Quarterly Report

Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

¨	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 x No ¨

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 ¨ No ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares outstanding of each of the registrant’s classes of common stock as of April 16, 2010 was:

Common stock, $0.001 par value per share

258,440,376 shares

Class B common stock, $0.001 par value per share

25,599,998 shares

Expedia, Inc.

Form 10-Q

For the Quarter Ended March 31, 2010

Contents



Part I	Financial Information

Item 1	Consolidated Financial Statements
	Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009 (unaudited)	2
	Consolidated Balance Sheets as of March 31, 2010 (unaudited), and December 31, 2009	3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4	Controls and Procedures	31

Part II	Other Information

Item 1	Legal Proceedings	32
Item 1A	Risk Factors	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6	Exhibits	36

Signature		37

Part I.

Item 1. Consolidated Financial Statements

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three months ended March 31,
	2010			2009
Revenue	$	717,919		$	635,712

Costs and expenses:
Cost of revenue (1)		158,030			143,513
Selling and marketing (1)		280,838			235,884
Technology and content (1)		86,791			77,672
General and administrative (1)		71,058			67,909
Amortization of intangible assets		9,028			9,069
Restructuring charges		—			8,718

Operating income		112,174			92,947

Other income (expense):
Interest income		595			2,671
Interest expense		(21,203	)		(21,645	)
Other, net		568			(6,947	)

Total other expense, net		(20,040	)		(25,921	)

Income before income taxes		92,134			67,026
Provision for income taxes		(31,535	)		(27,272	)

Net income		60,599			39,754
Net income attributable to noncontrolling interests		(1,204	)		(370	)

Net income attributable to Expedia, Inc.	$	59,395		$	39,384

Earnings per share attributable to Expedia, Inc. available to common stockholders:
Basic	$	0.21		$	0.14
Diluted		0.20			0.14

Shares used in computing earnings per share:
Basic		288,602			287,344
Diluted		294,502			287,875

Dividends declared per common share	$	0.07		$	—

(1)	Includes stock-based compensation as follows:


Cost of revenue	$	789	$	711
Selling and marketing		4,317		3,991
Technology and content		4,381		5,176
General and administrative		9,405		8,694

Total stock-based compensation	$	18,892	$	18,572

See accompanying notes.

EXPEDIA, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	March 31, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	997,461		$	642,544
Restricted cash and cash equivalents		17,764			14,072
Short-term investments		46,503			45,849
Accounts receivable, net of allowance of $14,830 and $14,562		376,669			307,817
Prepaid merchant bookings		150,176			88,971
Prepaid expenses and other current assets		124,805			125,796

Total current assets		1,713,378			1,225,049
Property and equipment, net		235,876			236,820
Long-term investments and other assets		77,844			48,262
Intangible assets, net		809,190			823,031
Goodwill		3,584,183			3,603,994

TOTAL ASSETS	$	6,420,471		$	5,937,156

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, merchant	$	711,975		$	652,893
Accounts payable, other		185,651			160,471
Deferred merchant bookings		1,271,819			679,305
Deferred revenue		24,634			17,204
Accrued expenses and other current liabilities		250,556			325,184

Total current liabilities		2,444,635			1,835,057
Long-term debt		895,228			895,086
Deferred income taxes, net		230,107			223,959
Other long-term liabilities		243,634			233,328

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		346			343
Authorized shares: 1,600,000
Shares issued: 345,975 and 342,812
Shares outstanding: 258,270 and 263,929
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		6,051,662			6,034,164
Treasury stock - Common stock, at cost		(1,936,749	)		(1,739,198	)
Shares: 87,705 and 78,883
Retained earnings (deficit)		(1,556,638	)		(1,616,033	)
Accumulated other comprehensive income (loss)		(19,833	)		3,379

Total Expedia, Inc. stockholders’ equity		2,538,814			2,682,681
Noncontrolling interest		68,053			67,045

Total stockholders’ equity		2,606,867			2,749,726

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,420,471		$	5,937,156

See accompanying notes.

EXPEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three months ended March 31,
	2010			2009
Operating activities:
Net income	$	60,599		$	39,754
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment, including internal-use software and website development		25,615			24,636
Amortization of stock-based compensation		18,892			18,572
Amortization of intangible assets		9,028			9,069
Deferred income taxes		6,962			365
Foreign exchange loss on cash and cash equivalents, net		13,083			4,620
Realized (gain) loss on foreign currency forwards		(1,762	)		5,187
Other		4,777			1,555
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(85,135	)		(60,198	)
Prepaid merchant bookings, prepaid expenses and other current assets		(78,369	)		(29,963	)
Accounts payable, merchant		61,054			16,425
Accounts payable, other, accrued expenses and other current liabilities		(15,216	)		(15,788	)
Deferred merchant bookings		592,569			486,014
Deferred revenue		7,430			1,756

Net cash provided by operating activities		619,527			502,004

Investing activities:
Capital expenditures, including internal-use software and website development		(29,675	)		(23,386	)
Purchases of investments		(71,311	)		—
Maturities of investments		45,836			2,903
Acquisitions, net of cash acquired		(246	)		(2,412	)
Distributions from Reserve Primary Fund		5,482			5,418
Net settlement of foreign currency forwards		1,762			(5,187	)
Other, net		(676	)		3,175

Net cash used in investing activities		(48,828	)		(19,489	)

Financing activities:
Credit facility repayments		—			(650,000	)
Payment of dividends to stockholders		(20,220	)		—
Treasury stock activity		(197,551	)		(4,164	)
Proceeds from exercise of equity awards		25,965			40
Excess tax benefit on equity awards		4,193			12
Changes in restricted cash and cash equivalents		(3,692	)		(8,652	)
Other, net		(9,203	)		(5,714	)

Net cash used in financing activities		(200,508	)		(668,478	)
Effect of exchange rate changes on cash and cash equivalents		(15,274	)		(4,215	)

Net increase (decrease) in cash and cash equivalents		354,917			(190,178	)
Cash and cash equivalents at beginning of period		642,544			665,412

Cash and cash equivalents at end of period	$	997,461		$	475,234

Supplemental cash flow information
Cash paid for interest	$	37,517		$	38,679
Income tax payments, net		5,040			36,840

See accompanying notes.

Notes to Consolidated Financial Statements

March 31, 2010

(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 as well as various media and advertising offerings to travel and non-travel advertisers. These travel products and services are offered through a diversified portfolio of brands including: Expedia.com ^® , Hotels.com ^® , Hotwire.com ^TM , TripAdvisor ^® Media Network, Expedia ^® Affiliate Network, Classic Vacations, Expedia Local Expert, Egencia ^TM , Expedia ^® CruiseShipCenters ^® , eLong ^TM , Inc. (“eLong”) 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 expected 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, 2009, 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 related to our prior period results to conform to our current period presentation.

Seasonality

Notes to Consolidated Financial Statements—(Continued)

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, 2010, we adopted the new Financial Accounting Standards Board (“FASB”) guidance on the consolidation of variable interest entities. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The adoption of this guidance did not materially impact our consolidated financial statements.

On January 1, 2010, we adopted the new FASB guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The guidance was effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures that are effective for annual periods beginning after December 15, 2010. The adoption of this guidance did not materially impact our consolidated financial statements nor do we expect the adoption of the additional guidance surrounding Level 3 reconciliations to have a material impact on our consolidated financial statements in the future.

New Accounting Pronouncements

In October 2009, the FASB issued guidance on revenue recognition to require companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. This guidance is effective beginning January 1, 2011 with earlier application permitted. We are currently evaluating both the timing and the impact the adoption of this guidance will have on our consolidated financial statements.

Note 3 – Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 are classified using the fair value hierarchy in the table below:


	Total		Level 1		Level 2
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	624,534	$	624,534	$	—
Investments:
Time deposits		36,463		—		36,463
Corporate debt securities		34,668		—		34,668
Foreign currency forward contracts		2,420		—		2,420

Total assets	$	698,085	$	624,534	$	73,551

Notes to Consolidated Financial Statements—(Continued)

Financial assets measured at fair value on a recurring basis as of December 31, 2009 are classified using the fair value hierarchy in the table below:


	Total		Level 1		Level 2
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	313,480	$	313,480	$	—
Investments:
Time deposits		45,849		—		45,849
Foreign currency forward contracts		680		—		680

Total assets	$	360,009	$	313,480	$	46,529

The levels of fair value hierarchy are described as follows:

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 —Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets considered a Level 2 input.

As of March 31, 2010 and December 31, 2009, our cash and cash equivalents consisted primarily of prime institutional money market funds with maturities of 90 days or less as well as bank account balances.

During the first quarter of 2010, we began investing in investment grade corporate debt securities all of which are classified as available for sale and recorded at fair value with unrealized holding gains and losses recorded, net of tax, as a component of accumulated other comprehensive income. Available for sale securities with remaining maturities of less than one year are classified as short-term within short-term investments on the consolidated balance sheet; and all other available for sale securities with maturities ranging from one year to two years are classified as long-term within long-term investments and other assets on the consolidated balance sheet. As of March 31, 2010, we had $10 million of short-term and $25 million of long-term available for sale investments and the amortized cost basis of the investments approximated their fair value.

In addition, we hold time deposit investments with financial institutions with original maturities of greater than 90 days but less than one year; the balance of which was $36 million as of March 31, 2010 and $46 million as of December 31, 2009 included within short-term investments on the consolidated balance sheets. Of the total time deposit investments, $1 million related to balances held by eLong as of March 31, 2010 and the entire balance at December 31, 2009 was held by eLong.

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 operating liabilities. 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

Notes to Consolidated Financial Statements—(Continued)

and, as they do not qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. As of March 31, 2010, we were party to outstanding forward contracts hedging our liability and revenue exposures with a total net notional value of $131 million. We had net forward assets of $2 million and $1 million recorded in prepaid and other current assets as of March 31, 2010 and December 31, 2009. We recorded $4 million and $2 million in net gains from foreign currency forward contracts during the three months ended March 31, 2010 and 2009.

Note 4 – Debt

The following table sets forth our outstanding debt:


	March 31, 2010		December 31, 2009
	(In thousands)
8.5% senior notes due 2016, net of discount	$	395,228	$	395,086
7.456% senior notes due 2018		500,000		500,000

Long-term debt	$	895,228	$	895,086

Long-term Debt

Our $400 million of senior unsecured notes outstanding at March 31, 2010 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. The 8.5% Notes include covenants that limit our ability under certain circumstances to (i) incur additional indebtedness, (ii) pay dividends or make restricted payments, (iii) dispose of assets, (iv) create or incur liens, (v) enter into sale/leaseback transactions and (vi) merge or consolidate with or into another entity. Certain of these covenants in the 8.5% Notes, including the covenants limiting under certain circumstances our ability to incur additional indebtedness, pay dividends or make restricted payments and dispose of assets, will be suspended during any time that the 8.5% Notes have an investment grade rating from both Standard and Poor’s and Moody’s and no default exists under the 8.5% Note indenture. 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.

