Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-51447

EXPEDIA, INC.

(Exact name of registrant as specified in its charter)



Delaware		20-2705720

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

333 108 ^th Avenue NE
Bellevue, WA 98004

(Address of principal executive office) (Zip Code)

(425) 679-7200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of each of the registrant’s classes of common stock as of July 17, 2009 was:


Common stock, $0.001 par value per share		262,863,254 shares
Class B common stock, $0.001 par value per share		25,599,998 shares

Expedia, Inc.

Form 10-Q

For the Quarter Ended June 30, 2009

Contents


Part I Financial Information

Item 1 Consolidated Financial Statements
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008 (unaudited)			2
Consolidated Balance Sheets as of June 30, 2009 (unaudited), and December 31, 2008			3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (unaudited)			4
Notes to Consolidated Financial Statements (unaudited)			5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3 Quantitative and Qualitative Disclosures about Market Risk			33
Item 4 Controls and Procedures			34

Part II Other Information

Item 1 Legal Proceedings			35
Item 1A Risk Factors			39
Item 4 Submission of Matters to a Vote of Security Holders			40
Item 6 Exhibits			42

Signature			43
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

Part I. Item 1. Consolidated Financial Statements

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Revenue	$	769,768		$	795,048		$	1,405,480		$	1,482,865

Costs and expenses:
Cost of revenue (1)		148,762			170,027			292,275			322,287
Selling and marketing (1)		271,492			300,361			507,376			588,356
Technology and content (1)		77,881			71,544			155,553			143,490
General and administrative (1)		67,380			63,915			135,289			131,482
Amortization of intangible assets		9,302			18,660			18,371			36,711
Restructuring charges		6,098			—			14,816			—
Occupancy tax assessments and legal reserves		74,211			—			74,211			—

Operating income		114,642			170,541			207,589			260,539

Other income (expense):
Interest income		1,417			9,073			4,088			17,188
Interest expense		(20,805	)		(13,342	)		(42,450	)		(29,042	)
Other, net		(19,073	)		(5,098	)		(26,020	)		(8,771	)

Total other expense, net		(38,461	)		(9,367	)		(64,382	)		(20,625	)

Income before income taxes		76,181			161,174			143,207			239,914
Provision for income taxes		(34,338	)		(65,944	)		(61,610	)		(94,916	)

Net income		41,843			95,230			81,597			144,998
Net (income) loss attributable to noncontrolling interests		(941	)		859			(1,311	)		2,397

Net income attributable to Expedia, Inc.	$	40,902		$	96,089		$	80,286		$	147,395


Earnings per share attributable to Expedia, Inc. available to common stockholders:
Basic	$	0.14		$	0.34		$	0.28		$	0.52
Diluted		0.14			0.33			0.28			0.50

Shares used in computing earnings per share:
Basic		288,180			285,986			287,764			285,547
Diluted		290,889			293,999			289,384			294,010

(1) Includes stock-based compensation as follows:

Cost of revenue	$	514		$	663		$	1,225		$	1,243
Selling and marketing		2,780			2,719			6,771			6,471
Technology and content		3,412			3,406			8,588			8,228
General and administrative		6,870			8,066			15,564			16,718

Total stock-based compensation	$	13,576		$	14,854		$	32,148		$	32,660

See accompanying notes.

EXPEDIA, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)


	June 30,			December 31,
	2009			2008
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	862,294		$	665,412
Restricted cash and cash equivalents		20,569			3,356
Short-term investments		47,861			92,762
Accounts receivable, net of allowance of $13,509 and $12,584		371,417			267,270
Prepaid merchant bookings		102,077			66,081
Prepaid expenses and other current assets		112,748			103,833

Total current assets		1,516,966			1,198,714
Property and equipment, net		235,232			247,954
Long-term investments and other assets		54,901			75,593
Intangible assets, net		829,741			833,419
Goodwill		3,569,225			3,538,569

TOTAL ASSETS	$	6,206,065		$	5,894,249


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable, merchant	$	741,907		$	625,059
Accounts payable, other		194,501			150,534
Deferred merchant bookings		1,112,913			523,563
Deferred revenue		20,596			15,774
Accrued expenses and other current liabilities		322,732			251,238

Total current liabilities		2,392,649			1,566,168
Long-term debt		894,811			894,548
Credit facility		—			650,000
Deferred income taxes, net		198,005			189,541
Other long-term liabilities		230,534			213,028

Commitments and contingencies

Stockholders’ equity:
Preferred stock $.001 par value		—			—
Authorized shares: 100,000
Series A shares issued and outstanding: 1 and 1
Common stock $.001 par value		342			340
Authorized shares: 1,600,000
Shares issued: 341,519 and 339,525
Shares outstanding: 262,738 and 261,374
Class B common stock $.001 par value		26			26
Authorized shares: 400,000
Shares issued and outstanding: 25,600 and 25,600
Additional paid-in capital		6,001,925			5,979,484
Treasury stock — Common stock, at cost		(1,736,669	)		(1,731,235	)
Shares: 78,781 and 78,151
Retained earnings (deficit)		(1,835,273	)		(1,915,559	)
Accumulated other comprehensive loss		(5,760	)		(16,002	)

Total Expedia, Inc. stockholders’ equity		2,424,591			2,317,054
Noncontrolling interest		65,475			63,910

Total stockholders’ equity		2,490,066			2,380,964

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,206,065		$	5,894,249

See accompanying notes.

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

(Unaudited)


	Six months ended June 30,
	2009			2008
Operating activities:
Net income	$	81,597		$	144,998
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment, including internal-use software and website development		49,429			35,364
Amortization of intangible assets and stock-based compensation		50,519			69,371
Deferred income taxes		(7,112	)		(9,082	)
Gain on derivative instruments assumed at Spin-Off		—			(4,580	)
Equity in (income) loss of unconsolidated affiliates		(184	)		1,916
Foreign exchange loss on cash and cash equivalents, net		8,540			2,314
Realized gain on foreign currency forwards		(29,957	)		—
Other		7,982			1,147
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(99,853	)		(118,404	)
Prepaid merchant bookings and prepaid expenses		(40,883	)		(90,067	)
Accounts payable, merchant		115,710			124,336
Accounts payable, other, accrued expenses and other current liabilities		115,807			98,432
Deferred merchant bookings		589,298			608,288
Deferred revenue		3,657			7,021

Net cash provided by operating activities		844,550			871,054

Investing activities:
Capital expenditures, including internal-use software and website development		(42,052	)		(70,733	)
Acquisitions, net of cash acquired		(8,363	)		(178,313	)
Changes in long-term investments and deposits		1,522			(11,106	)
Proceeds from sale of business to a related party		—			1,624
Distribution from Reserve Primary Fund		9,083			—
Net settlement of foreign currency forwards		29,957			—
Maturities of short-term investments		45,091			—

Net cash provided by (used in) investing activities		35,238			(258,528	)

Financing activities:
Credit facility borrowings		—			90,000
Credit facility repayments		(650,000	)		(675,000	)
Proceeds from issuance of long-term debt, net of issuance costs		—			393,818
Changes in restricted cash and cash equivalents		(17,213	)		(11,838	)
Proceeds from exercise of equity awards		567			3,709
Excess tax benefit on equity awards		13			1,551
Treasury stock activity		(5,434	)		(11,215	)
Other, net		(5,907	)		—

Net cash used in financing activities		(677,974	)		(208,975	)
Effect of exchange rate changes on cash and cash equivalents		(4,932	)		6,616

Net increase in cash and cash equivalents		196,882			410,167
Cash and cash equivalents at beginning of period		665,412			617,386

Cash and cash equivalents at end of period	$	862,294		$	1,027,553


Supplemental cash flow information
Cash paid for interest	$	39,682		$	28,990
Income tax payments, net		99,303			48,657

See accompanying notes.

Notes to Consolidated Financial Statements

June 30, 2009

(Unaudited)

Note 1 — 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. These travel products and services are offered through a diversified portfolio of brands including: Expedia.com ^® , hotels.com ^® , Hotwire.com ^tm , Expedia Affiliate Network (formerly “Worldwide Travel Exchange and Interactive Affiliate Network”), Classic Vacations, Egencia ^tm , eLong ^tm , Inc. (“eLong”), TripAdvisor ^® Media Network and Venere Net SpA (“Venere”). 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.

Basis of Presentation

These accompanying financial statements present our results of operations, financial position and cash flows on a consolidated basis. The unaudited 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 future cash profits or losses. We have eliminated significant intercompany transactions and accounts.

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. Our interim unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2008, previously filed with the Securities and Exchange Commission (“SEC”).

Accounting Estimates

We use estimates and assumptions in the preparation of our interim unaudited consolidated financial statements in accordance with GAAP. Our estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our interim unaudited consolidated financial statements. These estimates and assumptions also affect the reported amount of net income during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our interim unaudited consolidated financial statements include revenue recognition; recoverability of current and long-lived assets, intangible assets and goodwill; income and indirect taxes, such as potential settlements related to occupancy taxes; loss contingencies; stock-based compensation and accounting for derivative instruments.

Reclassifications

We have reclassified certain amounts relating to our prior period results to conform to our current period presentation. During the first quarter of 2009, our development and information technology teams were effectively combined to better support our global brands. As a result of our reorganization, in addition to costs to develop and maintain our website and internal use applications, technology and content expense now also includes the majority of information technology costs such as costs to support and operate our network and back-office applications (including related data center costs), system monitoring and network security, and other technology leadership and support functions. The most significant reclassification of costs occurred between general and administrative expense and technology and content expense as,

Notes to Consolidated Financial Statements — (Continued)

historically, a significant portion of the information technology costs were within general and administrative expense. Technology costs to operate our live site and call center applications in production remained in cost of revenue.

The following table presents a summary of the amounts as reported and as reclassified in our consolidated statements of operations for the three and six months ended June 30, 2008:


	Three months ended				Six months ended
	June 30, 2008				June 30, 2008
	As reported		As reclassified		As reported		As reclassified
			(In thousands)
Cost of revenue	$	168,874	$	170,027	$	320,817	$	322,287
Selling and marketing		299,550		300,361		586,672		588,356
Technology and content		52,744		71,544		105,046		143,490
General and administrative		84,679		63,915		173,080		131,482

There was no change to operating income as a result of these reclassifications.

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 in our merchant business is generally recognized when the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks or longer. As a result, revenue is typically the lowest in the first quarter and highest in the third quarter.

Note 2 — Summary of Significant Accounting Policies

Recently Adopted Accounting Pronouncements

On January 1, 2008, we adopted certain provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 applies when another standard requires or permits assets or liabilities to be measured at fair value. Accordingly, SFAS 157 does not require any new fair value measurements. On January 1, 2009, we adopted the remaining provisions of SFAS 157 as it relates to nonfinancial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis. The adoption of SFAS 157 did not materially impact our consolidated financial statements.

On January 1, 2009, we adopted SFAS No. 141R, Business Combinations (“SFAS 141R”), which replaces SFAS 141. SFAS 141R applies to all transactions or other events in which an entity obtains control of one or more businesses and requires that all assets and liabilities of an acquired business as well as any noncontrolling interest in the acquiree be recorded at their fair values at the acquisition date. Contingent consideration arrangements are recognized at their acquisition date fair values, with subsequent changes in fair value generally reflected in earnings. Pre-acquisition contingencies are also typically recognized at their acquisition date fair values. In subsequent periods, contingent liabilities are measured at the higher of their acquisition date fair values or the estimated amounts to be realized. The adoption of SFAS 141R did not materially impact our consolidated financial statements but does change our accounting treatment for business combinations on a prospective basis.

On January 1, 2009, we adopted SFAS No. 160, Accounting and Reporting on Non-controlling Interest in Consolidated Financial Statements, an Amendment of ARB 51 (“SFAS 160”). SFAS 160 states that accounting and reporting for minority interests are to be recharacterized as noncontrolling interests and classified as a component of equity. The calculation of earnings per share continues to be based on income amounts attributable to the parent. SFAS 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but affects only those entities that have an

Notes to Consolidated Financial Statements — (Continued)

outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. Beginning on January 1, 2009, upon adoption of SFAS 160, we recharacterized our minority interest as a noncontrolling interest and classified it as a component of stockholders’ equity in our consolidated financial statements with the exception of shares redeemable at the option of the minority holders, which are not significant and have been classified as a liability.

On January 1, 2009, we adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The adoption of SFAS 161 did not materially impact our consolidated financial statements. See “Derivatives” below for applicable disclosures under SFAS 161.

During the second quarter of 2009, we adopted the three Staff Positions (“FSPs”) the Financial Accounting Standards Board (“FASB”) issued in April 2009 that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP FAS 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured. FSP FAS 115-2 and FAS 124-2 establishes a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. FSP FAS 107-1 and APB 28-1 expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to interim periods. The adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 did not materially impact our consolidated financial statements. FSP FAS 107-1 and APB 28-1 resulted in increased disclosures related to our debt.

During the second quarter of 2009, we adopted SFAS No. 165, Subsequent Events (“SFAS 165”), on a prospective basis. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption did not materially impact our consolidated financial statements. We have evaluated subsequent events through the time that we filed our financial statements on July 30, 2009.

New Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles. This standard replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes only two levels of U.S. GAAP, authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. We will begin to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of 2009. As the Codification does not change or alter existing GAAP, it will not have any impact on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities and is effective for fiscal years beginning after November 15, 2009. We are currently evaluating the impact the adoption of SFAS 167 will have on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets , an amendment to SFAS No. 140. The new standard eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires greater transparency of related disclosures. SFAS No. 166 is effective for fiscal years beginning after November 15, 2009. The adoption of SFAS 166 will not have an impact on our consolidated financial statements.

Notes to Consolidated Financial Statements — (Continued)

Other Assets

At December 31, 2008, we had $16 million in redemptions of money market holdings due from the Reserve Primary Fund (the “Fund”). During the first half of 2009, we received $9 million in distributions from the Fund. At June 30, 2009, we had a remaining $7 million in redemptions due from the Fund, of which $1 million was included in prepaid and other current assets and $6 million in long-term investments and other assets. We classified a portion of our holdings as long-term due to the Fund’s February 2009 announcement that it would not distribute a certain amount of fund assets until such time as pending claims and litigation against the Fund are settled. The timing of distribution of the remaining fund assets, including amounts set aside for pending litigation, cannot be determined at this time and we may be required to record additional losses in future periods as further information becomes available from the Fund.

Derivatives

Derivative instruments are carried at fair value on our consolidated balance sheets. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures and in lieu of holding certain foreign currency cash for the purpose of economically hedging our foreign currency-denominated merchant accounts payable and deferred merchant bookings balances. Our goal in managing our foreign exchange risk is to reduce, to the extent practicable, our potential exposure to the changes that exchange rates might have on our earnings, cash flows and financial position. Our foreign currency forward contracts are typically short-term and are recorded at fair value with gains and losses recorded in other, net. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets (a Level 2 input). We had a net forward asset of $1 million recorded in prepaid and other current assets as of June 30, 2009 and a net liability of $1 million recorded in accrued expenses and other current liabilities as of December 31, 2008. We recorded $28 million and $29 million in net gains from foreign currency forward contracts during the three and six months ended June 30, 2009.

Note 3 — Debt

The following table sets forth our outstanding debt:


	June 30,		December 31,
	2009		2008
	(In thousands)
8.5% senior notes due 2016, net of discount	$	394,811	$	394,548
7.456% senior notes due 2018		500,000		500,000

Long-term debt		894,811		894,548
Credit facility		—		650,000

Total long-term indebtedness	$	894,811	$	1,544,548

Long-term Debt

Our $400 million of senior unsecured notes outstanding at June 30, 2009 are due in July 2016 and bear interest at 8.5% (the “8.5% Notes”). The 8.5% Notes were issued at 98.572% of par resulting in a discount, which is being amortized over their life. Interest is payable semi-annually in January and July of each year, beginning January 1, 2009. The 8.5% Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. Prior to July 1, 2011, in the event of a qualified equity offering, we may redeem up to 35% of the 8.5% Notes at a redemption price of 108.5% of the principal plus accrued interest. Additionally, we may redeem the 8.5% Notes prior to July 1, 2012 in whole or in part at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium. On or after July 1, 2012, we may redeem the 8.5% Notes in whole or in part at specified prices ranging from 104.250% to 100% of the principal plus accrued interest.

Notes to Consolidated Financial Statements — (Continued)

Our $500 million in registered senior unsecured notes outstanding at June 30, 2009 are due in August 2018 and bear interest at 7.456% (the “7.456% Notes”). Interest is payable semi-annually in February and August of each year. The 7.456% Notes are repayable in whole or in part on August 15, 2013, at the option of the holders of such 7.456% Notes, at 100% of the principal amount plus accrued interest. We may redeem the 7.456% Notes in accordance with the terms of the agreement, in whole or in part at any time at our option.

Based on quoted market prices, the fair value of our 7.456% Notes was approximately $478 million and $365 million as of June 30, 2009 and December 31, 2008, and the fair value of our 8.5% Notes was approximately $387 million and $280 million as of June 30, 2009 and December 31, 2008.

The 7.456% and 8.5% Notes are senior unsecured obligations guaranteed by certain domestic Expedia subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. For further information, see Note 10 — Guarantor and Non-Guarantor Supplemental Financial Information. Accrued interest related to the 7.456% and 8.5% Notes was $31 million and $32 million as of June 30, 2009 and December 31, 2008.

Credit Facility

Expedia, Inc. maintains a $1 billion unsecured revolving credit facility with a group of lenders, which is unconditionally guaranteed by certain domestic Expedia subsidiaries and expires in August 2010. No amounts were outstanding as of June 30, 2009. We had $650 million outstanding under the revolving credit facility as of December 31, 2008. The facility bears interest based on market interest rates plus a spread, which is determined based on our financial leverage. The interest rate was 1.34% as of December 31, 2008. On February 18, 2009, we amended our credit facility to replace a tangible net worth covenant with a minimum interest coverage covenant, among other changes. As part of this amendment our leverage ratio was tightened, pricing on our borrowings increased by 200 basis points and we paid approximately $6 million in fees, which is being amortized over the remaining term of the credit facility. The annual fee to maintain the facility ranges from 0.4% to 0.5% on the unused portion of the facility, or approximately $4 million to $5 million if all of the facility is unused. The facility also contains financial covenants consisting of a leverage ratio and an interest expense coverage ratio.

The amount of stand-by letters of credit (“LOC”) issued under the facility reduces the credit amount available. As of June 30, 2009, and December 31, 2008, there was $50 million and $58 million of outstanding stand-by LOCs issued under the facility.

Note 4 — Stockholders’ Equity

Stock-based Awards

Stock-based compensation expense relates primarily to expense for restricted stock units (“RSUs”) and stock options. Our RSUs generally vest over five years and our stock options generally vest over four years.

As of June 30, 2009, we had stock-based awards outstanding representing approximately 27 million shares of our common stock consisting of options to purchase approximately 19 million shares of our common stock with a weighted average exercise price of $15.47 and weighted average remaining life of 5.6 years and approximately 8 million RSUs.

Annual employee stock-based award grants typically occur during the first quarter of each year. In the first quarter of 2009, we awarded stock options as our primary form of stock-based compensation. During the six months ended June 30, 2009, we granted 10 million options and 1 million RSUs. During the six months ended June 30, 2008, we granted 3 million RSUs.

The fair value of the stock options granted during the six months ended June 30, 2009 was estimated at the date of grant using the Black-Scholes option-pricing model and was $33 million.

Notes to Consolidated Financial Statements — (Continued)

Comprehensive Income

Comprehensive income was $77 million and $96 million for the three months ended June 30, 2009 and 2008, and $91 million and $143 million for the six months ended June 30, 2009 and 2008. The primary difference between net income attributable to Expedia, Inc. as reported and comprehensive income was foreign currency translation adjustments.

