Expedia 2015 Annual Report Download

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Table of contents

  • Page 1

  • 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
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT ...

  • Page 4
    ... 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 Stockholder Matters Item 13 Certain Relationships...

  • Page 5
    ...service online travel company with localized sites in 33 countries; Hotels.com®, the hotel specialist that offers Hotels.com® Rewards and Secret Prices through its mobile booking apps and localized websites in more than 65 countries; Hotwire.com®, leading discount travel site that offers Hot Rate...

  • Page 6
    ... travel brand in the United States and Canada; Expedia® Affiliate Network ("EAN"), which powers bookings for some of the world's leading airlines and hotels, top consumer brands, high traffic websites, and thousands of active affiliates; HomeAway, an online market-place for the vacation rental...

  • Page 7
    ... Expedia.com in the United States, make a large variety of travel products and services available directly to travelers. Brand Expedia aims to provide the latest technology and the widest selection of travel options for many different types of travelers, from families booking a summer vacation...

  • Page 8
    ... verified traveler reviews) and book travel products and services on Expedia-branded websites and mobile apps, including airline tickets, lodging, car rentals, cruises, insurance and many local expert services - such as airport transfers, local attractions, activities and tours - from a large number...

  • Page 9
    ... hotel metasearch company, based in Dusseldorf, Germany, featuring price comparison from more than one million hotels. Officially launched in 2005, trivago is one of the best known travel brands in Europe and is expanding globally with sites in 55 countries. Wotif Group. In November 2014, Expedia...

  • Page 10
    ...in Europe, Asia Pacific, Canada and Latin America. We own Venere, a European brand, which focuses on marketing hotel rooms in Southern Europe; Wotif Group, which has sites in Australia and New Zealand; and ebookers, which operates in a number of international countries. Egencia, our corporate travel...

  • Page 11
    ... upon our acquisition of HomeAway on December 15, 2015, we also earn revenue related to subscription-based vacation rental listing and other ancillary services provided to property owners and managers. Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and...

  • Page 12
    ...commercial airlines, car rental companies, cruise lines, destination service providers and with the closing of the HomeAway acquisition property owners and managers. We seek to build and maintain long-term, strategic relationships with travel suppliers and global distribution system ("GDS") partners...

  • Page 13
    ... Rewards on Orbitz.com. The cost of these loyalty programs is recorded as a reduction of revenue in our financial statements. We also make use of affiliate marketing. The Expedia.com, Hotels.com, Hotwire, Travelocity, HomeAway, Wotif, lastminute.com.au and Venere-branded websites receive bookings...

  • Page 14
    ... and search websites, certain travel meta-search websites, mobile travel applications, social media websites, as well as traditional consumer eCommerce and group buying websites. We face these competitors in local, regional, national and/or international markets. In some cases, competitors are...

  • Page 15
    ..., industry specific value-added tax regimes and laws regulating the provision of travel packages. For example, the European Economic Community Council Directive on Package Travel, Package Holidays and Package Tours imposes various obligations upon marketers of travel packages, such as disclosure...

  • Page 16
    ... into three segments as a result of the Company's focus on providing additional information to reflect the unique market opportunities and competitive dynamics inherent in our eLong and trivago businesses. The acquisition of HomeAway on December 15, 2015 resulted in the creation of an additional...

  • Page 17
    corporate travel management service providers, mobile platform travel applications, social media websites, eCommerce websites and group buying websites; Alternative accommodation websites. Online and traditional travel agencies: We face increasing competition from other online travel agencies ("...

  • Page 18
    ... group buying websites have periodically undertaken efforts to expand their local offerings into the travel market by adding hotel offers to their sites. To the extent such websites continue to expand these services over time, it may create additional competition. In addition, car rideshare services...

  • Page 19
    ...managers of vacation rental properties. A substantial portion of our revenue is derived from compensation negotiated with travel suppliers, in particular hotel suppliers, and GDS partners for bookings made through our websites. Each year we typically negotiate or renegotiate numerous long-term hotel...

  • Page 20
    ... or introduce new technologies and systems as quickly as we would like or in a cost-effective manner. We have been engaged in a multi-year effort to migrate key portions of our consumer, affiliate, and corporate travel sites and back office application functionality to new technology platforms to...

