pursuant to which we pay a commission for bookings originated from their websites. Affiliate partners can make travel products and services available through an Expedia-branded website, a cobranded website or their own private label website. We also provide our affiliates with technology...

  • Page 15
    ...better pricing. 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 Note 16 - Segment Information, in the notes to our consolidated financial statements We are in the process of reorganizing our business around our global brands. Our chief operating decision makers are assessing our new structure to determine how we will manage our business and report our...

  • Page 17
    ... search companies, traditional travel agencies, meta search companies and operators of travel industry reservation databases. Some of our competitors, particularly travel suppliers such as airlines and hotels, may offer products and services on more favorable terms, including lower prices, no fees...

  • Page 18
    ... business is directed to our own websites through our participation in pay-per-click and display advertising campaigns on internet media properties and search engines whose pricing and operating dynamics can experience rapid change, both technically and competitively. If a major search engine such...

  • Page 19
    ... to new technologies and systems in the future. If any of these events occur, our business could suffer. We rely on third-parties for many systems and services. We rely on third-party service providers for certain customer care, fulfillment, processing, development, technology and other services. If...

  • Page 20
    ... by securities analysts and investors; • Rating agency credit rating actions; • Reaction to our earnings releases and conference calls, or presentations by executives at investor and industry conferences; • Changes in our capital structure; • Changes in market valuations of other internet or...

  • Page 21
    ... on our businesses and financial performance. 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 applicable taxing authorities. Many...

  • Page 22
    ... and operate profitably. Expedia, Inc. websites, including in particular the TripAdvisor Media Network, compete for advertising dollars with large internet portal sites, such as American Online, MSN and Yahoo!, that offer listing or other advertising opportunities for travel-related companies. These...

  • Page 23
    ..., including the rate of growth of our merchant hotel business, payment terms with suppliers and relative growth of businesses which consume rather than generate working capital, such as our agency hotel, advertising and managed corporate travel businesses. Our revolving credit facility expires in...

  • Page 24
    ... for us to optimally capitalize and manage the cash flow for our businesses; • Limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate; • Placing us at a competitive disadvantage compared to our competitors that have less debt; and...

  • Page 25
    ...our non-financial contract counterparties. Our investment in eLong creates risks and uncertainties relating to the laws in China. The success of our investment in eLong, Inc., a company organized under Cayman Islands law, whose principal business is the operation of an internet-based travel business...

  • Page 26
    ... may not be successful; • Difficulties and expenses in assimilating the operations, products, technology, privacy protection systems, information systems or personnel of the acquired company; • Impairment of relationships with employees, suppliers and affiliates of our business and the acquired...

  • Page 27
    ...lease approximately 395,000 square feet of office space for our international operations in various cities and locations, including Australia, Belgium, Canada, China, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Spain and the United Kingdom, pursuant to leases with expiration dates...

  • Page 28
    ... 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 assets...

  • Page 29
    ... to pay hotel occupancy taxes and engaging in other deceptive practices in 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...

  • Page 30
    ...Litigation Relating to Hotel Occupancy Taxes City of Los Angeles Litigation. On December 30, 2004, the city of Los Angeles filed a purported class action in California state court against a number of internet travel companies, including hotels.com, Expedia Washington and Hotwire. City of Los Angeles...

  • Page 31
    ... of Cartersville, Georgia filed a purported state wide class action in the United States District Court for the Northern District of Georgia against a number of internet travel companies, including hotels.com, Hotwire and Expedia Washington. City of Rome, Georgia, et al. v. Hotels.com, L.P., et al...

  • Page 32
    ... process is ongoing. Pitt County, North Carolina Litigation. On December 1, 2005, Pitt County, North Carolina filed a purported statewide 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...

  • Page 33
    ... city of Gallup, New Mexico filed a putative statewide class action in state court against a number of internet travel companies, including hotels.com, Hotwire and Expedia Washington. See City of Gallup, New Mexico, et al. v. Hotels.com, L.P., et al., CIV-06-0549 JC/RLP (United States District Court...

