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ANNUAL REPORT | 2012

Table of contents

  • Page 1
    ANNUAL REPORT | 201 2

  • Page 2
    ... herein and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may impact future results. The logos on the front cover are service marks or trademarks of Expedia, Inc. and/or its affiliated companies.

  • Page 3
    ... 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, $0.0001 par value The Nasdaq Global Select Market Securities...

  • Page 4

  • Page 5
    ..., Executive Officers and Corporate Governance Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13 Certain Relationships and Related Transactions, and Director Independence Item 14 Principal Accountant Fees and...

  • Page 6

  • Page 7
    ... portfolio - including almost 200,000 hotels in 200 countries, 300 airlines, packages, rental cars, cruises, as well as destination services and activities. Travel suppliers distribute and market products via our sites, our private label business and our call centers in order to reach our extensive...

  • Page 8
    ... with home-based agents and retail locations in the United States and Canada; Egencia®, the world's fifth largest corporate travel management company; eLong™, Inc. ("eLong"), China's second largest online travel company; and Venere.com™, a European online hotel specialist. Summary of the Spin...

  • Page 9
    ... a quick weekend getaway, as well as unmanaged business travelers. Travelers can search for, compare information about (including pricing, availability and traveler reviews) and book travel products and services on Expedia-branded websites, including airline tickets, lodging, car rentals, cruises...

  • Page 10
    ... compensate participants in co-branded and private label programs on a revenue-share basis. We also leverage private label platforms to make Expedia and Hotels.com-branded sites available in certain international points of sale. Egencia. Our full-service travel management company offers travel...

  • Page 11
    ... half of 2011, followed by the air platform rollout during the first half of 2012, with expectations that the new package platform will be completed in 2013. Global Expansion. Our Expedia, Hotels.com, Egencia, EAN, and Hotwire brands operate both domestically and through international points of sale...

  • Page 12
    ...alone and package basis, primarily through two business models: the merchant model and the agency model. Under both models, we facilitate the booking of hotel rooms, airline seats, car rentals and destination services from our travel suppliers. Under the merchant model, we are the merchant of record...

  • Page 13
    ...package product to continue to be marketed using the merchant model even with the planned global roll-out of the ETP program. Relationships with Travel Partners Overview. We make travel products and services available from a variety of hotel companies, large and small commercial airlines, car rental...

  • Page 14
    ...Expedia or Hotels.com co-branded offering or a private label website. Our EAN business provides our affiliates with technology and access to a wide on range of products and services. We manage agreements with thousands of third-party affiliate partners, including a number of leading travel companies...

  • Page 15
    ... of air transportation, including those relating to advertising and accessibility. As we continue to expand the reach of our brands into the European, Asia-Pacific and other international markets, we are increasingly subject to laws and regulations applicable to travel agents or tour operators in...

  • Page 16
    ... Additional Information Company Website and Public Filings. We maintain a corporate website at www.expediainc.com. Except as explicitly noted, the information on our website, as well as the websites of our various brands and businesses, is not incorporated by reference in this Annual Report on Form...

  • Page 17
    ... and search companies, travel metasearch engines, traditional travel agencies, wholesalers and tour operators, travel content sites and mobile applications including traveler review sites, operators of travel industry reservation databases, and private shopping websites. Online travel agencies: We...

  • Page 18
    ... supplier, travel agent and other websites. If these competitors limit our participation within their results, it could affect our traffic-generating arrangements in a negative manner. In addition, some metasearch sites, such as Kayak.com, offer users the ability to make hotel reservations directly...

  • Page 19
    ... long-term airline and hotel contracts. No assurances can be given that travel suppliers or GDS partners will not further reduce or eliminate compensation, attempt to implement multiple costly direct connections, charge travel agencies for or otherwise restrict access to content, credit card fees...

  • Page 20
    ...to migrate key portions of our consumer, affiliate, and corporate travel sites and back office application functionality to new technology platforms to enable us to improve conversion, introduce innovation more rapidly, achieve better search engine optimization and improve our site merchandising and...

  • Page 21
    ... our supplier partners and customers, as well as limiting our ability to develop new site innovations. These new initiatives may therefore not be successful and may harm our financial condition and operating results. For example, during 2012 we began implementing the ETP initiative with our hotel...

  • Page 22
    ... to the United States; Our ability to support new technologies, including mobile devices, that may be more prevalent in international markets; Regulatory, contractual and other limitations and costs of operating in international markets as a non-local company; Difficulties in managing staffing and...