Our $500 million in registered senior unsecured notes outstanding at March 31, 2010 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 include covenants that limit our ability (i) to enter into sale/leaseback transactions, (ii) to create or incur liens and (iii) to merge or consolidate with or into another entity. 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 at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium, 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 $558 million and $546 million as of March 31, 2010 and December 31, 2009, and the fair value of the 8.5% Notes was approximately $442 million and $431 million as of March 31, 2010 and December 31, 2009.

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 11 — Guarantor and Non-Guarantor Supplemental Financial Information. Accrued interest related to the 7.456% and 8.5% Notes was $13 million and $31 million as of March 31, 2010 and December 31, 2009.

Notes to Consolidated Financial Statements—(Continued)

Credit Facility

In February 2010, we entered into a new $750 million, three-year unsecured revolving credit facility (“the facility”) with a group of lenders, replacing our prior $1 billion credit facility (“prior facility”). The facility is unconditionally guaranteed by certain domestic Expedia subsidiaries, which are the same as under the 7.456% and 8.5% Notes. As of March 31, 2010, we had no borrowings outstanding under the facility and as of December 31, 2009, we had no borrowings outstanding under the prior facility. The facility bears interest based on the Company’s credit ratings, with drawn amounts bearing interest at LIBOR plus 300 basis points and undrawn amounts bearing interest at 50 basis points as of March 31, 2010. The facility contains financial covenants consisting of a leverage ratio and a minimum interest coverage ratio. We incurred approximately $8 million in fees associated with the facility, which will be amortized over its life of three years.

The amount of stand-by letters of credit (“LOC”) issued under the facility reduces the credit amount available. As of March 31, 2010, and December 31, 2009, there was $53 million (of which $30 million related to the facility and $23 million related to the prior facility) and $42 million of outstanding stand-by LOCs issued under the respective facilities.

Note 5 – Stockholders’ Equity

Share Repurchases

In 2006, our Board of Directors authorized a share repurchase of up to 20 million outstanding shares of our common stock. There is no fixed termination date for the repurchase. During the first quarter of 2010, we repurchased 8.4 million shares under this authorization for a total cost of $188 million, representing an average repurchase price of $22.46 per share. As of March 31, 2010, 11.6 million shares remain authorized for repurchase.

Dividends on our Common Stock

In the first quarter of 2010, the Executive Committee, acting on behalf of the Board of Directors, declared and we paid a quarterly cash dividend of $0.07 per share of outstanding common stock payable to stockholders of record as of the close of business on March 11, 2010. In addition, on April 27, 2010, the Executive Committee, acting on behalf of the Board of Directors, declared a quarterly cash dividend of $0.07 per share of outstanding common stock to stockholders of record as of the close of business on May 27, 2010. Future declarations of dividends are subject to final determination of our Board of Directors.

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 March 31, 2010, we had stock-based awards outstanding representing approximately 27 million shares of our common stock consisting of options to purchase approximately 22 million shares of our common stock with a weighted average exercise price of $16.95 and weighted average remaining life of 5.8 years and approximately 5 million RSUs.

Annual employee stock-based award grants typically occur during the first quarter of each year. In 2009, we began awarding stock options as our primary form of stock-based compensation. During the three months ended March 31, 2010, we granted 6 million stock options. During the three months ended March 31, 2009, we granted 10 million stock options and 1 million RSUs.

Notes to Consolidated Financial Statements—(Continued)

The fair value of the stock options granted during the three months ended March 31, 2010 was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:


Risk-free interest rate		2.21	%
Expected volatility		51.79	%
Expected life (in years)		4.73
Dividend yield		1.25	%
Weighted-average estimated fair value of options granted	$	9.28

Our expected dividend rate was zero prior to our first dividend declaration on February 10, 2010 as we did not historically pay cash dividends on our common stock and did not anticipate doing so for the foreseeable future. For stock options granted after February 10, 2010, including our annual employee grants, we used an annualized dividend yield based on the first quarterly per share dividend declared by our Executive Committee, acting on behalf of the Board of Directors.

Comprehensive Income

Comprehensive income was $36 million and $14 million for the three months ended March 31, 2010 and 2009. The primary difference between net income attributable to Expedia, Inc. as reported and comprehensive income was foreign currency translation adjustments.

Note 6 – Earnings Per Share

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


	Three months ended March 31,
	2010		2009
	(In thousands, except per share data)
Net income attributable to Expedia, Inc.	$	59,395	$	39,384

Earnings per share attributable to Expedia, Inc. available to common stockholders:
Basic	$	0.21	$	0.14
Diluted		0.20		0.14

Weighted average number of shares outstanding:
Basic		288,602		287,344

Dilutive effect of:
Options to purchase common stock		4,485		113
Other dilutive securities		1,415		418

Diluted		294,502		287,875

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 7 – Restructuring Charges

During the three months ended March 31, 2009, in conjunction with the reorganization of our business around our global brands, we recognized $9 million in restructuring charges. Restructuring charges related to our brand reorganization were substantially completed by the end of 2009 for a total expense of $34 million, the majority of which will be paid by the end of 2010. There were no restructuring charges recognized for the three months ended March 31, 2010.

Notes to Consolidated Financial Statements—(Continued)

The following table summarizes the restructuring liability activity for the three months ended March 31, 2010:


	Employee Severance and Benefits			Other			Total
	(In thousands)
Accrued liability as of January 1, 2010	$	19,056		$	1,318		$	20,374
Payments		(6,347	)		(502	)		(6,849	)

Accrued liability as of March 31, 2010	$	12,709		$	816		$	13,525

Note 8 – Income Taxes

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 2010 effective rate is estimated to be lower than the 35% federal statutory rate primarily due to an increase in estimated earnings in jurisdictions outside of the United States, where our effective tax rate is lower than in the United States.

Note 9 – 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. Fifty-five lawsuits have been filed by cities and counties involving hotel occupancy taxes. In addition, there are three pending consumer lawsuits relating to taxes or fees. The municipality and consumer lawsuits are in various stages ranging from responding to the complaint to discovery. We continue to defend these lawsuits vigorously. With respect to the principal claims in these matters, we believe that the ordinances at issue do not apply to the services we provide, namely the facilitation of hotel reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations. To date, twenty 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. Eight dismissals (Pitt County, North Carolina; City of Madison, Wisconsin; City of Orange, Texas; Fayetteville, Arkansas: Houston, Texas; Louisville, Kentucky; Township of Lyndhurst, New Jersey and Bowling Green, Kentucky) were based on a finding that we and the other 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 such taxes, we have established a reserve for the potential settlement of issues related to hotel occupancy taxes in the amount of $21 million at March 31, 2010 and December 31, 2009. Our reserve is based on our best estimate and the ultimate resolution of these contingencies may be greater or less than the liabilities recorded.

In connection with various occupancy tax audits and assessments, certain jurisdictions may assert that taxpayers 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 continue to defend our position vigorously. During 2009, we expensed and paid approximately $48 million to the City of San Francisco for amounts assessed for hotel occupancy tax, including penalties and interest, from January 2000 to March 2009. We paid such

Notes to Consolidated Financial Statements—(Continued)

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 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. During the first quarter of 2009, the California Superior Court for Orange County determined we are not required to make a payment in order to litigate in Anaheim, California. That decision was affirmed by the California Court of Appeals on March 24, 2010 and the California Supreme Court denied the city’s petition for review.

Class Action Lawsuit. The third party appeals to the court’s order approving the Settlement Agreement related to the Class Action lawsuit were dismissed on April 14, 2010. As of March 31, 2010, we had $18 million accrued for this settlement compared to $19 million as of December 31, 2009. We expect to pay $12 million of the settlement amount during the second quarter of 2010. The remaining $6 million settlement liability includes an estimated coupon redemption rate. Any difference between our estimated redemption rate and the actual redemption rate we experience will impact the final settlement amount; however, we do not expect this difference to be material.

Note 10 – Segment Information

We have three reportable segments: Leisure, TripAdvisor Media Network and Egencia. 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 as well as the realized foreign currency gains or losses related to the forward contracts hedging a component of our net merchant hotel revenue. 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 TripAdvisor Media Network. Our Egencia segment provides managed travel services to corporate customers in North America, Europe, and the Asia Pacific region.

Our segment disclosure includes 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 and restructuring charges in Corporate and Eliminations.

Notes to Consolidated Financial Statements—(Continued)

The following tables present our segment information for the three months ended March 31, 2010 and 2009. 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 March 31, 2010
	Leisure			TripAdvisor Media Network		Egencia			Corporate & Eliminations			Total
	(In thousands)
Third-party Revenue	$	612,630		$	71,501	$	33,788		$	—		$	717,919
Intersegment Revenue		—			42,081		—			(42,081	)		—

Revenue	$	612,630		$	113,582	$	33,788		$	(42,081	)	$	717,919

Operating Income Before Amortization	$	137,382		$	66,461	$	5,715		$	(67,014	)	$	142,544
Amortization of intangible assets		—			—		—			(9,028	)		(9,028	)
Stock-based compensation		—			—		—			(18,892	)		(18,892	)
Realized gain on revenue hedges		(2,450	)		—		—			—			(2,450	)

Operating income (loss)	$	134,932		$	66,461	$	5,715		$	(94,934	)		112,174

Other expense, net													(20,040	)

Income before income taxes													92,134
Provision for income taxes													(31,535	)

Net income													60,599
Net income attributable to noncontrolling interests													(1,204	)

Net income attributable to Expedia, Inc.												$	59,395


	Three months ended March 31, 2009
	Leisure			TripAdvisor Media Network		Egencia			Corporate & Eliminations			Total
	(In thousands)
Third-party Revenue	$	559,200		$	51,473	$	25,039		$	—		$	635,712
Intersegment Revenue		—			34,029		—			(34,029	)		—

Revenue	$	559,200		$	85,502	$	25,039		$	(34,029	)	$	635,712

Operating Income Before Amortization	$	150,883		$	48,081	$	(1,220	)	$	(67,957	)	$	129,787
Amortization of intangible assets		—			—		—			(9,069	)		(9,069	)
Stock-based compensation		—			—		—			(18,572	)		(18,572	)
Restructuring charges		—			—		—			(8,718	)		(8,718	)
Realized gain on revenue hedges		(481	)		—		—			—			(481	)

Operating income (loss)	$	150,402		$	48,081	$	(1,220	)	$	(104,316	)		92,947

Other expense, net													(25,921	)

Income before income taxes													67,026
Provision for income taxes													(27,272	)

Net income													39,754
Net income attributable to noncontrolling interests													(370	)

Net income attributable to Expedia, Inc.												$	39,384

We revised prior year OIBA by segment to conform to our current year presentation. There was no impact on consolidated OIBA as a result of these changes.