Note 5 — Earnings Per Share

The following table presents our basic and diluted earnings per share:


	Three months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
	(In thousands, except per share data)
Net income attributable to Expedia, Inc.	$	40,902	$	96,089	$	80,286	$	147,395

Earnings per share attributable to Expedia, Inc. available to common stockholders:
Basic	$	0.14	$	0.34	$	0.28	$	0.52
Diluted		0.14		0.33		0.28		0.50

Weighted average number of shares outstanding:
Basic		288,180		285,986		287,764		285,547

Dilutive effect of:
Options to purchase common stock		2,067		1,270		1,090		1,371
Warrants to purchase common stock		32		5,457		16		5,540
Other dilutive securities		610		1,286		514		1,552

Diluted		290,889		293,999		289,384		294,010

The earnings per share amounts are the same for common stock and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

Note 6 — Other, Net

The following table presents the components of other, net:


	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
				(In thousands)
Foreign exchange rate losses, net	$	(14,457	)	$	(3,808	)	$	(20,833	)	$	(11,632	)
Noncontrolling investment basis adjustment		(5,158	)		—			(5,158	)		—
Equity income (loss) of unconsolidated affiliates		512			(1,093	)		184			(1,916	)
Gain (loss) on derivative instruments assumed at Spin-Off		—			(400	)		—			4,580
Other		30			203			(213	)		197

Total	$	(19,073	)	$	(5,098	)	$	(26,020	)	$	(8,771	)

During the second quarter of 2009, we acquired an additional interest in one of our equity method investments for $3 million in cash, resulting in a 60% majority ownership interest in that entity. In conjunction with the acquisition, we remeasured our previously held equity interest to fair value and recognized the resulting loss of $5 million in other, net during the period. The fair value was determined based on various valuation techniques, including market comparables and discounted cash flow projections (Level 3 inputs). Our investment agreement contains certain rights, whereby we may acquire and the investee may sell to us the additional shares of the company, at fair value or at established multiples of future earnings at our discretion, during the first quarter of 2011 and 2013.

Notes to Consolidated Financial Statements — (Continued)

Note 7 — Restructuring Charges

In conjunction with the reorganization of our business around our global brands, we recognized $15 million in restructuring charges during the six months ended June 30, 2009. The domestic restructuring charges are expected to be substantially completed by the end of 2009, and our international restructuring charges in the first half of 2010.

The following table summarizes the restructuring activity for the six months ended June 30, 2009:


	Employee
	Severance and
	Benefits			Other			Total
	(In thousands)
Accrued liability as of January 1, 2009	$	—		$	—		$	—
Charges		13,475			1,341			14,816
Payments		(5,812	)		(350	)		(6,162	)
Non-cash items		(101	)		(613	)		(714	)

Accrued liability as of June 30, 2009	$	7,562		$	378		$	7,940

Note 8 — Commitments and Contingencies

Legal Proceedings

In the ordinary 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 tax, transient occupancy or accommodation tax and similar matters.

Litigation Relating to Hotel Occupancy Taxes. Lawsuits have been filed by fifty-four cities and counties involving hotel occupancy taxes. In addition, there have been six consumer lawsuits filed relating to taxes and fees. The municipality and consumer lawsuits are in various stages ranging from responding to the complaint to dismissal or settlement. We continue to defend these lawsuits vigorously. To date, sixteen of the municipality lawsuits have been dismissed. Most of these dismissals have been without prejudice and, generally, allow the municipality to seek administrative remedies prior to pursuing further litigation. Five dismissals (Pitt County, North Carolina; Findlay, Ohio; Columbus and Dayton, Ohio; City of Orange, Texas; and Louisville, Kentucky) were based on a finding that the defendants were not subject to the local hotel occupancy tax ordinance. As a result of this litigation and other attempts by certain jurisdictions to levy similar taxes, we have established a reserve for the potential settlement of issues related to hotel occupancy taxes in the amount of $21 million and $20 million at June 30, 2009 and December 31, 2008. Our reserve is based on our best estimate and the ultimate resolution of these issues may be greater or less than the liabilities recorded.

In connection with various occupancy tax audits and assessments, certain jurisdictions may assert that tax payers are required to pay any assessed taxes prior to being allowed to contest or litigate the applicability of the ordinances, which is referred to as “pay to play.” These jurisdictions may attempt to require that we pay any assessed taxes prior to being allowed to contest or litigate the applicability of similar tax ordinances. Payment of these amounts is not an admission that we believe we are subject to such taxes and, even when such payments are made, we will continue to defend our position vigorously. On March 30, 2009, the California Superior Court for Orange County determined we are not required to make a payment in order to litigate in Anaheim, California. During the quarter ended June 30, 2009, we accrued and, on July 13, 2009, we paid $35 million to the City of San Francisco for amounts assessed for hotel occupancy tax from January 2000 to March 2009. We have also accrued $20 million for additional assessments that it is probable we will pay in the third quarter of 2009 related to the same issue. We paid and expect to pay such amounts in order to be allowed to pursue litigation challenging whether we are required to pay hotel occupancy tax on the portion of the customer payment we retain as compensation and, if so, the actual amounts owed. We do not believe that the amounts we retain as compensation are

Notes to Consolidated Financial Statements — (Continued)

subject to the city’s hotel occupancy tax ordinance. If we prevail in the litigation, the city will be required to repay these amounts, plus interest.

Class Action Lawsuit . We are a defendant in a class action lawsuit filed in Seattle, Washington alleging that certain practices related to our service fees breached our Terms of Use and violated Washington’s Consumer Protection Act from 2001 through 2008. In May 2009, the court granted the plaintiffs’ motion for summary judgment on their breach of contract claim, without the benefit of an actual trial on the merits, and denied the plaintiffs’ motion for summary judgment on their Consumer Protection Act claim. The court concluded that the damages for the alleged breach were approximately $185 million. We have entered into a Settlement Agreement providing for the settlement of all claims alleged in the lawsuit. The Settlement is subject to court approval and a preliminary settlement hearing is currently scheduled for August 10, 2009; final approval of the Settlement is not expected until late 2009. We have denied and continue to deny all of the allegations and claims asserted in the lawsuit, including claims that the plaintiffs have suffered any harm or damages. We do not admit liability or the truth of any of the allegations in the lawsuit and are attempting to settle the case to avoid costly and time-consuming litigation. We have estimated the range of possible loss associated with the settlement to be $19 million to $134 million and have accrued $19 million as of June 30, 2009, our best estimate of the low end of the range of the losses probable to be incurred .

Note 9 — Segment Information

Beginning in the first quarter of 2009, we have three reportable segments: Leisure, the TripAdvisor Media Network and Egencia. The change from two reportable segments, North America and Europe, was a result of the reorganization of our business around our global brands. We determined our segments based on how our chief operating decision makers manage our business, make operating decisions and evaluate operating performance. Our primary operating metric for evaluating segment performance is Operating Income Before Amortization (“OIBA”). OIBA for our Leisure and Egencia segments includes allocations of certain expenses, primarily cost of revenue and facilities, and our Leisure segment includes the total costs of our Partner Services Group. We base the allocations primarily on transaction volumes and other usage metrics; this methodology is periodically evaluated and may change. We do not allocate certain shared expenses such as accounting, human resources, information technology and legal to our reportable segments. We include these expenses in Corporate and Eliminations.

Our Leisure segment 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, Expedia Affiliate Network, Hotwire.com, Venere, eLong and Classic Vacations. Our TripAdvisor Media Network segment provides advertising services to travel suppliers on its websites, which aggregate traveler opinions and unbiased travel articles about cities, hotels, restaurants and activities in a variety of destinations through tripadvisor.com and its localized international versions as well as through its various travel media content properties within the TripAdvisor Media Network. Our Egencia segment provides managed travel services to corporate customers in North America, Europe, and the Asia Pacific region.

Concurrent with the change to three reportable segments, we have expanded our segment disclosure to include intersegment revenues, which primarily consist of advertising and media services provided by our TripAdvisor Media Network segment to our Leisure segment. These intersegment transactions are recorded by each segment at estimated fair value as if the transactions were with third parties and, therefore, impact segment performance. However, the revenue and corresponding expense are eliminated in consolidation. The elimination of such intersegment transactions is included within “Corporate and Eliminations” in the table below.

Corporate and Eliminations also includes unallocated corporate functions and expenses. In addition, we record amortization of intangible assets and any related impairment, as well as stock-based compensation expense, restructuring charges and other items excluded from segment operating performance in Corporate and Eliminations. Such amounts are detailed in our segment reconciliation below.

Notes to Consolidated Financial Statements — (Continued)

The following tables present our segment information for the three and six months ended June 30, 2009 and 2008. As a significant portion of our property and equipment is not allocated to our operating segments, we do not report the assets or related depreciation expense as it would not be meaningful, nor do we regularly provide such information to our chief operating decision makers.


	Three months ended June 30, 2009
			TripAdvisor Media					Corporate &
	Leisure		Media Network		Egencia			Eliminations			Total
	(In thousands)
Third-party Revenue	$	689,975	$	53,159	$	26,634		$	—		$	769,768
Intersegment Revenue		—		36,916		—			(36,916	)		—

Revenue	$	689,975	$	90,075	$	26,634		$	(36,916	)	$	769,768


Operating Income Before Amortization	$	233,199	$	52,010	$	(128	)	$	(72,665	)	$	212,416
Amortization of intangible assets		—		—		—			(9,302	)		(9,302	)
Stock-based compensation		—		—		—			(13,576	)		(13,576	)
Restructuring charges		—		—		—			(6,098	)		(6,098	)
Occupancy tax assessments and legal reserves									(74,211	)		(74,211	)
Realized loss on revenue hedges		—		—		—			5,413			5,413

Operating income (loss)	$	233,199	$	52,010	$	(128	)	$	(170,439	)		114,642

Other expense, net												(38,461	)

Income before income taxes												76,181
Provision for income taxes												(34,338	)

Net income												41,843
Net income attributable to noncontrolling interests												(941	)

Net income attributable to Expedia, Inc.											$	40,902


	Three months ended June 30, 2008
			TripAdvisor				Corporate &
	Leisure		Media Network		Egencia		Eliminations			Total
	(In thousands)
Third-party Revenue	$	711,652	$	53,495	$	29,901	$	—		$	795,048
Intersegment Revenue		—		25,948		—		(25,948	)		—

Revenue	$	711,652	$	79,443	$	29,901	$	(25,948	)	$	795,048


Operating Income Before Amortization	$	231,206	$	44,618	$	2,091	$	(73,860	)	$	204,055
Amortization of intangible assets		—		—		—		(18,660	)		(18,660	)
Stock-based compensation		—		—		—		(14,854	)		(14,854	)

Operating income (loss)	$	231,206	$	44,618	$	2,091	$	(107,374	)		170,541

Other expense, net											(9,367	)

Income before income taxes											161,174
Provision for income taxes											(65,944	)

Net income											95,230
Net loss attributable to noncontrolling interests											859

Net income attributable to Expedia, Inc.										$	96,089

Notes to Consolidated Financial Statements — (Continued)


	Six months ended June 30, 2009
			TripAdvisor					Corporate &
	Leisure		Media Network		Egencia			Eliminations			Total
	(In thousands)
Third-party Revenue	$	1,249,174	$	104,633	$	51,673		$	—		$	1,405,480
Intersegment Revenue		—		70,944		—			(70,944	)		—

Revenue	$	1,249,174	$	175,577	$	51,673		$	(70,944	)	$	1,405,480


Operating Income Before Amortization	$	383,600	$	100,091	$	(1,348	)	$	(140,140	)	$	342,203
Amortization of intangible assets		—		—		—			(18,371	)		(18,371	)
Stock-based compensation		—		—		—			(32,148	)		(32,148	)
Restructuring charges		—		—		—			(14,816	)		(14,816	)
Occupancy tax assessments and legal reserves									(74,211	)		(74,211	)
Realized loss on revenue hedges		—		—		—			4,932			4,932

Operating income (loss)	$	383,600	$	100,091	$	(1,348	)	$	(274,754	)		207,589

Other expense, net												(64,382	)

Income before income taxes												143,207
Provision for income taxes												(61,610	)

Net income												81,597
Net income attributable to noncontrolling interests												(1,311	)

Net income attributable to Expedia, Inc.											$	80,286


	Six months ended June 30, 2008
			TripAdvisor				Corporate &
	Leisure		Media Network		Egencia		Eliminations			Total
	(In thousands)
Third-party Revenue	$	1,324,474	$	100,841	$	57,550	$	—		$	1,482,865
Intersegment Revenue		—		50,472		—		(50,472	)		—

Revenue	$	1,324,474	$	151,313	$	57,550	$	(50,472	)	$	1,482,865


Operating Income Before Amortization	$	394,337	$	79,972	$	3,989	$	(148,388	)	$	329,910
Amortization of intangible assets		—		—		—		(36,711	)		(36,711	)
Stock-based compensation		—		—		—		(32,660	)		(32,660	)

Operating income (loss)	$	394,337	$	79,972	$	3,989	$	(217,759	)		260,539

Other expense, net											(20,625	)

Income before income taxes											239,914
Provision for income taxes											(94,916	)

Net income											144,998
Net loss attributable to noncontrolling interests											2,397

Net income attributable to Expedia, Inc.										$	147,395

Notes to Consolidated Financial Statements — (Continued)

NOTE 10 — Guarantor and Non-Guarantor Supplemental Financial Information

Condensed consolidating financial information of Expedia, Inc. (the “Parent”), our subsidiaries that are guarantors of our debt facility and instruments (the “Guarantor Subsidiaries”), and our subsidiaries that are not guarantors of our debt facility and instruments (the “Non-Guarantor Subsidiaries”) is shown below. The debt facility and instruments are guaranteed by certain of our wholly-owned domestic subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The guarantees are full, unconditional, joint and several. In this financial information, the Parent and Guarantor Subsidiaries account for investments in their wholly-owned subsidiaries using the equity method.

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2009
(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	660,787		$	205,433		$	(96,452	)	$	769,768

Costs and expenses:
Cost of revenue		—			119,740			30,284			(1,262	)		148,762
Selling and marketing		—			257,164			109,517			(95,189	)		271,492
Technology and content		—			62,411			15,464			6			77,881
General and administrative		—			44,789			22,598			(7	)		67,380
Amortization of intangible assets		—			2,841			6,461			—			9,302
Restructuring charges		—			3,771			2,327			—			6,098
Occupancy tax assessments and legal reserves					74,211			—			—			74,211

Operating income		—			95,860			18,782			—			114,642

Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries		52,566			1,269			—			(53,835	)		—
Other, net		(18,188	)		(13,966	)		(6,307	)		—			(38,461	)

Total other income (expense), net		34,378			(12,697	)		(6,307	)		(53,835	)		(38,461	)

Income before income taxes		34,378			83,163			12,475			(53,835	)		76,181
Provision for income taxes		6,524			(29,247	)		(11,615	)		—			(34,338	)

Net income		40,902			53,916			860			(53,835	)		41,843
Net income attribuatable to noncontrolling interest		—			—			(941	)		—			(941	)

Net income (loss) attributable to Expedia, Inc.	$	40,902		$	53,916		$	(81	)	$	(53,835	)	$	40,902

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2008
(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	717,789		$	189,752		$	(112,493	)	$	795,048

Costs and expenses:
Cost of revenue		—			143,007			28,027			(1,007	)		170,027
Selling and marketing		—			298,769			113,013			(111,421	)		300,361
Technology and content		—			57,884			13,645			15			71,544
General and administrative		—			41,071			22,924			(80	)		63,915
Amortization of intangible assets		—			15,905			2,755			—			18,660

Operating income		—			161,153			9,388			—			170,541

Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries		102,598			5,413			—			(108,011	)		—
Other, net		(10,468	)		4,635			(3,534	)		—			(9,367	)

Total other income (expense), net		92,130			10,048			(3,534	)		(108,011	)		(9,367	)

Income before income taxes		92,130			171,201			5,854			(108,011	)		161,174
Provision for income taxes		3,959			(67,702	)		(2,201	)		—			(65,944	)

Net income		96,089			103,499			3,653			(108,011	)		95,230
Net loss attributable to noncontrolling interest		—			—			859			—			859

Net income attributable to Expedia, Inc.	$	96,089		$	103,499		$	4,512		$	(108,011	)	$	96,089

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Six Months Ended June 30, 2009
(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	1,210,843		$	369,746		$	(175,109	)	$	1,405,480

Costs and expenses:
Cost of revenue		—			237,533			57,146			(2,404	)		292,275
Selling and marketing		—			473,772			206,278			(172,674	)		507,376
Technology and content		—			125,042			30,502			9			155,553
General and administrative		—			90,916			44,413			(40	)		135,289
Amortization of intangible assets		—			5,680			12,691			—			18,371
Restructuring charges		—			10,775			4,041			—			14,816
Occupancy tax assessments and legal reserves					74,211			—						74,211

Operating income		—			192,914			14,675			—			207,589

Other income (expense):
Equity in pre-tax earnings (losses) of consolidated subsidiaries		103,376			(1,551	)		—			(101,825	)		—
Other, net		(36,363	)		(20,777	)		(7,242	)		—			(64,382	)

Total other income (expense), net		67,013			(22,328	)		(7,242	)		(101,825	)		(64,382	)

Income before income taxes		67,013			170,586			7,433			(101,825	)		143,207
Provision for income taxes		13,273			(64,901	)		(9,982	)		—			(61,610	)

Net income (loss)		80,286			105,685			(2,549	)		(101,825	)		81,597
Net income attribuatable to noncontrolling interest		—			—			(1,311	)		—			(1,311	)

Net income (loss) attributable to Expedia, Inc.	$	80,286		$	105,685		$	(3,860	)	$	(101,825	)	$	80,286

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Six Months Ended June 30, 2008
(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	1,337,103		$	362,740		$	(216,978	)	$	1,482,865

Costs and expenses:
Cost of revenue		—			270,586			53,842			(2,141	)		322,287
Selling and marketing		—			580,438			222,746			(214,828	)		588,356
Technology and content		—			118,333			25,124			33			143,490
General and administrative		—			86,484			45,040			(42	)		131,482
Amortization of intangible assets		—			31,903			4,808			—			36,711

Operating income		—			249,359			11,180			—			260,539

Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries		154,816			3,004			—			(157,820	)		—
Other, net		(14,983	)		5,251			(10,893	)		—			(20,625	)

Total other income (expense), net		139,833			8,255			(10,893	)		(157,820	)		(20,625	)

Income before income taxes		139,833			257,614			287			(157,820	)		239,914
Provision for income taxes		7,562			(101,122	)		(1,356	)		—			(94,916	)

Net income (loss)		147,395			156,492			(1,069	)		(157,820	)		144,998
Net loss attributable to noncontrolling interest		—			—			2,397			—			2,397

Net income attributable to Expedia, Inc.	$	147,395		$	156,492		$	1,328		$	(157,820	)	$	147,395

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2009
(In thousands)


			Guarantor		Non-Guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS

Total current assets	$	55,344	$	1,895,449	$	392,924	$	(826,751	)	$	1,516,966
Investment in subsidiaries		3,915,163		569,048		—		(4,484,211	)		—
Intangible assets, net		—		680,104		149,637		—			829,741
Goodwill		—		3,015,769		553,456		—			3,569,225
Other assets, net		3,590		192,034		94,509		—			290,133

TOTAL ASSETS	$	3,974,097	$	6,352,404	$	1,190,526	$	(5,310,962	)	$	6,206,065


LIABILITIES AND STOCKHOLDERS’ EQUITY

Total current liabilities	$	589,220	$	2,088,603	$	541,577	$	(826,751	)	$	2,392,649
Long-term debt		894,811		—		—		—			894,811
Other liabilities		—		337,588		90,951		—			428,539
Stockholders’ equity		2,490,066		3,926,213		557,998		(4,484,211	)		2,490,066

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,974,097	$	6,352,404	$	1,190,526	$	(5,310,962	)	$	6,206,065

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2008
(In thousands)


			Guarantor		Non-Guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS

Total current assets	$	42,084	$	1,784,614	$	348,496	$	(976,480	)	$	1,198,714
Investment in subsidiaries		3,799,986		545,401		—		(4,345,387	)		—
Intangible assets, net		—		687,786		145,633		—			833,419
Goodwill		—		3,015,958		522,611		—			3,538,569
Other assets, net		4,063		214,663		104,821		—			323,547

TOTAL ASSETS	$	3,846,133	$	6,248,422	$	1,121,561	$	(5,321,867	)	$	5,894,249


LIABILITIES AND STOCKHOLDERS’ EQUITY

Total current liabilities	$	570,621	$	1,433,356	$	538,671	$	(976,480	)	$	1,566,168
Long-term debt		894,548		—		—		—			894,548
Credit facility		—		650,000		—		—			650,000
Other liabilities		—		355,561		47,008		—			402,569
Stockholders’ equity		2,380,964		3,809,505		535,882		(4,345,387	)		2,380,964

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,846,133	$	6,248,422	$	1,121,561	$	(5,321,867	)	$	5,894,249

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2009
(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Operating activities:
Net cash provided by operating activities	$	—		$	824,351		$	20,199		$	844,550

Investing activities:
Net cash provided by investing activities		—			11,270			23,968			35,238

Financing activities:
Credit facility repayments		—			(650,000	)		—			(650,000	)
Transfers (to) from related parties		4,895			(12,866	)		7,971			—
Other, net		(4,895	)		(14,009	)		(9,070	)		(27,974	)

Net cash used in financing activities		—			(676,875	)		(1,099	)		(677,974	)
Effect of exchange rate changes on cash and cash equivalents		—			(8,587	)		3,655			(4,932	)

Net increase in cash and cash equivalents		—			150,159			46,723			196,882
Cash and cash equivalents at beginning of period		—			538,341			127,071			665,412

Cash and cash equivalents at end of period	$	—		$	688,500		$	173,794		$	862,294

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2008
(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Operating activities:
Net cash provided by operating activities	$	—		$	739,072		$	131,982		$	871,054

Investing activities:
Acquisitions, net of cash acquired		—			—			(178,313	)		(178,313	)
Other, net		—			(70,382	)		(9,833	)		(80,215	)

Net cash used in investing activities		—			(70,382	)		(188,146	)		(258,528	)

Financing activities:
Credit facility borrowings		—			90,000			—			90,000
Credit facility repayments		—			(675,000	)		—			(675,000	)
Proceeds from issuance of long-term debt, net of issuance costs		393,818			—			—			393,818
Transfers (to) from related parties		(383,710	)		307,630			76,080			—
Other, net		(10,108	)		(11,850	)		4,165			(17,793	)

Net cash provided by (used in) financing activities		—			(289,220	)		80,245			(208,975	)
Effect of exchange rate changes on cash and cash equivalents		—			9,707			(3,091	)		6,616

Net increase in cash and cash equivalents		—			389,177			20,990			410,167
Cash and cash equivalents at beginning of period		—			379,199			238,187			617,386

Cash and cash equivalents at end of period	$	—		$	768,376		$	259,177		$	1,027,553

Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, but not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2008, Part I, Item 1A, “Risk Factors,” as well as those discussed elsewhere in this report. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition and results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”) that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

Expedia, Inc. is an online travel company, empowering business and leisure travelers with the tools and information they need to efficiently research, plan, book and experience travel. We have created a global travel marketplace used by a broad range of leisure and 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 product and service companies. We also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on both the TripAdvisor Media Network and on our transaction-based websites.