  • Page 23
    ... city of San Francisco has also issued additional assessments of tax, penalties and interest for the time period from the fourth quarter of 2007 through the fourth quarter of 2011 against the travel companies, including $22 million against Expedia, Hotels.com and Hotwire. In January 2013, the Hawaii...

  • Page 24
    ..., and Dara Khosrowshahi, our Chief Executive Officer, are critical to the overall management of the company. Our future success will depend on the performance of our senior management and key employees. Expedia cannot ensure that it will be able to retain the services of Mr. Diller, Mr. Khosrowshahi...

  • Page 25
    ...agency credit rating actions or pronouncements; Reaction to our earnings releases and conference calls, or presentations by executives at investor and industry conferences; Changes in our capital structure; Changes in market valuations of other internet or online service companies; Changes in search...

  • Page 26
    ... the United Kingdom. Since July 2012, twenty-one putative class action lawsuits, which refer to the OFT's Statement of Objections, have been initiated in the United States by consumer plaintiffs alleging claims against the online travel companies, including Expedia, and several major hotel chains...

  • Page 27
    ... new payment methods, the emergence of new technology platforms such a smartphones and tablet computers and our expansion into markets with a history of elevated fraudulent activity. If we are unable to effectively combat the use of fraudulent credit cards on our websites, our results of operations...

  • Page 28
    ... such director or officer chooses to direct a corporate opportunity to IAC or TripAdvisor instead of Expedia. We rely on third-parties for many systems and services. We rely on third-party service providers for certain customer care, fulfillment, processing, systems development, technology and other...

  • Page 29
    ... of our exposure to foreign currency exchange rate fluctuations. At the end of the deposit term or upon the maturity of the forward contracts, the counterparties are obligated, or potentially obligated in the case of forward contracts, to return our funds or pay us net settlement values. If any of...

  • Page 30
    ... in some cases the level of future bookings, cancellations, refunds, customer stay patterns and payments in foreign currencies. In addition, an effective exchange rate hedging program is dependent upon effective systems, accurate and reliable data sources, controls and change management procedures...

  • Page 31
    ..., storage, transmission and security of personal information by companies operating over the internet have recently come under increased public scrutiny. The U.S. Congress and federal agencies, including the Federal Trade Commission and the Department of Commerce, are reviewing the need for greater...

  • Page 32
    ...to retain key management or employees; Failure to generate adequate returns on our acquisitions and investments, or returns in excess of alternative uses of capital; Entrance into markets in which we have no direct prior experience and increased complexity in our business; Challenges relating to the...

  • Page 33
    ... of operations based upon the standard set forth in the SEC's rules. Class Action Litigation Consumer Case against Expedia Canada. On June 26, 2009, a class action suit against Expedia Canada Corporation was filed in Ontario, Canada, alleging that disclosures related to "taxes and service fees" were...

  • Page 34
    ... Taxes Actions Filed by Individual States, Cities and Counties 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 and Hotwire. City...

  • Page 35
    ... taxes under the parties' settlement agreement. Plaintiffs have appealed. City of San Diego, California Litigation. On February 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. City...

  • Page 36
    ... Mexico filed a putative statewide class action in state court against a number of internet travel companies, including Hotels.com, Hotwire and Expedia. City of Gallup, New Mexico, et al. v. Hotels.com, L.P., et al., CIV-06-0549 JC/RLP (United States District Court, District of New Mexico). The case...

  • Page 37
    ...a settlement agreement in November 2012. Nassau County, New York Litigation. On October 24, 2006, the county of Nassau, New York filed a putative statewide class action in federal court against a number of internet travel companies, including Hotels.com, Hotwire, and Expedia. Nassau County, New York...

  • Page 38
    ... Goodlettsville and Brentwood, Tennessee filed a putative class action in federal court against a number of internet travel companies, including Expedia, Hotels.com, and Hotwire. City of Goodlettsville and City of Brentwood v. Priceline.com, Inc., et al., 3-08-0561 (United States District Court for...

  • Page 39
    ...'s petition for review of the court of appeal's decision in this case. City of San Francisco, California Litigation. 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...

  • Page 40
    ...decision in the City of Philadelphia litigation. Pine Bluff, Arkansas Litigation. On September 25, 2009, Pine Bluff Advertising and Promotion Commission and Jefferson County filed a class action against a number of online travel companies, including Expedia, Inc., Hotels.com, and Hotwire. Pine Bluff...