  • Page 21
    ...the operations, products, technology, privacy protection systems, information systems or personnel of the acquired company; Impairment of relationships with employees, suppliers, customers, vendors and affiliates of our business and the acquired business; The assumption of known and unknown debt and...

  • Page 22
    ... revenue is generated from a commissionbased business model, where the owner or manager of the property pays HomeAway a commission on a transactional basis for each booking of the property by a traveler and the traveler pays a service fee for the use of the HomeAway platform. HomeAway has announced...

  • Page 23
    ... markets that are new to us, we must tailor our services and business models to the unique circumstances of such countries and markets, which can be complex, difficult, costly and divert management and personnel resources. Laws and business practices that favor local competitors or prohibit or limit...

  • Page 24
    ... those relating to travel and vacation rental licensing and listing requirements, the internet and online commerce, internet advertising and price display, consumer protection, anticorruption, anti-trust and competition, economic and trade sanctions, tax, banking, data security and privacy. As...

  • Page 25
    ... associations have adopted rules that prohibit or restrict short-term vacation rentals. In addition, many of the fundamental statutes and ordinances that impose taxes or other obligations on travel and lodging companies were established before the growth of the Internet and e-commerce, which...

  • Page 26
    ... Expedia, Hotels.com and Hotwire, including: an assessment of $20.5 million for 2012 tax year non-commissioned hotel reservations, an assessment of $29.2 million (including a duplicative assessments) for tax years 2000 through 2012 non-commissioned travel agency services relating to rental cars...

  • Page 27
    ... and a reduction in available budgets for both business and leisure travelers, which slow spending on the services we provide and have a negative impact on our revenue growth. Additionally, if individual countries or regions experience deteriorating credit and economic conditions, and/or significant...

  • Page 28
    ... our business and financial performance. In addition, credit card networks, such as Visa, MasterCard and American Express, have adopted rules and regulations that apply to all merchants who process and accept credit cards and include the Payment Card Industry Data Security Standards, or the PCI DSS...

  • Page 29
    ... foreign exchange risk management. We make a number of estimates in conducting hedging activities including in some cases cancellations and payments in foreign currencies. In addition, an effective exchange rate hedging program is dependent upon effective systems, accurate and reliable data sources...

  • Page 30
    ... generate working capital, such as our agency hotel, advertising and managed corporate travel businesses and payment terms with suppliers. We also continued to see growth in both our merchant (Expedia collect) and our agency (hotel collect) hotel products. To the extent our merchant hotel business...

  • Page 31
    ...security breaches and the lack of redundancy in our information systems may harm our businesses. We rely on information technology systems, including the Internet and third-party hosted services, to support a variety of business processes and activities and to store sensitive data, including booking...

  • Page 32
    ... We may acquire personal or confidential information from users of our websites and mobile applications. There are numerous laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information, payment card information and other consumer data, the scope...

  • Page 33
    ... his role as Chairman of the Board of Directors and Senior Executive of IAC, and Mr. Kaufman serves as Vice Chairman of both Expedia and IAC. The fact that Mr. Diller and Mr. Kaufman hold positions with and securities of both companies could create, or appear to create, potential conflicts of...

  • Page 34
    .... We work closely with business partners, including in connection with significant commercial arrangements and joint ventures, and through our Expedia Affiliate Network business. We also rely on third-party service providers for certain customer care, fulfillment, processing, systems development...

  • Page 35
    ... by others, including potential competitors. Our websites and mobile applications rely on content, brands and technology, much of which is proprietary. We establish and protect our intellectual property by relying on a combination of trademark, copyright, trade secret and patent laws in the U.S. and...

  • Page 36
    ... position or results of operations based upon the standard set forth in the SEC's rules. Litigation Relating to Occupancy and Other Taxes A number of jurisdictions in the United States have filed lawsuits against online travel companies, including Expedia companies, such as Hotels.com, Expedia...

  • Page 37
    .... Expedia, Hotels.com and Hotwire filed a notice of appeal on November 25, 2015. All claims against Orbitz were previously resolved through settlement. 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...

  • Page 38
    ... travel companies are not subject to San Francisco's hotel occupancy tax. Expedia, Inc. v. City and County of San Francisco, et. al.; Hotels.com, Inc. v. City and County of San Francisco, et. al.; Hotwire, Inc. v. City and County of San Francisco, et. al., (Superior Court of the State of California...

