Expedia 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 Expedia annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

TM

Table of contents

  • Page 1
    TM

  • Page 2

  • Page 3
    ... card payment processing and air fulfillment technology have driven efficiencies in our cost of sales. Investments in call center technology have and will continue to improve service and drive efficiencies in our customer service operations. In addition, we have consolidated the Hotels.com business...

  • Page 4
    ... next couple of years. Our media businesses, TripAdvisor Media Network and Expedia Media Solutions Group, continue to grow their leadership positions. In an environment where many companies shrank year-over-year, our advertising and media revenue grew 10% in 2009, accounting for more than 10% of our...

  • Page 5
    ...No.) 333 108th Avenue NE Bellevue, WA 98004 (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: Title of each class: Name of each exchange on which registered: Common stock...

  • Page 6

  • 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 ... 36...

  • Page 8
    ... Travel Exchange" and "Interactive Affiliate Network"), Classic Vacations®, Expedia Local ExpertTM, Expedia® CruiseShipCenters®, EgenciaTM, eLongTM, Inc. ("eLong") and VenereTM Net SpA ("Venere"). In addition, many of these brands have related international points of sale. We refer to Expedia...

  • 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
    ..., 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
    ... item bookings of discounted product to dynamic bundling of higher-end travel packages. Our hotels.com site and its international versions target travelers with premium hotel content about lodging properties, such as 360 degree tours and hotel reviews. In the United States, hotels.com generally...

  • Page 12
    ...rooms, airline seats, car rentals and destination services from our travel suppliers and for such bookings, we are the merchant of record. Under the agency model, we act as an agent in the transaction, passing reservations booked by our travelers to the relevant airline, hotel, car rental company or...

  • Page 13
    ...to travelers. Our agency business is comprised of the sale of airline tickets, hotel, cruise and car rental reservations. Airline ticket transactions currently make up the majority of this business. In the third quarter of 2008, we acquired Venere, an agency-based online hotel business in Europe and...

  • Page 14
    ... partners, including a number of leading travel 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 co-branded website or their own private label website...

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

  • Page 16
    ... regulations applicable to travel agents in those markets, including, in some countries, laws regulating the provision of travel packages and industry specific value-added tax regimes. For example, the European Economic Community Council Directive on Package Travel Package Holidays and Package Tours...

  • Page 17
    ...and search companies, traditional travel agencies, metasearch 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
    ... Expedia, hotels.com, Hotwire, Classic Vacations, Egencia, eLong, Venere, the TripAdvisor Media Network and Expedia Local Expert, is critical to retaining and expanding our traveler, supplier and advertiser bases. We have and expect to continue having to spend more to maintain our brands' value...

  • Page 19
    ... engines attempt to more directly appeal to travel consumers by maintaining transactions within their own websites or referring those leads to suppliers directly, that could have a meaningfully adverse impact on our business and financial performance. We rely on information technology to operate...

  • Page 20
    ... travel supplier, such as an airline or hotel chain; • Changes in the status of our intellectual property rights; • Lack of success in the expansion of our business model geographically; • Announcements by third parties of significant claims or proceedings against us or adverse developments...

  • Page 21
    ... from transactions in multiple currencies, including our failure to adequately manage those risks; • Slower adoption of the internet as an advertising, broadcast and commerce medium in those markets as compared to the United States; and • Difficulties in managing staffing and operations due to...

  • Page 22
    ...effect on our business and financial performance. Provisions in certain credit card processing agreements could adversely affect our liquidity and financial positions. We have agreements with companies that process customer credit card transactions for the facilitation of customer bookings of travel...

  • Page 23
    ...and operate profitably. Expedia, Inc. websites, including in particular the TripAdvisor Media Network, compete for advertising revenue with large internet portal sites, such as America Online and MSN, that offer listing or other advertising opportunities for travel-related companies. These companies...