  • Page 34
    ..., South Carolina filed suit in state court against a number of internet travel companies, including hotels.com, Hotwire and Expedia Washington. See Town of Mount Pleasant, South Carolina v. Hotel.com, et al., 2-06-CV-020987PMD (United States District Court, District of South Carolina, Charleston...

  • Page 35
    ... to pay the hotel occupancy taxes at issue. North Myrtle Beach 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...

  • Page 36
    ...Nassau, New York filed a putative statewide class action in federal court against a number of internet travel companies, including hotels.com, Hotwire, and Expedia Washington. See Nassau County, New York, et al. v. Hotels.com, L.P., et al., (United States District Court, Eastern District of New York...

  • Page 37
    ... February 1, 2010. Myrtle Beach, South Carolina Litigation. On February 2, 2007, the city of Myrtle Beach, South Carolina 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...

  • Page 38
    ... City, Missouri filed a putative class action in state court against a number of internet travel companies, including hotels.com, Hotwire and Expedia. Jefferson City v. Hotels.com, L.P., et al., 07AC-CC0055 (Circuit Court of Cole County). The complaint alleges that the defendants have failed to pay...

  • Page 39
    ... and Brentwood, Tennessee filed a putative class action in federal court against a number of internet travel companies, including Expedia, hotels.com, and Hotwire. City of Goodlettsville and City of Brentwood v. Priceline.com, Inc., et al., 3-08-0561 (United States District Court for the Middle...

  • Page 40
    ... to pay the tax assessment prior to commencing litigation to challenge the applicability of the ordinance. City of San Diego Transient Occupancy Tax Assessment. On October 17, 2007, the city of San Diego instituted an audit of a number of internet travel companies, including Expedia, hotels.com, and...

  • Page 41
    ...on, among other things, our results of operations, cash requirements and surplus, financial condition, share dilution management, legal risks, capital requirements relating to research and development, investments and acquisitions, challenges to our business model and other factors that the Board of...

  • Page 42
    ... in conjunction with the consolidated financial statements and related notes and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Our financial statements present our results of operations, financial position, stockholders' equity and cash flows...

  • Page 43
    ... used by a broad range of leisure and corporate travelers, offline retail travel agents and travel service providers. 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...

  • Page 44
    ...the use of a la carte pricing for such items as baggage, food and beverage and preferred seating. Reduced seating capacities are generally negative for Expedia as there is less air supply available on our websites, and in turn less opportunity to facilitate hotel rooms, car rental and other services...

  • Page 45
    ... our Hotwire brand to luxury travelers seeking a high-touch, customized vacation package through our Classic Vacations brand. We believe our flagship Expedia brand appeals to the broadest range of travelers, with our extensive product offering ranging from single item bookings of discounted product...

  • Page 46
    ... and search engine optimization. Global Reach. Our Expedia, hotels.com and TripAdvisor Media Network brands operate both in North America and internationally. We also offer Chinese travelers an array of products and services through our majority ownership in eLong, and we offer hotels to European...

  • Page 47
    ...the booking of hotel reservations, with less than 15% of our worldwide revenue derived from the sale of airline tickets. We facilitate travel products and services either as stand-alone products or as part of package transactions. We have emphasized growing our merchant hotel and packages businesses...

  • Page 48
    ...and contract terms. Actual revenue could be greater or less than the amounts estimated due to changes in hotel billing practices or changes in traveler behavior. Marketing Promotions We periodically provide incentive offers to our customers to encourage booking of travel products and services, which...

  • Page 49
    Definite-Lived Intangible Assets. We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment ...

  • Page 50
    ...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 charge from the...

  • Page 51
    ... 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 the TripAdvisor Media Network. Our Europe segment provides travel services primarily through localized Expedia websites...