  • Page 41
    ...Santa Monica brought suit against a number of internet travel companies, including Hotels.com, Expedia and Hotwire. The city claims that internet travel companies act as independent, nonexclusive sales agents for hotels and thus are obligated to collect and remit occupancy tax on their services. The...

  • Page 42
    ... Litigation. On December 21, 2010, Montgomery County filed suit against a number of online travel companies, including Hotels.com, Expedia and Hotwire. Montgomery County, Maryland v. Priceline.com, Inc., et al., Case No. 8:10-cv-03558-AW (United States District Court for the Northern District of...

  • Page 43
    ... proceedings relating to hotel occupancy taxes lack merit and will continue to defend vigorously against them. Actions Filed by Expedia New York City Litigation. On December 21, 2009, Expedia, Hotels.com, Hotwire and other online travel companies brought suit against the city of New York Department...

  • Page 44
    November 20, 2012, the New York Court of Appeals granted the city's motion. The city's appeal of the Appellate Division's ruling remains pending. Broward County, Florida Litigation. On January 12, 2009, Expedia, Hotels.com, and Hotwire filed separate actions against Broward County, Florida and the ...

  • Page 45
    ...31, 2012, Expedia, Hotels.com, Hotwire and other online travel companies and the Hawaii Director of Taxation filed cross motions for summary judgment. On October 22, 2012, the court held that Transient Accommodation Taxes are not due on the online travel companies' services. The State filed a motion...

  • Page 46
    .... United States Hotel Booking Litigation. Since August 20, 2012, thirty-two putative class action lawsuits, which refer to the OFT's Statement of Objections, have been initiated in the United States by consumer plaintiffs alleging claims against the online travel companies, including Expedia, and...

  • Page 47
    ... and low prices per share of EXPE common stock have been adjusted to reflect the impact of the one-for-two reverse stock split of EXPE's common stock and Class B common stock and the spinoff, both of which were completed after the close of trading on December 20, 2011. The adjusted stock prices were...

  • Page 48
    ... Securities A summary of the repurchase activity for the fourth quarter of 2012 is as follows: Total Number of Shares Purchased as Part of Publicly Announced Total Number of Average Price Plans or Shares Purchased Paid Per Share Programs (In thousands, expect per share data) Maximum Number of Shares...

  • Page 49
    Performance Comparison Graph The graph shows a five-year comparison of cumulative total return, calculated on a dividend reinvested basis, for Expedia common stock, the NASDAQ Composite Index, the RDG (Research Data Group) Internet Composite Index and the S&P 500. The graph assumes an investment of ...

  • Page 50
    ... DATA 2012 Year Ended December 31,(1) 2011 2010 2009 (in thousands, except per share data) 2008(2) Consolidated Statements of Operations Data: Revenue Operating income (loss) Net income (loss) from continuing operations Discontinued operations, net of taxes Net income (loss) attributable to Expedia...

  • Page 51
    ... per share prices have been adjusted to reflect the reverse stock split. (2) The year ended December 31, 2008 includes an approximately $3 billion impairment charge related to goodwill, intangible and other long-lived assets, of which $282 million has been attributed to our discontinued operation...

  • Page 52
    ... 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...

  • Page 53
    ...with the legacy online travel agency companies. In addition, models, such as daily deals and private sale sites have also begun proliferating. We have a number of "daily deals" offered on our retail websites as well as a partnership with Groupon called Groupon Getaways with Expedia. Finally, we have...

  • Page 54
    ... half of 2011, followed by the air platform rollout during the first half of 2012, with expectations that the new package platform will be completed in 2013. Global Expansion. Our Expedia, Hotels.com, Egencia, EAN, and Hotwire brands operate both domestically and through international points of sale...

  • Page 55
    ... launching additional points of sale in new countries, introducing new website features, adding supplier products and services including new business model offerings, as well as proprietary and user-generated content for travelers. Our scale of operations enhances the value of technology innovations...

  • Page 56
    ... Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. Expedia Rewards enables participating travelers to earn points on all hotel, flight, package and activities made on Expedia.com. As travelers accumulate points towards free travel products, we record...

  • Page 57
    ... publicly traded firms in similar lines of business. Our significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating...

  • Page 58
    ... 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 calculate the tax recovery charge by applying the occupancy tax rate supplied to us by the hotels to the amount that the hotel has agreed to receive for the rental...

