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ANNUAL REPORT | 2013

Table of contents

  • Page 1
    ANNUAL REPORT | 201 3

  • 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
    ...shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ' No Í As of June 30, 2013, the aggregate market value of the registrant's common equity held by non-affiliates was approximately $6,478,366,000. For the purpose of the foregoing calculation only, all directors and executive officers...

  • Page 4

  • Page 5
    ... with Accountants on Accounting and Financial Disclosure Item 9A Controls and Procedures Item 9B Other Information Part III Item 10 Directors, Executive Officers and Corporate Governance Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 6

  • Page 7
    ...400 airlines, packages, rental cars, cruises, as well as destination services and activities. Travel suppliers distribute and market products via our traditional desktop offerings, as well as through new distribution channels including mobile and social media, our private label business and our call...

  • Page 8
    Expedia® CruiseShipCenters®, 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; Venere.com™, a European online hotel ...

  • Page 9
    ...arranging 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, 3

  • Page 10
    ... on a revenue or gross profit-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 products and services available to corporations and...

  • Page 11
    .... Expedia's majority-owned online hotel and air travel service company, based in Beijing, China, specializes in travel products and services in China with a particular focus on driving online hotel bookings. eLong uses web-based distribution technologies, mobile apps and websites, and 24-hour call...

  • Page 12
    ... travel products and services available both on a stand-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...

  • Page 13
    ... and small commercial airlines, car rental companies, cruise lines and destination service providers. We seek to build and maintain long-term, strategic relationships with travel suppliers and global distribution system ("GDS") partners. An important component of the success of our business depends...

  • Page 14
    ... corporate travelers, including travel agencies, tour operators, travel supplier direct websites and their call centers, consolidators and wholesalers of travel products and services, search engines, such as Google and Bing, and certain travel meta-search engines. We face these competitors in local...

  • Page 15
    ... from airlines, hotels, rental car companies, cruise operators and other travel service providers, whether working individually or collectively, some of which are suppliers to our websites. Our business is generally sensitive to changes in the competitive landscape, including the emergence of new...

  • Page 16
    ... been applied in the context of online travel companies, so there can be uncertainty regarding how these requirements relate to our various business models. Financial Information about Segments and Geographic Areas We generate our revenue through a diverse customer base, and there is no reliance on...

  • Page 17
    ... competitors, including travel suppliers such as airlines and hotels, may offer products and services on more favorable terms, including lower prices, no fees or unique access to proprietary loyalty programs, such as points and miles. Many of these competitors, such as airlines, hotel and rental car...

  • Page 18
    ... expense management software and services. Some of these competitors may have more financial resources, greater name recognition, well-established client bases, or a broader global presence, which may make it difficult for us to retain or attract new corporate travel clients. Mobile platform travel...

  • Page 19
    ... financial condition and operating results. For example, during 2012, Expedia introduced the ETP program to hotel suppliers in the United States and Europe and is now in the process of rolling the program out globally. ETP offers travelers the choice of whether to pay Expedia at the time of booking...

  • Page 20
    ... access to content, credit card fees or other services, further reduce their ADRs or decide not to make their travel inventory available to us, any of which could reduce our revenue and margins thereby adversely affecting our business and financial performance. For example, a number of airlines...

  • Page 21
    ...share growth of search engines and metasearch engines as destination sites for travelers. For example, during 2013, Booking.com, trivago and TripAdvisor launched offline advertising campaigns in the United States for the first time thus increasing the number of participants in the travel advertising...

  • Page 22
    ..., labor laws and anti-competition regulations; Our ability to comply with additional U.S. laws applicable to U.S. companies operating internationally as well as local laws and regulations; Weaker enforcement of our contractual rights; Lower levels of credit card usage and increased payment and fraud...

  • Page 23
    ... investment, taxation, labor, and foreign currency exchange. In addition, Chinese law restricts foreign investment in areas including air-ticketing, travel agency, internet content provision and telecommunications, and requires certain licenses and permits related to our business to be held by legal...

  • Page 24
    ... on our business and financial performance. The application of various domestic and international transactional taxes such as sales, use, occupancy, value-added, payroll, excise and other tax or unclaimed property laws, rules and regulations to our historical and new products and services is subject...