  • Page 52
    ... due to lower air commissions and booking fees as well as lower revenue resulting from more competitive hotel pricing. Results of Operations Revenue 2008 Year Ended December 31, 2007 2006 ($ in thousands) % Change 2008 vs 2007 2007 vs 2006 North America ...Europe ...Corporate and Other ...Total...

  • Page 53
    ...% 21% Cost of revenue primarily consists of (1) costs of our data and call centers, including telesales, (2) credit card expenses, including merchant fees, charge backs and fraud, (3) fees paid to fulfillment vendors for processing airline tickets and related customer services and (4) costs paid to...

  • Page 54
    ... 15% 30% 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...

  • Page 55
    ... and (4) certain one-time items, if applicable. OIBA is the primary operating metric used by which management evaluates the performance of our business, on which internal budgets are based, and by which management is compensated. Management believes that investors should have access to the same set...

  • Page 56
    ... of this non-GAAP financial measure to GAAP below. OIBA represents the combined operating results of Expedia, Inc.'s businesses, taking into account depreciation of property and equipment (including internal-use software and website development), which we believe is an ongoing cost of doing...

  • Page 57
    ... economically hedge the purchase price, we recognized a net loss of $21 million, included in foreign exchange rate gains (losses), net. In 2007, we recognized a $12 million gain related to federal excise tax refunds from the Internal Revenue Service. Provision for Income Taxes Year Ended December 31...

  • Page 58
    ...long as the merchant hotel business grows, we expect that changes in working capital will positively impact operating cash flows. However, due to various factors, including decelerating bookings growth, growth in other business models that lack the same working capital benefits as the merchant model...

  • Page 59
    ... cost of $1.385 billion plus fees and expenses relating to the tender offers. In addition, we paid withholding taxes for stock option exercises of $121 million on behalf of our Chairman and Senior Executive in exchange for surrendering a portion of his vested shares which were concurrently cancelled...

  • Page 60
    ... filed with the SEC under which Expedia, Inc. may offer from time to time debt securities, guarantees of debt securities, preferred stock, common stock or warrants. The shelf registration statement expires on October 15, 2010. In our opinion, available cash, funds from operations and available...

  • Page 61
    ... the amount available to us from our revolving credit facility. In addition, we provide a guarantee 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...

  • Page 62
    ... conduct business in certain international markets, primarily in Australia, Canada, China and the European Union. Because we operate in international markets, we have exposure to different economic climates, political arenas, tax systems and regulations that could affect foreign exchange rates. Our...

  • Page 63
    ...as stated in their report which is included below. Limitations on Controls. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated...

  • Page 64
    ... in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2008 consolidated financial statements of Expedia, Inc. and our report dated February 18, 2009 expressed an unqualified opinion thereon. /s/ Seattle, Washington February 18, 2009 Ernst & Young LLP...

  • Page 65
    ... relating to our 2009 annual meeting of stockholders (the "2009 Proxy Statement"), which will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2008. Part III. Item 10. Directors, Executive Officers and Corporate Governance The...

  • Page 66
    ... Mellon Investor Services LLC, as Equity Warrant Agent, dated as of August 9, 2005 Indenture, dated as of August 21, 2006, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto, and The Bank of New York Trust Company, N.A., as Trustee, relating to Expedia, Inc...

  • Page 67
    ...Delaware limited liability company, and Expedia, Inc., a Washington corporation, dated June 25, 2007 Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan, effective as of January 1, 2009 Amended and Restated Expedia, Inc. Non-Employee Director Deferred Compensation Plan, effective...

  • Page 68
    ... No. Exhibit Description Filed Herewith Form Incorporated by Reference SEC File No. Exhibit Filing Date 10.18* Expedia Restricted Stock Unit Agreement between Dara Khosrowshahi and Expedia, Inc., dated March 7, 2006 10.19* Amendment Agreement between Dara Khosrowshahi and Expedia, Inc., dated...

  • Page 69
    ...-Oxley Act of 2002 X X X X X * Indicates a management contract or compensatory plan or arrangement. ** Indicates reference to filing of IAC/InterActiveCorp Certain instruments defining the rights of certain holders of long-term debt securities of Expedia, Inc. are omitted pursuant to Item 601...