  • Page 59
    ...-line basis. The BlackScholes model requires various highly judgmental assumptions including volatility and expected option term. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ materially in the future from that recorded...

  • Page 60
    ... the online travel companies' motion to dismiss the county's complaint and dismissed the case. New York City Litigation. On November 20, 2012, the New York Court of Appeals granted the city's motion for leave to appeal the Appellate Division's order holding that hotel room occupancy taxes passed on...

  • Page 61
    ... United States and localized Expedia and Hotels.com websites throughout the world, Expedia Affiliate Network, Hotwire.com, Venere, eLong and Classic Vacations. Our Egencia segment provides managed travel services to corporate customers in North America, Europe, and the Asia Pacific region. Operating...

  • Page 62
    ... revenue, other than hotel and air discussed above, which includes car rental, advertising and media, destination services and fees related to our corporate travel business, increased by 20% in 2012 as compared to 2011, primarily through strong growth in corporate travel fees primarily due to the...

  • Page 63
    ... due to growth in our corporate travel business and agency hotel business, partially offset by a decline in agency air revenue. Cost of Revenue Year ended December 31, 2012 2011 2010 ($ in millions) % Change 2012 vs 2011 2011 vs 2010 Customer operations Credit card processing Data center and other...

  • Page 64
    ... and stock-based compensation. The year-over-year increase in technology and content expense of $104 million in 2012 and $72 million in 2011 was primarily due to higher personnel costs for additional headcount to support key technology project for our corporate technology function, Brand Expedia and...

  • Page 65
    ...as described above, including the Hawaii tax assessments in the current period, partially offset by the growth in revenue. In 2011, operating income decreased primarily due to increased costs and expenses including a growth in selling and marketing expense, technology and content expense and general...

  • Page 66
    ..., as well as the release of a valuation allowance related to foreign deferred tax assets. The change in the effective rate for 2012 compared to 2011 primarily related to an increase in earnings as a percentage of total earnings in jurisdictions outside the United States as well the release of the...

  • Page 67
    ... permissible leverage ratio. The revolving credit facility bears interest based on the Company's credit ratings, with drawn amounts bearing interest at LIBOR plus 150 basis points, and the commitment fee on undrawn amounts at 20 basis points as of December 31, 2012. The indenture governing our $400...

  • Page 68
    ... started introducing new technology to our hotel supply partners, which will enable closer integration of the agency hotel model with our core merchant offering in the United States and Europe. Depending on relative traveler and supplier and traveler adoption rates and customer payment preferences...

  • Page 69
    ... December 31, $ Change 2012 2011 2010 2012 vs 2011 2011 vs 2010 (In millions) Cash provided by (used in) continuing operations: Operating activities Investing activities Financing activities Net cash provided by (used in) discontinued operations Effect of foreign exchange rate changes on cash and...

  • Page 70
    ... 5, 2013. Our annual common stock dividend was $0.96 per share for 2012, including the special cash dividend of $0.52 per share declared and paid in December 2012, and $0.56 per share for 2011 and 2010, which has been adjusted for the one-for-two reverse stock split on December 20, 2011. See Note 12...

  • Page 71
    ...of our packaged travel services sold within those countries. These countries hold all travel agents and tour companies to the same standard. Our guarantees also include certain surety bonds related to various company performance obligations. (5) Excludes $102 million of unrecognized tax benefits for...

  • Page 72
    ...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 transacting in foreign currency and recording the activity in U.S. dollars. Changes...

  • Page 73
    ... impact to us of foreign currency exchange rate movements is linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing and operating strategies. Part II. Item 8. Consolidated Financial...

  • Page 74
    ... Commission. Based on this evaluation, management has concluded that, as of December 31, 2012, the Company's internal control over financial reporting was effective. Management has reviewed its assessment with the Audit Committee. Ernst & Young, LLP, an independent registered public accounting...

  • Page 75
    .... In our opinion, Expedia, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the...

  • Page 76
    ... relating to our 2013 annual meeting of stockholders (the "2013 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, 2012. Part III. Item 10. Directors, Executive Officers and Corporate Governance...

  • Page 77
    ..., 2011, between Expedia, Inc. and Mellon Investor Services LLC, 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...