Our portfolio of brands includes Expedia.com ^® , hotels.com ^® , Hotwire.com ^tm , Expedia Affiliate Network (formerly “Worldwide Travel Exchange and Interactive Affiliate Network”), Classic Vacations, Egencia ^tm , eLong ^tm , TripAdvisor ^® Media Network and Venere Net SpA (“Venere”). In addition, many of these brands have related international points of sale. For additional information about our portfolio of brands, see “Portfolio of Brands” in Part I, Item 1, “Business,” in our Annual Report on Form 10-K for the year ended December 31, 2008.

Trends

The travel industry, including offline agencies, online agencies and other suppliers of travel products and services, has been characterized by intense competition, as well as rapid and significant change. In addition, beginning in late 2008, global economic and financial market conditions worsened markedly, creating uncertainty for travelers and suppliers. This macroeconomic downturn has pressured discretionary spending on travel and advertising, with weakness initially identified in the United States and the United Kingdom markets increasing and spreading to all geographies. We cannot predict the magnitude or duration of this downturn, and our current limited visibility does not suggest any meaningful, near-term improvement.

In late April 2009, the World Health Organization acknowledged an outbreak of swine influenza, which was categorized as a pandemic in June 2009, with reported cases in Mexico and eight other countries. In response, travel advisories were issued by several countries against non-essential travel, primarily to Mexico. We are unable to predict the longer-term impact of the swine flu outbreak on the travel industry generally, or our business in particular. However, concerns relating to the health-risk posed by the swine flu could result in a decrease and/or delay in demand for our travel services. This decrease and/or delay in demand, depending on its scope and duration, could adversely affect our business and financial performance.

Airline Sector

The airline sector in particular has historically experienced significant turmoil. U.S. airlines have responded to chronic overcapacity, financial losses and extreme volatility in oil prices by aggressively reducing their cost structures and seating capacities. Reduced seating capacities are generally negative for Expedia as there is less air supply available on our websites, and in turn less opportunity to facilitate hotel rooms, car rental and other services on behalf of air travelers. Many carriers have continued reducing capacity in 2009, and have delayed or cancelled plans for capacity expansion in 2010 and beyond.

In 2008, many carriers raised their per seat yields by increasing fares, assessing fuel surcharges and increasing the use of a la carte pricing for such items as baggage, food and beverage and preferred seating. Fare increases, fuel surcharges and other fees are also generally negative for Expedia’s business, as they may negatively impact traveler demand with no corresponding increase in our remuneration as our air revenue is tied principally to ticket volumes, not prices. Fare increases were especially pronounced through the first three quarters of 2008, but began to moderate in the fourth quarter of 2008. In the first half of 2009, airfares have declined 18% as carriers attempt to fill planes in a time of slower demand.

In addition to capacity and pricing actions, carriers have responded to industry conditions by aggressively reducing costs in every aspect of their operations, including distribution costs. Prior to 2008, airlines lowered (and in some cases, eliminated) travel agent commissions and overrides, and increased direct distribution through their proprietary websites. Carriers also reduced payments to global distribution systems (“GDS”) intermediaries, which have historically passed on a portion of these payments to large travel agents, including Expedia. In 2009, Expedia.com and other major online travel agencies began offering air tickets to consumers without an associated online booking fee, matching the airline supplier sites, which also do not charge online booking fees. The fee removal contributed to lower revenue per ticket for Expedia in the first half of 2009.

Primarily as a result of decreased costs of distribution and reduced access to excess air supply, Expedia’s revenue per air ticket decreased more than 10% in each of 2005, 2006 and 2007, and by 2008 air revenue constituted less than 15% of the Company’s global revenue. We saw greater stability in air revenue per ticket during 2008 due to our signing long-term agreements with nine of the top ten domestic carriers and three GDS providers in prior years, as well as an increase in booking fees for Expedia.com travelers. However, in the first half of 2009, in part due to our booking fee removal, our revenue per ticket has declined 22%. We may encounter additional pressure on air remuneration as certain supply agreements renew in 2009 and beyond.

In addition to the above challenges, larger carriers participating in the Expedia marketplace have generally reduced their share of total air seat capacity, while leading low-cost carriers such as Southwest in the United States and EasyJet in Europe have increased their relative capacities, but have generally chosen not to participate in the Expedia marketplace. This trend

has negatively impacted our ability to obtain supply in our air business, and increased the relative attractiveness of some other online and offline sales channels.

Hotel Sector

In 2008, the hotel sector witnessed continued supply growth and rapidly slowing demand, resulting in declining occupancy rates. Average daily rate (“ADR”) growth, which had been robust in 2006 and 2007, slowed considerably throughout 2008, and by the fourth quarter was declining year-over-year. Some key leisure travel markets for Expedia, such as Las Vegas and Hawaii, have seen dramatic year-on-year declines in ADRs. In 2009, we have experienced a further weakening in ADRs due primarily to weak travel demand and continued supply expansion, resulting in declining industry occupancy rates.

While lower occupancies have historically increased our supply of merchant hotel rooms, and a lower rate of ADR growth can positively impact underlying room night growth, lower ADRs also decrease our revenue per room night as our remuneration varies proportionally with the room price. ADRs on Expedia’s worldwide sites grew 7% in 2007, but declined 1% in 2008, including a 10% decrease in the fourth quarter of 2008 compared to the same period in 2007. In the first half of 2009, ADRs declined 19% compared to the same period in 2008. Our hotel remuneration is also impacted by our hotel margins, which have declined recently due to adverse movements in foreign exchange rates, lower fees and more competitive hotel pricing.

Industry sources now forecast year-on-year declines in 2009 occupancies and ADRs that are even more severe than those experienced after the 9/11 terror events. These sources call for additional declines in these metrics in 2010. These trends, combined with softer demand in a weakening economy and lower air capacity into our core leisure travel destinations, create a challenging backdrop for our hotel business, which is the largest source of revenue and profitability for Expedia. Through the first half of 2009, Expedia’s ADR declines have exceeded the industry as hotels have made proportionately more promotional inventory available to us.

Online Travel

Increased usage and familiarity with the internet have driven rapid growth in online penetration of travel expenditures. According to PhoCusWright, an independent travel, tourism and hospitality research firm, in 2008 approximately 58% of U.S. leisure, unmanaged and corporate travel expenditures occurred online, compared with approximately 33% of European travel. Online penetration in the Asia Pacific region is estimated to lag behind that of Europe. These penetration rates have increased over the past few years, and are expected to continue growing. This significant growth has attracted many competitors to online travel. This competition has intensified in recent years, and the industry is expected to remain highly competitive for the foreseeable future.

In addition to the growth of online travel agencies, airlines and lodging companies have aggressively pursued direct online distribution of their products and services, and supplier growth has outpaced online agency growth since 2002. As a result, according to PhoCusWright, by 2008 travel supplier sites accounted for 61% of total online travel spend in the United States. PhoCusWright forecasts that suppliers’ share of online travel has reached an inflection point, and will remain relatively constant in 2009 and 2010, although recent fee actions by the online travel agencies could lead to a decrease in supplier share in the near-term.

Differentiation among the various website offerings has narrowed dramatically in the past several years, and the travel landscape has grown extremely competitive, with the need for competitors to generally differentiate their offerings on features other than price. Newer competitive entrants such as “meta search” companies have in some cases been able to introduce differentiated features and content compared with the legacy online travel agency companies; although in most cases they are not providing actual travel booking services. Some of these competitors have raised significant amounts of capital and plan to aggressively advertise their service offerings. In early 2009, TripAdvisor.com launched a competitive meta search travel offering featuring a Fee Estimator enabling customers to see the price of their flight including various airline fees such as baggage charges.

The online travel industry has also seen the development of alternative business models and variations in the timing of payment by travelers and to suppliers, which in some cases place pressure on historical business models. In particular, the agency hotel model has seen rapid adoption in Europe, and Expedia has only recently introduced a competitive offering.

Over the long-term, intense competition has also led to aggressive marketing spend by the travel suppliers and intermediaries, and a meaningful reduction in our overall marketing efficiency and operating margins. In the first half of 2009, we have seen a reversal of these trends, but there can be no assurance that reversal will continue in the future.

Strategy

We play a fundamental role in facilitating travel, whether for leisure, unmanaged business or managed business travelers. We are committed to providing travelers, travel suppliers and advertisers the world over with the best set of resources to serve their travel needs by leveraging Expedia’s critical assets — our brand portfolio, our technology and content innovation, our global reach and our breadth of product offering. In addition, we intelligently utilize our growing base of knowledge about destinations, activities, suppliers and travelers and our central position in the travel value chain to more effectively merchandise our travel offerings.

A discussion of the critical assets that we leverage in achieving our business strategy follows:

Portfolio of Travel Brands. We seek to appeal to the broadest possible range of travelers, suppliers and advertisers through our collection of industry-leading brands. We target several different demographics, from the value-conscious traveler through our Hotwire brand to luxury travelers seeking a high-touch, customized vacation package through our Classic Vacations brand.

We believe our flagship Expedia brand appeals to the broadest range of travelers, with our extensive product offering ranging from single item bookings of discounted product to dynamic bundling of higher-end travel packages. Our hotels.com site and its international versions target travelers with premium hotel content such as 360-degree tours and hotel reviews. In the United States, hotels.com generally appeals to travelers with shorter booking windows who prefer to drive to their destinations, and who make a significant portion of their travel bookings over the telephone.

Through Egencia, we make travel products and services available on a managed basis to corporate travelers in North America, Europe and the Asia Pacific region. Further, our TripAdvisor Media Network allows us to reach a broad range of travelers with travel opinions and user-generated content.

We believe our appeal to suppliers and advertisers is further enhanced by our geographic breadth and range of business models, allowing them to offer their products and services to the industry’s broadest range of travelers using our various agency, merchant and advertising business models. We intend to continue supporting and investing in our brand portfolio, geographic footprint and business models for the benefit of our travelers, suppliers and advertisers.

Technology and Content Innovation. Expedia has an established tradition of technology innovation, from Expedia.com’s inception as a division of Microsoft to our introduction of more recent innovations such as Expedia’s introduction of its ‘Expedia Easy Manage’ program, offering smaller properties in secondary and tertiary markets in Europe and Asia Pacific through an agency model hotel program, TripAdvisor’s launch of its Business Traveler Center, incorporating Egencia content ranking best hotels for business travelers and FlipKey’s launch of self-service listings for vacation property owners to merchandise their offerings.

We intend to continue innovating on behalf of our travelers, suppliers and advertisers with particular focus on improving the traveler experience, supplier integration and presentation, platform improvements, search engine marketing and search engine optimization.

Global Reach. Our Expedia, hotels.com and TripAdvisor Media Network brands operate both in North America and internationally. We also offer Chinese travelers an array of products and services through our majority ownership in eLong, and we offer hotels to European-based travelers through our wholly-owned subsidiary Venere, which we acquired in the third

quarter of 2008. During the first half of 2009, approximately 31% of worldwide gross bookings and 33% of worldwide revenue were international.

Egencia, our corporate travel business, currently operates in North America, Europe and Asia Pacific. We believe the corporate travel sector represents a large opportunity for Expedia, and we believe we offer a compelling technology solution to businesses seeking to optimize travel costs and improve their employees’ travel experiences. We intend to continue investing in and expanding the geographic footprint and technology infrastructure of Egencia.

In expanding our global reach, we leverage significant investments in technology, operations, brand building, supplier relationships and other initiatives that we have made since the launch of Expedia.com in 1996. We intend to continue leveraging this investment 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.

Our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers. As an example, our traveler review feature — whereby our travelers have created millions of qualified reviews of hotel properties — is able to accumulate a larger base of reviews due to the higher base of online traffic that frequents our various websites. In addition, our increasing scale enhances our websites’ appeal to travel and non-travel advertisers.

We intend to continue investing in and growing our international points of sale. We anticipate launching points of sale in additional countries where we find large travel markets and rapid growth of online commerce. Future launches may occur under any of our brands, or through acquisition of third party brands, as in the case of eLong, Venere and Egencia.

Breadth of Product Offering. We offer a comprehensive array of innovative travel products and services to our travelers. We plan to continue improving and growing these offerings, as well as expand them to our worldwide points of sale over time. Travelers can interact with us how and when they prefer, including via our 24/7 1-800 telesales service, which is an integral part of the Company’s appeal to travelers.

Over 60% of our revenue is from transactions involving the booking of hotel reservations, with less than 15% of our worldwide revenue derived from the sale of airline tickets. We facilitate travel products and services either as stand-alone products or as part of package transactions. We have emphasized growing our merchant hotel and packages businesses as these result in higher revenue per transaction; however, we are working to grow our global agency hotel business through our Venere brand as well as our Expedia and hotels.com brands. We also seek to continue diversifying our revenue mix beyond core air and hotel products to car rental, destination services, cruise and other product offerings. We have been working toward and will continue to work toward increasing the mix of advertising and media revenue from both the expansion of our TripAdvisor Media Network, as well as increasing advertising revenue from our worldwide websites such as Expedia.com and hotels.com, which have historically been focused on transaction revenue. During the first half of 2009, advertising and media revenue accounted for approximately 11% of worldwide revenue.

Seasonality

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:

•		It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and

•		Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Stock-based Compensation

In the first quarter of 2009, we awarded stock options as our primary form of employee stock-based compensation. We measure the value of stock option awards on the date of grant at fair value using the Black-Scholes option valuation model. We amortize the fair value, net of estimated forfeitures, over the remaining term on a straight-line basis. The Black-Scholes model requires various highly judgmental assumptions including volatility and expected option life. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

We record stock-based compensation expense net of estimated forfeitures. In determining the estimated forfeiture rates for stock-based awards, we periodically conduct an assessment of the actual number of equity awards that have been forfeited to date as well as those expected to be forfeited in the future. We consider many factors when estimating expected forfeitures, including the type of award, the employee class and historical experience. The estimate of stock awards that will ultimately be forfeited requires significant judgment and to the extent that actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period such estimates are revised.

New Accounting Pronouncements

For a discussion of new accounting pronouncements, see Note 2 — Summary of Significant Accounting Policies in the notes to the consolidated financial statements.

Segments

Media Network segment provides advertising services to travel suppliers on its websites, which aggregate traveler opinions and unbiased travel articles about cities, hotels, restaurants and activities in a variety of destinations through tripadvisor.com and its localized international versions as well as through its various travel media content properties within the TripAdvisor Media Network. Our Egencia segment provides managed travel services to corporate customers in North America, Europe, and the Asia Pacific region.

Reclassifications

During the first quarter of 2009, our development and information technology teams were effectively combined to better support our global brands. As a result of our reorganization, in addition to costs to develop and maintain our website and internal use applications, technology and content expense now also includes the majority of information technology costs such as costs to support and operate our network and back-office applications (including related data center costs), system monitoring and network security, and other technology leadership and support functions. The most significant reclassification of costs occurred between general and administrative expense and technology and content expense as, historically, a significant portion of the information technology costs were within general and administrative expense. Technology costs to operate our live site and call center applications in production remained in cost of revenue. For a detail of the amounts reclassified for the three and six months ended June 30, 2008, see Note 1 — Basis of Presentation in the notes to the consolidated financial statements.

Operating Metrics

Our operating results are affected by certain metrics, such as gross bookings and revenue margin, which we believe are necessary for an understanding and evaluation of Expedia’s Leisure and Egencia segments. Gross bookings represent the total retail value of transactions booked for both agency and merchant transactions, recorded at the time of booking reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are generally reduced for cancellations and refunds. As travelers have increased their use of the internet to book travel arrangements, we have generally seen our gross bookings increase, reflecting the growth in the online travel industry and our business acquisitions. Revenue margin is defined as revenue as a percentage of gross bookings.

Gross Bookings and Revenue Margin


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change ⁽¹⁾			2009			2008			% Change
	($ in millions)									($ in millions)
*Gross Bookings*
Leisure	$	5,293		$	5,502			(4	%)	$	10,197		$	11,012			(7	%)
TripAdvisor Media Network ⁽²⁾		—			—			N/A			—			—			N/A
Egencia		330			431			(23	%)		651			824			(21	%)

Total gross bookings	$	5,623		$	5,933			(5	%)	$	10,848		$	11,836			(8	%)


*Revenue Margin*
Leisure		13.0	%		12.9	%					12.2	%		12.0	%
TripAdvisor Media Network ⁽²⁾		N/A			N/A						N/A			N/A
Egencia		8.1	%		6.9	%					7.9	%		7.0	%
Total revenue margin ⁽²⁾		13.7	%		13.4	%					13.0	%		12.5	%


(1)		All percentages within the Management Discussion and Analysis are calculated on unrounded numbers.

(2)		The TripAdvisor Media Network, which is comprised of media businesses that differ from our transaction-based websites and our Egencia business, does not have associated gross bookings or revenue margin. However, third-party revenue from the TripAdvisor Media Network is included in revenue used to calculate total revenue margin.

The decrease in worldwide gross bookings for the three and six months ended June 30, 2009, as compared to the same periods in 2008, was primarily due to a 22% and 18% decrease in airfares and a 19% decrease in hotel ADRs for both periods, partially offset by a 18% and 13% increase in transactions.

The increase in revenue margin for the three and six months ended June 30, 2009, as compared to the same periods in 2008, was primarily due to a reduction in the mix of lower margin air product and an increased mix of advertising and media revenue.

Results of Operations

Revenue


	Three months ended June 30,							Six months ended June 30,
	2009		2008		% Change			2009		2008		% Change
	($ in millions)							($ in millions)
*Revenue by Segment*
Leisure	$	690	$	712		(3	%)	$	1,249	$	1,324		(6	%)
TripAdvisor Media Network (Third-party revenue)		53		53		(1	%)		104		101		4	%
Egencia		27		30		(11	%)		52		58		(10	%)

Total revenue	$	770	$	795		(3	%)	$	1,405	$	1,483		(5	%)

Revenue decreased for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily due to decreases in domestic air and hotel revenue, including declines in package revenue, within our Leisure segment, partially offset by an increase in car rental revenue and advertising and media revenue.

Worldwide hotel revenue decreased 1% and 5% for the three and six months ended June 30, 2009, compared to the same periods in 2008. The decrease was primarily due to a 19% decrease in ADRs for both the three and six months ended June 30, 2009 compared to the same periods in 2008, partially offset by a 26% and 20% increase in room nights stayed, including rooms delivered as a component of packages and nights booked through Venere.

Worldwide air revenue decreased 20% and 19% for the three and six months ended June 30, 2009, compared to the same periods in 2008, due to a 29% and 22% decrease in revenue per air ticket driven by lower consumer booking fees, lower commissions and a lower mix of merchant air tickets. Ticket volumes increased 13% and 4% reflecting ticket volume share gains driven in part by our Expedia.com U.S. booking fee removal beginning in March 2009, partially offset by lower passenger volumes due to carrier capacity cuts and softening in traveler demand.

The remaining worldwide revenue other than hotel and air discussed above, which includes advertising and media, car rental, destination services, agency cruise , increased by 1% and 3% for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily due to an increase in our car rental and advertising and media revenue.