  • Page 70
    ... its behalf by the undersigned hereunto duly authorized. Expedia, Inc. By: /s/ DARA KHOSROWSHAHI Dara Khosrowshahi Chief Executive Officer February 19, 2009 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 71
    Signature Title /s/ PETER M. KERN Peter M. Kern /s/ JOHN C. MALONE John C. Malone Director Director 65

  • Page 72
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  • Page 73
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS Consolidated Financial Statements Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Operations...Consolidated Balance Sheets ...Consolidated Statements of Changes in Stockholders' Equity and ...

  • Page 74
    ... 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 75
    Consolidated Financial Statements EXPEDIA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2008 2007 2006 (In thousands, except per share data) Revenue ...$ 2,937,013 $2,665,332 $2,237,586 Cost of revenue(1) ...634,744 562,401 502,638 Gross profit ...Operating expenses: Selling ...

  • Page 76
    ...: Accounts payable, merchant ...Accounts payable, other ...Deferred merchant bookings ...Deferred revenue ...Accrued expenses and other current liabilities ...Total current liabilities ...Long-term debt ...Credit facility...Deferred income taxes, net ...Other long-term liabilities ...Minority...

  • Page 77
    ... loss: Net loss ...Net loss on derivative contracts ...Currency translation adjustment ...Total comprehensive loss ...Settlement of derivative liability ...Capital contribution from sale of business ...Proceeds from exercise of equity instruments ...Tax deficiencies on equity awards...Treasury stock...

  • Page 78
    ... liabilities ...Deferred merchant bookings...Deferred revenue ...Net cash provided by operating activities ...Investing activities: Capital expenditures, including internal-use software and website development...Acquisitions, net of cash acquired ...Reclassification of Reserve Primary Fund holdings...

  • Page 79
    ... leisure and corporate travelers in the United States and abroad. These travel products and services are offered through a diversified portfolio of brands including: Expedia.com», hotels.com», Hotwire.comTM, the TripAdvisor» Media Network, our private label programs (Worldwide Travel Exchange and...

  • Page 80
    .... For our primary revenue models, discussed below, we have determined net presentation is appropriate for the majority 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. F-8

  • Page 81
    ... or ticketing fees from the travel supplier and/or traveler. For agency airline, hotel and car transactions, we also receive fees from global distribution systems partners that control the computer systems through which these reservations are booked. Merchant Hotel. Our travelers pay us for merchant...

  • Page 82
    ... the development of internal use software in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and EITF No. 00-02, Accounting for Website Development Costs. We capitalize costs incurred during the application development...

  • Page 83
    ...other long-lived assets are carried at cost and are amortized on a straight-line basis over their estimated useful lives of two to twelve years. We review the carrying value of long-lived assets or asset groups, including property and equipment, to be used in operations whenever events or changes in...

  • Page 84
    ... for discussion of impairment of other long-lived assets in 2008. Assets held for sale, to the extent we have any, are reported at the lower of cost or fair value less costs to sell. Long-term Investments We record investments, which are non-marketable, using the cost basis when we do not have the...

  • Page 85
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) Occupancy Tax Some 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 ...

  • Page 86
    ... 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 current purchases. We record the discounts as reduction in revenue at the date...

  • Page 87
    ... and are generally settled shortly after the sale. Certain Risks and Concentrations Our business is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines and hotels, dependence on third-party technology providers, exposure to F-15

  • Page 88
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) risks associated with online commerce security and credit card fraud. We also rely on global distribution system partners and third-party service providers for certain fulfillment services, including one third-party service ...

  • Page 89
    ... product and service companies, which includes Venere, an online travel provider based in Italy that focuses on hotel reservations under an agency model. The purchase price of these companies as well as contingent purchase consideration under prior acquisitions and other acquisition-related costs...