  • Page 78
    ...Morgan Europe Limited, as London Agent. First Amendment dated August 18, 2010 to Credit Agreement dated February 8, 2010 Second Amendment dated August 31, 2011 to Credit Agreement dated February 8, 2010 Third Amendment dated November 8, 2012 to Credit Agreement dated February 8, 2010 Office Building...

  • Page 79
    ... Reference SEC File No. Exhibit Filing Date 10.13* Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan 10.14* Amended and Restated Expedia, Inc. Non-Employee Director Deferred Compensation Plan, effective as of January 1, 2009 10.15* Form of Expedia, Inc. Restricted Stock Unit...

  • Page 80
    ...No. Exhibit Description Filed Herewith Form Incorporated by Reference SEC File No. Exhibit Filing Date 10.27* Amended and Restated Employment Agreement between Dhiren R. Fonseca and Expedia, Inc., effective as of March 30, 2012 10.28* Executive Separation and Release of Claims Agreement between...

  • Page 81
    ... by Reference SEC File No. Exhibit Filing Date 32.3 Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 X 101** The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, 2012, formatted...

  • Page 82
    ... its behalf by the undersigned hereunto duly authorized. Expedia, Inc. By: /s/ DARA KHOSROWSHAHI Dara Khosrowshahi Chief Executive Officer February 5, 2013 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 83
    ... AND EXHIBITS Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements...

  • Page 84
    ... audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Expedia, Inc.'s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 85
    ... Statements EXPEDIA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, 2012 2011 2010 (In thousands, except for per share data) Revenue Costs and expenses: Cost of revenue (1) Selling and marketing (including $205,027, $211,018, and $171,110 with a related party)(1) Technology and...

  • Page 86
    EXPEDIA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended December 31, 2012 2011 2010 (In thousands) Net income Other comprehensive income (loss), net of tax Currency translation adjustments and other Unrealized gains (losses) on available for sale securities, net of taxes Other ...

  • Page 87
    ... Deferred merchant bookings Deferred revenue Accrued expenses and other current liabilities Current liabilities of discontinued operations Total current liabilities Long-term debt Deferred income taxes, net Other long-term liabilities Commitments and contingencies Stockholders' equity: Common stock...

  • Page 88
    ...comprehensive income: Currency translation adjustments Unrealized loss on securities available for sale Proceeds from exercise of equity instruments Tax benefits on equity awards Treasury stock activity related to vesting of equity instruments Common stock repurchases Cash dividends paid Spin-off of...

  • Page 89
    ... interest) Components of comprehensive income: Currency translation adjustments and other Unrealized gain on securities available for sale Proceeds from exercise of equity instruments 12,877,312 Tax benefits on equity awards Treasury stock activity related to vesting of equity instruments Common...

  • Page 90
    ... internal-use software and website development Amortization of stock-based compensation Amortization of intangible assets Deferred income taxes Foreign exchange (gain) loss on cash, cash equivalents and short-term investments, net Realized (gain) loss on foreign currency forwards Other Changes...

  • Page 91
    ... Expedia.com®, Hotels.com®, Hotwire.com™, Expedia® Affiliate Network, Classic Vacations, Expedia Local Expert, Egencia™, Expedia® CruiseShipCenters®, eLong™, Inc. ("eLong") and Venere Net SpA ("Venere"). In addition, many of these brands have related international points of sale. We refer...

  • Page 92
    ...; recoverability of current and long-lived assets, intangible assets and goodwill; income and transactional taxes, such as potential settlements related to occupancy and excise taxes; loss contingencies; loyalty program liabilities; stock-based compensation and accounting for derivative instruments...

  • Page 93
    ...package basis primarily through the following 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...

  • Page 94
    ... of the advertising contract. We record revenue from clickthrough fees charged to our travel partners for traveler leads sent to the travel partners' websites. We record revenue from click-through fees after the traveler makes the click-through to the related travel partners' websites. Other. We...

  • Page 95
    ... publicly traded firms in similar lines of business. Our significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating...

  • Page 96
    ... complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. We...

  • Page 97
    ... for speculative or trading purposes. Foreign Currency Translation and Transaction Gains 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...

  • Page 98
    ... Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. Expedia Rewards enables participating travelers to earn points on all hotel, flight, package and activities made on Expedia.com. As travelers accumulate points towards free travel products, we record...

  • Page 99
    ... of RSUs at fair value based on the number of shares granted and the quoted price of our common stock at the date of grant. We amortize the fair value, net of estimated forfeitures, as stock-based compensation expense over the vesting term on a straight-line basis. We record RSUs that may be settled...