  • Page 24
    ...Investor Service or similar ratings agencies, increases in general interest rate levels or further weakening in the credit markets could increase our cost of capital. More recent experience suggests credit spreads can be significantly higher for companies with lower credit ratings, impacting returns...

  • Page 25
    ..., 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. We have significant long-term indebtedness...

  • Page 26
    ...exchange risk management, including the use of forward contracts to hedge a portion of our exposures. We make a number of estimates in conducting hedging activities including in some cases the level of future bookings, cancellations, refunds, customer stay patterns and payments in foreign currencies...

  • Page 27
    ...-ticketing, travel agency, internet content provision, mobile communication and related businesses. Although we have established effective control through a series of agreements between the companies in which our Chinese investments are held and their affiliated Chinese entities, future developments...

  • Page 28
    ... square feet of office space for our international operations in various cities and locations, including Australia, Belgium, Brazil, Canada, China, France, Germany, Greece, India, Ireland, Italy, Japan, Mexico, the Netherlands, Singapore, South Korea, Spain, Thailand and the United Kingdom, pursuant...

  • Page 29
    ... results of operations based upon the standard set forth in the SEC's rules. Securities Class Action Litigation against IAC Beginning on September 20, 2004, twelve purported shareholder class actions were commenced in the United States District Court for the Southern District of New York against IAC...

  • Page 30
    ... hotels.com breached its contract with its customers by charging customers "taxes" that exceed the amount required by or paid to the applicable taxing authorities and by charging customers "fees" that do not correspond to any specific services provided. On April 29, 2005, the court issued an order...

  • Page 31
    .... 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...

  • Page 32
    ... 9, 2006, the city of San Diego, California filed an action in state court against a number of internet travel companies, including hotels.com, Hotwire and Expedia Washington. City of San Diego v. Hotels.com, L.P. et al., (Superior Court for the County of San Diego). The complaint alleges that the...

  • Page 33
    ... Litigation. On May 17, 2006, the 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...

  • Page 34
    ... statewide class action in federal court against a number of internet travel companies, including hotels.com, Hotwire and Expedia Washington. See City of Columbus, et al. v. Hotels.com, L.P., et al., 2:06-CV-00677 (United States District Court, Southern District of Ohio). The complaint alleges...

  • Page 35
    ... 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). The complaint...

  • Page 36
    ...filed a lawsuit in state court against a number of internet travel companies, including hotels.com, Hotwire, and Expedia Washington. See City of Branson, MO v. Hotels.com, L.P., et al., 106CC5164 (Circuit Court of Greene County, Missouri). The complaint alleges that the defendants have failed to pay...

  • Page 37
    ... lawsuit in federal court against a number of internet travel companies, including hotels.com, Hotwire and Expedia. City of Oakland v. Hotels.com, L.P., et al., C-07-3432 (United States District Court, Northern District of California). The complaint alleges that the defendants have failed to pay...

  • Page 38
    ... filed a putative class action in federal court against a number of internet travel companies, including Expedia, hotels.com, and Hotwire. Township of Lyndhurst v. Priceline.com, Inc., et al., 2:08-CV-03033-JLL-CCC (United States District Court for District of New Jersey). The complaint alleges...

  • Page 39
    ... City of Anaheim. City of San Francisco, California. On May 13, 2008, the city of San Francisco instituted an audit of a number of internet travel companies, including Expedia, hotels.com, and Hotwire, for hotel occupancy taxes. On or before October 31, 2008, the city completed its audit and issued...

  • Page 40
    ... dismissed this suit and refiled in state court. Brevard County, Florida Litigation. On October 2, 2009, Brevard County Florida filed an action against a number of online travel companies, including Expedia, Inc., hotels.com, L.P. and Hotwire, Inc. Brevard County, Florida v. priceline.com Inc., et...

  • Page 41
    ... Center Authority, have brought suit against a number of online travel companies. City of Birmingham, et al. v. Orbitz, et al., Case No. CV200903607 (Circuit Court of Jefferson County, Alabama). The complaint alleges that defendants have failed to collect and/or pay taxes under local lodging tax...

