Expedia 2009 Annual Report Download - page 107

Download and view the complete annual report

Please find page 107 of the 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

Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)
plaintiffs’ motion for summary judgment on their Consumer Protection Act claim. The court concluded that the
damages for the alleged breach were approximately $185 million. We have entered into a Settlement Agreement
providing for the settlement of all claims alleged in the lawsuit. The Settlement Agreement was approved by the
court on December 1, 2009. The court’s order approving the Settlement Agreement has been appealed by third
parties. We have denied and continue to deny all of the allegations and claims asserted in the lawsuit, including
claims that the plaintiffs have suffered any harm or damages. We do not admit liability or the truth of any of the
allegations in the lawsuit and are settling the case to avoid costly and time-consuming litigation. We have
estimated the range of possible loss associated with the settlement to be $19 million to $134 million and have
$19 million accrued as of December 31, 2009, our best estimate of the low end of the range of the probable costs
associated with the settlement. The terms of the Settlement Agreement provided the class members the option to
elect settlement in cash. For those not electing cash, amounts will be settled in coupons. The period during which
to make this election ended on January 1, 2010. The $19 million settlement liability includes an estimated
coupon redemption rate. Any difference between our estimated redemption rate and the actual redemption rate
we experience will impact the final settlement amount; however, we do not expect this difference to be material.
NOTE 15 — Related Party Transactions
In connection with the Spin-Off, we entered into various agreements with IAC, a related party due to
common ownership, to provide for an orderly transition and to govern our ongoing relationships with IAC. These
agreements include, among others, a separation agreement, a tax sharing agreement, an employee matters
agreement and a transition services agreement.
In addition, in conjunction with the Spin-Off, we entered into a joint ownership and cost sharing agreement
with IAC, under which IAC transferred to us 50% ownership in an airplane, which is available for use by both
companies. We share equally in capital costs; operating costs are pro-rated based on actual usage. In May 2006,
the airplane was placed in service and is being depreciated over 10 years. As of December 31, 2009 and 2008, the
net basis in our ownership interest was $17 million and $18 million recorded in long-term investments and other
assets. In 2009 and 2008, operating and maintenance costs paid directly to the jointly-owned subsidiary for the
airplane were nominal.
On August 20, 2008, IAC completed its plan to separate into five publicly traded companies. With this
separation, our related party transactions with the newly constituted IAC have been immaterial and we expect
this trend to continue on a go-forward basis.
NOTE 16 — Segment Information
Beginning in the first quarter of 2009, we have three reportable segments: Leisure, the TripAdvisor Media
Network and Egencia. The change from two reportable segments, North America and Europe, was a result of the
reorganization of our business around our global brands. 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
(“OIBA”). OIBA for our Leisure and Egencia segments includes allocations of certain expenses, primarily cost
of revenue and facilities, and our Leisure segment includes the total costs of our Partner Services Group. 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 such as accounting, human resources,
information technology and legal to 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