Notes to Consolidated Financial Statements—(Continued)

NOTE 11 — 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 OPERATIONS

Three Months Ended March 31, 2010

(in thousands)


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	598,049		$	215,511		$	(95,641	)	$	717,919

Costs and expenses:
Cost of revenue		—			132,163			25,987			(120	)		158,030
Selling and marketing		—			283,138			93,240			(95,540	)		280,838
Technology and content		—			69,150			17,628			13			86,791
General and administrative		—			37,620			33,432			6			71,058
Amortization of intangible assets		—			3,463			5,565			—			9,028

Operating income		—			72,515			39,659			—			112,174

Other income (expense):
Equity in pre-tax earnings of consolidated subsidiaries		70,671			13,489			—			(84,160	)		—
Other, net		(18,180	)		22,347			(24,207	)		—			(20,040	)

Total other income (expense), net		52,491			35,836			(24,207	)		(84,160	)		(20,040	)

Income before income taxes		52,491			108,351			15,452			(84,160	)		92,134
Provision for income taxes		6,904			(36,027	)		(2,412	)		—			(31,535	)

Net income		59,395			72,324			13,040			(84,160	)		60,599
Net income attributable to noncontrolling interest		—			—			(1,204	)		—			(1,204	)

Net income attributable to Expedia, Inc.	$	59,395		$	72,324		$	11,836		$	(84,160	)	$	59,395

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2009

(in thousands)


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	550,056		$	164,313		$	(78,657	)	$	635,712

Costs and expenses:
Cost of revenue		—			117,793			26,862			(1,142	)		143,513
Selling and marketing		—			216,608			96,761			(77,485	)		235,884
Technology and content		—			62,631			15,038			3			77,672
General and administrative		—			46,127			21,815			(33	)		67,909
Amortization of intangible assets		—			2,839			6,230			—			9,069
Restructuring charges		—			7,004			1,714			—			8,718

Operating income (loss)		—			97,054			(4,107	)		—			92,947

Other income (expense):
Equity in pre-tax earnings (losses) of consolidated subsidiaries		50,810			(2,820	)		—			(47,990	)		—
Other, net		(18,175	)		(6,811	)		(935	)		—			(25,921	)

Total other income (expense), net		32,635			(9,631	)		(935	)		(47,990	)		(25,921	)

Income (loss) before income taxes		32,635			87,423			(5,042	)		(47,990	)		67,026
Provision for income taxes		6,749			(35,654	)		1,633			—			(27,272	)

Net income (loss)		39,384			51,769			(3,409	)		(47,990	)		39,754
Net income attribuatable to noncontrolling interest		—			—			(370	)		—			(370	)

Net income (loss) attributable to Expedia, Inc.	$	39,384		$	51,769		$	(3,779	)	$	(47,990	)	$	39,384

Notes to Consolidated Financial Statements—(Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2010

(in thousands)


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Total current assets	$	117,470	$	2,349,214	$	417,270	$	(1,170,576	)	$	1,713,378
Investment in subsidiaries		4,202,432		522,595		—		(4,725,027	)		—
Intangible assets, net		—		680,903		128,287		—			809,190
Goodwill		—		3,057,863		526,320		—			3,584,183
Other assets, net		2,900		238,762		72,058		—			313,720

TOTAL ASSETS	$	4,322,802	$	6,849,337	$	1,143,935	$	(5,895,603	)	$	6,420,471

LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	820,707	$	2,244,534	$	549,970	$	(1,170,576	)	$	2,444,635
Long-term debt		895,228		—		—		—			895,228
Other liabilities		—		388,035		85,706		—			473,741
Stockholders’ equity		2,606,867		4,216,768		508,259		(4,725,027	)		2,606,867

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,322,802	$	6,849,337	$	1,143,935	$	(5,895,603	)	$	6,420,471

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2009

(In thousands)


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Total current assets	$	95,846	$	1,643,085	$	420,379	$	(934,261	)	$	1,225,049
Investment in subsidiaries		4,163,845		590,536		—		(4,754,381	)		—
Intangible assets, net		—		684,367		138,664		—			823,031
Goodwill		—		3,057,942		546,052		—			3,603,994
Other assets, net		3,128		199,838		82,116		—			285,082

TOTAL ASSETS	$	4,262,819	$	6,175,768	$	1,187,211	$	(5,688,642	)	$	5,937,156

LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	618,007	$	1,621,449	$	529,862	$	(934,261	)	$	1,835,057
Long-term debt		895,086		—		—		—			895,086
Other liabilities		—		377,821		79,466		—			457,287
Stockholders’ equity		2,749,726		4,176,498		577,883		(4,754,381	)		2,749,726

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,262,819	$	6,175,768	$	1,187,211	$	(5,688,642	)	$	5,937,156

Notes to Consolidated Financial Statements—(Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2010

(in thousands)


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Operating activities:
Net cash provided by operating activities	$	—		$	581,987		$	37,540		$	619,527

Investing activities:
Purchases of investments		—			(69,843	)		(1,468	)		(71,311	)
Maturities of investments		—			—			45,836			45,836
Other, net		—			(20,799	)		(2,554	)		(23,353	)

Net cash provided by (used in) investing activities		—			(90,642	)		41,814			(48,828	)

Financing activities:
Payment of dividends to stockholders		(20,220	)		—			—			(20,220	)
Treasury stock activity		(197,551	)		—			—			(197,551	)
Transfers (to) from related parties		187,598			(187,598	)		—			—
Other, net		30,173			(11,782	)		(1,128	)		17,263

Net cash used in financing activities		—			(199,380	)		(1,128	)		(200,508	)
Effect of exchange rate changes on cash and cash equivalents		—			13,209			(28,483	)		(15,274	)

Net increase in cash and cash equivalents		—			305,174			49,743			354,917
Cash and cash equivalents at beginning of period		—			418,855			223,689			642,544

Cash and cash equivalents at end of period	$	—		$	724,029		$	273,432		$	997,461

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2009

(in thousands)


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Operating activities:
Net cash provided by operating activities	$	—		$	499,237		$	2,767		$	502,004

Investing activities:
Net cash used in investing activities		—			(18,478	)		(1,011	)		(19,489	)

Financing activities:
Credit facility repayments		—			(650,000	)		—			(650,000	)
Transfers (to) from related parties		4,146			(4,146	)		—			—
Other, net		(4,146	)		(15,485	)		1,153			(18,478	)

Net cash provided by (used in) financing activities		—			(669,631	)		1,153			(668,478	)
Effect of exchange rate changes on cash and cash equivalents		—			(4,663	)		448			(4,215	)

Net increase (decrease) in cash and cash equivalents		—			(193,535	)		3,357			(190,178	)
Cash and cash equivalents at beginning of period		—			538,342			127,070			665,412

Cash and cash equivalents at end of period	$	—		$	344,807		$	130,427		$	475,234

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, 2009, 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, 2009.

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 TripAdvisor ^® Media Network and on our transaction-based websites.

Our portfolio of brands includes Expedia.com ^® , Hotels.com ^® , Hotwire.com ^TM , TripAdvisor Media Network , Expedia Affiliate Network, Classic Vacations, Expedia Local Expert ^TM , Expedia ^® CruiseShipCenters ^® , Egencia ^TM , eLong ^TM , 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, 2009.

All percentages within this section are calculated on actual, unrounded numbers.

Trends

The travel industry, including offline agencies, online agencies and other suppliers of travel products and services, has historically been characterized by intense competition, as well as rapid and significant change. In addition, beginning in September 2008, global economic and financial market conditions worsened markedly, creating uncertainty for travelers and suppliers. This macroeconomic downturn pressured discretionary spending on travel and advertising, with initial weakness in the United States and the United Kingdom markets increasing and spreading to all geographies. Although current macroeconomic trends have been generally stable to slightly improved, unemployment remains at historically high levels and

consumer spending remains pressured. As such, our near-term visibility remains limited. Most recently, disruptions to European travel patterns from the volcanic eruption in Iceland have added further pressure to travel industry demand. We have experienced an increase in cancelled flight and hotel bookings in the European region, as well as some reduction in new bookings levels as travelers wait for the uncertainty surrounding the travel environment to subside.

Airline Sector

The airline sector in particular has historically experienced significant turmoil. U.S. airlines 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. Most carriers aggressively reduced capacities in 2008 and 2009, and at this time, plans for re-visiting capacity expansion in 2010 appear to be relatively limited. Recently there has been increased speculation about additional carrier consolidation, which, if consummated, would likely put additional pressure on capacity and fares.

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. To a large degree, the use of ancillary fees to supplement revenues has remained, and in some cases been expanded. However, as overall travel demand waned at the end of 2008 and into 2009, carriers began lowering ticket prices in order to attract more leisure travelers.

Expedia generally benefits from a low fare environment, as low fares tend to encourage leisure travel, leave more of the travel budget available for hotel spend and because our air revenues are tied principally to ticket volumes, not prices. Hence, the 2009 fare environment was a favorable one for Expedia, as airfares on tickets sold by Expedia decreased 15% in 2009, contributing to 15% growth in air tickets sold. More recently, however, given the stabilization in the macro economy and aggressive capacity reductions, carriers have begun increasing fares. In the first quarter of 2010, airfares on Expedia sites were up 9%, and our current forecasts indicate we will likely see even further increases in the upcoming spring and summer travel seasons.

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 system (“GDS”) intermediaries, which have historically passed on a portion of these payments to large travel agents, including Expedia.

In the spring of 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. Expedia broadened this fee elimination to many of its international websites, as well as removed most change/cancel fees in excess of those charged by travel suppliers. These fee actions, combined with the above reductions in distribution costs, have combined to reduce Expedia’s global revenue per ticket by over 30% in the past three years. As we pass the anniversary of these fee cuts in 2010, we expect less pressure on revenue per ticket with some offsetting impact on our air ticket volume growth.