  • Page 25
    ...rules and regulations or the promulgation of new laws, rules and regulations applicable to us and our businesses, including those relating to travel licensing, the internet and online commerce, internet advertising and price display, consumer protection, competition, and privacy. Unfavorable changes...

  • Page 26
    ... rates, changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process. We are subject to payments-related risks, including credit card fraud. We have agreements with companies that process customer credit card...

  • Page 27
    ...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 28
    ... dependent on several factors, including the rate of growth of our merchant hotel business and the relative growth of businesses which consume rather than generate working capital, such as our agency hotel, advertising and managed corporate travel businesses and payment terms with suppliers. We also...

  • Page 29
    ... our senior management or key employees, the loss of whom could seriously harm our business. Competition for well-qualified employees in certain aspects of our business, including software engineers, developers, product management personnel, development personnel, and other technology professionals...

  • Page 30
    ... through our Expedia Affiliate Network business. We also rely on third-party service providers for certain customer care, fulfillment, processing, systems development, technology and other services, including, increasingly, travel care and information technology services. If these partners or third...

  • Page 31
    ... on foreign subsidiary financial results that are translated into U.S. dollars upon consolidation; fluctuations in hotel revenue due to relative currency movements from the time of booking to the time of stay; planning risk related to changes in exchange rates between the time we prepare our annual...

  • Page 32
    ... of management's attention or other resources from our existing businesses; Difficulties and expenses in assimilating the operations, products, technology, privacy protection systems, information systems or personnel of the acquired company; Impairment of relationships with employees, suppliers and...

  • Page 33
    ... for us to optimally capitalize and manage the cash flow for our businesses; Limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate; Placing us at a competitive disadvantage compared to our competitors that have less debt; and Limiting...

  • Page 34
    ... We also lease approximately 412,000 square feet of office space for our domestic operations in various cities and locations in Arizona, California, Colorado, Florida, Hawaii, Idaho, Illinois, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New York, Texas and Washington DC, pursuant to leases...

  • Page 35
    ...'s rules. Litigation Relating to Hotel Occupancy 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 online travel companies, including...

  • Page 36
    ...On January 3, 2013, plaintiffs filed a Petition for Rehearing and Petition for Rehearing en Banc. 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 online travel companies, including Hotels.com, Hotwire...

  • Page 37
    ... November 19, 2013. 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 online travel companies, including Hotels.com, Hotwire, and Expedia. Nassau County, New York, et al. v. Hotels.com...

  • Page 38
    ... process. 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 Advertising and Promotion Commission...

  • Page 39
    .... On September 19, 2012, the court granted the online travel companies and the Florida Department of Revenue's motions for summary judgment dismissing all claims in the case on the basis that Leon County does not have the right to seek recovery of state sales taxes. On August 16, 2013, the court of...

  • Page 40
    ...a number of online travel companies, including Hotels.com, Expedia and Hotwire. District of Columbia v. Expedia, Inc., et al., Case No. 2011 CA 002117B (Superior Court of the District of Columbia). The complaint includes claims for failure to pay taxes, tax penalties, failure to file monthly returns...

  • Page 41
    ... law claims. City of Columbia, South Carolina, et al. Litigation. On July 26, 2013, the City of Columbia, South Carolina on behalf of itself and other local governments in the state of South Carolina filed a lawsuit in state court against a number of online travel companies, including the Expedia...

  • Page 42
    ... local hotel occupancy or related taxes. 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 of Finance and the city of New York. The complaint asserts two claims...

  • Page 43
    ... 27, 2013, Expedia, Hotels.com, Hotwire and other online travel companies filed a lawsuit in the Oregon Tax Court against the Oregon Department of Revenue. Expedia, Inc. et al. v. Oregon Department of Revenue, Case No. TC 5196 (Oregon Tax Court, September 27, 2013). The complaint asserts claims for...

  • Page 44
    ... to accept transfer and review of the case. On May 20, 2013, the Department issued final assessments against the Expedia subsidiaries, for transient accommodations tax that the state claims are due for the year 2012 totaling $41.7 million. The Department's claim for these subsequent tax amounts has...

  • Page 45
    ... Hawaii tax court. Non-Tax Litigation and Other Legal Proceedings Consumer 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...

  • Page 46
    ... European Union and United Kingdom competition law in relation to the online supply of hotel room accommodations. The Statement of Objections alleges that Expedia and Booking.com entered into separate agreements with IHG that restricted each online travel company's ability to discount the price...