  • Page 42
    ...Expedia, hotels.com, Hotwire and other online travel companies brought suit against the city of New York Department of Finance and the city of New York. The complaint asserts two claims for declaratory judgment challenging the constitutionality and legality of the law relating to New York City hotel...

  • Page 43
    ... things, our results of operations, cash requirements and surplus, financial condition, share dilution management, legal risks, tax policies, capital requirements relating to research and development, investments and acquisitions, challenges to our business model and other factors that the Board of...

  • Page 44
    ... 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 source 38 Management...

  • Page 45
    ... in oil prices by aggressively reducing their cost structures and seating capacities. 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 on behalf...

  • Page 46
    change/cancel fees in excess of those charged by travel suppliers. These fee actions, combined with the above reductions in distribution costs, have combined to reduce Expedia's global revenue per ticket by over 30% in the past three years. As a result of the above industry dynamics and the strength...

  • Page 47
    ...offering featuring a Fee Estimator enabling customers to see the price of their flight including various airline fees such as baggage charges. The online travel industry has also seen the development of alternative business models and variations in the timing of payment by travelers and to suppliers...

  • Page 48
    ..., we are working to grow our global agency hotel business through our Venere brand as well as our Expedia and hotel.com brands. We also seek to continue diversifying our revenue mix beyond core air and hotel products to car rental, destination services, cruise and other product offerings. We have...

  • Page 49
    ... to pay the supplier, based on historical experience 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...

  • Page 50
    ... the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly...

  • Page 51
    ... 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 customer which we pay to the hotel. We...

  • Page 52
    ... a reserve for the potential settlement of issues related to hotel occupancy taxes for prior and current periods, consistent with applicable accounting principles and in light of all current facts and circumstances. A variety of factors could affect the amount of the liability (both past and future...

  • Page 53
    ..., Expedia Affiliate Network, Hotwire.com, Venere, eLong and Classic Vacations. Our TripAdvisor Media Network segment provides advertising services to travel suppliers on its websites, which aggregate traveler opinions and unbiased travel articles about cities, hotels, restaurants and activities in...

  • Page 54
    ... of fees on Expedia.com and other points of sale, combined with lower average ticket prices, contributed to the increase in our air ticketing volumes. Worldwide revenue other than hotel and air discussed above, which includes advertising and media, car rental, destination services and agency cruise...

  • Page 55
    ...(1) customer operations, including our customer support and telesales as well as fees to air ticket fulfillment vendors, (2) credit card processing, including merchant fees, charge backs and fraud, and (3) other costs, primarily including data center costs to support our websites, certain promotions...

  • Page 56
    ... spending, private label and affiliate program commissions, public relations and other costs. The remainder of the expense relates to indirect costs, including personnel and related overhead in our Partner Services Group ("PSG"), the TripAdvisor Media Network, Egencia and Expedia Local Expert and...

  • Page 57
    ... financial statements. Occupancy Tax Assessments and Legal Reserves During 2009, we recognized $48 million related to monies paid in advance of litigation in the San Francisco occupancy tax proceedings and an accrual of $19 million for the estimated settlement cost of the Expedia consumer class...

  • Page 58
    ... offset by the San Francisco occupancy tax assessments, restructuring charges and class action settlement legal reserve as well as growth in technology and content and general and administrative expenses at rates in excess of revenue growth. In 2008, the recording of a significant operating loss and...

  • Page 59
    ... related to uncertain tax positions. We expect our effective tax rate to benefit in 2010 and beyond based on changes in our business structure combined with the relative growth in our international business. In 2008, our effective tax rate differed from the 35% statutory rate and the 2007 effective...

  • Page 60
    ...our other businesses, or if there are changes to the model or booking patterns which compress the time of receipts of cash from travelers to payments to suppliers, our working capital benefits could be reduced. Seasonal fluctuations in our merchant hotel bookings affect the timing of our annual cash...