In addition to the above segment and product revenue discussion, our revenue by business model is as follows:


	Three months ended June 30,							Six months ended June 30,
	2009		2008		% Change			2009		2008		% Change
	($ in millions)							($ in millions)
*Revenue by Business Model*
Merchant	$	527	$	554		(5	%)	$	936	$	1,011		(7	%)
Agency		165		167		(1	%)		319		334		(5	%)
Advertising and media		78		74		5	%		150		138		9	%

Total revenue	$	770	$	795		(3	%)	$	1,405	$	1,483		(5	%)

The decrease in our merchant revenue for the three and six months ended June 30, 2009, compared to the same periods in 2008, was driven by a decrease in merchant hotel revenue primarily resulting from the lower ADRs, partially offset by higher room nights stayed discussed above.

Agency revenue decreased for the three and six months ended June 30, 2009, compared to the same periods in 2008, due to the decrease in agency air revenue primarily resulting from our Expedia.com U.S. booking fee removal in March 2009, partially offset by higher agency hotel revenue related to Venere, which we acquired during the third quarter of 2008.

Advertising and media revenue increased 5% and 9% for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily due to increases in advertising revenue at our Leisure transaction-based websites.

Cost of Revenue


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Customer operations	$	72		$	81			(10	%)	$	140		$	158			(11	%)
Credit card processing		43			57			(25	%)		83			105			(20	%)
Data center and other		34			32			4	%		69			59			16	%

Total cost of revenue	$	149		$	170			(13	%)	$	292		$	322			(9	%)

% of revenue		19.3	%		21.4	%					20.8	%		21.7	%

Cost of revenue primarily consists of (1) customer operations including costs of our call centers, telesales and fees paid to fulfillment vendors for processing airline tickets and related customer services, (2) credit card processing costs, including merchant fees, charge backs and fraud, and (3) other costs, primarily including costs of our data centers to support our live sites as well as costs paid to suppliers for certain destination supply.

For the three and six months ended June 30, 2009, compared to the same periods in 2008, the primary drivers of the decrease in cost of revenue expense were a decrease in credit card processing costs as a result of our technology investments and a decrease in merchant bookings during the current periods, a decrease in call center costs due to various efficiency initiatives in the current periods and a reduction in fulfillment costs primarily resulting from efficiencies realized from bringing some of our air ticket fulfillment in-house.

Selling and Marketing


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Direct costs	$	204		$	228			(11	%)	$	372		$	446			(16	%)
Indirect costs		67			72			(7	%)		135			142			(6	%)

Total selling and marketing	$	271		$	300			(10	%)	$	507		$	588			(14	%)

% of revenue		35.3	%		37.8	%					36.1	%		39.7	%

Selling and marketing expense primarily relates to direct advertising expense, including traffic generation costs from search engines and internet portals, in addition to television, radio and print spending as well as private label and affiliate program commissions, public relations costs, and other miscellaneous marketing expenses. The remainder of the expense relates to indirect costs, including personnel and related overhead in our Partner Services Group (“PSG”), the TripAdvisor Media Network, Egencia and Expedia Local Expert and stock-based compensation costs.

Selling and marketing expenses decreased for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily due to lower online and offline advertising spend resulting from efficiencies and a lower cost advertising environment and lower private label and affiliate expenses associated with the lower overall travel demand environment in the current year periods, and was driven by decreases in our Leisure segment including Expedia branded points of sale in Europe as well as hotels.com in the United States, partially offset by an increase in spend for Venere in Europe which we acquired during the third quarter of 2008.

Technology and Content


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Personnel and overhead	$	42		$	41			3	%	$	83		$	82			2	%
Depreciation and amortization of technology assets		16			11			43	%		32			22			45	%
Other		20			20			0	%		41			39			2	%

Total technology and content	$	78		$	72			9	%	$	156		$	143			8	%

% of revenue		10.1	%		9.0	%					11.1	%		9.7	%

Technology and content expense includes product development and content expense, as well as information technology costs to support our infrastructure, back-office applications and overall monitoring and security of our networks, principally related to payroll and related expenses, software development cost amortization, hardware and software expenditures, and licensing and maintenance expenses.

Technology and content expense increased for the three and six months ended June 30, 2009, compared to the same periods of 2008, primarily due to increased depreciation and amortization of technology assets.

General and Administrative


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Personnel and overhead	$	46		$	47			(1	%)	$	91		$	93			(2	%)
Professional fees		16			13			24	%		33			27			19	%
Other		5			4			23	%		11			11			2	%

Total general and administrative	$	67		$	64			5	%	$	135		$	131			3	%

% of revenue		8.8	%		8.0	%					9.6	%		8.9	%

General and administrative expense consists primarily of personnel-related costs, including stock-based compensation costs, for support functions that include our executive leadership, finance, legal, tax, technology and human resource functions as well as fees for external professional services including legal, tax and accounting.

General and administrative expenses increased for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily due to an increase in legal and other professional fees in the current periods.

Amortization of Intangible Assets


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Amortization of intangible assets	$	9		$	19			(50	%)	$	18		$	37			(50	%)
% of revenue		1.2	%		2.3	%					1.3	%		2.5	%

Amortization of intangible assets decreased for the three and six months ended June 30, 2009, compared to the same periods in 2008, due primarily to the completion of amortization related to certain distribution agreements as well as technology and supplier relationship intangible assets, partially offset by amortization related to new business acquisitions over the past year.

Restructuring Charges

During the three and six months ended June 30, 2009, in conjunction with the reorganization of our business around our global brands, we recognized $6 million and $15 million in restructuring charges primarily related to employee severance and related benefits. For additional information, see Note 7 — Restructuring Charges in the notes to the consolidated financial statements.

Occupancy Tax Assessments and Legal Reserves

During the three and six months ended June 30, 2009, we recognized $55 million related to monies expected to be paid in advance of litigation in the San Francisco occupancy tax proceedings and an accrual of $19 million for the potential settlement of the Expedia consumer class action lawsuit. For additional information, see Note 8 — Commitments and Contingencies in the notes to the consolidated financial statements.

Operating Income


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Operating income	$	115		$	171			(33	%)	$	208		$	261			(20	%)
% of revenue		14.9	%		21.5	%					14.8	%		17.6	%

Operating income decreased for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily due to the San Francisco occupancy tax assessments, class action settlement legal reserve and restructuring charges in the current year periods, partially offset by a decline in sales and marketing expense and intangible asset amortization expense.

Interest Income and Expense


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Interest income	$	1		$	9			(84	%)	$	4		$	17			(76	%)
Interest expense		(21	)		(13	)		56	%		(42	)		(29	)		46	%

Interest income decreased for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily due to lower average interest rates. Interest expense increased for the three and six months ended June 30, 2009, compared to the same periods in 2008, primarily resulting from additional interest on the $400 million senior unsecured notes issued in June 2008.

Other, Net

Other, net is comprised of the following:


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Foreign exchange rate losses, net	$	(15	)	$	(4	)		280	%	$	(21	)	$	(12	)		79	%
Noncontrolling investment basis adjustment		(5	)		—			N/A			(5	)		—			N/A
Equity income (loss) of unconsolidated affiliates		1			(1	)		(147	%)		—			(2	)		(110	%)
Gain on derivative instruments assumed at Spin-Off		—			—			N/A			—			5			(100	%)

Total other, net	$	(19	)	$	(5	)		274	%	$	(26	)	$	(9	)		197	%

Provision for Income Taxes


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008			% Change
	($ in millions)									($ in millions)
Provision for income taxes	$	(34	)	$	(66	)		(48	%)	$	(62	)	$	(95	)		(35	%)
Effective tax rate		45.1	%		40.9	%					43.0	%		39.6	%

We determine our provision for income taxes for interim periods using an estimate of our annual effective rate. We record any changes to the estimated annual rate in the interim period in which the change occurs, including discrete tax items.

The increase in the effective rate for the first half of 2009 as compared to the same period in 2008 was primarily due to the non-deductible portion of occupancy tax assessments accrued during the second quarter of 2009 as well as a non-deductible loss on one of our equity method investments.

Our effective tax rate was 45.1% and 43.0% for the three and six months ended June 30, 2009, which is higher than the 35% federal statutory rate primarily due to state income taxes and the non-deductible expenses described above.

Our effective tax rate was 40.9% and 39.6% for the three and six months ended June 30, 2008, which is higher than the 35% federal statutory rate primarily due to state income taxes and accruals related to uncertain tax positions.

Financial Position, Liquidity and Capital Resources

Our principal sources of liquidity are cash flows generated from operations; our cash and cash equivalents and short-term investment balances which were $910 million and $758 million at June 30, 2009, and December 31, 2008 and included $134 million and $140 million of cash and short-term investments at eLong, whose results are consolidated into our financial statements due to our controlling voting and economic ownership interest; and our $1 billion revolving credit facility, of which $950 million was available as of June 30, 2009. This represents the total $1 billion facility less $50 million of outstanding stand-by letters of credit.

On February 18, 2009, we amended our credit facility to replace a tangible net worth covenant with a minimum interest coverage covenant, among other changes. As part of this amendment, our leverage ratio was tightened, pricing on our borrowings increased by 200 basis points and we paid approximately $6 million in fees, which will be amortized over the remaining term of the credit facility. Outstanding credit facility borrowings bear interest reflecting our financial leverage; based on our June 30, 2009 financial statements, the interest rate would equate to a base rate plus 262.5 basis points. At our discretion, we may choose a base rate on borrowings equal to (1) the greater of the Prime rate or the Federal Funds Rate plus 50 basis points or LIBOR plus 100 basis points or (2) various durations of LIBOR.

Under the merchant model, we receive cash from travelers at the time of booking and we record these amounts on our consolidated balance sheets as deferred merchant bookings. We pay our airline suppliers related to these merchant model bookings generally within a few weeks after completing the transaction, but we are liable for the full value of such transactions until the flights are completed. For most other merchant bookings, which is primarily our merchant hotel business, we pay after the travelers’ use and subsequent billing from the hotel suppliers. Therefore, generally we receive cash from the traveler prior to paying our supplier, and this operating cycle represents a working capital source of cash to us. As long as the merchant hotel business grows, we expect that changes in working capital will positively impact operating cash flows. However, due to various factors, including decreases in bookings and technology and process initiatives which have resulted in quicker payments to hotel suppliers, we have experienced a slight reduction in our working capital benefits to cash flows related to changes in our merchant accounts payable and deferred merchant bookings balances for the first half of 2009 compared to the same period in 2008.

Seasonal fluctuations in our merchant hotel bookings affect the timing of our annual cash flows. During the first half of the year, hotel bookings have traditionally exceeded stays, resulting in much higher cash flow related to working capital. During the second half of the year, this pattern reverses and cash flows are typically negative. While we expect the impact of seasonal fluctuations to continue, merchant hotel growth rates or changes to the hotel business model or booking patterns as discussed above may affect working capital, which might counteract or intensify the anticipated seasonal fluctuations.

As of June 30, 2009, we had a deficit in our working capital of $876 million, compared to a deficit of $367 million as of December 31, 2008 primarily due to the repayment of $650 million of borrowings under our credit facility in the first quarter of 2009.

We continue to invest in the development and expansion of our operations. Ongoing investments include but are not limited to improvements to infrastructure, which include our servers, networking equipment and software, release improvements to our software code and search engine optimization efforts. Our future capital requirements may include

capital needs for acquisitions, share repurchases or expenditures in support of our business strategy. In the event we have acquisitions or share repurchases, this may reduce our cash balance and/or increase our debt.

Our cash flows are as follows:


	Six months ended June 30,
	2009			2008			$ Change
				($ in millions)
Cash provided by (used in):
Operating activities	$	845		$	871		$	(26	)
Investing activities		35			(259	)		294
Financing activities		(678	)		(209	)		(469	)
Effect of foreign exchange rate changes on cash and cash equivalents		(5	)		7			(12	)

For the six months ended June 30, 2009, net cash provided by operating activities decreased by $26 million primarily due to an increase in tax and interest payments, partially offset by increased benefits from other working capital changes and growth in operating income after adjusting for the impacts of depreciation and amortization and the expense accruals related to the occupancy tax assessment and the class action litigation.

Cash provided by investing activities represented a positive change of $294 million in cash flows for the six months ended June 30, 2009 primarily due to an $170 million decrease in net cash paid for acquisitions, a decrease in capital expenditures of $29 million and cash provided by the maturities of short-term investments of $45 million in the current year period.

Cash used in financing activities for the six months ended June 30, 2009 primarily included the repayment of $650 million of borrowings under the credit facility. Cash used in financing activities for the six months ended June 30, 2008 primarily included the net repayment of $191 million of debt.

We currently have authorization, for which there is no fixed termination date, from our Board of Directors to repurchase up to 20 million outstanding shares of our common stock; no such repurchases have been made under this authorization as of July 30, 2009. The number of shares we may repurchase under this authorization is subject to certain of our debt covenants.

We also have a shelf registration statement filed with the SEC under which Expedia, Inc. may offer from time to time debt securities, guarantees of debt securities, preferred stock, common stock or warrants. The shelf registration statement expires on October 15, 2010.

In our opinion, available cash, funds from operations and available borrowings will provide sufficient capital resources to meet our foreseeable liquidity needs. Our liquidity has not been materially impacted by the current credit environment. There can be no assurance, however, that the cost or availability of future borrowings, including refinancings, if any, will not be impacted by the ongoing capital market disruptions.

Contractual Obligations, Commercial Commitments and Off-balance Sheet Arrangements

As of June 30, 2009, there were no material changes outside the normal course of business to our contractual obligations and commercial commitments since December 31, 2008. Other than our contractual obligations and commercial commitments, we did not have any off-balance sheet arrangements as of June 30, 2009 or December 31, 2008.

Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

There has been no material change in our market risk during the six months ended June 30, 2009. For additional information, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in Part II of our Annual Report on Form 10-K for the year ended December 31, 2008.

Part I. Item 4. Controls and Procedures

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 Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chairman and Senior Executive, Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting.

There were no changes to our internal control over financial reporting that occurred during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Item 1. Legal Proceedings

In the ordinary course of business, Expedia and its subsidiaries are parties to legal proceedings and claims involving property, personal injury, contract, alleged infringement of third party intellectual property rights and other claims. A discussion of certain legal proceedings can be found in the section titled “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, 2008 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. The following are developments regarding such legal proceedings:

Ryanair Limited v. Travelscape, LLC. Trial is scheduled for February 1, 2010.

Consumer Class Action Litigation

hotels.com. On June 23, 2009, plaintiffs filed an amended class action petition. Plaintiff’s amended class certification motion is due on September 4, 2009.

Expedia Washington. A hearing on both parties’ summary judgment motions was held on May 22, 2009. On May 28, 2009, the court granted the plaintiffs’ motion for summary judgment on their breach of contract claim, without the benefit of an actual trial on the merits, and denied plaintiffs’ motion of summary judgment on their consumer protection act claim. The plaintiffs’ breach of contract claim was based on Expedia’s website Terms of Use that were in effect from February 2003 through December 2006. The court concluded that the damages for the alleged breach are $184,470,451. Expedia entered into a Settlement Agreement providing for the settlement of all claims alleged in the lawsuit. All proceedings currently pending in the trial court and court of appeals, including the trial that was scheduled to begin on July 27, 2009, have been stayed or vacated pending approval of the settlement by the trial court. The plaintiffs intend to file a Motion for Preliminary Approval of the proposed settlement on or before August 3, 2009. The trial court has scheduled a hearing on the Motion for Preliminary Approval for August 10, 2009.

Hotwire. A tentative settlement has been reached. The court entered an order granting preliminary approval of the class action settlement on July 13, 2009. The deadline to object to and request exclusion from the settlement is September 25, 2009. The approval hearing is scheduled for October 23, 2009.

Consumer Case against Expedia Canada. On June 26, 2009, a class action suit against Expedia Canada Corp. was filed in Ontario, Canada, alleging that disclosures related to “taxes and service fees” were deceptive. See Magill v. Expedia Canada Corporation and Expedia.ca , CV-09-381919-00LP (Ontario Superior Court of Justice). The complaint asserts claims under the Competition Act and Consumer Protection Act as well as claims of unjust enrichment, restitution, constructive trust, accounting and disgorgement and breach of contract. It seeks damages in the amount of CA$50,000,000 for the class as well as interest, fees and alternate damages measures.

Litigation Relating to Hotel Occupancy Taxes

City of Los Angeles Litigation. The case is coordinated with the cases in San Diego and Anaheim. On June 4, 2009, the cases were also coordinated with the San Francisco lawsuit.

City of Findlay, Ohio Litigation. Plaintiffs filed their second amended consolidated complaint on July 7, 2009. On July 17, 2009, defendants filed a motion to dismiss claims related to plaintiffs’ new cause of action that were similar to earlier dismissed claims.

City of Rome, Georgia Litigation. On July 10, 2009, the court lifted the stay of the litigation.

Pitt County, North Carolina Litigation. On January 14, 2009, the Fourth Circuit Court of Appeals affirmed the district court’s dismissal of the lawsuit. The deadline for plaintiff to appeal the dismissal to the Supreme Court was May 12, 2009.

City of San Diego, California Litigation. The first hearing on the online travel companies’ challenges to the city assessments occurred on June 19, 2009. If the hearing examiner ultimately upholds the city’s assessments, the online travel companies intend to challenge those assessments in court. In addition, the online travel companies intend to challenge the city’s purported right to require them to pay the tax assessment prior to commencing litigation to challenge the applicability of the ordinance. This case is coordinated with the San Francisco, Los Angeles and Anaheim litigation.

Orange County, Florida Litigation. Trial is scheduled for August 23, 2010 or up to three weeks thereafter.

Part II. Item 1. Legal Proceedings (Continued)

City of Atlanta, Georgia Litigation. On June 1, 2009, the Court of Appeals vacated its ruling dismissing the litigation and remanded the case. On July 10, 2009, the case was transferred to Judge Michael Johnson.

City of Gallup, New Mexico Litigation. On July 7, 2009, the court granted plaintiff’s motion for class certification. On July 22, 2009, defendants filed a petition to appeal the order on class certification.

Columbus, Georgia Litigation. On June 15, 2009, the Georgia Supreme Court denied Expedia’s appeal and affirmed and modified in part the trial court’s ruling. On June 30, 2009, the court denied Expedia’s motion to reconsider. Hotels.com’s appeal is pending.

Cities of Columbus and Dayton, Ohio Litigation. Plaintiffs filed a second amended complaint on July 7, 2009, which added the Franklin County Convention Facilities Authority (“FCCFA”) as a plaintiff. On July 17, 2009, defendants filed a motion to dismiss FCCFA’s claims. FCCFA’s response is due August 20, 2009.

City of Houston, Texas Litigation. Defendants filed first amended original answers on May 29, 2009. Trial is currently scheduled for February 1, 2010.

Jefferson City, Missouri Litigation. Trial is scheduled to begin on March 15, 2010. A tentative settlement has been reached pending city counsel approval. All deadlines have been stayed pending approval.

City of Oakland, California Litigation. On July 16, 2009, the Ninth Circuit affirmed the dismissal for failure to exhaust administrative remedies.

Cities of Goodlettsville and Brentwood, Tennessee Litigation . On March 31, 2009, the court denied defendants’ motion to dismiss. Defendants’ answers were filed on April 24, 2009.

County of Monroe, Florida Litigation . On May 27, 2009, the court reopened the case. Plaintiff filed its first amended complaint on May 28, 2009. Defendants’ motion to dismiss the first amended complaint is pending. Trial is scheduled for April 12, 2010.

Township of Lyndhurst, New Jersey Litigation . On March 18, 2009, the court granted defendants’ motion to dismiss for lack of standing. On April 9, 2009, plaintiff’s filed a notice of appeal. Appellant’s opening brief was filed on July 6, 2009. Appellees’ brief is due on August 5, 2009, and appellant’s reply brief is due on August 19, 2009.

City of Baltimore Litigation . On June 3, 2009, the court denied defendants’ motion to dismiss. This case is coordinated with the Worcester County litigation.

Worcester County, Maryland Litigation . On June 2, 2009, the court denied defendants’ motion to dismiss. The court denied defendants’ motion for reconsideration of the motion to dismiss on July 21, 2009. Defendants’ answer is due on August 4, 2009. This case is coordinated with the Baltimore litigation.

City of Anaheim, California Litigation . On March 30, 2009, the court overruled the city’s demurrer to the companies’ “pay to play” motion. As a result, the online travel companies are not required to pay the assessed amounts before challenging those assessments in the trial court. On May 22, 2009, the city sought interlocutory review of the “pay first” ruling. The lawsuit is coordinated with the San Diego and Los Angeles matters. On June 4, 2009, the lawsuits were also coordinated with the San Francisco lawsuit. On May 15, 2009, the court lifted the stay to allow for discovery on Prop 218 issues and briefing on all other matters. Defendants filed briefs relating to the city’s contingency fee agreements with their attorneys. On June 11, 2009, the Court of Appeals denied Anaheim’s petition challenging the “pay first” ruling. Anaheim’s “pay first” ruling is pending in the California Supreme Court. The city filed its motion for denial of writ on July 15, 2009, and defendant’s opposition is due July 24, 2009. The hearing on this motion is scheduled for September 23, 2009. Defendants have moved for a continuance of the hearing.