  • Page 47
    ...20, 2012, more than thirty 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 48
    ... Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is quoted on the Nasdaq Global Select Market under the ticker symbol "EXPE." Our Class B common stock is not listed and there is no established public trading market. As of January 24, 2014, there...

  • Page 49
    ... Securities A summary of the repurchase activity for the fourth quarter of 2013 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 50
    ... 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 $100 in each of the above on December 31, 2008. The stock price performance shown in...

  • Page 51
    ... related notes and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. SELECTED FINANCIAL DATA 2013 Year Ended December 31,(1) 2012 2011 2010 (in thousands, except per share data) 2009 Consolidated Statements of Operations Data: Revenue Operating...

  • Page 52
    ... 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...

  • Page 53
    ...our use of these models to continue to evolve. During 2012, Expedia introduced the ETP program to hotel suppliers in the United States and Europe and is now in the process of rolling the program out globally. ETP offers travelers the choice of whether to pay Expedia at the time of booking or pay the...

  • Page 54
    ... when 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. Global Expansion. Our Expedia, Hotels.com, Egencia, EAN...

  • Page 55
    ... the value of technology innovations we introduce on behalf of our travelers and suppliers. We believe that our size and scale affords the company the ability to negotiate competitive rates with our supply partners, provide breadth of choice and travel deals to our traveling customers through an...

  • Page 56
    ... to pay the supplier, based on historical experience and contract terms. Actual revenue could be greater or less than the amounts estimated due to changes in hotel billing practices or changes in traveler behavior. Loyalty Program Accruals We offer certain internally administered traveler loyalty...

  • 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
    ... and localities impose a transient occupancy or accommodation tax on the use or occupancy of hotel accommodations. Generally, hotels collect taxes based on the rate paid to the hotel and remit these taxes to the various tax authorities. When a customer books a room through one of our travel services...

  • Page 59
    ... our businesses are involved in occupancy tax related litigation, which is discussed in Part I, Item 3, Legal Proceedings. Recent occupancy tax developments are also discussed below under the caption "Occupancy Taxes." Stock-Based Compensation Our primary form of employee stock-based compensation is...

  • Page 60
    ...time period before the state enabling statute allowed the city to collect occupancy taxes from the online travel companies. State of Oregon Litigation. The online travel companies filed a lawsuit against the Department of Revenue challenging the application of the state's new hotel occupancy tax law...

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

  • Page 62
    ...our hotel product. The increase in revenue margin related to advertising and media revenue is primarily due to the 2013 acquisition of trivago, a metasearch company, which does not have associated gross bookings. However, trivago is included in revenue used to calculate total revenue margin. Revenue...

  • Page 63
    ...interline booking fees. The remaining worldwide revenue, other than hotel and air discussed above, which includes advertising and media, car rental, destination services and fees related to our corporate travel business, increased by 37% in 2013 as compared to 2012 primarily through strong growth in...

  • Page 64
    ..., private label and affiliate program commissions, public relations and other costs. The remainder of the expense relates to indirect costs, including personnel and related overhead in our various Leisure brands, global supply organization and Egencia as well as stock-based compensation costs...

  • Page 65
    ...consists primarily of personnel-related costs, including our executive leadership, finance, legal and human resource functions as well as fees for external professional services including legal, tax and accounting, and other costs including stock-based compensation. In 2013, the $32 million increase...

  • Page 66
    ... of an employee compensation plan of trivago. For additional information, see Note 3 - Acquisitions in the notes to the consolidated financial statements. Operating Income Year ended December 31, 2013 2012 2011 ($ in millions) % Change 2013 vs 2012 2012 vs 2011 Operating income % of revenue $366...

  • Page 67
    ... to the releasing of a valuation allowance related to foreign deferred tax assets in 2012 as well as non-deductible charges in 2013 in connection with the trivago acquisition and Hawaii pay-to-play assessments mentioned above. In 2013, our effective tax rate was lower than the 35% federal statutory...

  • Page 68
    ... of our markets. If the merchant hotel model declines relative to other business models that generally consume working capital, such as agency hotel, managed corporate travel or advertising, or if there are changes to the merchant model, supplier payment terms, or booking patterns that compress the...

  • Page 69
    ... in the rate of growth in our merchant hotel business compared to the prior year, a working capital detriment due to changes in non-merchant accounts payable as well as an increase in general excise tax assessments and income tax payments. In 2012, net cash provided by operating activities from...