  • Page 39
    ...for tax on their services. The State of Montana appealed to the Montana Supreme Court. On August 12, 2015, the Montana Supreme Court held that the online travel companies' compensation is not subject to the Montana Lodging Use Tax but is subject to the Montana Sales Tax, on both hotel and car rental...

  • Page 40
    ...On February 1, 2016, the plaintiffs filed a motion for summary judgment. State of New Hampshire Litigation. On October 16, 2013, the State of New Hampshire filed a lawsuit against a number of online travel companies, including certain Expedia companies. State of New Hampshire v. Priceline.com, et al...

  • Page 41
    ...'s ruling in favor of Orbitz. On January 2, 2015, the Wisconsin Department of Revenue filed an appeal to the court of appeals. Palm Beach, Florida Litigation. On February 21, 2014, Palm Beach County, Florida filed a lawsuit in Florida state court against HomeAway and other vacation rental listing...

  • Page 42
    ... Sales Tax and County Innkeeper Tax Assessments. On March 2, 2009, certain Expedia companies, and on March 3, 2009, Orbitz, filed petitions in Indiana Tax Court. Travelscape, LLC v. Indiana State Department of Revenue, Cause No. 49T10-0903-TA-11; Hotels.com LP v. Indiana State Department of Revenue...

  • Page 43
    ... for general excise taxes against the Expedia companies, including Orbitz, for (i) non-commissioned hotel reservations for the tax year 2012 totaling $26 million, which includes $6 million for Orbitz, (ii) non-commissioned travel agency services relating to rental cars for the tax years 2000 through...

  • Page 44
    ... and Litigation On July 31, 2012, the United Kingdom Office of Fair Trading ("OFT") issued a Statement of Objections alleging that Expedia, Booking.com B.V. and InterContinental Hotels Group PLC ("IHG") have infringed European Union and United Kingdom competition law in relation to the online...

  • Page 45
    ... clauses from its contracts with German hotels. Booking.com announced that it will appeal this decision. In addition, with effect from August 1, 2015, Expedia waived certain rate, conditions and availability parity clauses in its agreements with its European hotel partners for a period of five years...

  • Page 46
    ... 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 29, 2016, there were...

  • Page 47
    ... no fixed termination date for the repurchases. Performance Comparison Graph The graph shows a five-year comparison of cumulative total return, calculated on a dividend reinvested basis, for Expedia common stock, the NASDAQ Composite Index, the RDG (Research Data Group) Internet Composite Index and...

  • Page 48
    ... been presented in discontinued operations for all periods presented. Further, all Expedia common stock information and related per share prices have been adjusted to reflect the reverse stock split. (2) On May 22, 2015, we completed the sale of our 62.4% ownership stake in eLong, Inc. We recognized...

  • Page 49
    ... direct booking functionality, as well as licensing deals and proposed and actual acquisitions by companies such as Google. Finally, traditional consumer eCommerce and group buying websites have been expanding their local offerings into the travel market by adding hotel offers to their sites...

  • Page 50
    ... of ETP, we reduced negotiated economics in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs, which has negatively impacted the margin of revenue we earn per booking. In addition, as we continue to expand the breadth and...

  • Page 51
    ... 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, and Hotwire brands...

  • Page 52
    ... points of sale outside of the United States. In July 2014, we completed the acquisition of Auto Escape Group, one of Europe's leading online car rental reservation companies. Auto Escape Group has joined with the CarRentals.com brand, allowing it to expand internationally to provide our customers...

  • Page 53
    ... such as our loyalty programs. The size of Expedia's worldwide traveler base makes our sites an increasingly appealing channel for travel suppliers to reach customers. In addition, the sheer size of our user base and search query volume allows us to test new technologies very quickly in order to...

  • Page 54
    ... our Orbitz rewards program. Hotels.com Rewards offers travelers one free night at any Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. Expedia+ rewards enables participating travelers to earn points on all hotel, flight, package and activities made...

  • Page 55
    ... cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly traded firms in...

  • Page 56
    ...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...

  • Page 57
    ... Taxes." Stock-Based Compensation Our primary form of employee stock-based compensation is stock option awards. We measure the value of stock option awards on the date of grant at fair value using the appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models...