City of San Francisco, California . On May 11, 2009, the online travel companies filed a petition for writ of mandate in the California superior court seeking to vacate the decision of the hearing examiner and asking for a

Part II. Item 1. Legal Proceedings (Continued)

declaratory judgment that the online travel companies are not subject to San Francisco’s hotel occupancy tax. Expedia, 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, County of San Francisco). A motion to coordinate the case with the Los Angeles, Anaheim and San Diego lawsuits was granted on June 4, 2009. On May 22, 2009, the city served a notice of intent to seek summary judgment. On June 19, 2009, the court granted the city’s demurrer on the “pay first” issue relating to pay-to-play provisions. Expedia and Hotwire’s appeal of the “pay first” decision was denied and Expedia and Hotwire paid the assessed amounts on July 13, 2009. The companies have filed a claim for refund. Amended petitions are due on August 3, 2009. A hearing on defendants’ motion to disqualify contingency fee counsel will be held on August 17, 2009. A hearing on the hotels.com assessment appeal is scheduled for August 12, 2009.

City of Jacksonville Litigation. On April 8, 2009, defendants filed their answers. The parties have agreed to dismiss IAC.

The following cases relating to hotel occupancy taxes have been filed in addition the legal proceedings discussing in the “Legal Proceedings” of our Annual Report on Form 10-K for the year ended December 31, 2008 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

City of Bowling Green, Kentucky. On March 10, 2009, the city of Bowling Green, Kentucky filed an individual action against a number of internet travel companies, including Expedia, Inc., hotels.com LP and Hotwire, Inc. City of Bowling Green, Kentucky vs. hotels.com, L.P., et. al. , Civil Action 09-CI-409, Commonwealth of Kentucky, Warren Circuit Court. The complaint alleges that the defendants have failed to pay transient room taxes as required by municipal ordinance. Defendants’ motion to dismiss is pending.

County of Genesee, County of Calhoun, County of Ingham and County of Saginaw, Michigan. On February 24, 2009, four Michigan Counties, Genesee, Calhoun, Ingham and Saginaw filed an individual action against a number of internet travel companies, including Expedia, Inc., hotels.com L.P., hotels.com GP, LLC and TravelNow.com, Inc. County of Genesee, Michigan v. hotels.com, L.P., et. al ., 09-265-CZ (Circuit Court for the County of Ingham, Michigan). The complaint alleges that the defendants have failed to pay hotel accommodation taxes as required by county ordinance. Defendants’ filed a motion for summary disposition on June 29, 2009. Plaintiffs’ response is due on August 14, 2009. Hearing on the motion for summary disposition is scheduled for August 21, 2009.

South Carolina Litigation. On March 16, 2009, Travelscape, LLC filed a notice of appeal in the South Carolina Court of Appeals. Travelscape, LLC v. South Carolina Department of Revenue , 2008-ALJ-17-0076-CC (State of South Carolina Court of Appeals). Plaintiff appeals the Administrative Law Court’s order of February 13, 2009, relating to the South Carolina Department of Revenue’s assessment of sales and accommodations taxes against plaintiffs. Plaintiff filed its initial brief on May 13, 2009. The DOR’s response brief was received on July 17, 2009. Travelscape’s reply is due on July 30, 2009.

Broward County, Florida Litigation . On January 12, 2009, Expedia, hotels.com, L.P. and Hotwire filed separate actions against Broward County, Florida and the Florida Department of Revenue. Expedia, Inc. v. Broward County Florida, et. al. , Case Nos., 37 2009 CA 000131, 37 2009 CA 000129, and 37 2009 000128 (Second Judicial Circuit Court, State of Florida, Leon County). The complaints contest the assessments against plaintiffs on the grounds that plaintiffs are not subject to the tourist development tax, among other claims. Defendants answered and asserted counterclaims on February 2, 2009. Plaintiffs’ motion to dismiss defendants’ counterclaims is pending. On May 13, 2009, the court consolidated all cases for all purposes except trial on any Broward counterclaims.

St. Louis County, Missouri Litigation. On July 6, 2009, St. Louis County, Missouri filed an action against a number of online travel companies, including Expedia, Inc. (DE), Expedia, Inc. (WA), hotels.com, hotels.com, L.P., hotels.com GP, LLC, Hotwire, Inc., and TravelNow.com, Inc. St. Louis County, Missouri v. Prestige Travel, Inc., et. al. , Case No. 09SL-CC02912 (21 ^st Judicial Circuit Court, St. Louis County, Missouri). The complaint alleges

Part II. Item 1. Legal Proceedings (Continued)

that the defendants have failed to collect and/or pay taxes under the county’s tourism and hotel tax ordinances. Some of the Expedia defendants were served on July 20, 2009.

At various times, the Company has also received notices of audit, or tax assessments from municipalities and other taxing jurisdictions concerning our possible obligations with respect to state and local hotel occupancy or related taxes. The states of South Carolina, Texas, Pennsylvania, Florida, Georgia, Indiana, New Mexico, New York, West Virginia, Wisconsin and Kansas; the counties of Miami-Dade, Broward and Duvall, Florida; the cities of Alpharetta, Atlanta, Augusta, Cartersville, Cedartown, Clayton, College Park, Columbus, Dalton, East Point, Hart, Hartwell, Macon, Richmond, Rockmart, Rome, Tybee Island and Warner Robins, Georgia; the counties of Cobb, DeKalb, Fulton and Gwinnett, Georgia; the cities of Los Angeles, San Diego, San Francisco, Anaheim, West Hollywood, South Lake Tahoe, Palm Springs, Monterey County, Sacramento, Long Beach, Napa, Newport Beach, Oakland, Irvine, Fresno, La Quinta, Dana Point, Laguna Beach, Riverside, Eureka, La Palma, Twenty-nine Palms, Laguna Hills, Garden Grove, Corte Madera, Santa Rosa, Manhattan Beach, Huntington Beach, Ojai, Orange, Sacramento, Sunnyvale, Truckee, Walnut Creek, Carson, Cypress, Lompoc, San Bruno, San Jose, and Santa Barbara, California; the cities of Phoenix, Scottsdale, Tucson and Peoria, Arizona; undisclosed cities in Alabama; Jefferson County, Arkansas; the cities of Pine Bluff, and North Little Rock, Arkansas; the city of Chicago, Illinois; the cities of New Orleans and Lafayette Parish, Louisiana; the city of Baltimore, Maryland; New York City; and the city of Madison, Wisconsin, among others, have begun or attempted to pursue formal or informal audits or administrative procedures, or stated that they may assert claims against us relating to allegedly unpaid state or local hotel occupancy or related taxes.

The Company believes that the claims in all of the lawsuits relating to hotel occupancy taxes lack merit and will continue to defend vigorously against them.

Part II. Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Part II. Item 4 Submission of Matters to a Vote of Security Holders

On June 2, 2009, the Company’s annual meeting of stockholders (the “Annual Meeting”) was held. Stockholders present in person or by proxy, representing 241,866,292 shares of Expedia common stock (entitled to one vote per share), 25,599,998 shares of Expedia Class B common stock (entitled to ten votes per share) and no shares of Expedia Series A preferred stock (entitled to two votes per share), voted on the following matters:

Proposal 1 . Election of Directors —The stockholders elected ten directors of the Company, three of whom were elected by holders of common stock only, and seven of whom were elected by holders of common stock, Class B common stock and Series A preferred stock, voting together as a single class, each to hold office until the next annual meeting of stockholders or until their successors have been duly elected and qualified (or, if earlier, such director’s removal or resignation from the Board of Directors). The affirmative vote of a plurality of the total number of votes cast was required to elect each director. Stockholders eligible to vote, voted as follows:

Holders of Expedia Common Stock, voting as a separate class:


	Votes in Favor		Votes Withheld
A. George “Skip” Battle		232,865,235		9,001,057
Craig A. Jacobson		236,916,883		4,949,409
Peter M. Kern		227,473,196		14,393,096

Holders of Expedia Common Stock, Expedia Class B Common Stock and Expedia Series A Preferred Stock, voting together as a single class:


	Votes in Favor		Votes Withheld
Barry Diller		383,442,322		114,423,950
Dara Khosrowshahi		432,739,226		65,127,046
Victor A. Kaufman		418,362,296		79,503,976
Jonathan L. Dolgen		479,685,610		18,180,662
William R. Fitzgerald		391,005,251		106,861,021
John C. Malone		421,281,791		76,584,481
José A. Tazón		489,163,261		8,703,011

Proposal 2. Approval of Amendment to the Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan to Increase the Number of Shares Authorized for Issuance Thereunder by 26,000,000— The holders of Expedia Common Stock, Expedia Class B Common Stock and Expedia Series A Preferred Stock, voting as a single class, also approved the increase of shares authorized for issuance under the Amended and Restated Expedia, Inc. 2005 Stock and Annual Incentive Plan by 26 million. The affirmative vote of a majority of the total voting power of those shares of Expedia Common Stock, Class B Common Stock and Series A Preferred Stock present in person or represented by proxy at the Annual Meeting, voting together as a single class, was required to approve Proposal 2. Those stockholders eligible to vote, voted as follows:


Votes in Favor	Votes Against	Votes Abstaining	Broker Non-Votes
369,689,047	114,253,777	64,768	13,858,680

Proposal 3. Ratification of Appointment of Independent Registered Public Accounting Firm— The holders of Expedia Common Stock, Expedia Class B Common Stock and Expedia Series A Preferred Stock, voting as a single class, also ratified the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2009. The affirmative vote of a majority of the total voting power of those shares of Expedia Common Stock, Class B Common Stock and Series A Preferred Stock present in person

Part II. Item 4 Submission of Matters to a Vote of Security Holders (Continued)

or represented by proxy at the Annual Meeting, voting together as a single class, was required to approve Proposal 3. Those stockholders eligible to vote, voted as follows:


Votes in Favor	Votes Against	Votes Abstaining
497,633,837	125,598	106,837

Part II. Item 6 Exhibits

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

Exhibit

Filed

Incorporated by Reference

No.

Exhibit Description

Herewith

Form

SEC File No.

Exhibit

Filing Date

10.1

Employment Agreement between Dara Khosrowshahi and Expedia, Inc., effective as of May 28, 2009.

10.2

Amended and Restated Restricted Stock Unit Agreement between Dara Khosrowshahi and Expedia, Inc., dated as of April 8, 2009.

10.3

Amended and Restated Employment Agreement between Burke F. Norton and Expedia, Inc., effective as of May 28, 2009.

10.4

Amended and Restated Employment Agreement between Michael B. Adler and Expedia, Inc., effective as of May 16, 2009.

31.1

Certification of the Chairman and Senior Executive Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

Certification of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of the Chairman and Senior Executive pursuant Section 906 of the Sarbanes-Oxley Act of 2002

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

Signature

Pursuant to the requirements of the Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


July 30, 2009	Expedia, Inc.
	By:	/s/ MICHAEL B. ADLER
		Michael B. Adler
		Chief Financial Officer

Exhibit 10.1

Execution Copy

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into by and between Dara Khosrowshahi (“Executive”) and Expedia, Inc., a Delaware corporation (the “Company”), and is effective as of May 28, 2009 (the “Effective Date”).

WHEREAS, the Company desires to establish its right to the services of Executive, in the capacity described below, on the terms and conditions hereinafter set forth, and Executive is willing to accept such employment on such terms and conditions.

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, Executive and the Company have agreed and do hereby agree as follows:

1.A. EMPLOYMENT . The Company agrees to employ Executive as President and Chief Executive Officer of the Company; Executive accepts and agrees to such employment. During Executive’s employment with the Company, Executive shall perform all services and acts necessary or advisable to fulfill the duties and responsibilities as are commensurate and consistent with Executive’s position and shall render such services on the terms set forth herein. During Executive’s employment with the Company, Executive shall report directly to the Chairman and Senior Executive of the Company. Executive shall have such powers and duties with respect to the Company as may reasonably be assigned to Executive by the Chairman and Senior Executive, to the extent consistent with Executive’s position and status. Executive agrees to devote all of Executive’s working time, attention and efforts to the Company and to perform the duties of Executive’s position in accordance with the Company’s policies as in effect from time to time. Executive’s principal place of employment shall be the Company’s offices located in Bellevue, Washington.

2.A. TERM OF AGREEMENT . The term (“Term”) of this Agreement shall commence on the Effective Date and shall continue through the third anniversary of the Effective Date, unless sooner terminated in accordance with the provisions of Section 1 of the Standard Terms and Conditions.

3.A. COMPENSATION .

(a) BASE SALARY . During the Term, the Company shall pay Executive an annual base salary of $1,000,000.00 (the “Base Salary”), payable in equal biweekly installments or in accordance with the Company’s payroll practice as in effect from time to time. For all purposes under this Agreement, the term “Base Salary” shall refer to Base Salary as in effect from time to time.

(b) DISCRETIONARY BONUS . During the Term, Executive shall be eligible to receive discretionary annual bonuses. Any such annual bonus shall be paid not later than March 15 of the calendar year immediately following the calendar year with respect to which such annual bonus relates (unless Executive has elected to defer receipt of such bonus pursuant to an arrangement that meets the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)).

(c) BENEFITS . During the Term, from the Effective Date through the date of termination of Executive’s employment with the Company for any reason, Executive shall be entitled to participate in any welfare, health and life insurance and pension benefit and incentive programs as may be adopted from time to time by the Company on the same basis as that provided to similarly situated executives of the Company generally. Without limiting the generality of the foregoing, Executive shall be entitled to the following benefits:

(i) Reimbursement for Business Expenses . During the Term, the Company shall reimburse Executive for all reasonable and necessary expenses incurred by Executive in performing Executive’s duties for the Company, on the same basis as similarly situated executives of the Company generally and in accordance with the Company’s policies as in effect from time to time.

(ii) Vacation . During the Term, Executive shall be entitled to annual paid vacation in accordance with the plans, policies, programs and practices of the Company applicable to similarly situated executives of the Company generally.

4.A. NOTICES . All notices and other communications under this Agreement shall be in writing and shall be given by first-class mail, certified or registered with return receipt requested or hand delivery acknowledged in writing by the recipient personally, and shall be deemed to have been duly given three days after mailing or immediately upon duly acknowledged hand delivery to the respective persons named below:

	If to the Company:		Expedia, Inc. 333 108 ^th Avenue NE Bellevue, Washington 98004 Attention: General Counsel

	If to Executive:		At the most recent address on record for Executive at the Company

Either party may change such party’s address for notices by notice duly given pursuant hereto.

5.A. GOVERNING LAW; JURISDICTION . This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the internal laws of the State of Washington without reference to the principles of conflicts of laws. Any and all disputes between the parties which may arise pursuant to this Agreement will be heard and determined before an appropriate federal court in Washington, or, if not maintainable therein, then in an appropriate Washington state court. The parties acknowledge that such courts have jurisdiction to interpret and enforce the provisions of this Agreement, and the parties consent to, and waive any and all objections that they may have as to, personal jurisdiction and/or venue in such courts.

6.A COUNTERPARTS . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Executive expressly understands and acknowledges that the Standard Terms and Conditions attached hereto are incorporated herein by reference, deemed a part of this Agreement and are binding and enforceable provisions of this Agreement. References to “this Agreement” or the use of the term “hereof” shall refer to this Agreement and the Standard Terms and Conditions attached hereto, taken as a whole.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its duly authorized officer and Executive has executed and delivered this Agreement.


	EXPEDIA, INC.
	/s/ Burke F. Norton
	By: Burke F. Norton
	Title:	Executive Vice President, General Counsel


	/s/ Dara Khosrowshahi
	Dara Khosrowshahi

STANDARD TERMS AND CONDITIONS

1. TERMINATION OF EXECUTIVE’S EMPLOYMENT .

(a) DEATH . Upon termination of Executive’s employment prior to the expiration of the Term by reason of Executive’s death, the Company shall pay Executive’s designated beneficiary or beneficiaries, within 30 days of Executive’s death in a lump sum in cash, (i) Executive’s Base Salary from the date of Executive’s death through the end of the month in which Executive’s death occurs and (ii) any Accrued Obligations (as defined in Section l(f) below) in a lump sum in cash.

(b) DISABILITY . If, as a result of Executive’s incapacity due to physical or mental illness (“Disability”), Executive shall have been absent from the full-time performance of Executive’s duties with the Company for a period of four consecutive months and, within 30 days after written notice is provided to Executive by the Company (in accordance with Section 4A hereof), Executive shall not have returned to the full-time performance of Executive’s duties, Executive’s employment under this Agreement may be terminated by the Company for Disability. During any period prior to such termination during which Executive is absent from the full-time performance of Executive’s duties with the Company due to Disability, the Company shall continue to pay Executive’s Base Salary at the rate in effect at the commencement of such period of Disability, offset by any amounts payable to Executive under any disability insurance plan or policy provided by the Company. Upon termination of Executive’s employment due to Disability, the Company shall pay Executive within 30 days of such termination (i) Executive’s Base Salary through the end of the month in which Executive’s termination of employment for Disability occurs in a lump sum in cash, offset by any amounts payable to Executive under any disability insurance plan or policy provided by the Company; and (ii) any Accrued Obligations in a lump sum in cash.

(c) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON . The Company may terminate Executive’s employment under this Agreement with or without Cause at any time and Executive may resign under this Agreement with or without Good Reason at any time. As used herein, “Cause” shall mean: (i) the plea of guilty or nolo contendere to, conviction for, or the commission of, a felony offense by Executive; provided , however , that after indictment, the Company may suspend Executive from the rendition of services, but without limiting or modifying in any other way the Company’s obligations under this Agreement; (ii) a material breach by Executive of a fiduciary duty owed to the Company or any of its subsidiaries; (iii) a material breach by Executive of any of the covenants made by Executive in Section 2 hereof; (iv) the willful or gross neglect by Executive of the material duties required by this Agreement; or (v) a knowing and material violation by Executive of any Company policy pertaining to ethics, legal compliance, wrongdoing or conflicts of interest that, in the case of the conduct described in clauses (iv) or (v) above, if curable, is not cured by Executive within 30 days after Executive is provided with written notice thereof. Upon Executive’s (A) termination of employment by the Company for Cause prior to the expiration of the Term or (B) resignation without Good Reason prior to the expiration of the Term, this Agreement shall terminate without

further obligation by the Company, except for the payment of any Accrued Obligations in a lump sum in cash within 30 days of such termination.

(d) TERMINATION BY THE COMPANY OTHER THAN FOR DEATH, DISABILITY OR CAUSE OR RESIGNATION BY EXECUTIVE FOR GOOD REASON . Upon termination of Executive’s employment prior to the expiration of the Term by the Company without Cause (other than for death or Disability) or by Executive for Good Reason (as defined below), then:

(i) the Company shall continue to pay Executive the Base Salary through the longer of (x) the end of the Term over the course of the then remaining Term and (y) 12 months (such period, the “Salary Continuation Period” and such payments, the “Cash Severance Payments”), in each case payable in equal biweekly installments in accordance with the Company’s payroll practice as in effect from time to time;

(ii) the Company shall pay Executive within 30 days of the date of such termination in a lump sum in cash any Accrued Obligations;

(iii) the Company will consider in good faith the payment of a discretionary bonus on a pro rata basis for the year in which the Termination of Employment occurs, any such payment to be paid (if at all) based on actual performance during the year in which termination has occurred and based on the number of days of employment during such year relative to 365 days (payable in a lump sum at the time such annual bonus would otherwise have been paid);

(iv) other than with respect to restricted stock units granted pursuant to the Expedia Restricted Stock Agreement between Executive and the Company, dated March 7, 2006, as amended, with respect to which this clause (iv) shall not apply, any compensation awards of Executive based on, or in the form of, Company equity (e.g. restricted stock, restricted stock units, stock options or similar instruments) (“Equity Awards”) that are outstanding and unvested at the time of such termination but which would, but for a termination of employment, have vested during the 12 months following such termination (such period, the “Equity Acceleration Period”) shall vest (and with respect to awards other than stock options and stock appreciation rights, settle) as of the date of such termination of employment; provided that any outstanding award with a vesting schedule that would, but for a termination of employment, have resulted in a smaller percentage (or none) of the award being vested through the end of such Equity Acceleration Period than if it vested annually pro rata over its vesting period shall, for purposes of this provision, be treated as though it vested annually pro rata over its vesting period (e.g., if 100 restricted stock units (“RSUs”) were granted 2.7 years prior to the date of the termination and vested pro rata on each of the first five anniversaries of the grant date and 100 RSUs were granted 1.7 years prior to the date of termination and vested on the fifth anniversary of the grant date, then on the date of termination 20 RSUs from the first award and 40 RSUs from the second award would vest and settle); provided further that any amount that would vest under this provision but for the fact that outstanding performance conditions have not been satisfied shall vest (and with respect to awards other than stock options and stock appreciation rights, settle) only if, and at such point as, such performance conditions are

satisfied; and provided further that to the extent that any such equity awards constitutes “non-qualified deferred compensation” within the meaning of Section 409 A, such awards shall vest, but only settle in accordance with their terms (it being understood that it is intended that no equity awards outstanding as of the date of this Agreement constitutes “non-qualified deferred compensation” within the meaning of Section 409A); and

(v) any then vested options of Executive (including options vesting as a result of (iv) above) granted by the Company to purchase Company equity, shall remain exercisable through the date that is 18 months following the date of such termination or, if earlier, through the scheduled expiration date of such options.