As a result of the above industry dynamics and the strength of our other product lines, in 2009 air revenue constituted just 12% of our global revenues. We may encounter additional pressure on air remuneration as certain supply agreements renew in 2010 and beyond, and as air carriers and GDSs re-negotiate their long-term agreements in 2011.

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 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 other online and offline sales channels.

Hotel Sector

In 2008, the hotel sector witnessed supply growth and 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 end of 2008 had stopped growing entirely. In 2009, we experienced a 15% decline in global ADRs due primarily to weak travel demand and continued supply expansion. In the first quarter of 2010, ADRs began to stabilize and for Expedia were flat on a year over year basis.

While lower occupancies have historically increased the availability of discounted 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. Revenue per room night in 2009 declined 17% primarily due to the downward movement in ADRs as well as adverse movements in foreign exchange rates and lower fees. Revenue per room night was down 5% in the first quarter of 2010 due in part to various consumer fee reductions.

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 2009 approximately 56% of U.S. leisure, unmanaged and corporate travel expenditures occurred online, compared with approximately 32% 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 outpaced online agency growth for several years. As a result, according to PhoCusWright, by 2009 travel supplier sites accounted for 61% of total online travel spend in the United States. More recently, due to booking fee reductions and eliminations, online agents appear to be regaining share of overall online travel spend. Our visibility on whether these share gains continue once we pass the anniversary of the fee actions in 2010 is limited.

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. Competitive entrants such as “metasearch” 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 have begun to aggressively market their service offerings. In early 2009, TripAdvisor.com launched a competitive metasearch travel offering featuring a Fee Estimator enabling customers to see the price of their flight including various airline fees such as baggage charges. In addition, in 2009 and early 2010 we have seen increased interest in the online travel industry from search engine companies such as Google and Microsoft’s Bing.

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 places 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. While agency hotel is an important component of our European strategy, we expect it will take time to gain traction with incremental hotel suppliers, and for Expedia to drive meaningful demand to those hotels.

Intense competition has also historically led to aggressive marketing spend by the travel suppliers and intermediaries, and a meaningful reduction in our overall marketing efficiencies and operating margins. In 2009, we experienced a reversal of these trends due to several factors including the softer macro environment, lower ad rates and a pullback in spend by some of our online competitors impacted by lower fee revenues. Our marketing spend in the first quarter of 2010 has returned to a more normalized environment as the economy improves. We believe that over the long term we can manage the direct portion of our sales and marketing expense largely in line with revenue growth.

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 commitment to continuous 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 Continuous 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, Media Solutions introduction of rich media display ads called StorePoint Expandables, TripAdvisor’s launch of its new hotel Business Listings product and new mobile sites in 17 countries and 11 different languages, and Expedia.com’s TripAssist™, a free iPhone and iPod Touch application that links users to a mobile Expedia site and enables travelers to book flights and manage Expedia itineraries from their mobile device.

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 the United States and internationally. We also offer Chinese travelers an array of products and services through our majority ownership in eLong and through our TripAdvisor brands daodao.com and kuxun.cn, and we offer hotel bookings to European-based travelers through our wholly-owned subsidiary Venere, which we acquired in the third quarter of 2008. During the first quarter of 2010, approximately 36% of our worldwide gross bookings and 35% of worldwide revenue were international.

Egencia, our corporate travel business, currently operates in over 30 countries around the world both through dedicated points of sale as well as through the Egencia Global Alliance. 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, and offering 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.

In the first quarter of 2010, nearly 60% of our revenue came 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 also working to grow our global agency hotel business in Europe, given the success of the agency model with both suppliers and travelers in that region. 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 quarter of 2010, advertising and media revenue accounted for approximately 14% of worldwide revenue.

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. The continued growth of our international operations or a change in our product mix may influence the typical trend of our seasonality in the future.

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, 2009.

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.

Occupancy Taxes

We are currently involved in 48 lawsuits brought by or against states, cities and counties over issues involving the payment of hotel occupancy taxes. We continue to defend these lawsuits vigorously. With respect to the principal claims in these matters, we believe that the ordinances at issue do not apply to the services we provide, namely the facilitation of hotel reservations, and, therefore, that we do not owe the taxes that are claimed to be owed. We believe that the ordinances at issue generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations.

Recently, there have been several significant court developments including:

(1) the California Superior Court in the lawsuit brought by the city of Anaheim ruled that the online travel companies are not subject to Anaheim’s hotel occupancy tax ordinance, which reversed the decision of the administrative hearing officer who had issued a decision that the online travel companies were liable to pay local hotel occupancy taxes. On April 7, 2010, the court denied the city’s motion for reconsideration of that decision. Also on April 7, 2010, the court allowed the city to assert additional claims based on a theory that even if the online travel companies are not subject to Anaheim’s hotel occupancy tax ordinance, the online travel companies are still required to collect and remit taxes to the city;

(2) the United States District Court for the District of New Mexico denied the plaintiffs’ motion for summary judgment in the statewide class action brought by the city of Gallup, New Mexico and found that the online travel companies are not trustees of unpaid taxes and reiterated that the online travel companies are not “vendors” responsible to collect and remit hotel occupancy taxes under the relevant ordinances;

(3) a state court judge in Texas granted summary judgment in favor of the online travel companies and dismissed with prejudice the claims brought by the city of Houston;

(4) a circuit court judge in Kentucky granted a motion to dismiss the case brought by the city of Bowling Green, concluding that the online travel companies are not subject to the local occupancy tax ordinance; and

(5) the United States District Court for the Southern District of Florida entered an order certifying a class composed of all counties within the State of Florida that have enacted a tourist development tax and provided that potential class members have until May 24, 2010 to opt out of the class.

For additional information on recent developments, see Part II, Item 1, Legal Proceedings.

We have established a reserve for the potential settlement of issues related to hotel occupancy tax litigation, consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount of $21 million at March 31, 2010 and December 31, 2009. A variety of factors could affect the ultimate amount we pay, if any, in connection with any of the occupancy tax-related matters, which factors include, but are not limited to, the number of, and amount of revenue represented by, jurisdictions that ultimately assert a claim and prevail in assessing such additional tax or negotiate a settlement or changes in relevant statutes.

In addition, certain jurisdictions may require us to pay tax assessments, including occupancy tax assessments, prior to contesting any such assessments. This requirement is commonly referred to as “pay-to-play.” Payment of these amounts is not an admission that the taxpayer believes it is subject to such taxes. During 2009, we expensed $48 million related to monies paid in advance of litigation in occupancy tax proceedings in the city of San Francisco. We do not believe that the amounts we retain as compensation are 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. However, any significant pay-to-play payment or litigation loss could negatively impact our liquidity.

Segments

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 March 31,
	2010			2009			% Change
	($ in millions)
*Gross Bookings*
Leisure	$	6,161		$	4,904		26	%

TripAdvisor Media Network ⁽¹⁾		—			—		N/A
Egencia		471			321		47	%

Total gross bookings	$	6,632		$	5,225		27	%

*Revenue Margin*
Leisure		9.9	%		11.4	%

TripAdvisor Media Network ⁽¹⁾		N/A			N/A
Egencia		7.2	%		7.8	%
Total revenue margin ⁽¹⁾		10.8	%		12.2	%

(1)

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 increase in worldwide gross bookings for the three months ended March 31, 2010, as compared to the same period in 2009, was primarily due to an 18% increase in transactions and a 9% increase in average airfares.

The decrease in revenue margin for the three months ended March 31, 2010, as compared to the same period in 2009, was primarily due to lower consumer fees and a higher mix of air bookings, which have a lower revenue margin than our other products and services.

Results of Operations

Revenue


	Three months ended March 31,
	2010		2009		% Change
	($ in millions)
Leisure	$	613	$	559	10	%
TripAdvisor Media Network (Third-party revenue)		71		52	39	%
Egencia		34		25	35	%

Total revenue	$	718	$	636	13	%

Revenue increased for the three months ended March 31, 2010, compared to the same period in 2009, primarily due to an increase in worldwide hotel revenue within our Leisure segment as well as an increase in advertising and media revenue within our TripAdvisor Media Network and Leisure segments.

Worldwide hotel revenue increased 12% for the three months ended March 31, 2010, compared to the same period in 2010. The increase was primarily due to an 18% increase in room nights stayed, including rooms delivered as a component of packages, partially offset by a 5% decline in revenue per room night. Revenue per room night decreased due in part to lower hotel services fees for the three months ended March 31, 2010 compared to the same period in 2009.

Worldwide air revenue increased 6% for the three months ended March 31, 2010, compared to the same period in 2009, due to a 22% increase in air tickets sold, partially offset by a 13% decrease in revenue per air ticket due largely to our elimination of booking fees on Expedia.com beginning in March 2009.

The remaining worldwide revenue other than hotel and air discussed above, which includes advertising and media, car rental, destination services, agency cruise, increased by 18% for the three months ended March 31, 2010, compared to the same period in 2009, primarily due to an increase in our 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 March 31,
	2010		2009		% Change
	($ in millions)
*Revenue by Business Model*
Merchant	$	451	$	409	10	%
Agency		169		154	9	%
Advertising and media ⁽¹⁾		98		73	34	%

Total revenue	$	718	$	636	13	%

(1)	Includes third-party revenue from TripAdvisor Media Network as well as our Leisure transaction-based websites.

Merchant revenue increased for the first quarter of 2010, compared to the same period in 2009, due to the increase in merchant hotel revenue primarily driven by an increase in room nights stayed.

Agency revenue increased for the first quarter of 2010, compared to the same period in 2009, due to an increase in air revenue and car revenue.

Advertising and media revenue increased during the first quarter of 2010, compared to the same period in 2009, primarily due to a 39% increase in advertising revenue at TripAdvisor Media Network as well as a 24% increase at our Leisure transaction-based websites.

Cost of Revenue


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Customer operations	$	78		$	68		15	%
Credit card processing		45			40		12	%
Data center and other		35			36		(1	)%

Total cost of revenue	$	158		$	144		10	%

% of revenue		22.0	%		22.6	%

Cost of revenue primarily consists of (1) customer operations, including our customer support and telesales as well as fees to air ticket fulfillment vendors, (2) credit card processing, including merchant fees, charge backs and fraud, and (3) other costs, primarily including data center costs to support our websites, certain promotions, destination supply, and stock-based compensation.