  • Page 58
    ... excise taxes, interest and penalties against the Expedia companies (including Orbitz) for hotel and car rental revenue for "agency" model transactions from 2000 to 2014 and for hotel and car rental revenue for "merchant model" transactions for 2014. • • • • For additional information on...

  • Page 59
    ... travel companies. These assessments are currently under review in tax court. The Department of Taxation has issued final assessments for general excise taxes against the Expedia companies, including Orbitz, dated December 23, 2015 for the time period 2000 to 2014 for hotel and car rental revenue...

  • Page 60
    ... localized Expedia and Hotels.com websites throughout the world, Orbitz.com, Expedia Affiliate Network, Hotwire.com, Travelocity, Venere, Wotif Group, CarRentals.com, and Classic Vacations. Our trivago segment generates advertising revenue primarily from sending referrals to online travel companies...

  • Page 61
    ... total revenue margin. (2) Includes results for eLong through its disposal on May 22, 2015. The increase in worldwide gross bookings in 2015 as compared to 2014 was primarily driven by growth in the Core OTA segment, including strong performance at Brand Expedia and Hotels.com. Acquisitions added...

  • Page 62
    ... Brand Expedia, including the Travelocity-branded websites. The remaining worldwide revenue, other than hotel and air discussed above, which includes advertising and media, car rental, destination services, fees related to our corporate travel business and HomeAway revenue, increased by 19% in 2015...

  • Page 63
    ... pre-purchased hotel supply at eLong, and stock-based compensation. In 2015, the increase in cost of revenue expense was driven by $61 million of higher data center and other costs as well as $37 million of higher net credit card processing costs related to growth of our merchant bookings partially...

  • Page 64
    ...as stock-based compensation costs. Selling and marketing expenses increased $573 million during 2015 compared to the same periods in 2014 driven by increases of $462 million of direct costs, including online and offline marketing expenses. Brand Expedia, trivago, Hotels.com and Hotwire accounted for...

  • Page 65
    ... of $29 million due to higher licensing and maintenance and data center costs to support the growth of the technology platforms. Acquisitions added approximately 6% to year-on-year technology and content growth for 2015. Technology and content expense increased $108 million in 2014 compared to 2013...

  • Page 66
    ... of stock-based compensation to acquisition-related and other expense in connection with the trivago acquisition as well as $10 million related to the upfront consideration paid to settle a portion of an employee compensation plan of trivago. For additional information, see Note 3 - Acquisitions and...

  • Page 67
    ... (or $666 million net of costs to sell and other transaction expenses) to several purchasers, including Ctrip.com International, Ltd. As a result of the sale, we recognized a pre-tax gain of $509 million ($395 million after tax) during 2015 included in gain on sale of business in our consolidated...

  • Page 68
    ... associated release of liabilities related to uncertain tax positions as well as non-deductible stock-based compensation recorded related to the trivago acquisition and non-deductible penalties included in the Hawaii pay-to-play assessments in 2013. Our effective tax rate for 2014 was lower than the...

  • Page 69
    ..., financial policy or capital allocations to share repurchase, dividends, investments and acquisitions could impact the ratings assigned by the various rating agencies. Should our credit ratings be adjusted downward, we may incur higher costs to borrow and/or limited to access to capital markets...

  • Page 70
    consume working capital such as agency hotel, managed corporate travel, advertising or certain Expedia Affiliate Network relationships, or if there are changes to the merchant model, supplier payment terms, or booking patterns that compress the time period between our receipt of cash from travelers ...

  • Page 71
    ... and employee stock purchase plans as well as the issuance of treasury stock, partially offset by cash paid to acquire shares of $538 million, including the repurchased shares under the 2012 authorization discussed below, and $85 million cash dividend payment. Cash used in financing activities from...

  • Page 72
    ... 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 are contesting and certain surety bonds related to various company performance obligations...

  • Page 73
    ...foreign exchange rates and market prices. Our exposure to market risk includes our long-term debt, our revolving credit facility, derivative instruments and cash and cash equivalents, accounts receivable, intercompany receivables, investments, merchant accounts payable and deferred merchant bookings...

  • Page 74
    ...to the changes that exchange rates might have on our earnings, cash flows and financial position. We make a number of estimates in conducting hedging activities including in some cases the level of future bookings, cancellations, refunds, customer stay patterns and payments in foreign currencies. In...

