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Expedia, Inc.
Notes to Consolidated Financial Statements
NOTE 1 — Organization and Basis of Presentation
Description of Business
Expedia, Inc. and its subsidiaries provide travel products and services to leisure and corporate travelers in
the United States and abroad as well as various media and advertising offerings to travel and non-travel
advertisers. These travel products and services are offered through a diversified portfolio of brands including:
Expedia.com®, hotels.com®, Hotwire.comTM, the TripAdvisor®Media Network, Expedia Affiliate Network
(formerly “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, Inc. and its
subsidiaries collectively as “Expedia,” the “Company,” “us,” “we” and “our” in these consolidated financial
statements.
Spin-Off from IAC/InterActiveCorp
On December 21, 2004, IAC/InterActiveCorp (“IAC”) announced its plan to separate into two independent
public companies. We refer to this transaction as the “Spin-Off.” A new company, Expedia, Inc., was
incorporated under Delaware law in April 2005, to hold substantially all of IAC’s travel and travel-related
businesses. On August 9, 2005, the Spin-Off from IAC was completed and Expedia, Inc. shares began trading on
The Nasdaq Global Select Market (“NASDAQ”) under the symbol “EXPE.”
Basis of Presentation
The accompanying consolidated financial statements include Expedia, Inc., our wholly-owned subsidiaries,
and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash
profits or losses. We record our investments in entities that we do not control, but over which we have the ability
to exercise significant influence, using the equity method. We have eliminated significant intercompany
transactions and accounts.
We believe that the assumptions underlying our consolidated financial statements are reasonable. However,
these consolidated financial statements do not present our future financial position, the results of our future
operations and cash flows.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and services. For
example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan
and book their spring, summer and holiday travel. The number of bookings decreases in the fourth quarter.
Because revenue in the merchant business is generally recognized when the travel takes place rather than when it
is booked, revenue typically lags bookings by several weeks or longer. As a result, revenue is typically the lowest
in the first quarter and highest in the third quarter.
NOTE 2 — Significant Accounting Policies
Consolidation
Our consolidated financial statements include the accounts of Expedia, Inc., our wholly-owned subsidiaries,
and entities for which we control a majority of the entity’s outstanding common stock. We record noncontrolling
interest in our consolidated financial statements to recognize the minority ownership interest in our consolidated
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