  • Page 70
    ... of Directors. 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, 2013, we did not...

  • Page 71
    ...aviation authority of certain foreign countries to protect against potential non-delivery 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 bonds relating to tax assessments that we...

  • Page 72
    ..., 2013, 2012 or 2011. Foreign Exchange Risk We conduct business in certain international markets, primarily in Australia, Canada, China and the European Union. Because we operate in international markets, we have exposure to different economic climates, political arenas, tax systems and regulations...

  • Page 73
    ... foreign exchange rates, the example loss could be compounded or reduced significantly within a given period. During 2013, 2012 and 2011, we recorded net foreign exchange rate losses of approximately $1 million ($13 million excluding the contracts economically hedging our forecasted merchant revenue...

  • Page 74
    ... 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 firm, has audited the effectiveness of our internal control over financial reporting as...

  • Page 75
    ... is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain...

  • Page 76
    ... Participation," "Compensation Discussion and Analysis," "Compensation Committee Report" and "Executive Compensation" in the 2014 Proxy Statement and incorporated herein by reference. Part III. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...

  • Page 77
    ..., 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, Inc...

  • Page 78
    ..., and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.'s 5.95% Senior Notes due 2020 Amended and Restated Governance Agreement among Expedia, Inc., Liberty Interactive Corporation and Barry Diller, dated as of December 20, 2011 Tax Sharing Agreement by and between...

  • Page 79
    ...Annual Incentive Plan Expedia, Inc. 2013 Employee Stock Purchase Plan Expedia, Inc. 2013 International Employee Stock Purchase Plan Form of Expedia, Inc. Restricted Stock Unit Agreement (Directors) Form of Expedia, Inc. Restricted Stock Unit Agreement (Domestic Employees) Form of Expedia, Inc. Stock...

  • Page 80
    ...Incorporated by Reference SEC File No. Exhibit Filing Date 10.22* Amended and Restated Expedia, Inc. Non-Employee Director Deferred Compensation Plan, effective as of January 1, 2009 Director Compensation Agreements Amended and Restated Expedia, Inc. Executive Deferred Compensation Plan, effective...

  • Page 81
    ... of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of...

  • Page 82
    ... on its behalf by the undersigned hereunto duly authorized. Expedia, Inc. By: /s/ DARA KHOSROWSHAHI Dara Khosrowshahi Chief Executive Officer February 6, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 83
    ... CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES 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...

  • Page 84
    Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Expedia, Inc. We have audited the accompanying consolidated balance sheets of Expedia, Inc. (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, ...

  • Page 85
    Consolidated Financial Statements EXPEDIA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, 2013 2012 2011 (In thousands, except for per share data) Revenue Costs and expenses: Cost of revenue(1) Selling and marketing (including $217,771, $205,027, and $211,018 with a related ...

  • Page 86
    EXPEDIA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended December 31, 2013 2012 (In thousands) 2011 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
    ...' EQUITY Current liabilities: Accounts payable, merchant Accounts payable, other Deferred merchant bookings Deferred revenue Income taxes payable Accrued expenses and other current liabilities Total current liabilities Long-term debt Deferred income taxes Other long-term liabilities Commitments and...

  • Page 88
    ... Treasury stock activity related to vesting of equity instruments Common stock repurchases Cash dividends paid Spin-off of TripAdvisor, Inc. to stockholders Adjustment to the fair value of redeemable noncontrolling interests Changes in ownership of noncontrolling interests Stock-based compensation...

  • Page 89
    ... employee stock purchase plans Tax benefits on equity awards Treasury stock activity related to vesting of equity instruments Common stock repurchases Proceeds from issuance of treasury stock Cash dividends paid Adjustment to the fair value of redeemable noncontrolling interests Changes in ownership...

  • Page 90
    ... revenue Net cash provided by operating activities from continuing operations Investing activities: Capital expenditures, including internal-use software and website development Purchases of investments Sales and maturities of investments Acquisitions, net of cash acquired Net settlement of foreign...

  • Page 91
    .... These travel products and services are offered through a diversified portfolio of brands including: Expedia.com®, Hotels.com®, Hotwire.com™, Expedia® Affiliate Network, Classic Vacations, Expedia Local Expert, Egencia™, Expedia® CruiseShipCenters®, eLong™, Inc. ("eLong"), Venere Net SpA...