  • Page 75
    ... the acquisitions of Orbitz and HomeAway. Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management, including our Chairman and Senior Executive, Chief Executive Officer and Chief...

  • Page 76
    Limitations on Controls. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide...

  • Page 77
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2014 consolidated financial statements of Expedia, Inc. and our report dated February 10, 2016 expressed an unqualified opinion thereon. /s/ Seattle, Washington February 10, 2016 73 Ernst & Young...

  • Page 78
    ... relating to our 2016 annual meeting of stockholders (the "2016 Proxy Statement"), which will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2015. Part III. Item 10. Directors, Executive Officers and Corporate Governance The...

  • Page 79
    ... to Purchase and Sale, dated March 25, 2015, by and between Immunex Corporation and Cruise, LLC Share Purchase Agreement, dated May 22, 2015, by and among Expedia, Inc., Expedia Asia Pacific - Alpha Limited, Ctrip.com International, Ltd., C-Travel International Limited, Luxuriant Holdings Limited...

  • Page 80
    ... by Reference SEC File No. Exhibit Filing Date 2.9 Agreement and Plan of Reorganization, dated as of November 4, 2015, by and among Expedia, Inc., HMS 1 Inc. and HomeAway, Inc. Certificate of Incorporation of Expedia, Inc. Amended and Restated Bylaws of Expedia, Inc. Indenture, dated as of August...

  • Page 81
    ...Form Incorporated by Reference SEC File No. Exhibit Filing Date 4.7 Indenture, dated as of December 8, 2015, among Expedia, Inc., as Issuer, the Guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing Expedia, Inc.'s 5.000% Senior Notes due 2026 First...

  • Page 82
    ... Agent, and J.P. Morgan Europe Limited, as London Agent. First Amendment, dated as of February 4, 2016, among Expedia, Inc., a Delaware corporation, Expedia, Inc., a Washington corporation, Travelscape, LLC, a Nevada limited liability company, Hotwire, Inc., a Delaware corporation, the lenders and...

  • Page 83
    ... of the Executed Deferred Compensation Plan, effective as of December 31, 2014 Employment Agreement between Dara Khosrowshahi and Expedia, Inc., effective as of March 31, 2015 Second Amended and Restated Expedia, Inc. Restricted Stock Unit Agreement for Dara Khosrowshahi, dated as of December...

  • Page 84
    ... 32.2*** Certification of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 32.3*** Certification of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 101 The following financial statements from the Company's Annual Report on Form 10...

  • Page 85
    ... on its behalf by the undersigned hereunto duly authorized. Expedia, Inc. By: /s/ DARA KHOSROWSHAHI Dara Khosrowshahi Chief Executive Officer February 10, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 86
    INDEX TO 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 ...

  • Page 87
    ... conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Expedia, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in...

  • Page 88
    ... in computing earnings per share: Basic Diluted Dividends declared per common share (1) Includes stock-based compensation as follows: Cost of revenue Selling and marketing Technology and content General and administrative Restructuring and related reorganization charges Acquisition-related and other...

  • Page 89
    ... net Unrealized gains (losses) on available for sale securities, net of taxes Other comprehensive income (loss), net of tax Comprehensive income Less: Comprehensive income (loss) attributable to noncontrolling interests Comprehensive income attributable to Expedia, Inc. $ 722,748 (147,815) (43,183...

  • Page 90
    ...' 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 91
    ... equity instruments and employee stock purchase plans Tax benefits on equity awards Issuance of common stock in connection with acquisition Treasury stock activity related to vesting of equity instruments Common stock repurchases Proceeds from issuance of treasury stock Cash dividends Adjustment to...

  • Page 92
    ... employee stock purchase plans Withholding taxes for stock options Tax benefits on equity awards Issuance of common stock in connection with acquisitions Treasury stock activity related to vesting of equity instruments Common stock repurchases Proceeds from issuance of treasury stock Cash dividends...

  • Page 93
    ...Financing activities: Proceeds from issuance of long-term debt, net of issuance costs Purchases of treasury stock Proceeds from issuance of treasury stock Payment of dividends to stockholders Proceeds from exercise of equity awards and employee stock purchase plan Excess tax benefit on equity awards...