  • Page 100
    ... on relationships with travel suppliers, primarily airlines and hotels, dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud. We also rely on global distribution system partners and third-party service providers for certain...

  • Page 101
    ... 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 calculate the tax recovery charge by applying the occupancy tax rate supplied to us by the hotels to the amount that the hotel has agreed to receive for the rental...

  • Page 102
    ... a result of the spin-off was recorded as discontinued operations. See below for a full description of the extinguishment. Financial data for the discontinued operations for the years ended December 31, 2012, 2011, 2010 were as follows: 2012 Year ended December 31, 2011 2010 (In thousands) Revenue...

  • Page 103
    ... Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input. F-21

  • Page 104
    ... of travel services in that country. Of the total time deposit investments, $274 million and $237 million as of December 31, 2012 and 2011 related to balances held by our majority-owned subsidiaries. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures...

  • Page 105
    ... intangible assets with definite lives as of December 31, 2012 and 2011: December 31, 2012 Accumulated Amortization December 31, 2011 Accumulated Amortization Cost Net Cost (In thousands) Net Supplier relationships Technology Customer lists Affiliate agreements Other Total $282,884 209,901 109...

  • Page 106
    ... on our long-term revolving credit facility described below in the event the 7.456% Notes were redeemed at the option of the holders. Separately from the holder option, at any time Expedia may redeem the 7.456% Notes at a redemption price of 100% of the principal plus accrued interest, plus a "make...

  • Page 107
    ...our international employees. Our contributions to these benefit plans were $22 million, $18 million and $12 million for the years ended December 31, 2012, 2011 and 2010. NOTE 10 - Stock-Based Awards and Other Equity Instruments Pursuant to the Amended and Restated Expedia, Inc. 2005 Stock and Annual...

  • Page 108
    ...of Expedia common stock and a warrant to purchase shares of TripAdvisor common stock. The adjustments made in 2011 to the number of shares subject to each option and the option exercise prices were based on the relative market capitalization of Expedia and TripAdvisor as of the date of the spin-off...

  • Page 109
    ... compensation. The fair value of stock options granted during the years ended December 31, 2012, 2011 and 2010 were estimated at the date of grant using the Black-Scholes option-pricing model, assuming the following weighted average assumptions: 2012 2011 2010 Risk-free interest rate Expected...

  • Page 110
    ... Executive Officer, for which vesting was tied to achievement of performance targets. These awards vested and released during 2012. In 2012, 2011 and 2010, we recognized total stock-based compensation expense of $65 million, $64 million and $53 million. The total income tax benefit related to stock...

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    During 2012, we issued 8.0 million shares of Expedia, Inc. common stock as a result of the exercise of 32 million privately held warrants at a weighted average exercise price of $23.91 for total proceeds to the Company of approximately $191 million. As of December 31, 2012, we did not have any ...

  • Page 112
    ...31, 2012 2011 (In thousands) Deferred tax assets: Provision for accrued expenses Occupancy tax reserve Net operating loss and tax credit carryforwards Stock-based compensation Other Total deferred tax assets Less valuation allowance Net deferred tax assets Deferred tax liabilities: Prepaid merchant...

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    ...as follows: Year Ended December 31, 2012 2011 (In thousands) 2010 Income tax expense at the federal statutory rate of 35% Foreign rate differential State income taxes, net of effect of federal tax benefit Unrecognized tax benefits and related interest Change in valuation allowance Other, net Income...

  • Page 114
    ...' Equity All Expedia's common stock information and related share prices included in this note have been adjusted to reflect our one-for-two reverse stock split in December 2011. Common Stock and Class B Common Stock Our authorized common stock consists of 1.6 billion shares of common stock with par...

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    ...Dividends on our Common Stock In 2012, 2011 and 2010, the Executive Committee, acting on behalf of the Board of Directors, declared the following dividends, which have been adjusted for the one-for-two reverse stock split in December 2011: Declaration Date Dividend Per Share Record Date Total Amount...

  • Page 116
    ... changes in the components of other comprehensive income (loss), net of tax: For the Year Ended December 31, 2012 2011 (In thousands) 2010 Net income Other comprehensive income (loss) Currency translation adjustments and other Unrealized gains (losses) on available for sale securities, net of taxes...

