Expedia 2013 Annual Report Download - page 101

Contingent Liabilities
We have a number of regulatory and legal matters outstanding, as discussed further in
Note 16 — Commitments and Contingencies. Periodically, we review the status of all significant outstanding
matters to assess the potential financial exposure. When (i) it is probable that an asset has been impaired or a
liability has been incurred and (ii) the amount of the loss can be reasonably estimated, we record the estimated
loss in our consolidated statements of operations. We provide disclosure in the notes to the consolidated financial
statements for loss contingencies that do not meet both of these conditions if there is a reasonable possibility that
a loss may have been incurred that would be material to the financial statements. Significant judgment is required
to determine the probability that a liability has been incurred and whether such liability is reasonably estimable.
We base accruals made on the best information available at the time which can be highly subjective. The final
outcome of these matters could vary significantly from the amounts included in the accompanying consolidated
financial statements.
Occupancy Tax
Some states and localities impose a transient occupancy or accommodation tax on the use or occupancy of
hotel accommodations. Generally, hotels collect taxes based on the room 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, 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 of the room by the consumer. In all but a limited number of jurisdictions, we do not collect or remit
occupancy taxes, nor do we pay occupancy taxes to the hotel operator on the portion of the customer payment we
retain. Some jurisdictions have questioned our practice in this regard. While the applicable tax provisions vary
among the jurisdictions, we generally believe that we are not required to collect and remit such occupancy taxes.
We are engaged in discussions with tax authorities in various jurisdictions to resolve this issue. Some tax
authorities have brought lawsuits or have levied assessments asserting that we are required to collect and remit
occupancy tax. The ultimate resolution in all jurisdictions cannot be determined at this time. We have established
a reserve for the potential settlement of issues related to hotel occupancy taxes when determined to be probable
and estimable. See Note 16 — Commitments and Contingencies for further discussion.
NOTE 3 — Acquisitions
During 2013, we completed the purchase of a 63% equity position (61.6% on a fully diluted basis) in trivago
GmbH, a leading hotel metasearch company based in Germany. trivago was acquired due to the quality and
strength of its product and brand and our belief that the company will continue to scale as it expands globally. In
conjunction with the acquisition, we paid €434 million in cash, or approximately $564 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 in five equal increments on or about each of the first
through fifth anniversaries of the acquisition. The number of shares of Expedia common stock was calculated
based on the aggregate value of €43 million using a thirty-day trailing average of closing trading prices and
exchange rates prior to acquisition. Also in conjunction with the acquisition, we replaced certain employee
stock-based awards of the acquiree, which related to pre-combination service, for an acquisition date fair value of
$15 million.
As a result of the acquisition, we expensed $66 million to acquisition-related and other on the consolidated
statements of operations during 2013, which included approximately $57 million in stock-based compensation
related to the issuance of the 875,200 shares of common stock as the issuance was determined separate from the
business combination and was not contingent upon any future service or other certain event except the passage of
time as well as approximately $10 million for the amount paid to settle a portion of the employee compensation
plan of trivago, which was considered separate from the business combination. Acquisition-related costs were
expensed as incurred and were not significant.
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