During the three months ended March 31, 2010, the primary drivers of the increase in cost of revenue expense were higher costs related to credit card processing, telesales and customer service to support the growth in our transaction volumes. We expect cost of revenue to increase in absolute dollars but decrease as a percentage of revenue for full year 2010.

Selling and Marketing


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Direct costs	$	202		$	169		20	%
Indirect costs		79			67		17	%

Total selling and marketing	$	281		$	236		19	%

% of revenue		39.1	%		37.1	%

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

Selling and marketing expenses increased $45 million during the three months ended March 31, 2010, compared to the same period in 2009, due to increases in both our offline and online spending to support our transaction-based businesses, as well as higher personnel costs primarily related to our PSG staff and our global advertising and media businesses. The growth in our overall direct marketing spend in the three months ended March 31, 2010 was impacted by a relatively improved outlook for travel demand compared with the prior year period, representing a more typical seasonal increase in spending ahead of the busy spring and summer travel seasons. We expect selling and marketing expense to increase in absolute dollars and as a percentage of revenue for full year 2010 in part due to approximately $20 million in relocation and other costs related to the opening of a new global headquarters for our lodging supply group.

Technology and Content


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Personnel and overhead	$	47		$	41		15	%
Depreciation and amortization of technology assets		17			16		5	%
Other		23			21		10	%

Total technology and content	$	87		$	78		12	%

% of revenue		12.1	%		12.2	%

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, and is principally comprised of personnel and overhead, depreciation and amortization of technology assets including hardware, and purchased and internally developed software, and other costs including licensing and maintenance expense and stock-based compensation.

The increase of $9 million in technology and content expense during the three months ended March 31, 2010, compared to the same period in 2009, was primarily due to increased personnel costs to support our worldwide transaction-based businesses , as well as our TripAdvisor Media Network businesses. We expect technology and content expense to increase in absolute dollars for full year 2010.

General and Administrative


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Personnel and overhead	$	40		$	37		10	%
Professional fees		14			17		(14	)%
Other		17			14		11	%

Total general and administrative	$	71		$	68		5	%

% of revenue		9.9	%		10.7	%

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

The $3 million increase in general and administrative expense during the three months ended March 31, 2010, compared to the same period in 2009, was due primarily to modestly higher personnel expenses in part from acquired companies, and recruiting and other expenses. We expect general and administrative expense to increase in absolute dollars but decrease as a percentage of revenue for full year 2010.

Amortization of Intangible Assets


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Amortization of intangible assets	$	9		$	9		(0	)%
% of revenue		1.3	%		1.4	%

Restructuring Charges

During the first quarter of 2009, in conjunction with the reorganization of our business around our global brands, we recognized $9 million in restructuring charges. No such charges were recognized during the first quarter of 2010. For additional information, see Note 7 — Restructuring Charges in the notes to the consolidated financial statements.

Operating Income


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Operating income	$	112		$	93		21	%
% of revenue		15.6	%		14.6	%

Operating income increased for the three months ended March 31, 2010, compared to the same period in 2009, primarily due to an increase in revenue as well as a lower rate of growth in cost of sales and general and administrative expenses than growth in revenue and the absence of restructuring charges in the current year, partially offset by a growth in sales and marketing expense in excess of revenue.

Interest Income and Expense


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Interest income	$	1		$	3		(78	)%
Interest expense		(21	)		(22	)	(2	)%

Interest income decreased for the three months ended March 31, 20010, compared to the same period in 2009, primarily due to lower average interest rates.

Other, Net

Other, net changed from an expense of $7 million for the three months ended March 31, 2009 to income of $1 million for the three months ended March 31, 2010 primarily due to net foreign exchange rate gains during the period versus losses in the prior year period.

Provision for Income Taxes


	Three months ended March 31,
	2010			2009			% Change
	($ in millions)
Provision for income taxes	$	(32	)	$	(27	)	16	%
Effective tax rate		34.2	%		40.7	%

The decrease in the effective rate for the three months ended March 31, 2010 as compared to the same period in 2009 was primarily due to an increase in estimated earnings in jurisdictions outside the United States, lower accruals related to uncertain tax positions and, to a lesser extent, lower state income taxes.

Our effective tax rate was 34.2% for the three months ended March 31, 2010, which is lower than the 35% federal statutory rate primarily due an increase in estimated earnings in jurisdictions outside the United States, partially offset by state income

taxes and accruals related to uncertain tax positions. Our effective tax rate was 40.7% for the three months ended March 31, 2009, 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 $1.0 billion and $688 million at March 31, 2010 and December 31, 2009, including $147 million and $148 million of cash and short-term investment balances of majority-owned subsidiaries; and our revolving credit facility.

In February 2010, we entered into a new $750 million, three-year revolving credit facility, replacing our prior credit facility. Pricing is based on the Company’s credit ratings, with drawn amounts bearing interest at LIBOR plus 300 basis points, and undrawn amounts bearing interest at 50 basis points. We incurred approximately $8 million in fees associated with the new facility, which will be amortized over its life of three years. As of March 31, 2010, $720 million was available under the facility representing the total $750 million facility less $30 million of outstanding stand-by letters of credit.

Our credit ratings are periodically reviewed by rating agencies. In October 2009, our long-term ratings from Moody’s and Standard and Poor’s were raised to Ba1 and BBB-, respectively. Both agencies maintain a stable ratings outlook. Changes in our operating results, cash flows, financial policy or financial position could impact the ratings assigned by the various rating agencies. Should our credit ratings be adjusted downward, we may incur higher costs to borrow, which could have a material impact on our financial condition and results of operations.

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 suppliers, 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. If this business model declines relative to our other businesses, or if there are changes to the model or booking patterns which compress the time of receipts of cash from travelers to payment to suppliers, our working capital benefits could be reduced.

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 March 31, 2010, we had a deficit in our working capital of $731 million, compared to a deficit of $610 million as of December 31, 2009 primarily due to financing activities including stock repurchases and dividend payments.

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, platform migrations and consolidations and search engine marketing and optimization efforts. Our future capital requirements may include capital needs for acquisitions, share repurchases, dividend payments or expenditures in support of our business strategy; thus reducing our cash balance and/or increasing our debt.

Our cash flows are as follows:


	Three months ended March 31,
	2010			2009			$ Change
	(In millions)
Cash provided by (used in):
Operating activities	$	620		$	502		$	118
Investing activities		(49	)		(19	)		(29	)
Financing activities		(201	)		(668	)		468
Effect of foreign exchange rate changes on cash and cash equivalents		(15	)		(4	)		(11	)

For the three months ended March 31, 2010, net cash provided by operating activities increased by $118 million primarily due to increased benefits from working capital changes, including a $32 million decrease in income tax payments, as well as growth in operating income after adjusting for the impacts of depreciation and amortization.

We used $29 million more in cash for investing activities for the three months ended March 31, 2010 compared to the prior year period primarily due to an increased use of cash of $28 million related to net purchases of investments.

Cash used in financing activities for the three months ended March 31, 2010 primarily included cash paid to acquire shares of $198 million, including the repurchased shares under the 2006 authorization discussed below, as well as a $20 million cash dividend payment, partially offset by $26 million of proceeds from the exercise of equity awards. Cash used in financing activities for the three months ended March 31, 2009 primarily included the repayment of $650 million of borrowings under the prior credit facility.

The effect of foreign exchange on our cash balances denominated in foreign currency for the three months ended March 31, 2010 showed a net decrease of $11 million reflecting intra-quarter depreciation in currencies and a higher foreign-denominated cash balances in the current year period.

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. There can be no assurance, however, that the cost or availability of future borrowings, including refinancings, if any, will be available on terms acceptable to us.

Contractual Obligations, Commercial Commitments and Off-balance Sheet Arrangements

There have been no material changes outside the normal course of business to our contractual obligations and commercial commitments since December 31, 2009. Other than our contractual obligations and commercial commitments, we did not have any off-balance sheet arrangements as of March 31, 2010 or December 31, 2009.

Part I.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

Interest Rate Risk

During the first quarter of 2010, we began investing in investment grade corporate debt securities and, as of March 31, 2010, we had $35 million of available for sale investments. We performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of our available for sale investments assuming an adverse change of 100 basis points. A hypothetical 1.00% (100 basis-point) increase in interest rates would have resulted in a decrease in the fair values of our corporate debt securities of less than $1 million as of March 31, 2010. Such losses would only be realized if we sold the investments prior to maturity.

There have been no other material changes in our market risk during the three months ended March 31, 2010. 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, 2009.

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 March 31, 2010 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, 2009. The following are developments regarding such legal proceedings:

Securities Class Action Litigation against IAC . On March 19, 2010, the court granted defendants’ motion to dismiss and dismissed the case in its entirety. The plaintiffs’ time to appeal has expired. On April 1, 2010, as a result of the court’s ruling, the plaintiff’s appeal from the dismissal of the complaint in the two related consolidated shareholder derivative suits was dismissed with prejudice on consent.

Hotels.com. The parties settled the dispute and the case was dismissed on March 9, 2010.

Expedia Washington. The objectors’ appeals were dismissed on April 14, 2010. The dismissal of these appeals triggers the distribution of cash payments and coupons to class members, which will occur in the next several weeks.

Occupancy Tax Litigation

City of Charleston, South Carolina Litigation. The trial has been rescheduled from June 17, 2010 to October 26, 2010.

City of Gallup, New Mexico Litigation. The court has denied Plaintiffs’ motion for summary judgment.

Town of Mount Pleasant, South Carolina Litigation. The trial has been rescheduled from June 17, 2010 to October 26, 2010.

Columbus, Georgia Litigation. The trial has been rescheduled from May 24, 2010 to August 9, 2010.

Lake County, Indiana Convention and Visitors Bureau Litigation. Defendants’ motion for summary judgment for failure to exhaust administrative remedies has been granted.

North Myrtle Beach Litigation . This case has been consolidated with the suits brought by the cities of Charleston and Mount Pleasant. The trial has been rescheduled from June 7, 2010 to October 26, 2010.

City of Houston, Texas Litigation. Plaintiff’s motion for new trial was denied on April 1, 2010. Plaintiff has filed a notice of appeal.

County of Monroe, Florida Litigation. Plaintiff’s motion for class certification has been granted.

City of Anaheim, California Litigation. On April 7, 2010, the court denied the city’s motion for reconsideration of the court’s ruling in favor of Defendants that taxes are not due to the city of Anaheim. Also on April 7, 2010, the court allowed the city to assert additional claims based on a theory that even if the online travel companies are not subject to Anaheim’s hotel occupancy tax ordinance, the online travel companies are still required to collect and remit taxes to the city.