  • Page 117
    ... stock-based commitments. All 2011 share information has been adjusted to reflect Expedia's one-for-two reverse stock split in December 2011. The following table presents our basic and diluted earnings per share: Year Ended December 31, 2012 2011 2010 (In thousands, except per share data) Income...

  • Page 118
    ... above. There were no claims made against any stand-by LOCs during the years ended December 31, 2012, 2011 and 2010. Lease Commitments We have contractual obligations in the form of operating leases for office space and related office equipment for which we record the related expense on a monthly...

  • Page 119
    ... for the potential settlement of issues related to hotel occupancy taxes, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of $35 million as of December 31, 2012 and $32 million as of December 31, 2011. This reserve is based on our...

  • Page 120
    ...online travel companies' motion to dismiss these claims. Trial on any remaining issues is scheduled for April 13, 2013. Matters Relating to Hotel Booking Practices. On July 31, 2012, the United Kingdom Office of Fair Trading ("OFT") issued a Statement of Objections alleging that Expedia, Booking.com...

  • Page 121
    ... 20, 2012, thirty-two putative class action lawsuits, which refer to the OFT's Statement of Objections, have been initiated in the United States by consumer plaintiffs alleging claims against the online travel companies, including Expedia, and several major hotel chains for alleged resale price...

  • Page 122
    ...: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Expedia Affiliate Network, Hotwire.com, Venere, eLong and Classic Vacations. Our Egencia segment provides managed travel services to corporate customers in North America, Europe...

  • Page 123
    ...614,118) Leisure Year ended December 31, 2011 Egencia Corporate (In thousands) Total Revenue Adjusted EBITDA Depreciation Amortization of intangible assets Stock-based compensation Legal reserves, occupancy tax and other Realized loss on revenue hedges Operating income (loss) Other expense, net...

  • Page 124
    ... a result of these changes. Geographic Information The following table presents revenue by geographic area, the United States and all other countries, based on the geographic location of our websites or points of sale for the years ended December 31, 2012, 2011 and 2010: 2012 Year Ended December 31...

  • Page 125
    ...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. Balance of Beginning...

  • Page 126
    ... may not equal the total computed for the year. In addition, for 2011, the per share information attributable to Expedia, Inc. common shareholders reflects the one-for-two reverse stock split in connection with the spin-off. NOTE 20 - Guarantor and Non-Guarantor Supplemental Financial Information...

  • Page 127
    ...as of December 31, 2011. CONDENSED CONSOLIDATING STATEMENT OF OPERATION Year Ended December 31, 2012 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries (In thousands) Eliminations Consolidated Revenue Costs and expenses: Cost of revenue Selling and marketing Technology and content General and...

  • Page 128
    ... Cost of revenue Selling and marketing Technology and content General and administrative Amortization of intangible assets Legal reserves, occupancy tax and other Intercompany (income) expense, net Operating income Other income (expense): Equity in pre-tax earnings of consolidated subsidiaries Other...

  • Page 129
    ... Cost of revenue Selling and marketing Technology and content General and administrative Amortization of intangible assets Legal reserves, occupancy tax and other Intercompany (income) expense, net Operating income Other income (expense): Equity in pre-tax earnings of consolidated subsidiaries Other...

  • Page 130
    ...2012 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries (In thousands) Eliminations Consolidated ASSETS Total current assets Investment in subsidiaries Intangible assets, net Goodwill Other assets, net TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Total current liabilities Long... 2011 ...

  • Page 131
    ... expenditures, including internal-use software and website development Purchases of investments Sales and maturities of investments Acquisitions, net of cash acquired Other, net Net cash used in investing activities from continuing operations Financing activities: Treasury stock activity Payment of...

  • Page 132
    ... software and website development Purchases of investments Sales and maturities of investments Other, net Net cash used in investing activities from continuing operations Financing activities: Treasury stock activity Payment of dividends to stockholders Purchase of additional interests in controlled...

  • Page 133
    ... internal-use software and website development Purchases of investments Sales and maturities of investments Other, net Net cash used in investing activities from continuing operations Financing activities: Proceeds from issuance of long-term debt, net of issuance costs Treasury stock activity...

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    ....computershare.com/ investor/Contact vestor/C Computershare Toll Free Number 866-202-9254 Independent Registered Public Accounting Firm Ernst & Young LLP 999 Third Avenue Suite 3500 Seattle, WA 98104 Investor Inquiries All inquiries can be directed as follows: (425) 679-3555 [email protected] Corporate...

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