  • Page 61
    ... tender offers where we acquired 55 million shares of our common stock for a total 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...

  • Page 62
    ... 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 63
    ...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 primary exposure to foreign currency risk relates to...

  • Page 64
    ...to the changes that exchange rates might have on our earnings, cash flows and financial position. We make a number of estimates in conducting hedging activities including in some cases the level of future bookings, cancellations, refunds, customer stay patterns and payments in foreign currencies. In...

  • Page 65
    ... - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that, as of December 31, 2009, the Company's internal control over financial reporting was effective. Management has reviewed its assessment with...

  • Page 66
    ... in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2009 consolidated financial statements of Expedia, Inc. and our report dated February 11, 2010 expressed an unqualified opinion thereon. /s/ Seattle, Washington February 11, 2010 Ernst & Young LLP...

  • Page 67
    ... proxy statement relating to our 2010 annual meeting of stockholders (the "2010 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, 2009. Part III. Item 10. Directors, Executive Officers and Corporate...

  • Page 68
    ... and The Bank of New York, as equity warrant agent. 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.'s 7.456% Senior Notes...

  • Page 69
    ... and J.P. Morgan Europe Limited, as London Agent. 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., a Delaware corporation, as...

  • Page 70
    ...Form Incorporated by Reference SEC File No. Exhibit Filing Date 10.14* 10.15* 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* Amended and Restated Expedia, Inc. Non-Employee Director Deferred Compensation Plan, effective as of January 1, 2009...

  • Page 71
    ...Registered Public Accounting Firm Certifications of the Chairman and Senior Executive Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer pursuant...

  • Page 72
    ...its behalf by the undersigned hereunto duly authorized. Expedia, Inc. By: /s/ DARA KHOSROWSHAHI Dara Khosrowshahi Chief Executive Officer February 11, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • 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
    ... Public Company Accounting Oversight Board (United States), Expedia, Inc.'s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and...

  • Page 75
    ..., Inc...Net income (loss) per share attributable to Expedia, Inc. available to common stockholders: Basic ...Diluted ...Shares used in computing income (loss) per share: Basic ...Diluted ...(1) Includes stock-based compensation as follows: Cost of revenue ...Selling and marketing ...Technology and...

  • Page 76
    ... liabilities: 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...

  • Page 77
    ... loss: Net loss on derivative contracts ...Currency translation adjustment ...Settlement of derivative liability ...Capital contribution from sale of business ...Proceeds from exercise of equity instruments ...2,468,708 Tax deficiencies on equity awards ...Treasury stock activity related to vesting...

  • Page 78
    ... other current 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 ...Purchase of short-term investments...

  • Page 79
    ... "Worldwide Travel Exchange and Interactive Affiliate Network"), Classic Vacations, Expedia Local Expert, EgenciaTM, Expedia® CruiseShipCenters®, eLongTM, Inc. ("eLong") and Venere Net SpA ("Venere"). In addition, many of these brands have related international points of sale. We refer to Expedia...

  • Page 80
    ... better support our global brands. As a result of our reorganization, in addition to costs to develop and maintain our website and internal use applications, technology and content expense now also includes the majority of information technology costs such as costs to support and operate our network...

  • Page 81
    ... business models: the merchant model, the agency model and the media model. Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and destination services from our travel suppliers and we are the merchant of record for such bookings. Under the agency model...

  • Page 82
    ... Packages. Packages assembled by travelers through the packaging model on our websites include a merchant hotel component and some combination of an air, car or destination services component. The individual package components are recognized in accordance with our revenue recognition policies stated...

  • Page 83
    ... than the contractual payment terms as past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a specific customer's ability to pay its obligations to us, and the condition of the general...

  • Page 84
    ... the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly...

  • Page 85
    ... tax authorities. When a customer books a room through one of our travel services, we collect a tax recovery charge from the customer which we pay to the hotel. We do not collect or remit occupancy taxes, nor do we pay occupancy taxes to the hotel operator on the portion of the customer payment...