  • Page 92
    ..." below for further information. eLong has variable interests in affiliated entities in China in order to comply with Chinese laws and regulations, which restricts foreign investment in the air-ticketing, travel agency and internet content provision businesses. Through a series of contractual...

  • Page 93
    ... travel products and services on a stand-alone and package basis primarily through the following business models: the merchant model, the agency model and the advertising model. Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and destination services...

  • Page 94
    ... on this revenue based on historical experience. Packages. Packages assembled by travelers through the packaging model on our websites generally include a merchant hotel component and some combination of an air, car or destination services component. The individual package components are...

  • Page 95
    ... than the contractual payment terms as past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a specific customer's ability to pay its obligations to us, and the condition of the general...

  • Page 96
    ... 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 97
    ... for book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates...

  • Page 98
    ... 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 99
    ..., which is based on our stock price on the settlement date. Performance-based RSUs vest upon achievement of certain company-based performance conditions. On the date of grant, we determine the fair value of the performance-based award based on the fair value of our common stock at that time and we...

  • 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
    ... million based on March 8, 2013 exchange rates, of which $554 million was paid to the shareholders of trivago and $10 million was used to settle a portion of an employee compensation plan. In addition, we agreed to issue 875,200 shares of Expedia, Inc. common stock to certain employee stockholders...

  • Page 102
    ... from historical results. During 2013, the acquisition accounted for approximately 4% of consolidated revenue for the year. During 2012, we acquired VIA Travel, a travel management company in the Nordics. During 2011, we acquired a number of travel product and service companies. The following table...

  • Page 103
    ... and 2011. (3) As of December 31, 2011, $3 million of the total purchase price was accrued with the remainder paid in cash during the respective years. The results of operations of each of the acquired businesses in 2012 and 2011 have been included in our consolidated results from each transaction...

  • Page 104
    ... 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-22

  • Page 105
    ... country to protect against the potential non-delivery of travel services in that country. Of the total time deposit investments, $283 million and $274 million as of December 31, 2013 and 2012 related to balances held by our majority-owned subsidiaries. We use foreign currency forward contracts to...

  • Page 106
    ... impairment charge related to an indefinite-lived trade name within our Leisure segment, which was included in intangible amortization during the year ended December 31, 2013. As of October 1, 2012, we had no impairments. Goodwill. The following table presents the changes in goodwill by reportable...

  • Page 107
    ... intangible assets with definite lives as of December 31, 2013 and 2012: December 31, 2013 Accumulated Amortization December 31, 2012 Accumulated Amortization Cost Net Cost (In thousands) Net Supplier relationships Technology Customer lists Affiliate agreements Other Total $ 329,424 287,984 109...

  • Page 108
    ... stock awards, RSUs, stock options and other stock-based awards to directors, officers, employees and consultants. As of December 31, 2013, we had approximately 11 million shares of common stock reserved for new stock-based awards under the 2005 Stock and Annual Incentive Plan. We issue new shares...

  • Page 109
    ... 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. These modifications resulted in a one-time expense...

  • Page 110
    ... of stock-based compensation. The fair value of stock options granted during the years ended December 31, 2013, 2012 and 2011 were estimated at the date of grant using the Black-Scholes option-pricing model, assuming the following weighted average assumptions: 2013 2012 2011 Risk-free interest rate...

  • Page 111
    ... market value of the stock on the last day of each three-month period. Eligible employees are allowed to contribute up to 10% of their base compensation. During 2013, approximately 69,000 shares were purchased under this plan for an average price of $46.31 per share. As of December 31, 2013, we have...

  • Page 112
    ... were as follows: December 31, 2013 2012 (In thousands) Deferred tax assets: Provision for accrued expenses Loyalty rewards reserve Occupancy tax reserve Net operating loss and tax credit carryforwards Stock-based compensation Other Total deferred tax assets Less valuation allowance Net deferred...

  • Page 113
    ...expense at the federal statutory rate of 35% Foreign tax rate differential State income taxes, net of effect of federal tax benefit Unrecognized tax benefits and related interest Change in valuation allowance Hawaii pay-to-play penalties trivago acquisition stock-based compensation Other, net Income...

  • Page 114
    ... million. The Company is routinely under audit by federal, state, local and foreign income tax authorities. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is...