City of San Francisco, California Litigation. The court has denied the city’s demurrer to Defendants’ petitions.

City of Bowling Green, Kentucky. Defendants’ motion to dismiss has been granted.

Village of Rosemont, Illinois Litigation. Defendants’ motion to dismiss the city’s unjust enrichment and conversion claims has been granted.

Lawrence County, Pennsylvania Litigation. Defendants have moved to dismiss this suit.

Brevard County, Florida Litigation. The court denied in part and granted in part Defendants’ motion to dismiss.

Leon County, et al. v. Expedia, Inc., et al. Defendants moved to dismiss and the county has been granted leave to amend its complaint.

Leon County v. Expedia, Inc. et. al. The Florida Department of Revenue also has moved to dismiss this separately filed suit by Leon County for recovery of state taxes for hotel occupancy.

Part II.

Item 1. Legal Proceedings

City of Birmingham v. Orbitz. The court denied Defendants’ motion to dismiss but expressed its preliminary conclusion that the lodging tax does not apply to Defendants’ services.

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, which are listed in the section titled “Legal Proceedings” of our Annual Report on Form 10-K for the year ended December 31, 2009. In addition, the state of Alabama; the counties of Utah and Davis, Utah; and the cities of Bakersfield, Bishop, Buena Park, Milpitas and Palmdale, California and Hilton Head, South Carolina, 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 discussed above lack merit and will continue to defend vigorously against them.

In re ARC Venture Holding, Inc. The parties have reached a tentative settlement. Final settlement requires approval by the bankruptcy court.

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, 2009, 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 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase

A summary of the repurchase activity for the first quarter of 2010 is as follows:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Shares that May Yet Be Purchased Under the Plans or Programs
	(In thousands, except per share data)
January 1-31, 2010	—	$	—	—	20,000
February 1-28, 2010	3,262		22.13	3,262	16,738
March 1-31, 2010	5,120		22.67	5,120	11,618

Total	8,382		22.46	8,382

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 Dhiren R.

Fonseca and Expedia, Inc., effective as of March 16, 2009

10.2

Stock Option Agreement between Dhiren R.

Fonseca and Expedia, Inc., dated as of March 2, 2009 (Installment Vesting)

10.3

Stock Option Agreement between Dhiren R.

Fonseca and Expedia, Inc., dated as of March 2, 2009 (Cliff Vesting)

10.4

Employment Agreement between Gary M.

Fritz and Expedia, Inc., effective as of March 16, 2009

10.5

Stock Option Agreement between Gary M.

Fritz and Expedia, Inc., dated as of March 2, 2009 (Installment Vesting)

10.6

Stock Option Agreement between Gary M.

Fritz and Expedia, Inc., dated as of March 2, 2009 (Cliff Vesting)

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.

Exhibit 10.1

Execution Copy

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into by and between Dhiren R. Fonseca (“Employee”) and Expedia, Inc., a Washington corporation (the “Company”), and is effective as of the last date executed by all parties hereto (the “Effective Date”).

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

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

1A. EMPLOYMENT . The Company agrees to employ the Employee as Co-President, Partner Services Group. Employee shall also remain as an officer of the Company’s parent corporation, Expedia, Inc. (Delaware). During Employee’s employment with the Company, Employee shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities as are commensurate and consistent with Employee’s position and shall render such services on the terms set forth herein. During Employee’s employment with the Company, Employee shall report directly to the Chief Executive Officer of the Company (“Reporting Officer”). Employee shall have such powers and duties with respect to the Company as may reasonably be assigned to Employee by the Reporting Officer, to the extent consistent with Employee’s position and status. Employee agrees to devote all of Employee’s working time, attention and efforts to the Company and to perform the duties of Employee’s position in accordance with the Company’s policies as in effect from time to time. Employee’s principal place of employment shall be the Company’s offices located in Bellevue, Washington.

2A. TERM OF AGREEMENT . The term of this Agreement shall commence on the Effective Date and shall continue for a period of two years. The period beginning on the date hereof and ending on the second anniversary hereof shall be referred to hereinafter as the “Term.”

Notwithstanding anything to the contrary in this Section 2A, Employee’s employment hereunder may be terminated in accordance with the provisions of Section 1 of the Standard Terms and Conditions attached hereto.

3A. COMPENSATION .

(a) BASE SALARY . During the Term, the Company shall pay Employee an annual base salary of $375,000 (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 $400,000. 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, Employee shall be eligible to receive discretionary annual bonuses. For purposes of the foregoing, Employee’s annual target bonus shall be 75% of Employee’s Base Salary earned for that year (the “Target Bonus Percentage”). The bonus will be made at the same time that bonuses generally are paid by the Company, currently scheduled to be no later than March 15 for the preceding calendar year.

(c) BENEFITS . From the Effective Date through the date of termination of Employee’s employment with the Company for any reason, Employee 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 employees of the Company. Without limiting the generality of the foregoing, Employee shall be entitled to the following benefits:

(i) Reimbursement for Business Expenses . During the Term, the Company shall reimburse Employee for all reasonable and necessary expenses incurred by Employee in performing Employee’s duties for the Company, on the same basis as similarly situated employees and in accordance with the Company’s policies as in effect from time to time, but in no event shall reimbursement occur after the end of the subsequent calendar year.

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

(d) RESIGNATION/TERMINATION OF CO-PRESIDENT . The parties acknowledge that initially there will be two Co-Presidents, Partner Services Group. If the Co-President who is not the Employee ceases to serve as Co-President for any reason, then (i) the then-current Base Salary shall be increased by not less than 20% and (ii) the Target Bonus Percentage shall be increased to not less than 100%.

4A. 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:		333 108 ^th Avenue NE
		Bellevue, WA 98004
		Attention: General Counsel

If to Employee:		Dhiren R. Fonseca
		1207 McGilvra Blvd. E.
		Seattle, WA 98112

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

5A. 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.

6A. 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. Employee 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 Employee has executed and delivered this Agreement as of the Effective Date.


EXPEDIA, INC.

/S/ Burke F. Norton
By: Burke F. Norton
Title: Executive Vice President, General Counsel

Dated: March 16, 2009

/S/ Dhiren R. Fonseca
Dhiren R. Fonseca

Dated: March 16, 2009

STANDARD TERMS AND CONDITIONS

1. TERMINATION OF EMPLOYEE’S EMPLOYMENT.

(a) DEATH . In the event Employee’s employment hereunder is terminated by reason of Employee’s death, the Company shall pay Employee’s designated beneficiary or beneficiaries, within 30 days of Employee’s death in a lump sum in cash, (i) Employee’s Base Salary through the end of the month in which death occurs and (ii) any Accrued Obligations (as defined in Section 1(g) below).

(b) DISABILITY . If, as a result of Employee’s incapacity due to physical or mental illness ("Disability"), Employee shall have been absent from the full-time performance of Employee’s duties with the Company for a period of four consecutive months and, within 30 days after written notice is provided to Employee by the Company (in accordance with Section 4A of the attached Employment Agreement), Employee shall not have returned to the full-time performance of Employee’s duties, Employee’s employment under this Agreement may be terminated by the Company for Disability. During any period prior to such termination during which Employee is absent from the full-time performance of Employee’s duties with the Company due to Disability, the Company shall continue to pay Employee’s Base Salary at the rate in effect at the commencement of such period of Disability, offset by any amounts payable to Employee under any disability insurance plan or policy provided by the Company. Upon termination of Employee’s employment due to Disability, the Company shall pay Employee within 30 days of such termination (i) Employee’s Base Salary through the end of the month in which termination occurs in a lump sum in cash, offset by any amounts payable to Employee under any disability insurance plan or policy provided by the Company; and (ii) any Accrued Obligations (as defined in Section 1(g) below).

(c) TERMINATION FOR CAUSE . The Company may terminate Employee’s employment under this Agreement with or without Cause at any time prior to the expiration of the Term. As used herein, "Cause" shall mean: (i) the plea of guilty or nolo contendere to, or conviction for, the commission of a felony offense by Employee; provided , however , that after indictment, the Company may suspend Employee 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 Employee of a fiduciary duty owed to the Company; (iii) a material breach by Employee of any of the covenants made by Employee in Section 2 hereof; (iv) the willful or gross neglect by Employee of the material duties required by this Agreement; or (v) a violation by Employee 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 Employee within 30 days after Employee is provided with written notice thereof. Upon (A) the termination of Employee’s employment by the Company for Cause or (B) Employee’s resignation prior to the expiration of the Term, the Company shall have no further obligation hereunder, except for the payment of any Accrued Obligations (as defined in Section 1(g) below).

(d) RESIGNATION BY EMPLOYEE FOR GOOD REASON . Upon Employee’s resignation for Good Reason at any time prior to the expiration of the Term, then (i) the Company shall continue to pay Employee the Base Salary through the longer of (x) the end of the Term and (y) 18 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 Employee within 30 days of the date of such termination in a lump sum in cash any Accrued Obligations (as defined in Section 1(g) below); (iii) the Company shall pay in cash to Employee for each month between the date of termination and the end of the Salary Continuation Period an amount equal to the premiums charged by the Company to maintain COBRA benefits continuation coverage for Employee and Employee’s eligible dependents to the extent such coverage is then in place; and (iv) any compensation awards of Employee 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 twelve months following such termination (such period, the “Equity Acceleration Period”) shall vest 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); 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 only if, and at such point as, such performance conditions are satisfied; and provided further that if any Equity Awards made subsequent to the Effective Date of this Agreement specifies a more favorable post-termination vesting schedule for such equity, the terms of the award agreement for such Equity Award shall govern.