The expiration of the Term shall not give rise to any payment to Executive or acceleration obligation under this Section 1(d). The payment to Executive of the severance benefits described in this Section l(d) shall be subject to Executive’s execution and non-revocation of a general release, within 30 days of the date of termination of Executive’s employment, of the Company and its affiliates in a form substantially similar to that used for similarly situated executives of the Company and Executive’s compliance with the restrictive covenants set forth in Section 2 (other than any non-compliance that is immaterial, does not result in harm to the Company or its affiliates, and, if curable, is cured by Executive promptly after receipt of notice thereof given by the Company). Executive acknowledges and agrees that the Company’s payment of severance benefits described in this Section 1(d) constitutes good and valuable consideration for such release. As used herein, “Good Reason” shall mean the occurrence of any of the following without Executive’s prior written consent: (A) the Company’s material breach of any material provision of this Agreement, (B) the material reduction in Executive’s title, duties or reporting responsibilities, excluding for this purpose any such reduction that is an isolated and inadvertent action not taken in bad faith or that is authorized pursuant to this Agreement, (C) the material reduction in Executive’s Base Salary, or (D) the relocation of Executive’s principal place of employment more than 50 miles outside the Seattle metropolitan area, provided that in no event shall Executive’s resignation be for “Good Reason” unless (x) an event or circumstance set forth in clauses (A) through (D) shall have occurred and Executive provides the Company with written notice thereof within 30 days after Executive has knowledge of the occurrence or existence of such event or circumstance, which notice specifically identifies the event or circumstance that Executive believes constitutes Good Reason, (y) the Company fails to correct the circumstance or event so identified within 30 days after receipt of such notice, and (z) Executive resigns within 90 days after the date of delivery of the notice referred to in clause (x) above. Notwithstanding the preceding provisions of this Section 1(d), in the event that Executive is a “specified employee” (within the meaning of Section 409A) on the date of termination of Executive’s employment with the Company and the Cash Severance Payments to be paid within the first six months following such date (the “Initial Payment Period”) exceed the amount referenced in Treas. Regs. Section 1.409A-1(b)(9)(iii)(A) (the “Limit”), then (1) any portion of the Cash Severance Payments that is a “short-term deferral” within the meaning of Treas. Regs. Section 1.409A-1(b)(4)(i) shall be paid at the times set forth in Section 1(d), (2) any portion of the Cash Severance Payments (in addition to the amounts contemplated by the immediately preceding clause (1)) that is payable during the Initial Payment Period that does not exceed the Limit shall be paid at the times set forth in Section 1(d) as applicable, (3) any portion of the Cash Severance Payments that exceeds the Limit and is not a “short-term deferral” (and would have been payable

during the Initial Payment Period but for the Limit) shall be paid, with Interest, on the first business day of the first calendar month that begins after the six-month anniversary of Executive’s “separation from service” (within the meaning of Section 409A) and (4) any portion of the Cash Severance Payments that is payable after the Initial Payment Period shall be paid at the times set forth in Section l(d). For purposes of this Agreement, “Interest” shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code, from the date on which payment would otherwise have been made but for any required delay through the date of payment.

(e) OFFSET . If Executive obtains other employment during the Salary Continuation Period, any payments to be made to Executive under Section l(d) hereof after the date such employment is secured shall be offset by the amount of compensation earned by Executive from such employment. For purposes of this Section l(e), Executive shall have an obligation to inform the Company regarding Executive’s employment status following termination and during the Salary Continuation Period, but shall have no affirmative duty to seek alternate employment.

(f) ACCRUED OBLIGATIONS . As used in this Agreement, “Accrued Obligations” shall mean the sum of (i) any portion of Executive’s accrued and earned but unpaid Base Salary through the date of death or termination of employment for any reason, as the case may be; (ii) any compensation previously earned but deferred by Executive (together with any interest or earnings thereon) that has not yet been paid and that is not otherwise paid at a later date pursuant to any deferred compensation arrangement of the Company to which Executive is a party, if any (provided, that any election made by Executive pursuant to any deferred compensation arrangement that is subject to Section 409A regarding the schedule for payment of such deferred compensation shall prevail over this Section l(f) to the extent inconsistent herewith); and (iii) other than in the event of Executive’s resignation without Good Reason or termination by the Company for Cause (except as required by applicable law), any portion of Executive’s accrued but unpaid vacation pay through the date of death or termination of employment.

(g) OTHER BENEFITS . Upon any termination of Executive’s employment prior to the expiration of the Term, Executive shall remain entitled to receive any vested benefits or amounts that Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any other contract or agreement with, the Company in accordance with the terms thereof (other than any such plan, policy, practice or program of the Company that provides benefits in the nature of severance or continuation pay).

2. CONFIDENTIAL INFORMATION; NON-SOLICITATION: AND PROPRIETARY RIGHTS .

(a) CONFIDENTIALITY . Executive acknowledges that while employed by the Company, Executive will occupy a position of trust and confidence. Executive shall not, except as is appropriate to perform Executive’s duties hereunder or as required by applicable law, disclose to others, use, copy, transmit, reproduce, summarize, quote or make commercial, whether directly or indirectly, any Confidential Information. Executive will also take reasonable steps to safeguard such Confidential Information and prevent its loss, theft, or inadvertent

disclosure to third persons. This Section 2 shall apply to Confidential Information acquired by Executive whether prior or subsequent to the execution of this Agreement. “Confidential Information” shall mean information about the Company or any of its subsidiaries or affiliates, and their respective clients and customers, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information, provided that Confidential Information shall not mean any such information that is previously disclosed to, or in possession of, the public other than by reason of Executive’s breach of this Agreement. Notwithstanding the foregoing provisions, if Executive is required to disclose any such confidential or proprietary information pursuant to applicable law or a subpoena or court order, Executive shall promptly notify the Company in writing of any such requirement so that the Company may seek an appropriate protective order or other appropriate remedy or waive compliance with the provisions hereof. Executive shall reasonably cooperate with the Company to obtain such a protective order or other remedy. If such order or other remedy is not obtained prior to the time Executive is required to make the disclosure, or the Company waives compliance with the provisions hereof, Executive shall disclose only that portion of the confidential or proprietary information which he is advised by counsel that he is legally required to so disclose. Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company and its subsidiaries or affiliates, and that such information gives the Company and its subsidiaries or affiliates a competitive advantage. Executive agrees to deliver or return to the Company, at the Company’s request at any time or upon termination or expiration of Executive’s employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company and its subsidiaries or affiliates or prepared by Executive in the course of Executive’s employment by the Company and its subsidiaries or affiliates. As used in this Agreement, “affiliates” shall mean any company controlled by, controlling or under common control with the Company.

(b) NON-COMPETITION . In consideration of the Company’s promise to disclose, and disclosure of, its Confidential Information and other good and valuable consideration provided hereunder, the receipt and sufficiency of which are hereby acknowledged by Executive, Executive hereby agrees and covenants that during the Term and for a period of 24 months beyond Executive’s date of termination of employment for any reason, including the expiration of the Term (the “Restricted Period”), Executive shall not, directly or indirectly, engage in, assist or become associated with a Competitive Activity. For purposes of this Section 2(b): (i) a “Competitive Activity” means, at the time of Executive’s termination, any business or other endeavor in any jurisdiction of a kind being conducted by the Company or any of its subsidiaries or, if engaged in the provision of any travel related services, any of its affiliates in any jurisdiction (or demonstrably anticipated by the Company or its subsidiaries or affiliates as of the Effective Date or at any time thereafter; and (ii) Executive shall be considered to have become “associated with a Competitive Activity” if Executive becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is

engaged in a Competitive Activity. Notwithstanding the foregoing, Executive may make and retain investments during the Restricted Period, for investment purposes only, in less than five percent of the outstanding capital stock of any publicly-traded corporation engaged in a Competitive Activity if stock of such corporation is either listed on a national stock exchange or on the NASDAQ National Market System if Executive is not otherwise affiliated with such corporation.

(c) NON-SOLICITATION OF EMPLOYEES . Executive agrees that during the Restricted Period, Executive shall not, without the prior written consent of the Company, directly or indirectly, hire, recruit or solicit the employment or services of (whether as an employee, officer, director, agent, consultant or independent contractor), any employee, officer, director, agent, consultant or independent contractor of the Company or any of its subsidiaries or affiliates or any such person who has terminated his or her relationship with the Company or any of its subsidiaries or affiliates within the six-month period prior to such hiring, recruiting or soliciting (except for (i) such employment or hiring by the Company or any of its subsidiaries or affiliates or (ii) such employment or hiring by Executive of an agent, consultant or independent contractor where the primary duties of such person are not for the Company); provided , however that a general solicitation of the public for employment shall not constitute a solicitation hereunder so long as such general solicitation is not designed to target, or does not have the effect of targeting, any employee, officer, director, agent, consultant or independent contractor of the Company or any of its subsidiaries or affiliates. This Section 2(c) shall not apply to any administrative assistant working directly for Executive.

(d) NON-SOLICITATION OF BUSINESS PARTNERS . During the Restricted Period, Executive shall not, without the prior written consent of the Company, directly or indirectly, persuade or encourage or attempt to persuade or encourage any business partners or business affiliates of the Company or its subsidiaries or affiliates to cease doing business with the Company or any of its subsidiaries or affiliates or to engage in any business competitive with the Company or its subsidiaries or affiliates on its own or with any competitor of the Company or its subsidiaries or affiliates.

(e) PROPRIETARY RIGHTS; ASSIGNMENT . All Executive Developments (as defined below) shall be made for hire by Executive for the Company or any of its subsidiaries or affiliates. “Executive Developments” means any idea, discovery, invention, design, method, technique, improvement, enhancement, development, computer program, machine, algorithm or other work or authorship, in each case, (i) that (A) relates to the business or operations of the Company or any of its subsidiaries or affiliates, or (B) results from or is suggested by any undertaking assigned to Executive or work performed by Executive for or on behalf of the Company or any of its subsidiaries or affiliates, whether created alone or with others, during or after working hours and (ii) that is conceived or developed during the Term. All Confidential Information and all Executive Developments shall remain the sole property of the Company or any of its subsidiaries or affiliates. Executive shall acquire no proprietary interest in any Confidential Information or Executive Developments developed or acquired during the Term. To the extent Executive may, by operation of law or otherwise, acquire any right, title or interest in or to any Confidential Information or Executive Development, Executive hereby assigns to the Company all such proprietary rights. Executive shall, both during and after the Term, upon the

Company’s request, promptly execute and deliver to the Company all such assignments, certificates and instruments, and shall promptly perform such other acts, as the Company may from time to time in its reasonable discretion deem necessary or desirable to evidence, establish, maintain, perfect, enforce or defend the Company’s rights in Confidential Information and Executive Developments.

(f) COMPLIANCE WITH POLICIES AND PROCEDURES . During the Term, Executive shall adhere to the policies and standards of professionalism set forth in the Company’s Policies and Procedures as they may exist from time to time. Executive hereby consents to, and expressly authorizes, the Company’s use of Executive’s name and likeness in trade publications and other media for trade or commercial purposes.

(g) REMEDIES FOR BREACH . Executive expressly agrees and understands that the Company will have 30 days from receipt of Executive’s notice of any alleged breach by the Company of this Agreement to cure any such breach. Executive expressly agrees and understands that the remedy at law for any breach by Executive of this Section 2 will be inadequate and that damages flowing from such breach are not usually susceptible to being measured in monetary terms. Accordingly, it is acknowledged that upon Executive’s violation or threatened violation of any provision of this Section 2, the Company shall be entitled to obtain from any court of competent jurisdiction immediate injunctive relief and obtain a temporary order restraining any threatened or further breach as well as an equitable accounting of all profits or benefits arising out of such violation or threatened violation without the requirement of posting any bond. Nothing in this Section 2 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Executive of any of the provisions of this Section 2, which may be pursued by or available to the Company.

(h) SURVIVAL OF PROVISIONS . The obligations contained in this Section 2 shall, to the extent provided in this Section 2, survive the termination or expiration of Executive’s employment with the Company and, as applicable, shall be fully enforceable thereafter in accordance with the terms of this Agreement. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 2 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state.

3. ASSIGNMENT: SUCCESSORS . This Agreement is personal in its nature and none of the parties hereto shall, without the consent of the others, assign or transfer this Agreement or any rights or obligations hereunder; provided , that, in the event of a merger, consolidation, transfer, reorganization, or sale of all, substantially all or a substantial portion of, the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of the Company’s successor in interest in such transaction, and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder, and all references herein to the “Company” shall refer to such successor.

4. WITHHOLDING . The Company shall make such deductions and withhold such amounts from each payment and benefit made or provided to Executive hereunder, as may be required from time to time by applicable law, governmental regulation or order.

5. HEADING REFERENCES . Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. References to “this Agreement” or the use of the term “hereof” shall refer to these Standard Terms and Conditions and the Employment Agreement attached hereto, taken as a whole.

6. WAIVER: MODIFICATION . Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto.

7. SEVERABILITY . In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any law or public policy, only the portions of this Agreement that violate such law or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement.

9. SECTION 409A . The Agreement is intended to comply with the requirements of Section 409A or an exemption or exclusion therefrom and, with respect to amounts that are subject to Section 409A, shall in all respects be administered in accordance with Section 409A. Each payment under this Agreement shall be treated as a separate payment for purposes of Section 409A. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement. All reimbursements and in-kind benefits provided under this Agreement that constitute deferred compensation within the meaning of Section 409A shall be made or provided in accordance with the requirements of Section 409A, including, without limitation, that (i) in no event shall reimbursements by the Company under this Agreement be made later than the end of the calendar year next following the calendar year in which the applicable fees and expenses were incurred, provided, that Executive shall have submitted an invoice for such fees and expenses at least 10 days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred; (ii) the amount of in-kind benefits that the Company is obligated to pay or provide in any given calendar year shall not affect the in-kind benefits that the Company is obligated to pay or provide in any other calendar year; (iii) Executive’s right to have the Company pay or provide such reimbursements and in-kind benefits may not be liquidated or exchanged for any other benefit; and (iv) in no event shall the Company’s obligations to make such reimbursements or to provide such in-kind benefits apply later than Executive’s remaining lifetime (or if longer, through the 20 ^th anniversary of the Effective Date). Notwithstanding anything herein to the contrary, in the event that any amounts payable or benefits to be provided to Executive under Section l.(d) or any

other arrangement to which Executive is a party or participant constitute deferred compensation within the meaning of Section 409A, (i) if Executive is a “specified employee” within the meaning of Section 409A (as determined in accordance with the methodology established by the Company as in effect on the date of termination), amounts that constitute “nonqualified deferred compensation” within the meaning of Section 409A that would otherwise be payable and restricted stock units that constitute “non-qualified deferred compensation” that would otherwise have been settled under Section l(d) during the six-month period immediately following the date of termination shall instead be paid, with Interest determined as of the date of termination, or settled, on the first business day after the date that is six months following Executive’s “separation from service” within the meaning of Section 409A; (ii) if Executive dies following the date of termination and prior to the payment of the any amounts delayed on account of Section 409A, such amounts shall be paid to, and such restricted stock units shall be settled with, the personal representative of Executive’s estate within 30 days after the date of the Executive’s death; and (iii) in no event shall the date of termination of Executive’s employment be deemed to occur until Executive experiences a “separation from service” within the meaning of Section 409A, and notwithstanding anything contained herein to the contrary, the date on which such separation from service takes place shall be the date of termination.

ACKNOWLEDGED AND AGREED AS OF THE EFFECTIVE DATE:


	EXPEDIA, INC.
	/s/ Burke F. Norton
	By: Burke F. Norton
	Title:	Executive Vice President, General Counsel


	/s/ Dara Khosrowshahi
	Dara Khosrowshahi

Exhibit 10.2

AMENDED AND RESTATED

EXPEDIA, INC. RESTRICTED STOCK UNIT AGREEMENT

FOR DARA KHOSROWSHAHI

This Agreement , dated as of the award date (the “Award Date”), designated on the Summary of Award referenced below, as amended as of December 31, 2008 and amended and restated as of April 8, 2009, between Expedia, Inc., a Delaware corporation (the “Corporation”), and Dara Khosrowshahi (the “Eligible Individual”) designated as receiving an award of restricted stock units (the “Restricted Stock Units”) by the Compensation/Benefits Committee of the Board of Directors of the Corporation (or such other Committee as the Board may from time to time designate) (the “Committee”).

All capitalized terms used herein, to the extent not defined, shall have the meanings set forth in the Corporation’s 2005 Stock and Annual Incentive Plan (the “Plan”).

1. Award and Vesting of Restricted Stock Units

(a) Subject to the provisions of this Agreement and to the provisions of the Plan, the Corporation hereby grants to the Eligible Individual 800,000 restricted stock units (the “Restricted Stock Units”) pursuant to Section 7 of the Plan. Reference is made to the “Summary of Award” that can be found on the Smith Barney Benefit Access System at www.benefitaccess.com. Your Summary of Award, which sets forth the number of Restricted Stock Units granted to you by the Corporation and the Award Date (among other information), is hereby incorporated by reference into, and shall be read as part and parcel of, this Agreement.

(b) Subject to the terms and conditions of this Agreement and the provisions of the Plan, the Restricted Stock Units shall vest and no longer be subject to any restriction (such period during which restrictions apply is the “Restriction Period”) in the event both (i) one of the two performance goals approved by the Committee (the “Performance Goals”) and relating to EBITA or the Corporation’s stock price is achieved and (ii) the OIBA Target (as defined below) is achieved (collectively, the “Combined Goals”):


Vesting Date	Percentage of Total Grant Vesting

Upon the attainment by the Corporation of the Combined Goals (as further referenced below); provided, however, that, at the election of the Corporation, such vesting shall be conditioned on the Eligible Individual agreeing to remain employed as the Chief Executive Officer of the Corporation for an additional two years following satisfaction of the Combined Goals on no less favorable terms to the Eligible Individual than the terms of employment as in effect at the time of such agreement		75	%

On the one year anniversary of the attainment of the Combined Goals, provided the Eligible Employee has not voluntarily terminated his employment with the Corporation and has not been terminated by the Corporation for Cause		25	%

“OIBA Target” as used herein means that certain Corporation operating income before amortization (“OIBA”) target approved by the Committee with respect to the vesting of Restricted Stock Units awarded to the Eligible Individual under this Agreement. The “Modified OIBA Target” as used herein means that certain OIBA target approved by the Committee with respect to any fiscal year in which the Eligible Individual’s employment is terminated by the Company without Cause.

(c) Notwithstanding the provisions of Paragraph 1(b), if the Eligible Individual incurs a Termination of Employment by the Corporation without Cause during a fiscal year in which the Modified OIBA Target is met and prior to such Termination of Employment one of the Performance Goals has been met, then 75% of the Restricted Stock Units will vest (and the Restriction Period shall lapse for such Restricted Stock Units) as soon as practicable following the determination by the Committee within sixty (60) days following the end of the applicable fiscal year that the Modified OIBA Target and one of the Performance Goals have been met and all remaining unvested Restricted Stock Units shall be forfeited by the Eligible Individual. If the Committee determines that either (x) the Modified OIBA Target has not been met, or (y) both of the Performance Goals have not been met, then all the Restricted Stock Units will be forfeited immediately, provided, however, that the Committee shall have the discretion to waive, in whole or in part, any or all remaining restrictions with respect to any or all of such Eligible Individual’s Restricted Stock Units.

