Expedia 2013 Annual Report Download - page 91

Expedia, Inc.
Notes to Consolidated Financial Statements
NOTE 1 — Organization and Basis of Presentation
Description of Business
Expedia, Inc. and its subsidiaries provide travel products and services to leisure and corporate travelers in
the United States and abroad as well as various media and advertising offerings to travel and non-travel
advertisers. 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 (“Venere”), and
trivago GmbH (“trivago”). In addition, many of these brands have related international points of sale. We refer to
Expedia, Inc. and its subsidiaries collectively as “Expedia,” the “Company,” “us,” “we” and “our” in these
consolidated financial statements.
TripAdvisor Spin-Off
On December 20, 2011, following the close of trading on the Nasdaq Stock Market, we completed the
spin-off of TripAdvisor, Inc. (“TripAdvisor”), which consisted of the domestic and international operations
previously associated with our TripAdvisor Media Group, to Expedia stockholders. We refer to this transaction
as the “spin-off.” Immediately prior to the spin-off, Expedia effected a one-for-two reverse stock split.
Accordingly, the results of operations, financial condition and cash flows of TripAdvisor have been presented as
discontinued operations for all periods presented. Further, all Expedia common stock share information and
related per share amounts in prior periods have been adjusted to reflect Expedia’s one-for-two reverse stock split.
Basis of Presentation
The accompanying consolidated financial statements include Expedia, Inc., our wholly-owned subsidiaries,
and entities we control, or in which we have a variable interest and are the primary beneficiary of expected cash
profits or losses. We record our investments in entities that we do not control, but over which we have the ability
to exercise significant influence, using the equity method. We have eliminated significant intercompany
transactions and accounts.
We believe that the assumptions underlying our consolidated financial statements are reasonable. However,
these consolidated financial statements do not present our future financial position, the results of our future
operations and cash flows.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and services. For
example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan
and book their spring, summer and holiday travel. The number of bookings typically decreases in the fourth
quarter. Because revenue for most of our travel products, including merchant and agency hotel, is recognized
when the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks or
longer. The seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of
revenue and direct sales and marketing costs, which we typically realize in closer alignment to booking volumes,
and the more stable nature of our fixed costs. Furthermore, operating profits for our primary advertising business,
trivago, are experienced in the second half of the year as selling and marketing costs offset revenue in the first
half of the year as we aggressively market during the busy booking period for summer travel. As a result, revenue
and income are typically the lowest in the first quarter and highest in the third quarter.
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