  • Page 90
    ... be recorded to the minority interest and as charges or credits to retained earnings (deficit). In 2007, we acquired three travel-related companies. The purchase price of these and other acquisition related costs totaled $152 million, $60 million of which we paid in cash and $92 million of which was...

  • Page 91
    ... value of each of our reporting units and both our indefinite-lived and definite lived intangible assets using accepted valuation techniques as described above in Note 2 - Significant Accounting Policies. The significant estimates used included our weighted average cost of capital, long-term rate...

  • Page 92
    ... $223 million of indefinite-lived trade names. A deferred tax benefit of $189 million was recognized as a result of these charges. We determined that the adverse change in the business climate discussed above was also an indicator requiring the testing of our long-lived assets for recoverability and...

  • Page 93
    ... assets with definite lives as of December 31, 2008 and 2007: Cost December 31, 2008 Accumulated Amortization Net Cost (In thousands) December 31, 2007 Accumulated Amortization Net Supplier relationships ...Technology ...Distribution agreements ...Affiliate agreements ...Customer lists ...Domain...

  • Page 94
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) Amortization expense was $69 million, $78 million and $111 million for the years ended December 31, 2008, 2007 and 2006. The estimated future amortization expense related to intangible assets with definite lives as of December 31...

  • Page 95
    ... was tightened, pricing on our borrowings increased by 200 basis points and we paid approximately $6 million in fees, which will be amortized over the remaining term of the credit facility. NOTE 7 - Derivative Instruments The fair values of the derivative financial instruments generally represent...

  • Page 96
    ... balance sheets with any changes in value recorded in our consolidated statements of operations in Other, net. The estimated fair 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...

  • Page 97
    ... Expedia, Inc. Stock and Annual Incentive Plan, we may grant restricted stock, restricted stock awards, RSUs, stock options and other stock-based awards to directors, officers, employees and consultants. As of December 31, 2008, we had approximately 8 million shares of common stock reserved for new...

  • Page 98
    ... During 2008, we also granted stock options to certain key employees. The fair value of stock options granted during the year ended December 31, 2008 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no dividends and the following weighted average assumptions...

  • Page 99
    ... 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, 2008, there was approximately $131 million of unrecognized stock-based compensation expense...

  • Page 100
    ...periods presented, we have computed current and deferred tax expense using our stand-alone effective tax rate. As of December 31, 2008, our current income tax payable represents amounts that we will pay to the Internal Revenue Service ("IRS") and other tax authorities based on our taxable income. We...

  • Page 101
    ...Deferred revenue ...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...

  • Page 102
    ... company and consolidated income tax returns filed with IAC, we are routinely under audit by federal, state, local and foreign authorities. These audits include questioning the timing and the amount of income and deductions and the allocation of income among various tax jurisdictions. Annual tax...

  • Page 103
    ... to Consolidated Financial Statements - (Continued) and 2006, we recognized approximately $12 million, $4 million and $2 million of interest, net of federal benefit and penalties, related to our liabilities for uncertain tax positions. NOTE 11 - Stockholders' Equity Common Stock and Class B Common...

  • Page 104
    ...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 stock that we would issue upon the assumed exercise of stock options and stock warrants and the vesting of restricted stock units...

  • Page 105
    ...IRS but not collected from customers for airline ticket sales by one of our subsidiaries in the third quarter of 2001 through the third quarter of 2004, plus accrued interest thereon. We recorded $3 million to revenue as that amount relates to taxes remitted on airline ticket sales subsequent to our...

  • Page 106
    ...also requires that a portion of the total 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. The contractual expiration dates of these...

  • Page 107
    ...of business, we are a party to various lawsuits. In the opinion of management, we do not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia. We also evaluate other potential contingent matters, including value-added tax, federal...

  • Page 108
    ... 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 the TripAdvisor Media Network. Our Europe segment provides travel services primarily through localized Expedia websites...