(d) Notwithstanding the provisions of Paragraph 1(b), in the event the Eligible Individual incurs a Termination of Employment by the Corporation for Cause, or the Eligible Individual voluntarily incurs a Termination of Employment within two years after any event or circumstance that would have been grounds for a Termination of Employment for Cause, the Eligible Individual’s Restricted Stock Units (whether or not vested) shall be forfeited and canceled in their entirety upon such Termination of Employment, and the Corporation may cause the Eligible Individual, immediately upon notice from the Corporation, either to return the shares or cash issued upon settlement of Restricted Stock Units that vested during the two-year period after the events or circumstances giving rise to or constituting grounds for such Termination of Employment for Cause or to pay to the Corporation an amount equal to the aggregate amount, if any, that the Eligible Individual had previously realized in respect of any and all shares issued upon settlement of Restricted Stock Units that vested during the two-year period after the events or circumstances giving rise to or constituting grounds for such Termination of Employment for Cause (i.e., the value of the Restricted Stock Units upon vesting), in each case including any dividend equivalents or other distributions received in respect of any such Restricted Stock Units.

(e) In the event the Eligible Individual incurs a Termination of Employment during the Restriction Period for any reason other than as set forth in Paragraph 1(c) or Paragraph 5 (with respect to a Change of Control), all remaining unvested Restricted Stock Units shall be forfeited by the Eligible Individual and canceled in their entirety effective immediately upon such termination.

(f) For purposes of this Agreement, employment with the Corporation shall include employment with the Corporation’s Affiliates and its successors. Nothing in this Agreement or the Plan shall confer upon the Eligible Individual any right to continue in the employ of the Corporation or any of its Affiliates or interfere in any way with the right of the Corporation or any such Affiliates to terminate the Eligible Individual’s employment at any time.

2. Settlement of Units

As soon as practicable (but in no event later than five business days) after any Restricted Stock Units have vested and are no longer subject to the Restriction Period, such Restricted Stock Units shall be settled. Subject to Paragraph 8 (pertaining to the withholding of taxes), for each Restricted Stock Unit settled pursuant to this Paragraph 2, the Corporation shall (i) if the Eligible Individual is employed within the United States, issue one share of Common Stock for each vested Restricted Stock Unit and cause to be delivered to the Eligible Individual one or more unlegended, freely-transferable stock certificates in respect of such shares issued upon settlement of the vested Restricted Stock Units or (ii) if the Eligible Individual is employed outside the United States, pay, or cause to be paid, to the Eligible Individual an amount of cash equal to the Fair Market Value of one share of Common Stock for each vested Restricted Stock Unit settled at such time. Notwithstanding the foregoing, the Corporation shall be entitled to hold the shares or cash issuable upon settlement of Restricted Stock Units that have vested until the Corporation or the agent selected by the Corporation to manage the Plan under which the Restricted Stock Units have been issued (the “Agent”) shall have received from the Eligible Individual a duly executed Form W-9 or W-8, as applicable.

3. Non-Transferability of the Restricted Stock Units

During the Restriction Period and until such time as the Restricted Stock Units are ultimately settled as provided in Paragraph 2 above, the Restricted Stock Units shall not be transferable by the Eligible Individual by means of sale, assignment, exchange, encumbrance, pledge, hedge or otherwise.

4. Rights as a Stockholder

Except as otherwise specifically provided in this Agreement, during the Restriction Period the Eligible Individual shall not be entitled to any rights of a stockholder with respect to the Restricted Stock Units. Notwithstanding the foregoing, if the Corporation declares and pays dividends on the Common Stock during the Restriction Period, the Eligible Individual will be credited with additional amounts for each Restricted Stock Unit equal to the dividend that would have been paid with respect to such Restricted Stock Unit if it had been an actual share of Common Stock, which amount shall remain subject to restrictions (and as determined by the Committee, may be reinvested in Restricted Stock Units or may be held in kind as restricted cash or property) and shall vest concurrently with the vesting of the Restricted Stock Units upon which such dividend equivalent amounts were paid. Notwithstanding the foregoing, dividends and distributions other than regular quarterly cash dividends, if any, may result in an adjustment pursuant to Paragraph 5, rather than under this Paragraph 4.

5. Adjustments in the Event of Change in Stock; Change in Control

(a) Subject to the provisions of Paragraph 5(b), in the event of (i) a stock dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of the Corporation (each, a “Share Change”), or (ii) a merger, consolidation, acquisition of property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, Disaffiliation, payment of cash dividends other than an ordinary dividend or similar event affecting the Corporation or any of its Subsidiaries (each, a “Corporate Transaction”), the Committee or the Board may in its discretion make such substitutions or adjustments as it deems appropriate and equitable to the number of Restricted Stock Units and the number and kind of shares of Common Stock underlying the Restricted Stock Units.

In the case of Corporate Transactions, such adjustments may include, without limitation (i) the cancellation of the Restricted Stock Units in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Restricted Stock Units, as determined by the Committee or the Board in its sole discretion, (ii) the substitution of other property (including, without limitation, cash or other securities of the Corporation and securities of entities other than the Corporation) for the shares of Common Stock underlying the Restricted Stock Units and (iii) in connection with any Disaffiliation, arranging for the assumption of the Restricted Stock Units, or the replacement of the Restricted Stock Units with new awards based on other property or other securities (including, without limitation, other securities of the Corporation and securities of entities other than the Corporation), by the affected Subsidiary, Affiliate or division or by the entity that controls such Subsidiary, Affiliate or division following such Disaffiliation (as well as any corresponding adjustments to any Restricted Stock Units that remain based upon securities of the Corporation).

The determination of the Committee regarding any such adjustment will be final and conclusive and need not be the same for all recipients of restricted stock units granted under the Plan.

(b) In the event of a Change in Control (as defined in the Plan; provided, however, that for the purposes of this Agreement, a “Change in Control” shall in addition include any such event, including the termination of the irrevocable proxy held by Barry Diller to vote shares of the Corporation held by Liberty Media Corporation or its affiliates, or acquisition by Liberty Media Corporation and their respective affiliates of Beneficial Ownership of equity securities of the Corporation whereby Liberty Media Corporation acquires or assumes more than 35% of the voting power of the then outstanding equity securities of the Corporation entitled to vote generally in the election of directors), then 50% of the Restricted Stock Units shall automatically vest without regard to the achievement of the OIBA Target or the Performance Goals. If, within one year following such Change of Control, (i) the Eligible Individual incurs a material and demonstrable adverse change in the nature and scope of the Eligible Individual’s duties from those in effect immediately prior to the Change of Control, or (ii) the Eligible Individual incurs a Termination of Employment by the Corporation without Cause, then the remaining Restricted Stock Units shall vest, in each case without regard to the achievement of the OIBA Target or the Performance Goals. This Paragraph 5(b) shall not apply to the Eligible Individual’s Restricted Stock Units in the event of the Eligible Individual’s Termination of Employment prior to a Change in Control.

6. Payment of Transfer Taxes, Fees and Other Expenses

The Corporation agrees to pay any and all original issue taxes and stock transfer taxes that may be imposed on the issuance of shares received by an Eligible Individual in connection with the Restricted Stock Units, together with any and all other fees and expenses necessarily incurred by the Corporation in connection therewith.

7. Other Restrictions

(a) The Restricted Stock Units shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body is required, then in any such event, the award of Restricted Stock Units shall not be effective unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.

(b) The Eligible Individual acknowledges that the Eligible Individual is subject to the Corporation’s policies regarding compliance with securities laws, including but not limited to its Securities Trading Policy (as in effect from time to time and any successor policies) and pursuant to these policies, if the Eligible Individual is on the Corporation’s insider list, the Eligible Individual shall be required to obtain pre-clearance from the Corporation’s General Counsel prior to purchasing or selling any of the Corporation’s securities, including any shares issued upon vesting of the Restricted Stock Units, and may be prohibited from selling such shares other than during an open trading window. The Eligible Individual further acknowledges that, in its discretion, the Corporation may prohibit the Eligible Individual from selling such shares even during an open trading window if the Corporation has concerns over the potential for insider trading.

8. Taxes and Withholding

No later than the date as of which an amount first becomes includible in the gross income of the Eligible Individual for federal, state, local or foreign income or employment or other tax purposes with respect to any Restricted Stock Units, the Eligible Individual shall pay to the Corporation, or make arrangements satisfactory to the Corporation regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Corporation under this Agreement shall be conditioned on compliance by the Eligible Individual with this Paragraph 8, and the Corporation and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Eligible Individual, including deducting such amount from the delivery of shares or cash issued upon settlement of the Restricted Stock Units that gives rise to the withholding requirement.

9. Notices

All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, overnight courier, or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Eligible Individual: at the last known address on record at the Corporation.

If to the Corporation:

Expedia, Inc.
333 108 ^th Ave.NE
Bellevue, WA 98004
Attention: General Counsel
Facsimile: (425)679-7251

or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Paragraph 9. Notice and communications shall be effective when actually received by the addressee. Notwithstanding the foregoing, the Eligible Individual consents to electronic delivery of documents required to be delivered by the Corporation under the securities laws.

10. Effect of Agreement

Except as otherwise provided hereunder, this Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Corporation. The terms, conditions and vesting on any previously granted Awards to the Eligible Employee remain in full force and effect.

11. Laws Applicable to Construction; Consent to Jurisdiction

The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without reference to principles of conflict of laws, as applied to contracts executed in and performed wholly within the State of Delaware. In addition to the terms and conditions set forth in this Agreement, the Restricted Stock Units are subject to the terms and conditions of the Plan, which are hereby incorporated by reference.

Any and all disputes arising under or out of this Agreement, including without limitation any issues involving the enforcement or interpretation of any of the provisions of this Agreement, shall be resolved by the commencement of an appropriate action in the state or federal courts located within the state of Delaware, which shall be the exclusive jurisdiction for the resolution of any such disputes. The Eligible Individual hereby agrees and consents to the personal jurisdiction of said courts over the Eligible Individual for purposes of the resolution of any and all such disputes.

12. Severability

The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

13. Conflicts and Interpretation

In the event of any conflict between this Agreement and the Plan, the Plan shall control. In the event of any ambiguity in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (i) interpret the Plan, (ii) prescribe, amend and rescind rules and regulations relating to the Plan, and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.

In the event of any (i) conflict between the Summary of Award (or any other information posted on the Smith Barney Benefit Access System) and this Agreement, the Plan and/or the books and records of the Corporation or (ii) ambiguity in the Summary of Award (or any other information posted on the Smith Barney Benefit Access System), this Agreement, the Plan and/or the books and records of the Corporation, as applicable, shall control.

14. Amendment

The Corporation may modify, amend or waive the terms of the Restricted Stock Unit award, prospectively or retroactively, but no such modification, amendment or waiver shall impair the rights of the Eligible Individual without his or her consent, except as required by applicable law, NASDAQ or stock exchange rules, tax rules or accounting rules. The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

15. Headings

The headings of paragraphs herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of this Agreement.

16. Reserved

17. Data Protection

The Eligible Individual authorizes the release from time to time to the Corporation (and any of its subsidiaries or affiliated companies) and to the Agent (together, the “Relevant Companies”) of any and all personal or professional data that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). Without limiting the above, the Eligible Individual permits his or her employing company to collect, process, register and transfer to the Relevant Companies all Relevant Information (including any professional and personal data that may be useful or necessary for the purposes of the administration of the Plan and/or this Agreement and/or to implement or structure any further grants of equity awards (if any)). The Eligible Individual hereby authorizes the Relevant Information to be transferred to any jurisdiction in which the Corporation, his or her employing company or the Agent considers appropriate. The Eligible Individual shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

18. NON-COMPETE

In consideration of the Corporation’s award of Restricted Stock Units, the Eligible Individual hereby agrees and covenants that during his employment with the Corporation and its Subsidiaries and Affiliates and for a period of 24 months beyond the Eligible Individual’s date of Termination of Employment for any reason (the “Non-Compete Period”), the Eligible Individual shall not, directly or indirectly, engage in, assist or become associated with a Competitive Activity. For purposes of this Agreement: (i) a “Competitive Activity” means, at the time of such Eligible Individual’s termination, any business or other endeavor, in any jurisdiction, of a kind being conducted by the Corporation or any of its subsidiaries or, if engaged in the provision of any travel related services, any of its Affiliates in any jurisdiction (or demonstrably anticipated by the Corporation or its Subsidiaries or Affiliates) as of the date hereof or at any time thereafter; and (ii) the Eligible Individual shall be considered to have become “associated with a Competitive Activity” if the Eligible Individual becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity. Notwithstanding the foregoing, the Eligible Individual may make and

retain investments during the Non-Compete Period, for investment purposes only, in less than five percent (5%) of the outstanding capital stock of any publicly-traded corporation engaged in a Competitive Activity if stock of such corporation is either listed on a national stock exchange or on the NASDAQ National Market System if the Eligible Individual is not otherwise affiliated with such corporation.

19. Counterparts

This Agreement may be executed in counterparts, which together shall constitute one and the same original.

IN WITNESS WHEREOF , as of the date first above written, the Corporation has caused this Agreement to be executed on its behalf by a duly authorized officer and the Eligible Individual has hereunto set the Eligible Individual’s hand. Electronic acceptance of this Agreement pursuant to the Corporation’s instructions to the Eligible Individual (including through an online acceptance process managed by the Agent) is acceptable.


EXPEDIA, INC.
By:	/s/ Burke F. Norton
	Name:	Burke F. Norton
	Title:	Executive Vice President, General Counsel and Secretary

ELIGIBLE INDIVIDUAL
By:	/s/ DARA KHOSROWSHAHI
	DARA KHOSROWSHAHI

Exhibit 10.3

Execution Copy

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into by and between Burke Norton (“Executive”) and Expedia, Inc., a Delaware corporation (the “Company”), and is effective as of May 28, 2009 (the “Effective Date”).

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, Executive and the Company have agreed and do hereby agree as follows:

1.A. EMPLOYMENT . The Company agrees to employ Executive as Executive Vice President and General Counsel of the Company; Executive accepts and agrees to such employment. During Executive’s employment with the Company, Executive shall perform all services and acts necessary or advisable to fulfill the duties and responsibilities as are commensurate and consistent with Executive’s position and shall render such services on the terms set forth herein. During Executive’s employment with the Company, Executive shall report directly to the Chief Executive Officer of the Company or such person(s) as from time to time may be designated by the Company (hereinafter referred to as the “Reporting Officer”). Executive shall have such powers and duties with respect to the Company as may reasonably be assigned to Executive by the Reporting Officer, to the extent consistent with Executive’s position and status. Executive agrees to devote all of Executive’s working time, attention and efforts to the Company and to perform the duties of Executive’s position in accordance with the Company’s policies as in effect from time to time. Executive’s principal place of employment shall be the Company’s offices located in Bellevue, Washington.

3.A. COMPENSATION .

(a) BASE SALARY . During the Term, the Company shall pay Executive an annual base salary of $375,000.00 (the “Base Salary”), payable in equal biweekly installments or in accordance with the Company’s payroll practice as in effect from time to time. Effective as of January 1, 2010, the Base Salary shall be increased to not less than $425,000. For all purposes under this Agreement, the term “Base Salary” shall refer to Base Salary as in effect from time to time.

(b) DISCRETIONARY BONUS . During the Term, Executive shall be eligible to receive discretionary annual bonuses with an annual target bonus equal to 75% of Base Salary, with amounts, if any, for any partial year payable on a pro rata basis. Any such annual bonus shall be paid not later than March 15 of the calendar year immediately following the calendar year with

respect to which such annual bonus relates (unless Executive has elected to defer receipt of such bonus pursuant to an arrangement that meets the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)).

4. A. NOTICES . All notices and other communications under this Agreement shall be in writing and shall be given by first-class mail, certified or registered with return receipt requested or hand delivery acknowledged in writing by the recipient personally, and shall be deemed to have been duly given three days after mailing or immediately upon duly acknowledged hand delivery to the respective persons named below:


If to the Company:		Expedia, Inc. 333 108 ^th Avenue NE Bellevue, Washington 98004 Attention: General Counsel

If to Executive:		At the most recent address on record for Executive at the Company

Either party may change such party’s address for notices by notice duly given pursuant hereto.

5.A. GOVERNING LAW: JURISDICTION . This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the internal laws of the State of Washington without reference to the principles of conflicts of laws. Any and all disputes between the parties which may arise pursuant to this Agreement will be heard and determined before an appropriate federal court in Washington, or, if not maintainable therein, then in an appropriate Washington state court. The parties acknowledge that such courts have jurisdiction to interpret and enforce the provisions of this Agreement, and the parties consent to, and waive any and all objections that they may have as to, personal

jurisdiction and/or venue in such courts.

6.A COUNTERPARTS . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Executive expressly understands and acknowledges that the Standard Terms and Conditions attached hereto are incorporated herein by reference, deemed a part of this Agreement and are binding and enforceable provisions of this Agreement. References to “this Agreement” or the use of the term “hereof shall refer to this Agreement and the Standard Terms and Conditions attached hereto, taken as a whole.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its duly authorized officer and Executive has executed and delivered this Agreement.


	EXPEDIA, INC.
	/s/ Dara Khosrowshahi
	By: Dara Khosrowshahi
	Title:	Chief Executive Officer


	/s/ Burke Norton
	Burke Norton

STANDARD TERMS AND CONDITIONS


1.		TERMINATION OF EXECUTIVE’S EMPLOYMENT .

(c) TERMINATION FOR CAUSE: RESIGNATION WITHOUT GOOD REASON . The Company may terminate Executive’s employment under this Agreement with or without Cause at any time and Executive may resign under this Agreement with or without Good Reason at any time. As used herein, “Cause” shall mean: (i) the plea of guilty or nolo contendere to, conviction for, or the commission of, a felony offense by Executive; provided , however , that after indictment, the Company may suspend Executive from the rendition of services, but without limiting or modifying in any other way the Company’s obligations under this Agreement; (ii) a material breach by Executive of a fiduciary duty owed to the Company or any of its subsidiaries; (iii) a material breach by Executive of any of the covenants made by Executive in Section 2 hereof; (iv) the willful or gross neglect by Executive of the material duties required by this Agreement; or (v) a knowing and material violation by Executive of any Company policy pertaining to ethics, legal compliance, wrongdoing or conflicts of interest that, in the case of the conduct described in clauses (iv) or (v) above, if curable, is not cured by Executive within 30 days after Executive is provided with written notice thereof. Upon Executive’s (A) termination of employment by the Company for Cause prior to the expiration of the Term or (B) resignation without Good Reason prior to the expiration of the Term, this Agreement shall terminate without

further obligation by the Company, except for the payment of any Accrued Obligations in a lump sum in cash within 30 days of such termination.

(ii) the Company shall pay Executive within 30 days of the date of such termination in a lump sum in cash any Accrued Obligations;

(iv) any compensation awards of Executive based on, or in the form of, Company equity (e.g. restricted stock, restricted stock units, stock options or similar instruments) (“Equity Awards”) that are outstanding and unvested at the time of such termination but which would, but for a termination of employment, have vested during the 12 months following such termination (such period, the “Equity Acceleration Period”) shall vest (and with respect to awards other than stock options and stock appreciation rights, settle) as of the date of such termination of employment; provided that any outstanding award with a vesting schedule that would, but for a termination of employment, have resulted in a smaller percentage (or none) of the award being vested, through the end of such Equity Acceleration Period than if it vested annually pro rata over its vesting period shall, for purposes of this provision, be treated as though it vested annually pro rata over its vesting period (e.g., if 100 restricted stock units (“RSUs”) were granted 2.7 years prior to the date of the termination and vested pro rata on each of the first five anniversaries of the grant date and 100 RSUs were granted 1.7 years prior to the date of termination and vested on the fifth anniversary of the grant date, then on the date of termination 20 RSUs from the first award and 40 RSUs from the second award would vest and settle); provided further that any amount that would vest under this provision but for the fact that outstanding performance conditions have not been satisfied shall vest (and with respect to awards other than stock options and stock appreciation rights, settle) only if, and at such point as, such performance conditions are satisfied; and provided further that to the extent that any such equity awards constitutes “non-qualified deferred compensation” within the meaning of Section 409A, such awards shall vest, but only settle in accordance with their terms (it

being understood that it is intended that no equity awards outstanding as of the date of this Agreement constitutes “non-qualified deferred compensation” within the meaning of Section 409A); and

(v) any then vested options of Executive (including options vesting as a result of (iv) above) to purchase Company equity, shall remain exercisable through the date that is 18 months following the date of such termination or, if earlier, through the scheduled expiration date of such options.

