Expedia 2013 Annual Report Download - page 26

and other contractual arrangements between hotels and online travel companies, including Expedia. These
investigations differ from the OFT investigation and also differ in relation to the parties involved and the precise
nature of the concerns. If we are required to significantly modify or eliminate any most favored nation clauses in
our arrangements with hotels, we may not be able to offer our consumers with competitive pricing as being
offered by other OTA.
We are unable at this time to predict the timing or outcome of these various investigations and lawsuits or
similar future investigations or lawsuits, and their impact, if any, on our business and results of operations.
The determination of our worldwide tax provision for income taxes is subject to significant judgment,
and a number of factors could have a material effect on our financial results and could increase the
volatility of those results.
Due to the global nature of our business, we are subject to income taxes in the United States and numerous
foreign jurisdictions. Significant judgment and estimation is required in determining our worldwide provision for
income taxes. In the ordinary course of our business, there are various transactions and calculations, including
intercompany transactions and cross-jurisdictional transfer pricing, for which the ultimate tax determination is
uncertain or otherwise subject to interpretation. We are regularly audited by U.S. and foreign tax authorities,
which authorities may become more aggressive in their interpretation of applicable laws, rules and regulations
over time, whether as a result of economic pressures or otherwise. Tax authorities may disagree with our
intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. Although
we believe our tax estimates are reasonable, the final determination of tax audits could be materially different
from our historical income tax provisions and accruals. The final determination of an audit could have a material
effect on our financial position, results of operations, or cash flows in the period or periods for which that
determination is made.
We earn an increasing portion of our income, and accumulate a greater portion of our cash flow, in foreign
jurisdictions. Repatriation of funds currently held by our subsidiaries in foreign jurisdictions may result in a
higher effective tax rate and incremental cash tax payments. In addition, there are proposals for tax legislation
that have been introduced or that are being considered that could have a significant adverse effect on our tax rate,
the carrying value of deferred tax assets, or our deferred tax liabilities. Any of these changes could affect our
profitability. Our effective tax rate in the future could also be adversely affected by changes to our operating
structure, changes in the mix of earnings in countries with differing statutory tax 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 transactions, the volume of which
are very large and continue to grow, 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.
Our results of operations and financial positions have been negatively affected by purchases made using
fraudulent credit cards. We may be held liable for accepting fraudulent credit cards on our websites or other
payment disputes with our customers, or otherwise experience increased levels of disputed credit card payments.
Accordingly, we calculate and record an allowance for the resulting credit card charge backs. Our ability to
detect and combat fraudulent schemes, which have become increasingly common and sophisticated, may be
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