Expedia 2011 Annual Report Download - page 47

Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Expedia, Inc. is an online travel company, empowering business and leisure travelers with the tools and
information they need to efficiently research, plan, book and experience travel. We have created a global travel
marketplace 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 providers, cruise lines and other
travel product and service companies. We also offer travel and non-travel advertisers access to a potential source
of incremental traffic and transactions through our various media and advertising offerings on our transaction-
based websites. For additional information about our portfolio of brands, see the disclosure set forth in Part I,
Item 1, Business, under the caption “Management Overview.”
All percentages within this section are calculated on actual, unrounded numbers.
Summary of the Spin-Off of TripAdvisor, Inc.
On December 6, 2011, our stockholders and Board of Directors approved a spin-off transaction that
separated Expedia, Inc. into two separately traded public companies:
• TripAdvisor, Inc., which includes the domestic and international operations previously associated with
the TripAdvisor Media Group, which includes its flagship brand as well as 18 other travel media
brands, and
• Expedia, Inc., which continues to include the domestic and international operations of our travel
transaction brands including Expedia.com, Hotels.com, eLong, Hotwire, Egencia, Expedia Affiliate
Network, CruiseShipCenters, Venere, Classic Vacations and carrentals.com.
Immediately prior to the spin-off, Expedia affected a one-for-two reverse stock split. The spin-off was
completed following the close of trading on the Nasdaq Stock Market on December 20, 2011.
In connection with the spin-off, we entered into various agreements with TripAdvisor, a related party due to
common ownership, including, among others, a separation agreement, a tax sharing agreement, an employee
matters agreement and a transition services agreement. In addition, we will continue to work together with
TripAdvisor pursuant to various commercial agreements between subsidiaries of Expedia, on the one hand, and
subsidiaries of TripAdvisor, on the other hand. The various commercial agreements, including click-based
advertising agreements, content sharing agreements and display-based and other advertising agreements, have
terms of up to one year. Our Leisure segment recognized approximately $207 million of sales and marketing
expense from TripAdvisor in 2011 through the spin-off date, and $171 million and $140 million of sales and
marketing expense for the years ended December 31, 2010 and 2009. We recorded $4 million to sales and
marketing expense related to these various agreements from December 21, 2011 to December 31, 2011.
Trends
The travel industry, including offline agencies, online agencies and other suppliers of travel products and
services, has historically been characterized by intense competition, as well as rapid and significant change.
Generally, 2011 represented a year of gradual improvement for the travel industry. However, natural disasters,
such as the earthquake and tsunami in Japan, political and social unrest in the Middle East and North Africa, the
rising price of oil, and ongoing sovereign debt and economic issues in several European countries, all contribute
to a somewhat uncertain forward environment for the travel industry.
Online Travel
Increased usage and familiarity with the internet have driven rapid growth in online penetration of travel
expenditures. According to PhoCusWright, an independent travel, tourism and hospitality research firm,
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