  • Page 115
    ...of December 31, 2013. NOTE 13 - Stockholders' 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...

  • Page 116
    ... Stock In 2013, 2012 and 2011, 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 (in thousands) Payment...

  • Page 117
    ... 31, 2013 and 2012, our ownership interest in eLong was approximately 65% and 67%. NOTE 14 - Earnings Per Share Basic Earnings Per Share Basic earnings per share was calculated for the years ended December 31, 2013, 2012 and 2011 using the weighted average number of common and Class B common shares...

  • Page 118
    ... following table presents the components of other, net: For the Year Ended December 31, 2013 2012 2011 (In thousands) Foreign exchange rate losses, net Equity gains (losses) in unconsolidated affiliates, and other Total $ (473) (2,315) $(2,788) $(16,179) (4,096) $(20,275) $(8,465) 1,428 $(7,037...

  • Page 119
    ... put/call rights whereby we may acquire and the minority shareholders may sell to us the minority shares of the company. See Note 3 - Acquisitions for further information. Lease Commitments We have contractual obligations in the form of operating leases for office space and related office equipment...

  • Page 120
    ... course of business, we are a party to various lawsuits. Management does not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia. We also evaluate other potential contingent matters, including value-added tax, federal excise...

  • Page 121
    ... European Union and United Kingdom competition law in relation to the online supply of hotel room accommodations. The Statement of Objections alleges that Expedia and Booking.com entered into separate agreements with IHG that restricted each online travel company's ability to discount the price...

  • Page 122
    ...20, 2012, more than thirty 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 123
    ... in long-term investments and other assets. In 2013, 2012 and 2011, operating and maintenance costs paid directly to the jointly-owned subsidiary for the airplanes were nominal. Liberty Interactive Corporation. Based on information filed with the Securities and Exchange Commission, Liberty USA...

  • Page 124
    ... in the United States and localized Expedia and Hotels.com websites throughout the world, Expedia Affiliate Network, Hotwire.com, Venere, eLong, trivago and Classic Vacations. Our Egencia segment provides managed travel services to corporate customers in North America, Europe, and the Asia Pacific...

  • Page 125
    ... ended December 31, 2013 Leisure Egencia Corporate (In thousands) Total Revenue Adjusted EBITDA Depreciation Amortization of intangible assets Stock-based compensation Acquisition-related and other Legal reserves, occupancy tax and other Realized gain on revenue hedges Operating income (loss) Other...

  • Page 126
    ... 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, 2013, 2012 and 2011: 2013 Year Ended December 31, 2012 2011 (In thousands) Revenue United States All other countries $2,547,900 2,223,359...

  • Page 127
    ...made on our website related to the use of fraudulent credit cards "charged-back" due to payment disputes and cancellation fees. Balance of Beginning of Period Charges to Earnings Charges to Other Accounts(1) Deductions (In thousands) Balance at End of Period Description 2013 Allowance for doubtful...

  • Page 128
    ...the per share information attributable to Expedia, Inc. common shareholders reflects the one-for-two reverse stock split in connection with the spin-off. (2) During the fourth quarter of 2012, we recognized $110 million related to monies expected to be paid in advance of litigation related to Hawaii...

  • Page 129
    ... in prior periods. CONDENSED CONSOLIDATING STATEMENT OF OPERATION Year Ended December 31, 2013 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 130
    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 administrative ...

  • Page 131
    CONDENSED CONSOLIDATING STATEMENT OF OPERATION Year Ended December 31, 2011 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 administrative ...

  • Page 132
    ... 31, 2013 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-term...

  • Page 133
    ... exercise of equity awards Transfers (to) from related parties Other, net Net cash used in financing activities from continuing operations Net cash provided by (used in) continuing operations Net cash provided by discontinued operations Effect of exchange rate changes on cash and cash equivalents...

  • Page 134
    ..., 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 dividends...

  • Page 135
    ..., 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 dividends...

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  • Page 139
    ... and Chief Financial Officer Lance A. Soliday Vice President, Chief Accounting Officer and Controller STOCKHOLDER INFORMATION Annual Meeting The annual meeting of stockholders will be held on June 17, 2014 at 10:30 a.m. local time, at 555 West 18th Street, New York, New York 10011 Stock Market...

  • Page 140
    ANNUAL REPORT | 2013