  • Page 109
    ... Ended December 31, 2006 Corporate Europe and Other (In thousands) Total Revenue ...Operating Income Before Amortization (Unaudited) ...Amortization of intangible assets ...Impairment of intangible and other long-lived assets ...Stock-based compensation ...Amortization of non-cash distribution and...

  • Page 110
    ... of this non-GAAP financial measure to GAAP below. OIBA represents the combined operating results of Expedia, Inc.'s businesses, taking into account depreciation of property and equipment (including internal-use software and website development), which we believe is an ongoing cost of doing...

  • Page 111
    Expedia, Inc. 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, 2008, 2007 and 2006: 2008 Year Ended December 31, 2007 (In thousands) ...

  • Page 112
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) NOTE 17 - Valuation and Qualifying Accounts The following table presents the changes in our valuation and qualifying accounts. Description Balance of Beginning of Period Charges to Earnings Charges to Other Accounts (In thousands...

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    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, 2008 Revenue ...Gross profit ...Operating income (...

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    ... Consolidated Revenue ...$ Cost of revenue ...Gross profit ...Operating expenses: Selling and marketing ...General and administrative ...Technology and content ...Amortization of intangible assets ...Impairment of goodwill ...Impairment of intangbile and other long-lived assets...Operating loss...

  • Page 115
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Year Ended December 31, 2007 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries (In thousands) Eliminations Consolidated Revenue...$ Cost of revenue ...Gross profit ......

  • Page 116
    ... thousands) Eliminations Consolidated Revenue...$ Cost of revenue ...Gross profit ...Operating expenses: Selling and marketing ...General and administrative ...Technology and content ...Amortization of intangible assets...Impairment of long-lived assets ...Amortization of non-cash distribution and...

  • Page 117
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2008 Parent Guarantor Subsidiaries Non...liabilities ...$ 570,621 $1,433,356 $ 538,671 Long-term debt ...894,548 - - Credit facility ...- 650,000 - Other liabilities and minority ...

  • Page 118
    ... by operating activities ...Investing activities: Capital expenditures, including internal-use software and website development ...Acquisitions, net of cash acquired ...Reclassification of Reserve Primary Fund holdings ...Distribution from Reserve Primary Fund ...Net settlement of foreign currency...

  • Page 119
    ...: Net cash provided by operating activities ...Investing activities: Capital expenditures, including internal-use software and website development ...Other, net...Net cash used in investing activities ...Financing activities: Credit facility borrowings ...Credit facility repayments ...Treasury stock...

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    ...: Capital expenditures, including internal-use software and website development ...Other, net ...Net cash provided by (used in) investing activities...Financing activities: Credit facility repayments ...Proceeds from issuance of long-term debt, net of issuance costs ...Treasury stock activity...

  • Page 121
    ... Mellon Investor Services LLC, as Equity Warrant Agent, dated as of August 9, 2005 Indenture, dated as of August 21, 2006, among Expedia, Inc., as Issuer, the Subsidiary Guarantors from time to time parties thereto, and The Bank of New York Trust Company, N.A., as Trustee, relating to Expedia, Inc...

  • Page 122
    ... Delaware limited liability company, and Expedia, Inc., a Washington corporation, dated June 25, 2007 Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan, effective as of January 1, 2009 Amended and Restated Expedia, Inc. NonEmployee Director Deferred Compensation Plan, effective...

  • Page 123
    ... Form Incorporated by Reference SEC File No. Exhibit Filing Date 10.18* 10.19* 10.20* 10.21* 10.22* 10.23* 10.24* 10.25* 10.26* 10.27* 10.28* 10.29* 10.30* 10.31* 21 23.1 31.1 Expedia Restricted Stock Unit Agreement between Dara Khosrowshahi and Expedia, Inc., dated March 7, 2006...

  • Page 124
    ...-Oxley Act of 2002 X X X X X * Indicates a management contract or compensatory plan or arrangement. ** Indicates reference to filing of IAC/InterActiveCorp Certain instruments defining the rights of certain holders of long-term debt securities of Expedia, Inc. are omitted pursuant to Item 601...

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