  • Page 94
    ...® Affiliate Network, Classic Vacations®, Expedia Local Expert®, Egencia®, Expedia® CruiseShipCenters®, Venere Net SpA ("Venere"), trivago GmbH ("trivago"), CarRentals.com™, Wotif.com Holdings Limited ("Wotif Group"), Orbitz Worldwide, Inc. ("Orbitz") acquired in September 2015, HomeAway...

  • Page 95
    ... as potential settlements related to occupancy and excise taxes; loss contingencies; loyalty program liabilities; redeemable noncontrolling interests; acquisition purchase price allocations; stock-based compensation and accounting for derivative instruments. Reclassifications We have reclassified...

  • Page 96
    ... our acquisition of HomeAway on December 15, 2015, we also earn revenue related to vacation rental listing and other ancillary services provided to property owners and managers. Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and destination services...

  • Page 97
    ... charged to our travel partners for traveler leads sent to the travel partners' websites. We record revenue from click-through fees after the traveler makes the click-through to the related travel partners' websites. Vacation Rental Listing and Other Ancillary Services. Payments for term-based paid...

  • Page 98
    ... cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly traded firms in...

  • Page 99
    ... similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting units. We believe the weighted use of discounted cash flows and market...

  • Page 100
    ... carrying amounts of assets and liabilities 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...

  • Page 101
    ...to our customers to encourage booking of travel products and services. Generally, our incentive offers are as follows: Current Discount Offers. These promotions include dollar off discounts to be applied against current purchases. We record the discounts as reduction in revenue at the date we record...

  • Page 102
    ... our Orbitz rewards program. Hotels.com Rewards offers travelers one free night at any Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. Expedia+ rewards enables participating travelers to earn points on all hotel, flight, package and activities made...

  • Page 103
    ... of these awards, our total compensation expense recorded over the vesting period of the awards will equal the settlement amount, 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...

  • Page 104
    ...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...

  • Page 105
    ... for HomeAway's global traveler audience and the owners and managers of its properties around the world. Each outstanding share of common stock of HomeAway immediately prior to the acquisition was exchanged for $10.15 in cash and 0.2065 of a share of Expedia common stock, with cash paid in...

  • Page 106
    ... date. The fair value for the portion of the awards attributable to post-combination service was $106 million, net of estimated forfeitures. Due to the limited amount of time since the acquisition of HomeAway, the purchase price allocation was based on a preliminary valuation of the assets acquired...

  • Page 107
    ...to Orbitz' loyal customer base and to further enhance the marketing and distribution capabilities we offer to our global supply partners. The purchase consideration consisted primarily of $1.4 billion in cash, or $12 per share for all shares of Orbitz common stock outstanding as of the purchase date...

  • Page 108
    ... charges over the applicable service period. For information related to restructuring plans as a result of the merger, see Note 15 - Restructuring and Related Reorganization Charges. For information related to claims, proceedings and inquiries related to hotel occupancy and other taxes for Orbitz...

  • Page 109
    .... Under the terms of the strategic marketing agreement, Travelocity was compensated through a performance-based marketing fee related to bookings powered by Expedia made through Travelocity-branded websites in the United States and Canada. Revenue earned on the Travelocity websites was recorded as...

  • Page 110
    ... Asia-Pacific region, while allowing Expedia to expose the Wotif Group to our world-class technology and its customers to our extensive global supply. The aggregate purchase price consideration of $568 million was allocated to the fair value of assets acquired and liabilities assumed as follows, in...

  • Page 111
    ... paid to settle a portion of the employee compensation plan of trivago, which was considered separate from the business combination. The stock-based compensation expense was measured using the closing price of Expedia, Inc. common stock as of the acquisition date multiplied by the number of shares...

  • Page 112
    ...666 million net of costs to sell and other transaction expenses) to several purchasers, including Ctrip.com International, Ltd. Of the total sales price, approximately $67 million was remitted directly to escrow for estimated tax obligations, and is recorded in long-term investments and other assets...

  • Page 113
    ... Includes stock-based compensation and amortization of intangible assets of approximately $20 million, $17 million and $11 million for 2015, 2014 and 2013, which are included within Corporate & Eliminations in Note 19 - Segment Information. (2) The year ended December 31, 2015 includes the pre-tax...

  • Page 114
    ... money market funds with maturities of three months or less, time deposits as well as bank account balances. We invest in investment grade corporate debt securities, all of which are classified as available for sale. As of December 31, 2015, we had $34 million of short-term and $65 million of long...