“Good Reason” shall mean the occurrence of any of the following without Employee’s prior consent: (A) the Company’s material breach of any material provision of this Agreement, (B) the material reduction in Employee’s duties, including any change in the reporting structure of the Employee, (C) the material reduction in Employee’s Base Salary, (D) the relocation of Employee’s principal place of employment more than 50 miles outside the Seattle metropolitan area, or (E) the relocation of the principal place of employment of either (i) a material portion of the Company’s employees primarily supporting the market management or business intelligence divisions of the Partner Services Group (“PSG”) as of the Effective Date or thereafter and located in the Seattle metropolitan area immediately prior to such relocation more than 50 miles outside of the Seattle metropolitan area, or (ii) a material portion of the Company’s employees who are vice presidents or more senior and who are primarily engaged in the management of the market management or business intelligence divisions of PSG as of the Effective Date or thereafter and located in the Seattle metropolitan area immediately prior to such relocation more than 50 miles

outside of the Seattle metropolitan area, unless, in each case, Employee has approved of such relocations; provided that in no event shall Employee’s resignation be for “Good Reason” unless (x) an event or circumstance set forth in clauses (A) through (E) shall have occurred and Employee provides the Company with written notice thereof within 30 days , after the Employee has knowledge of the occurrence or existence of such event or circumstance, which notice specifically identifies the event or circumstance that Employee 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) the Employee resigns within 90 days in the case of an event or circumstance set forth in clauses (A) through (D), or 30 days in the case of an event or circumstance set forth in clause (E), after the expiration of the period referred to in clause (y) above. The payment to Employee of the severance benefits described in Section 1(d), except for Section l(d)(ii), shall be subject to Employee’s execution and non-revocation of a general release of the Company and its affiliates, within 30 days of the date of termination of Employee’s employment, in a form substantially similar to that attached as Exhibit A, subject to modifications by the Company to comply with applicable law, the mitigation and offset provisions in Section 1(f), and Employee’s compliance with the restrictive covenants set forth in Section 2. Employee acknowledges and agrees that the Company’s payment of severance benefits, except those described in Section 1(d)(ii), constitutes good and valuable consideration for such release.

(e) TERMINATION BY THE COMPANY OTHER THAN FOR DEATH, DISABILITY OR CAUSE . Upon termination of Employee’s employment prior to the expiration of the Term by the Company for any reason other than Employee’s death or Disability or for Cause, then (i) the Company shall continue to pay Employee the Base Salary through the end of the Salary Continuation Period over the course of such period, such Cash Severance Payments 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 Employee within 30 days of the date of such termination in a lump sum in cash any Accrued Obligations (as defined in Section 1(g) below); (iii) the Company shall pay in cash to Employee for each month between the date of termination and the end of the Salary Continuation Period an amount equal to the premiums charged by the Company to maintain COBRA benefits continuation coverage for Employee and Employee’s eligible dependents to the extent such coverage is then in place; and (iv) any 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 Equity Acceleration Period shall vest 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 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); 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 only if, and at such point as, such performance conditions are satisfied; and

provided further that if any Equity Award made subsequent to the Effective Date of this Agreement specifies a more favorable post-termination vesting schedule, the terms of the award agreement for such Equity Award shall govern.

Notwithstanding the preceding provisions of Section 1(d) or this Section 1(e), in the event that Employee is a “specified employee” (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, including any regulations and guidance issued thereunder (“Section 409A”)) on the date of termination of Employee'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 Employee's “separation from service” (within the meaning of Section 409A of the Code) and (4) any portion of the Cash Severance Payments that is payable after the Initial Payment Period shall be paid at the times set for the in Section 1(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 payments would otherwise have been made but for any required delay through the date of payment.

(f). The payment to Employee of the severance benefits described in Section 1(e), except for Section 1(e)(ii), shall be subject to Employee's execution and non-revocation of a general release of the Company and its affiliates in a form substantially similar to that attached as Exhibit A, subject to modifications by the Company to comply with applicable law, the mitigation and offset provisions in Section 1(f), and Employee's compliance with the restrictive covenants set forth in Section 2. Employee acknowledges and agrees that the Company's payment of severance benefits described in Section 1(e), except for Section l(e)(ii), constitutes good and valuable consideration for such release.

(g) MITIGATION; OFFSET . In the event of termination of Employee's employment prior to the end of the Term, Employee shall use his reasonable best efforts to seek other employment and to take other reasonable actions to mitigate the amounts payable under Section 1(d), except for Section 1(d)(ii), and/or Section 1(e), except for Section l(e)(ii) hereof, if any. If Employee obtains other employment during the Salary Continuation Period, the amount of any payment or benefit provided to Employee under Sections 1(d) and 1(e), except for Sections l(d)(ii) and 1(e)(ii) hereof, which has been paid to Employee shall be refunded to the Company by Employee in an amount equal to any compensation earned by Employee as a result of employment with or services provided to another employer during the Salary Continuation Period. In addition, all future amounts payable by the Company under Sections 1(d) and 1(e) to Employee during the Salary Continuation Period, except for Sections 1(d)(ii) and l(e)(ii) hereof, shall be offset by the amount earned by Employee from another employer. For purposes of this Section 1(f),

Employee shall have an obligation to inform the Company regarding Employee’s employment and benefits status following termination and during the period encompassing the Term (including, without limitation, the Salary Continuation Period).

(h) ACCRUED OBLIGATIONS . As used in this Agreement, “Accrued Obligations” shall mean the sum of (i) any portion of Employee’s accrued but unpaid Base Salary through the date of death or termination of employment for any reason, as the case may be; and (ii) any compensation previously earned by Employee (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 Employee is a party, if any (provided, that any election made by Employee pursuant to any deferred compensation arrangement that is subject to Section 409A of the Code regarding the schedule for payment of such deferred compensation shall prevail over this Section 1(h) to the extent inconsistent herewith).

(i) SECTION 409A . This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, including any regulations and guidance issued thereunder (“Section 409A”), to the extent Section 409A is applicable to this Agreement. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered by the Company in a manner consistent with such intention and to avoid the pre-distribution inclusion in income of amounts deferred under this Agreement and the imposition of any additional tax or interest with respect thereto. Without limiting the generality of the foregoing, to the extent required in order to comply with Section 409A, amounts that would otherwise be payable under this Agreement during the six-month period immediately following the date of termination of the Employee’s employment shall instead be paid on the first business day after the date that is six months following the Employee’s “separation from service” within the meaning of Section 409A.

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

(a) CONFIDENTIALITY . Employee acknowledges that while employed by the Company Employee will occupy a position of trust and confidence. The Company has provided and shall continue to provide Employee with Confidential Information. Employee shall hold in a fiduciary capacity for benefit of the Company and its subsidiaries and affiliates, and shall not, except as may be required to perform Employee’s duties hereunder or as required by applicable law, without limitation in time, communicate, divulge, disseminate, disclose to others or otherwise use, whether directly or indirectly, any Confidential Information. “Confidential Information” shall mean information about the Company or any of its subsidiaries or affiliates, and their respective businesses, employees, consultants, contractors, suppliers, clients and customers that is not disclosed by the Company or any of its subsidiaries or affiliates for financial reporting purposes and that was learned by Employee in the course of employment by the Company or any of its subsidiaries or affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, processes, methods, research, secret data, costs, names of users or purchasers of their respective products or services, business methods,

operating procedures or programs or methods of promotion and sale, information relating to accounting or tax strategies and data, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. For purposes of this Section 2(a), information shall not cease to be Confidential Information merely because it is embraced by general disclosures for financial reporting purposes or because individual features or combinations thereof are publicly available. Notwithstanding the foregoing provisions, if Employee is required to disclose any such confidential or proprietary information pursuant to applicable law or a subpoena or court order, Employee 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. Employee 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 Employee is required to make the disclosure, or the Company waives compliance with the provisions hereof, Employee 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. Employee 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. Employee agrees to deliver or return to the Company, at the Company’s request at any time or upon termination or expiration of Employee’s employment, all documents, computer tapes and disks, plans, initiatives, strategies, records, lists, data, drawings, prints, notes and written information (and all copies thereof) created by or on behalf of the Company or its subsidiaries or affiliates or prepared by Employee in the course of Employee’s employment by the Company and its subsidiaries or affiliates. As used in this Agreement, “subsidiaries” and “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 Employee, Employee hereby agrees and covenants that: Until the longer of (i) the last day of the Term and (ii) a period which includes the last day of the month of the 18 month period following the Employee’s date of termination of employment for any reason, including the expiration of the Term (the “Restricted Period”), Employee 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 Employee’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) Employee shall be considered to have become “associated with a Competitive Activity” if Employee 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, Employee may make and retain investments during the Restricted 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 Employee is not otherwise affiliated with such corporation.

(c) NON-SOLICITATION OF EMPLOYEES . Employee recognizes that he or she will possess Confidential Information about other employees, officers, directors, agents, consultants and independent contractors of the Company and its subsidiaries or affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of the Company and its subsidiaries or affiliates. Employee recognizes that the information he or she will possess about these employees, officers, directors, agents, consultants and independent contractors is not generally known, is of substantial value to the Company and its subsidiaries or affiliates in developing their respective businesses and in securing and retaining customers, and will be acquired by Employee because of Employee’s business position with the Company. Employee agrees (i) that, during the Restricted Period, Employee will not, directly or indirectly, hire or solicit or recruit the employment or services of (i.e., whether as an employee, officer, director, agent, consultant or independent contractor), or encourage to change such person’s relationship with the Company or any of its subsidiaries or affiliates, any employee, officer, director, agent, consultant or independent contractor of the Company or any of its subsidiaries or affiliates 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 and (ii) that Employee will not convey any Confidential Information or trade secrets about any employees, officers, directors, agents, consultants and independent contractors of the Company or any of its subsidiaries or affiliates to any other person except within the scope of Employee’s duties hereunder.

(d) NON-SOLICITATION OF CUSTOMERS, SUPPLIERS, PARTNERS . During the Restricted Period, Employee shall not, without the prior written consent of the Company, directly or indirectly, solicit, attempt to do business with, or do business with any customers of, suppliers (including providers of travel inventory) to, business partners of or business affiliates of the Company or any of its subsidiaries or affiliates (collectively, “Trade Relationships”) on behalf of any entity engaged in a Competitive Activity, or encourage (regardless of who initiates the contact) any Trade Relationship to use the services of any competitor of the Company or its subsidiaries or affiliates, or encourage any Trade Relationship to change its relationship with the Company or its subsidiaries or affiliates.

(e) PROPRIETARY RIGHTS: ASSIGNMENT . All Employee Developments shall be made for hire by the Employee for the Company or any of its subsidiaries or affiliates. “Employee Developments” means any idea, discovery, invention, design, method, technique, improvement, enhancement, development, computer program, machine, algorithm or other work or authorship that (i) relates to the business or operations of the Company or any of its subsidiaries or affiliates, or (ii) results from or is suggested by any undertaking assigned to the Employee or work

performed by the Employee 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. All Confidential Information and all Employee Developments shall remain the sole property of the Company or any of its subsidiaries or affiliates. The Employee shall acquire no proprietary interest in any Confidential Information or Employee Developments developed or acquired during the Term. To the extent the Employee may, by operation of law or otherwise, acquire any right, title or interest in or to any Confidential Information or Employee Development, the Employee hereby assigns to the Company all such proprietary rights. The Employee 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 discretion deem necessary or desirable to evidence, establish, maintain, perfect, enforce or defend the Company’s rights in Confidential Information and Employee Developments.