  • Page 86
    ... and Losses Certain of 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 during the period. We translate assets and liabilities at the rates of exchange as of the consolidated balance...

  • Page 87
    ... hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. As travelers accumulate points towards free travel products, we record a liability for the estimated future cost of redemptions. We determine the future redemption obligation based on judgment factors...

  • Page 88
    ... over which 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. Estimates of fair value are not intended to predict actual future events or...

  • Page 89
    ...consolidated financial statements. In October 2009, the FASB issued guidance on revenue recognition to require companies to allocate revenue in multiple-element arrangements based on an element's estimated selling price if vendor-specific or other third-party evidence of value is not available. This...

  • Page 90
    ...we acquired four online travel media content companies, one corporate travel company and two online travel 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...

  • Page 91
    ... $18 million of intangible assets with definite lives. The results of operations of each of the acquired businesses have been included in our consolidated results from each transaction closing date forward; their effect on consolidated net revenue and operating income during 2007 was not significant...

  • Page 92
    ...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 of growth and profitability of our business, and working capital effects. Our assumptions...

  • Page 93
    ... lives as of December 31, 2009 and 2008: December 31, 2009 Accumulated Amortization December 31, 2008 Accumulated Amortization Cost Net Cost (In thousands) Net Supplier relationships ...$287,469 Technology ...228,645 Distribution agreements ...177,426 Affiliate agreements ...34,782 Customer...

  • Page 94
    ...issued at 98.572% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in January and July of each year. The 8.5% Notes include covenants that limit our ability to (i) incur additional indebtedness, (ii) pay dividends or make restricted payments...

  • Page 95
    ... credit facility. Pricing is based on the Company's credit ratings, with drawn amounts bearing interest at LIBOR plus 300 basis points, and undrawn amounts bearing interest at 50 basis points. Financial covenants remain the same under the new facility. We incurred approximately $8 million in fees...

  • Page 96
    ... form of stock-based compensation. During 2008, we also granted stock options to certain key employees. The fair value of stock options granted during the year ended December 31, 2009 and 2008 was estimated at the date of grant using the Black-Scholes option-pricing model, assuming no dividends and...

  • Page 97
    ... to our Chief Executive Officer, for which vesting is tied to achievement of performance targets. In 2009, 2008 and 2007, we recognized total stock-based compensation expense of $62 million, $61 million and $63 million. The total income tax benefit related to stock-based compensation expense was $20...

  • Page 98
    ...tax deduction. Total current income tax benefits during the years ended December 31, 2009 and 2008 associated with the exercise of IAC and Expedia stock-based awards held by our employees... of unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested stock-based ...

  • Page 99
    ...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 100
    ... recorded a tax benefit of $23 million related to a worthless stock deduction associated with the closure of a foreign subsidiary. By virtue of the previously filed separate company and consolidated income tax returns filed with IAC, we are routinely under audit by federal, state, local and foreign...

  • Page 101
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows, in thousands: Balance at January 1, 2008 ...Increases to tax positions related to the current year ...Decreases to tax ...

  • Page 102
    ... two tender offers pursuant to which we acquired 30 million tendered shares of our common stock at a purchase price of $22.00 per share and 25 million tendered shares of our common stock at $29.00 per share, for a total cost of $1.4 billion plus fees and expenses relating to the tender offers. We...

  • Page 103
    ... with the reorganization of our business around our global brands, and the resulting centralization of locations and brand management, marketing and administrative personnel as well as certain customer operations centers, we recognized $34 million in restructuring charges during the year ended...

  • Page 104
    ...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 105
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) acquisition of the subsidiary. We recorded $12 million to other, net for taxes remitted on airline ticket sales prior to the acquisition and total interest earned on all underlying tax remittances. NOTE 14 - Commitments and ...

  • Page 106
    ..., the California Superior Court for Orange County determined we are not required to make a payment in order to litigate in Anaheim, California. Class Action Lawsuit. We are a defendant in a class action lawsuit filed in Seattle, Washington alleging that certain practices related to our service fees...