  • Page 115
    .... On April 30, 2015, we acquired our future corporate headquarters for $229 million, consisting of multiple office and lab buildings located in Seattle, Washington. The acquired building assets are included in construction in process and will begin depreciating when the costs incurred related to the...

  • Page 116
    ... in goodwill by reportable segment: Core OTA trivago Egencia HomeAway (In thousands) eLong Total Balance as of January 1, 2014 Additions Foreign exchange translation Balance as of December 31, 2014 Additions Deductions Foreign exchange translation Balance as of December 31, 2015 $2,781,296 $633...

  • Page 117
    ... (1) Excludes debt acquired in the HomeAway acquisition included within accrued expenses and other current liabilities as of December 31, 2015. For further information, see Note 3 - Acquisitions and Other Investments. Long-term Debt Our $500 million in registered senior unsecured notes outstanding...

  • Page 118
    ....These fair values were based on quoted market prices in less active markets (Level 2 inputs). Credit Facility As of December 31, 2015, Expedia, Inc. maintained a $1 billion unsecured revolving credit facility with a group of lenders that had a September 2019 maturity date, which was unconditionally...

  • Page 119
    ... stock awards, RSUs, stock options and other stock-based awards to directors, officers, employees and consultants. As of December 31, 2015, we had approximately 10 million shares of common stock reserved for new stock-based awards under the 2005 Stock and Annual Incentive Plan. We issue new shares...

  • Page 120
    ...to our Chief Executive Officer with his entry into a new five-year employment agreement, of which 1.1 million options are subject to a stock price performance goal. During the three years ended December 31, 2015, 2014 and 2013, we awarded stock options as our primary form of stock-based compensation...

  • Page 121
    ...of the fair 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 2015, 2014 and 2013, approximately 95,000, 102,000, and 69,000 shares were purchased under this plan for an average price of $93...

  • Page 122
    ... expenses Loyalty rewards reserve Occupancy tax reserve Net operating loss and tax credit carryforwards Stock-based compensation Fair value of debt adjustment Other Total deferred tax assets Less valuation allowance Net deferred tax assets Deferred tax liabilities: Prepaid merchant bookings and...

  • Page 123
    ... 31, 2015 2014 2013 (In thousands) Income tax expense at the federal statutory rate of 35% Foreign tax rate differential Unrecognized tax benefits and related interest Change in valuation allowance Pay-to-play penalties Acquisition related costs trivago acquisition stock-based compensation Other...

  • Page 124
    ... 31, 2012. As of December 31, 2015, for the Expedia, Inc. and subsidiaries, statute of limitations for tax years 2009 through 2014 remain open to examination in the federal jurisdiction and most state jurisdictions. For the HomeAway and Orbitz groups, statutes of limitations for tax years 2001...

  • Page 125
    ... the 2012 and 2015 authorizations with no fixed termination date for the repurchases. Dividends on our Common Stock In 2015, 2014 and 2013, the Executive Committee, acting on behalf of the Board of Directors, declared and paid the following dividends: Declaration Date Dividend Per Share Record Date...

  • Page 126
    ...See Note 2 - Significant Accounting Policies for more information. The remaining balance in currency translation adjustments excludes income taxes as a result of our current intention to indefinitely reinvest the earnings of our international subsidiaries outside of the United States. Non-redeemable...

  • Page 127
    ... In connection with the migration of technology platforms and centralization of technology, supply and other operations, primarily related to acquisition integrations including Orbitz and the Wotif Group, we recognized $105 million in restructuring and related reorganization charges during 2015 as...

  • Page 128
    ... to various company performance obligations. Our LOCs consist of stand-by LOCs, underwritten by a group of lenders, which we primarily issue for certain regulatory purposes as well as to certain hotel properties to secure our payment for hotel room transactions. The contractual expiration dates of...

  • Page 129
    ..., including value-added tax, excise tax, sales tax, transient occupancy or accommodation tax and similar matters. In addition, we assumed liability for ongoing lawsuits involving Orbitz Worldwide, Inc. and its subsidiaries in connection with our acquisition of Orbitz on September 17, 2015, and for...

