Expedia 2009 Annual Report Download - page 23

Our effective tax rate is impacted by a number of factors that could have a material impact on our
financial results and could increase the volatility of those results.
Due to the global nature of our business, we are subject to income taxes in the United States and many
different countries. Significant judgment is required in determining our worldwide provision for income taxes. In
the ordinary course of our business, there are many transactions and calculations where the ultimate tax
determination is uncertain. We regularly are under audit by tax authorities. Although we believe our tax estimates
are reasonable, the final determination of tax audits could be materially different from our historical income tax
provisions and accruals. The results of an audit could have a material effect on our financial position, results of
operations, or cash flows in the period or periods for which that determination is made. In addition, there have
been proposals to amend U.S. tax laws that would significantly impact how U.S. companies are taxed on foreign
earnings. We are earning an increasing portion of our income in foreign countries. Although we cannot predict
whether or in what form this proposed legislation will pass, if enacted, it could have a material adverse impact on
our tax expense and cash flow.
System interruption and the lack of redundancy in our information systems may harm our businesses.
We rely on computer systems to facilitate and process transactions. We have experienced and may in the
future experience system interruptions that make some or all of these systems unavailable or prevent us from
efficiently fulfilling orders or providing services to third parties. Any interruptions, outages or delays in our
systems, or deterioration in their performance, could impair our ability to process transactions and decrease our
quality of service that we can offer to our travelers. These interruptions could include security intrusions and
attacks on our systems for fraud or service interruption (called “denial of service” or “bot” attacks). If we were to
experience frequent or persistent system failures, our reputation and brands could be harmed.
In addition, we do not have backup systems or contingency plans for certain critical aspects of our
operations or business processes, many other systems are not fully redundant and our disaster recovery or
business continuity planning may not be sufficient. Fire, flood, power loss, telecommunications failure, break-
ins, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical break-ins, electronic intrusion
attempts from both external and internal sources and similar events or disruptions may damage or impact or
interrupt computer or communications systems or business processes at any time. Although we have put
measures in place to protect certain portions of our facilities and assets, any of these events could cause system
interruption, delays and loss of critical data, and could prevent us from providing services to our travelers and/or
third parties for a significant period of time. Remediation may be costly and we may not have adequate insurance
to cover such costs. Moreover, the costs of enhancing infrastructure to attain improved stability and redundancy
may be time consuming and expensive and may require resources and expertise that are difficult to obtain.
Intense competition for advertising revenue may adversely affect our ability to achieve or maintain
market share 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 have significantly greater financial, technical,
marketing and other resources and large client bases. We also compete with search engines like Google, Bing and
Yahoo! Search that offer pay-per-click advertising services. In addition, we compete with newspapers, magazines
and other traditional media companies that provide offline and online advertising opportunities. We expect to
face additional competition as other established and emerging companies, including print media companies, enter
the online advertising market. Competition could result 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, our business could be materially
adversely affected. In addition, the TripAdvisor Media Network is increasingly reliant on natural and paid search
traffic from major search engines, whose per unit costs have been increasing. Finally, to the extent Google, Bing
and other leading search engines attempt to more directly appeal to travel consumers by supporting transactions
within their own websites or referring those leads to suppliers directly, that could have a meaningfully adverse
impact on our advertising businesses.
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