  • Page 107
    ... our reportable segments. We include these expenses in Corporate and Eliminations. Our Leisure segment provides a full range of travel and advertising services to our worldwide customers through a variety of brands including: Expedia.com and hotels.com in the United States and localized Expedia F-35

  • Page 108
    ...Notes to Consolidated Financial Statements - (Continued) and hotels.com websites throughout the world, Expedia Affiliate Network, Hotwire.com, Venere, eLong and Classic Vacations. Our TripAdvisor Media Network segment provides advertising services to travel suppliers on its websites, which aggregate...

  • Page 109
    Expedia, Inc. Notes to Consolidated Financial Statements - (Continued) Year ended December 31, 2008 TripAdvisor Corporate & Media Network Egencia Eliminations (In thousands) Leisure Total Third-party revenue ...$2,626,814 Intersegment revenue ...- Revenue ...$2,626,814 Operating Income Before ...

  • Page 110
    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, 2009, 2008 and 2007: 2009 Year Ended December 31, 2008 2007 (In thousands...

  • Page 111
    ... table presents the changes in our valuation and qualifying accounts. Other reserves primarily include our accrual of 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. Description Balance...

  • Page 112
    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, 2009 Revenue ...Operating income ...Net income ...

  • Page 113
    ... (In thousands) Revenue ...$ Costs and expenses: Cost of revenue ...Selling and marketing ...Technology and content ...General and administrative ...Amortization of intangible assets ...Occupancy tax assessments and legal reserves ...Restructuring charges ...Operating income ...Other income...

  • Page 114
    ... Costs and expenses: Cost of revenue ...Selling and marketing ...Technology and content ...General and administrative ...Amortization of intangible assets ...Impairment of goodwill ...Impairment of intangible and other long-lived assets ...Operating loss ...Other income (expense): Equity in pre-tax...

  • Page 115
    ...) Revenue ...$ Operating expenses: Cost of revenue ...Selling and marketing ...Technology and content ...General and administrative ...Amortization of intangible assets ...Operating income ...Other income (expense): Equity in pre-tax earnings of consolidated subsidiaries ...Other, net ...Total...

  • Page 116
    ... Financial Statements - (Continued) CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2009 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries (In thousands) Eliminations Consolidated Total current assets ...Investment in subsidiaries ...Intangible assets, net ...Goodwill ...Other assets, net...

  • Page 117
    ... investments ...Acquisitions, net of cash acquired ...Other, net ...Net cash used in investing activities ...Financing activities: Credit facility repayments ...Transfers (to) from related parties ...Other, net ...Net cash used in financing activities ...Effect of exchange rate changes on cash and...

  • Page 118
    ...: Net cash provided by operating activities ...Investing activities: Capital expenditures, including internal-use software and website development ...Acquisitions, net of cash acquired ...Purchase of short-term investments ...Net settlement of foreign currency forwards ...Reclassification of Reserve...

  • Page 119
    ..., including internal-use software and website development ...Other, net ...Net cash used in investing activities ...Financing activities: Borrowings on credit facility ...Repayments on credit facility ...Treasury stock activity ...Transfers (to) from related parties ...Excess tax benefit on equity...

  • Page 120
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 121
    ... and The Bank of New York, as equity warrant agent. 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.'s 7.456% Senior Notes...

  • Page 122
    ... and J.P. Morgan Europe Limited, as London Agent. 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., a Delaware corporation, as...

  • Page 123
    ...Form Incorporated by Reference SEC File No. Exhibit Filing Date 10.14* 10.15* 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* Amended and Restated Expedia, Inc. Non-Employee Director Deferred Compensation Plan, effective as of January 1, 2009...

  • Page 124
    ...Registered Public Accounting Firm Certifications of the Chairman and Senior Executive Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer pursuant...

  • Page 125
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 126
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 127
    Cert no. SCS-COC-000648

  • Page 128