  • Page 130
    ... travel companies. These assessments are currently under review in tax court. The Department of Taxation has issued final assessments for general excise taxes against the Expedia companies, including Orbitz, dated December 23, 2015 for the time period 2000 to 2014 for hotel and car rental revenue...

  • Page 131
    ...Relating to Hotel Booking Practices. On July 31, 2012, the United Kingdom Office of Fair Trading ("OFT") issued a Statement of Objections alleging that Expedia, Booking.com B.V. and InterContinental Hotels Group PLC ("IHG") have infringed European Union and United Kingdom competition law in relation...

  • Page 132
    ... clauses from its contracts with German hotels. Booking.com announced that it will appeal this decision. In addition, with effect from August 1, 2015, Expedia waived certain rate, conditions and availability parity clauses in its agreements with its European hotel partners for a period of five years...

  • Page 133
    ..., provides a full range of travel and advertising services to our worldwide customers through a variety of brands including: Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com websites throughout the world, Orbitz.com, Expedia Affiliate Network, Hotwire.com, F-48

  • Page 134
    ... hotel metasearch websites. Our Egencia segment, which also includes Orbitz for Business, provides managed travel services to corporate customers worldwide. Our HomeAway segment operates an online marketplace for the vacation rental industry. Our eLong segment specialized in mobile and online travel...

  • Page 135
    ... measure, we do not report the assets by segment as it would not be meaningful. We do not regularly provide such information to our chief operating decision makers. Year ended December 31, 2015 Core OTA trivago Egencia HomeAway(1) eLong(2) (In thousands) Corporate & Eliminations Total Third-party...

  • Page 136
    Core OTA trivago Year ended December 31, 2014 Corporate & Egencia eLong Eliminations (In thousands) Total Third-party revenue Intersegment revenue Revenue Adjusted EBITDA Depreciation Amortization of intangible assets Stock-based compensation Legal reserves, occupancy tax and other Restructuring...

  • Page 137
    ... table presents revenue by 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, 2015, 2014 and 2013: Year Ended December 31, 2014 2013 (In thousands) 2015 Revenue United States All other...

  • Page 138
    ...Charges to other accounts primarily relates to amounts acquired through acquisitions and net translation adjustments. NOTE 21 - Quarterly Financial Information (Unaudited) Three Months Ended December 31 September 30 June 30 March 31 (In thousands, except per share data) Year ended December 31, 2015...

  • Page 139
    ...In thousands) Eliminations Consolidated Revenue Costs and expenses: Cost of revenue Selling and marketing Technology and content General and administrative Amortization of intangible assets Legal reserves, occupancy tax and other Restructuring and related reorganization charges Intercompany (income...

  • Page 140
    ...In thousands) Eliminations Consolidated Revenue Costs and expenses: Cost of revenue Selling and marketing Technology and content General and administrative Amortization of intangible assets Legal reserves, occupancy tax and other Restructuring and related reorganization charges Intercompany (income...

  • Page 141
    ...: Cost of revenue Selling and marketing Technology and content General and administrative Amortization of intangible assets Acquistion-related and other Legal reserves, occupancy tax and other Intercompany (income) expense, net Operating income Other income (expense): Equity in pre-tax earnings...

  • Page 142
    ... 2015 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 debt...

  • Page 143
    ... activities Financing activities: Proceeds from issuance of long-term debt, net of debt issuance costs Purchases of treasury stock Proceeds from issuance of treasury stock Payment of dividends to stockholders Proceeds from exercise of equity awards and employee stock purchase plan Withholding taxes...

  • Page 144
    ...continuing operations Financing activities: Proceeds from issuance of long-term debt, net of issuance costs Purchases of treasury stock Proceeds from issuance of treasury stock Payment of dividends to stockholders Proceeds from exercise of equity awards and employee stock purchase plan Transfers (to...

  • Page 145
    ... acquired Other, net Net cash provided by (used in) investing activities from continuing operations Financing activities: Purchases of treasury stock Proceeds from issuance of treasury stock Payment of dividends to stockholders Proceeds from exercise of equity awards and employee stock purchase plan...

  • Page 146
    ... President, Chief Accounting Officer and Controller STOCKHOLDER INFORMATION Annual Meeting The annual meeting of stockholders will be held on September 14, 2016 at 11:00 a.m. local time, at 555 West 18th Street New York, New York 10011 Stock Market Listing Expedia, Inc.'s common stock is traded on...

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