Expedia 2012 Annual Report Download - page 27

access, or deterioration in the performance of such systems, would 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, 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.
Provisions in certain credit card processing agreements could adversely affect our liquidity and
financial positions.
We have agreements with companies that process customer credit card transactions for the facilitation of
customer bookings of travel services from our travel suppliers. These agreements allow these processing
companies, under certain conditions, to hold an amount of our cash (referred to as a “holdback”) or require us to
post a letter of credit equal to a portion of bookings that have been processed by that company. These processing
companies may be entitled to a holdback upon the occurrence of specified events, including material adverse
changes in our financial condition, or for certain companies, at their discretion. An imposition of a holdback by
one or more of our processing companies could materially reduce our liquidity.
We may also be held liable for accepting fraudulent credit cards on our websites or other payment disputes
with our customers. Accordingly, we calculate and record an allowance for the resulting credit card charge backs.
Our ability to detect and combat increasingly sophisticated fraudulent schemes may be negatively impacted by
the adoption of 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 and financial
positions could be materially adversely affected.
Mr. Diller currently controls Expedia. If Mr. Diller ceases to control the company, Liberty Interactive
Corporation may effectively control the company.
Subject to the terms of a Stockholders Agreement between Mr. Diller and Liberty Interactive Corporation,
Mr. Diller holds an irrevocable proxy to vote shares of Expedia stock held by Liberty. Accordingly, Mr. Diller
effectively controls the outcome of all matters submitted to a vote or for the consent of our stockholders (other
than with respect to the election by the holders of common stock of 25% of the members of our Board of
Directors and matters as to which Delaware law requires a separate class vote). Upon Mr. Diller’s permanent
departure from Expedia, the irrevocable proxy would terminate and depending on the capitalization of Expedia at
such time, Liberty could effectively control the voting power of our capital stock. Mr. Diller, through shares he
owns beneficially as well as those subject to the irrevocable proxy, controlled approximately 57% of the
combined voting power of the outstanding Expedia capital stock as of December 31, 2012.
In addition, under a Governance Agreement among Mr. Diller, Liberty Interactive Corporation and Expedia,
Inc., as amended, each of Mr. Diller and Liberty generally has the right to consent to limited matters in the event
that we incur debt such that our ratio of total debt to EBITDA, as defined in the Governance Agreement, equals
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