As used herein, “Good Reason” shall mean the occurrence of any of the following without Executive’s prior written consent: (A) the Company’s material breach of any material provision of this Agreement, (B) the material reduction in Executive’s title, duties, reporting responsibilities or level of responsibilities as General Counsel of the Company, excluding for this purpose any such reduction that is an isolated and inadvertent action not taken in bad faith or that is authorized pursuant to this Agreement, (C) the material reduction in Executive’s Base Salary or Executive’s total annual compensation opportunity, or (D) the relocation of Executive’s principal place of employment more than 50 miles outside the Seattle metropolitan area, provided that in no event shall Executive’s resignation be for “Good Reason” unless (x) an event or circumstance set forth in clauses (A) through (D) shall have occurred and Executive provides the Company with written notice thereof within 30 days after Executive has knowledge of the occurrence or existence of such event or circumstance, which notice specifically identifies the event or circumstance that Executive believes constitutes Good Reason, (y) the Company fails to correct the circumstance or event so identified within 30 days after receipt of such notice, and (z) Executive resigns within 90 days after the date of delivery of the notice referred to in clause (x) above. Notwithstanding the preceding provisions of this Section 1(d), in the event that Executive is a “specified employee” (within the meaning of Section 409A) on the date of termination of Executive’s employment with the Company and the Cash Severance Payments to be paid within the first six months following such date (the “Initial Payment Period”) exceed the amount referenced in Treas. Regs. Section 1.409A-l(b)(9)(iii)(A) (the “Limit”), then (1) any portion of the Cash Severance Payments that is a “short-term deferral” within the meaning of Treas. Regs. Section 1.409A-l(b)(4)(i) shall be paid at the times set forth in Section 1(d), (2) any portion of the Cash Severance Payments (in addition to the amounts contemplated by the immediately preceding clause (1)) that is payable during the Initial Payment Period that does not exceed the Limit shall be paid at the times set forth in Section 1(d) as applicable, (3) any portion of the Cash

Severance Payments that exceeds the Limit and is not a “short-term deferral” (and would have been payable during the Initial Payment Period but for the Limit) shall be paid, with Interest, on the first business day of the first calendar month that begins after the six-month anniversary of Executive’s “separation from service” (within the meaning of Section 409A) and (4) any portion of the Cash Severance Payments that is payable after the Initial Payment Period shall be paid at the times set forth in Section l(d). For purposes of this Agreement, “Interest” shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code, from the date on which payment would otherwise have been made but for any required delay through the date of payment.


2.		CONFIDENTIAL INFORMATION; NON-SOLICITATION; AND PROPRIETARY RIGHTS .

steps to safeguard such Confidential Information and prevent its loss, theft, or inadvertent disclosure to third persons. This Section 2 shall apply to Confidential Information acquired by Executive whether prior or subsequent to the execution of this Agreement. “Confidential Information” shall mean information about the Company or any of its subsidiaries or affiliates, and their respective clients and customers, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information, provided that Confidential Information shall not mean any such information that is previously disclosed to, or in possession of, the public other than by reason of Executive’s breach of this Agreement. Notwithstanding the foregoing provisions, if Executive is required to disclose any such confidential or proprietary information pursuant to applicable law or a subpoena or court order, Executive shall promptly notify the Company in writing of any such requirement so that the Company may seek an appropriate protective order or other appropriate remedy or waive compliance with the provisions hereof. Executive shall reasonably cooperate with the Company to obtain such a protective order or other remedy. If such order or other remedy is not obtained prior to the time Executive is required to make the disclosure, or the Company waives compliance with the provisions hereof, Executive shall disclose only that portion of the confidential or proprietary information which he is advised by counsel that he is legally required to so disclose. Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company and its subsidiaries or affiliates, and that such information gives the Company and its subsidiaries or affiliates a competitive advantage. Executive agrees to deliver or return to the Company, at the Company’s request at any time or upon termination or expiration of Executive’s employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company and its subsidiaries or affiliates or prepared by Executive in the course of Executive’s employment by the Company and its subsidiaries or affiliates. As used in this Agreement, “affiliates” shall mean any company controlled by, controlling or under common control with the Company.

(b) DUTY OF LOYALTY . In consideration of the Company’s promise to disclose, and disclosure of, its Confidential Information and other good and valuable consideration provided hereunder, the receipt and sufficiency of which are hereby acknowledged by Executive, Executive hereby agrees and covenants that: Until the longer of (i) the last day of the Term and (ii) a period of 24 months beyond Executive’s date of termination of employment for any reason, including the expiration of the Term (the “Restricted Period”), Executive shall not, directly or indirectly, engage in, assist or become associated with a Competitive Activity. For purposes of this Section 2(b): (i) a “Competitive Activity” means, at the time of Executive’s termination, any business or other endeavor in any jurisdiction of a kind being conducted by the Company or any of its subsidiaries or affiliates (or demonstrably anticipated by the Company or its subsidiaries or affiliates), including, without limitation, those that are engaged in the provision of any lodging or travel related services (including, without limitation, corporate travel services), in any jurisdiction as of the Effective Date or at any time thereafter (such affiliates including, without limitation, Hotels.com, Hotwire, Inc. and TripAdvisor); and (ii) Executive shall be considered to have become “associated with a Competitive Activity” if Executive becomes directly or

indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity. Notwithstanding the foregoing, Executive may make and retain investments during the Restricted Period, for investment purposes only, in less than five percent of the outstanding capital stock of any publicly-traded corporation engaged in a Competitive Activity if stock of such corporation is either listed on a national stock exchange or on the NASDAQ National Market System if Executive is not otherwise affiliated with such corporation.

To the extent Executive may, by operation of law or otherwise, acquire any right, title or interest in or to any Confidential Information or Executive Development, Executive hereby assigns to the Company all such proprietary rights. Executive shall, both during and after the Term, upon the Company’s request, promptly execute and deliver to the Company all such assignments, certificates and instruments, and shall promptly perform such other acts, as the Company may from time to time in its reasonable discretion deem necessary or desirable to evidence, establish, maintain, perfect, enforce or defend the Company’s rights in Confidential Information and Executive Developments.

3. MERGER . This Agreement constitutes the entire agreement between the parties and terminates and supersedes any and all prior agreements and understandings (whether written or oral) between the parties with respect to the subject matter of this Agreement. Executive acknowledges and agrees that neither the Company nor anyone acting on its behalf has made, and is not making, and in executing this Agreement, Executive has not relied upon, any representations, promises or inducements except to the extent the same is expressly set forth in this Agreement.

4. ASSIGNMENT; SUCCESSORS . This Agreement is personal in its nature and none of the parties hereto shall, without the consent of the others, assign or transfer this Agreement or any rights or obligations hereunder; provided , that, in the event of a merger, consolidation, transfer, reorganization, or sale of all, substantially all or a substantial portion of, the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of the Company’s successor in interest in such transaction, and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder, and all references herein to the “Company” shall refer to such successor.

5. WITHHOLDING . The Company shall make such deductions and withhold such amounts from each payment and benefit made or provided to Executive hereunder, as may be required from time to time by applicable law, governmental regulation or order.

6. HEADING REFERENCES . Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. References to “this Agreement” or the use of the term “hereof” shall refer to these Standard Terms and Conditions and the Employment Agreement attached hereto, taken as a whole.

7. WAIVER; MODIFICATION . Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto.

8. SEVERABILITY . In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any law or public policy, only the portions of this Agreement that violate such law or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement.

submitted an invoice for such fees and expenses at least 10 days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred; (ii) the amount of in-kind benefits that the Company is obligated to pay or provide in any given calendar year shall not affect the in-kind benefits that the Company is obligated to pay or provide in any other calendar year; (iii) Executive’s right to have the Company pay or provide such reimbursements and in-kind benefits may not be liquidated or exchanged for any other benefit; and (iv) in no event shall the Company’s obligations to make such reimbursements or to provide such in-kind benefits apply later than Executive’s remaining lifetime (or if longer, through the 20 ^th anniversary of the Effective Date). Notwithstanding anything herein to the contrary, in the event that any amounts payable or benefits to be provided to Executive under Section l.(d) or any other arrangement to which Executive is a party or participant constitute deferred compensation within the meaning of Section 409A, (i) if Executive is a “specified employee” within the meaning of Section 409A (as determined in accordance with the methodology established by the Company as in effect on the date of termination), amounts that constitute “nonqualified deferred compensation” within the meaning of Section 409A that would otherwise be payable and restricted stock units that constitute “non-qualified deferred compensation” that would otherwise have been settled under Section l(d) during the six-month period immediately following the date of termination shall instead be paid, with Interest determined as of the date of termination, or settled, on the first business day after the date that is six months following Executive’s “separation from service” within the meaning of Section 409A; (ii) if Executive dies following the date of termination and prior to the payment of the any amounts delayed on account of Section 409A, such amounts shall be paid to, and such restricted stock units shall be settled with, the personal representative of Executive’s estate within 30 days after the date of the Executive’s death; and (iii) in no event shall the date of termination of Executive’s employment be deemed to occur until Executive experiences a “separation from service” within the meaning of Section 409A, and notwithstanding anything contained herein to the contrary, the date on which such separation from service takes place shall be the date of termination.

ACKNOWLEDGED AND AGREED AS OF THE EFFECTIVE DATE:


	EXPEDIA, INC.
	/s/ Dara Khosrowshahi
	By: Dara Khosrowshahi
	Title:	Chief Executive Officer


	/s/ Burke Norton
	Burke Norton

Exhibit 10.4

Execution Copy

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into by and between Michael Adler (“Executive”) and Expedia, Inc., a Delaware corporation (the “Company”), and is effective as of May 16, 2009 (the “Effective Date”).

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, Executive and the Company have agreed and do hereby agree as follows:

1.A. EMPLOYMENT . The Company agrees to employ Executive as Executive Vice President and Chief Financial Officer of the Company; Executive accepts and agrees to such employment. During Executive’s employment with the Company, Executive shall perform all services and acts necessary or advisable to fulfill the duties and responsibilities as are commensurate and consistent with Executive’s position and shall render such services on the terms set forth herein. During Executive’s employment with the Company, Executive shall report directly to the Chief Executive Officer of the Company or such person(s) as from time to time may be designated by the Company (hereinafter referred to as the “Reporting Officer”). Executive shall have such powers and duties with respect to the Company as may reasonably be assigned to Executive by the Reporting Officer, to the extent consistent with Executive’s position and status. Executive agrees to devote all of Executive’s working time, attention and efforts to the Company and to perform the duties of Executive’s position in accordance with the Company’s policies as in effect from time to time. Executive’s principal place of employment shall be the Company’s offices located in Bellevue, Washington.

2.A. TERM OF AGREEMENT . The term (“Term”) of this Agreement shall commence on the Effective Date and shall continue through the third anniversary of the Effective Date (including, for the avoidance of doubt, May 16, 2012), unless sooner terminated in accordance with the provisions of Section 1 of the Standard Terms and Conditions attached hereto.

3.A. COMPENSATION .

(a) BASE SALARY . During the Term, the Company shall pay Executive an annual base salary of $375,000.00 (the “Base Salary”), payable in equal biweekly installments or in accordance with the Company’s payroll practice as in effect from time to time. Effective as of January 1, 2010, the Base Salary shall be increased to not less than $450,000. For all purposes under this Agreement, the term “Base Salary” shall refer to Base Salary as in effect from time to time.


		If to the Company:		Expedia, Inc.
				333 108 ^th Avenue NE
				Bellevue, Washington 98004
				Attention: General Counsel

		If to Executive:		At the most recent address on record for Executive at the Company

Either party may change such party’s address for notices by notice duly given pursuant hereto.

jurisdiction and/or venue in such courts.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its duly authorized officer and Executive has executed and delivered this Agreement.


	EXPEDIA, INC.
	/s/ Burke F. Norton
	By: Burke F. Norton
	Title: Executive Vice President



	/s/ Michael Adler
	Michael Adler

STANDARD TERMS AND CONDITIONS

1. TERMINATION OF EXECUTIVE’S EMPLOYMENT .

further obligation by the Company, except for the payment of any Accrued Obligations in a lump sum in cash within 30 days of such termination.

(ii) the Company shall pay Executive within 30 days of the date of such termination in a lump sum in cash any Accrued Obligations;

(iv) any compensation awards of Executive based on, or in the form of, Company equity (e.g. restricted stock, restricted stock units, stock options or similar instruments) (“Equity Awards”) that are outstanding and unvested at the time of such termination but which would, but for a termination of employment, have vested during the 12 months following such termination (such period, the “Equity Acceleration Period”) shall vest (and with respect to awards other than stock options and stock appreciation rights, settle) as of the date of such termination of employment; provided that any outstanding award with a vesting schedule that would, but for a termination of employment, have resulted in a smaller percentage (or none) of the award being vested through the end of such Equity Acceleration Period than if it vested annually pro rata over its vesting period shall, for purposes of this provision, be treated as though it vested annually pro rata over its vesting period (e.g., if 100 restricted stock units (“RSUs”) were granted 2.7 years prior to the date of the termination and vested pro rata on each of the first five anniversaries of the grant date and 100 RSUs were granted 1.7 years prior to the date of termination and vested on the fifth anniversary of the grant date, then on the date of termination 20 RSUs from the first award and 40 RSUs from the second award would vest and settle); provided further that any amount that would vest under this provision but for the fact that outstanding performance conditions have not been satisfied shall vest (and with respect to awards other than stock options and stock appreciation rights, settle) only if, and at such point as, such performance conditions are satisfied; and provided further that to the extent that any such equity awards constitutes “non-qualified deferred compensation” within the meaning of Section 409A, such awards shall vest, but only settle in accordance with their terms (it

being understood that it is intended that no equity awards outstanding as of the date of this Agreement constitutes “non-qualified deferred compensation” within the meaning of Section 409A); and

The expiration of the Term shall not give rise to any payment to Executive or acceleration obligation under this Section l(d). The payment to Executive of the severance benefits described in this Section l(d) shall be subject to Executive’s execution and non-revocation of a general release, within 30 days of the date of termination of Executive’s employment, of the Company and its affiliates in a form substantially similar to that used for similarly situated executives of the Company and its affiliates and Executive’s compliance with the restrictive covenants set forth in Section 2 (other than any non-compliance that is immaterial, does not result in harm to the Company or its affiliates, and, if curable, is cured by Executive promptly after receipt of notice thereof given by the Company). Executive acknowledges and agrees that the Company’s payment of severance benefits described in this Section l(d) constitutes good and valuable consideration for such release.

As used herein, “Good Reason” shall mean the occurrence of any of the following without Executive’s prior written consent: (A) the Company’s material breach of any material provision of this Agreement, (B) the material reduction in Executive’s title, duties, reporting responsibilities or level of responsibilities as Chief Financial Officer of the Company, excluding for this purpose any such reduction that is an isolated and inadvertent action not taken in bad faith or that is authorized pursuant to this Agreement, (C) the material reduction in Executive’s Base Salary or Executive’s total annual compensation opportunity, or (D) the relocation of Executive’s principal place of employment more than 50 miles outside the Seattle metropolitan area, provided that in no event shall Executive’s resignation be for “Good Reason” unless (x) an event or circumstance set forth in clauses (A) through (D) shall have occurred and Executive provides the Company with written notice thereof within 30 days after Executive has knowledge of the occurrence or existence of such event or circumstance, which notice specifically identifies the event or circumstance that Executive believes constitutes Good Reason, (y) the Company fails to correct the circumstance or event so identified within 30 days after receipt of such notice, and (z) Executive resigns within 90 days after the date of delivery of the notice referred to in clause (x) above. Notwithstanding the preceding provisions of this Section l(d), in the event that Executive is a “specified employee” (within the meaning of Section 409A) on the date of termination of Executive’s employment with the Company and the Cash Severance Payments to be paid within the first six months following such date (the “Initial Payment Period”) exceed the amount referenced in Treas. Regs. Section 1.409A-l(b)(9)(iii)(A) (the “Limit”), then (1) any portion of the Cash Severance Payments that is a “short-term deferral” within the meaning of Treas. Regs. Section 1.409A-l(b)(4)(i) shall be paid at the times set forth in Section l(d), (2) any portion of the Cash Severance Payments (in addition to the amounts contemplated by the immediately preceding clause (1)) that is payable during the Initial Payment Period that does not exceed the Limit shall be paid at the times set forth in Section l(d) as applicable, (3) any portion

of the Cash Severance Payments that exceeds the Limit and is not a “short-term deferral” (and would have been payable during the Initial Payment Period but for the Limit) shall be paid, with Interest, on the first business day of the first calendar month that begins after the six-month anniversary of Executive’s “separation from service” (within the meaning of Section 409A) and (4) any portion of the Cash Severance Payments that is payable after the Initial Payment Period shall be paid at the times set forth in Section l(d). For purposes of this Agreement, “Interest” shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code, from the date on which payment would otherwise have been made but for any required delay through the date of payment.

2. CONFIDENTIAL INFORMATION; NON-SOLICITATION; AND PROPRIETARY RIGHTS .

(b) DUTY OF LOYALTY . In consideration of the Company’s promise to disclose, and disclosure of, its Confidential Information and other good and valuable consideration provided hereunder, the receipt and sufficiency of which are hereby acknowledged by Executive, Executive hereby agrees and covenants that: Until the longer of (i) the last day of the Term and (ii) a period of 24 months beyond Executive’s date of termination of employment for any reason, including the expiration of the Term (the “Restricted Period”), Executive shall not, directly or indirectly, engage in, assist or become associated with a Competitive Activity. For purposes of this Section 2(b): (i) a “Competitive Activity” means, at the time of Executive’s termination, any business or other endeavor in any jurisdiction of a kind being conducted by the Company or any of its subsidiaries or affiliates (or demonstrably anticipated by the Company or its subsidiaries or affiliates), including, without limitation, those that are engaged in the provision of any lodging or travel related services (including, without limitation, corporate travel services), in any jurisdiction as of the Effective Date or at any time thereafter (such affiliates including, without limitation, Hotels.com, Hotwire, Inc. and Trip Advisor); and (ii) Executive shall be considered to have become “associated with a Competitive Activity” if Executive becomes directly or

(e) PROPRIETARY RIGHTS: ASSIGNMENT . All Executive Developments (as defined below) shall be made for hire by Executive for the Company or any of its subsidiaries or affiliates. “Executive Developments” means any idea, discovery, invention, design, method, technique, improvement, enhancement, development, computer program, machine, algorithm or other work or authorship, in each case, (i) that (A) relates to the business or operations of the Company or any of its subsidiaries or affiliates, or (B) results from or is suggested by any undertaking assigned to Executive or work performed by Executive for or on behalf of the Company or any of its subsidiaries or affiliates, whether created alone or with others, during or after working hours and (ii) that is conceived or developed during the Term. All Confidential Information and all Executive Developments shall remain the sole property of the Company or any of its subsidiaries or affiliates. Executive shall acquire no proprietary interest in any Confidential Information or Executive Developments developed or acquired during the Term.

4. ASSIGNMENT: SUCCESSORS . This Agreement is personal in its nature and none of the parties hereto shall, without the consent of the others, assign or transfer this Agreement or any rights or obligations hereunder; provided , that, in the event of a merger, consolidation, transfer, reorganization, or sale of all, substantially all or a substantial portion of, the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of the Company’s successor in interest in such transaction, and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder, and all references herein to the “Company” shall refer to such successor.

6. HEADING REFERENCES . Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. References to “this Agreement” or the use of the term “hereof shall refer to these Standard Terms and Conditions and the Employment Agreement attached hereto, taken as a whole.

ACKNOWLEDGED AND AGREED AS OF THE EFFECTIVE DATE:


	EXPEDIA, INC.
	/s/ Burke F. Norton
	By: Burke F. Norton
	Title:	Executive Vice President


	/s/ Michael Adler
	Michael Adler

Exhibit 31.1

Certification

I, Barry Diller, Chairman and Senior Executive of Expedia, Inc., certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Expedia, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

	a.		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a.		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: July 30, 2009	/s/ BARRY DILLER
	Barry Diller
	Chairman and Senior Executive

Exhibit 31.2

Certification

I, Dara Khosrowshahi, Chief Executive Officer of Expedia, Inc., certify that:

I have reviewed this quarterly report on Form 10-Q of Expedia, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

	a.		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a.		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: July 30, 2009	/s/ DARA KHOSROWSHAHI
	Dara Khosrowshahi
	Chief Executive Officer

Exhibit 31.3

Certification

I, Michael B. Adler, Chief Financial Officer of Expedia, Inc., certify that:

I have reviewed this quarterly report on Form 10-Q of Expedia, Inc.;

	a.		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a.		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: July 30, 2009	/s/ MICHAEL B. ADLER
	Michael B. Adler
	Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Barry Diller, Chairman and Senior Executive of Expedia, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:

the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2009 (the “Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: July 30, 2009	/s/ BARRY DILLER
	Barry Diller
	Chairman and Senior Executive

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Dara Khosrowshahi, Chief Executive Officer of Expedia, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: July 30, 2009	/s/ DARA KHOSROWSHAHI
	Dara Khosrowshahi
	Chief Executive Officer

Exhibit 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael B. Adler, Chief Financial Officer of Expedia, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: July 30, 2009	/s/ MICHAEL B. ADLER
	Michael B. Adler
	Chief Financial Officer