(f) COMPLIANCE WITH POLICIES AND PROCEDURES . During the Term, Employee 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.

(g) REMEDIES FOR BREACH . Employee expressly agrees and understands that Employee will notify the Company in writing of any alleged breach of this Agreement by the Company, and the Company will have 30 days from receipt of Employee’s notice to cure any such breach.

Employee expressly agrees and understands that the remedy at law for any breach by Employee 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 Employee’s 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. Nothing in this Section 2 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Employee 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 the Term and/or Employee’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.

not relied upon, any representations, promises or inducements except to the extent the same is expressly set forth in this Agreement. Employee hereby represents and warrants that by entering into this Agreement, Employee will not rescind or otherwise breach an employment agreement with Employee’s current employer prior to the natural expiration date of such 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 transfer of Employee to any entity affiliated with the Company and/or the merger, consolidation, transfer, or sale of all or substantially all 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 such successor 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 Employee 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, or extended beyond expiration of the Term (regardless of continued employment), except by a writing executed by each party hereto. Notwithstanding anything to the contrary herein, neither the assignment of Employee to a different Reporting Officer due to a reorganization or an internal restructuring of the Company or its affiliated companies nor a change in the title of the Reporting Officer shall constitute a modification or a breach of this Agreement.

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.

9. INDEMNIFICATION . The Company shall indemnify and hold Employee harmless for acts and omissions in Employee’s capacity as an officer, director or employee of the Company to the maximum extent permitted under applicable law; provided , however , that neither the Company, nor any of its subsidiaries or affiliates shall indemnify Employee for any losses incurred by Employee as a result of acts described in Section 1(c) of this Agreement.

ACKNOWLEDGED AND AGREED AS OF THE EFFECTIVE DATE:


EXPEDIA, INC.

/S/ Burke F. Norton
By: Burke F. Norton
Title: Executive Vice President, General Counsel
Dated: March 16, 2009

/S/ Dhiren R. Fonseca
Dhiren R. Fonseca

Dated: March 16, 2009

Exhibit 10.2

EXPEDIA, INC. STOCK OPTION AGREEMENT

THIS AGREEMENT (this “ Agreement ”), dated as of the Grant Date specified on the Summary of Award (as defined below), by and between Expedia, Inc., a Delaware corporation (the “ Corporation ”), and Dhiren R. Fonseca (the “ Eligible Individual ”).

All capitalized terms used herein, to the extent not defined, shall have the meanings set forth in the Corporation’s Amended and Restated 2005 Stock and Annual Incentive Plan (as amended from time to time, the “ Plan ”). Reference is made to the Summary of Award (the “ Summary of Award ”) issued to the Eligible Individual, which may be found on the Smith Barney Benefit Access System at www.benefitaccess.com (or any successor system selected by the Corporation). This Agreement relates to the option to purchase shares of Common Stock described in the Summary of Award (the “ Stock Option ”).

1.	Award of Stock Option

Subject to the provisions of this Agreement, the Summary of Award and the Plan, the Corporation hereby grants the Stock Option to the Eligible Individual pursuant to Section 6 of the Plan. Vesting of the Stock Option is subject to approval by the Corporation’s stockholders of an amendment to the Plan to increase the number of shares of Common Stock issuable under the Plan (the “ Increase ”). The Summary of Award sets forth the number of shares of Common Stock covered by the Stock Option, the per share exercise price of the Stock Option and the Grant Date of the Stock Option. Nothing in this Agreement, the Summary of Award or the Plan shall confer upon the Eligible Individual any right to continue in the employ or service of the Corporation or any of its Subsidiaries or Affiliates or interfere in any way with their rights to terminate the Eligible Individual’s employment or service at any time. The Stock Option shall be a Nonqualified Option. Unless earlier terminated pursuant to the terms of this Agreement or the Plan, the Stock Option shall expire on the seven year anniversary of the Grant Date. If the Corporation’s stockholders do not approve the Increase at the next annual meeting of the stockholders of the Corporation, the Eligible Individual automatically shall forfeit the Stock Option.

2.	Vesting

(a) Subject to (i) approval of the Increase by the Corporation’s stockholders, (ii) the terms and conditions of this Agreement, the Summary of Award and the provisions of the Plan , and (iii) the Eligible Individual’s continuous employment by the Corporation or one of its Subsidiaries or Affiliates through the applicable vesting date, the Stock Option shall vest and become exercisable as follows:


*Vesting Date*	*Percentage of Stock Option Vesting*
On the first anniversary of the Grant Date	25	%
On the second anniversary of the Grant Date	25	%
On the third anniversary of the Grant Date	25	%
On the fourth anniversary of the Grant Date	25	%

(b) In the event of the Eligible Individual’s Termination of Employment by the Eligible Individual for Good Reason or by the Corporation without Cause (each a “Qualifying Termination”), the Stock Option immediately shall vest and be exercisable with respect to the number of the shares of Common Stock covered thereby that would have otherwise vested during the 18 months immediately following the Qualifying Termination if the Eligible Individual had remained employed by the Corporation. For purposes of this provision, Good Reason and Cause shall have the definitions set forth in the Employment Agreement between the Eligible Individual and the Corporation dated March 16, 2009.

3.	Termination of Employment by the Corporation for Cause

In the event the Eligible Individual exercises any portion of the Stock Option within two years prior to the Eligible Individual’s Termination of Employment for Cause, the Eligible Individual agrees that the Corporation shall be entitled to recover from the Eligible Individual, at any time within two years following such exercise, and the shall pay over to the Corporation, the excess of (i) the aggregate Fair Market Value of the Common Stock subject to such exercise on the date of exercise over (ii) the aggregate exercise price of the Common Stock subject to such exercise on the date of exercise.

4.	Taxes and Withholding

No later than the date as of which an amount in respect of the Stock Option first becomes includible in the Eligible Individual’s gross income for federal, state, local or foreign income or employment or other tax purposes, the Eligible Individual shall pay to the Corporation or make arrangements satisfactory to the Committee regarding payment of any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount and the Corporation shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Eligible Individual (either directly or indirectly through its agent), federal, state, local and foreign taxes of any kind required by law to be withheld. Notwithstanding the foregoing, the Corporation shall be entitled to hold the shares of Common Stock issuable to the Eligible Individual upon exercise of the Eligible Individual’s Stock Option until the Corporation or the agent selected by the Corporation to manage the Plan under which the Stock Option has been issued (the “ Agent ”) has received from the Eligible Individual (i) a duly executed Form W-9 or W-8, as applicable and (ii) payment for any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to any portion of such Stock Option.

5.	Conflicts and Interpretation

Applicable terms of the Plan are expressly incorporated by reference into this Agreement. 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 (x) conflict between the Summary of Award (or any other information posted on the Smith Barney Benefit Access System or successor system) and this Agreement, the Plan and/or the books and records of the Corporation or (y) ambiguity in the Summary of Award (or any other information posted on the Smith Barney Benefit Access System or successor system), this Agreement, the Plan and/or the books and records of the Corporation, as applicable, shall control.

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6.	Data Protection

The Eligible Individual authorizes the release from time to time to the Corporation (and any of its Subsidiaries or Affiliates) 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 that 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.

7.	Amendment

The Committee may unilaterally amend the Stock Option, prospectively or retroactively, but no such amendment shall, without the Eligible Individual’s consent, materially impair the rights of the Eligible Individual with respect to the Stock Option, except such an amendment made to cause the Stock Option to comply with applicable law, stock exchange rules or accounting rules.

8.	Notification of Changes

Any changes to this Agreement shall be communicated (either directly by the Corporation or indirectly through any of its Subsidiaries, Affiliates or the Agent) to the Eligible Individual electronically via email (or otherwise in writing) promptly after such change becomes effective.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, as of the Grant Date, 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) shall constitute execution of the Agreement by the Eligible Individual.


EXPEDIA, INC.

/S/ Burke F. Norton
Name:		Burke F. Norton
Title:		Executive Vice President, General Counsel & Secretary

ELIGIBLE INDIVIDUAL

/S/ Dhiren R. Fonseca
Name:		Dhiren R. Fonseca

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Exhibit 10.3

EXPEDIA, INC. STOCK OPTION AGREEMENT

1.	Award of Stock Option

2.	Vesting

(b) In the event of the Eligible Individual’s Termination of Employment by the Eligible Individual for Good Reason or by the Corporation without Cause (each a “Qualifying Termination”), a number of shares of Common Stock covered by the Stock Option shall vest on the date of such Qualifying Termination equal to the total number of Shares of Common Stock covered by the Stock Option multiplied by a fraction, the numerator of which is the number of full months from the Grant Date to the date of the Qualifying termination and the denominator of which is thirty-six (36). For the purposes of this provision, Good Reason and Cause shall have the definitions set forth in the Employment Agreement between the Eligible Individual and the Corporation dated March 16, 2009.

3.	Termination of Employment by the Corporation for Cause

4.	Taxes and Withholding

5.	Conflicts and Interpretation

6.	Data Protection

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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 that 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.

7.	Amendment

8.	Notification of Changes

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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EXPEDIA, INC.

/S/ Burke F. Norton
Name:		Burke F. Norton
Title:		Executive Vice President, General Counsel & Secretary

ELIGIBLE INDIVIDUAL

/S/ Dhiren R Fonseca
Name:		Dhiren R. Fonseca

-4-

Exhibit 10.4

Execution Copy

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into by and between Gary M. Fritz (“Employee”) and Expedia, Inc., a Washington corporation (the “Company”), and is effective as of the last date executed by all parties hereto (the “Effective Date”).

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

3A. COMPENSATION .


If to the Company:		333 108 ^th Avenue NE
		Bellevue,WA 98004
		Attention: General Counsel

If to Employee:		Gary M. Fritz
		900 18 ^th Avenue E.
		Seattle, WA 98112

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

5A. 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

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its duly authorized officer and Employee has executed and delivered this Agreement as of the Effective Date.


EXPEDIA, INC.

/S/ Burke F. Norton
By:		Burke F. Norton
Title:		Executive Vice President, General Counsel
Dated: March 16, 2009

/S/ Gary M. Fritz
Gary M. Fritz
Dated: March 16, 2009

STANDARD TERMS AND CONDITIONS

1. TERMINATION OF EMPLOYEE’S EMPLOYMENT.

(b) DISABILITY . If, as a result of Employee’s incapacity due to physical or mental illness (“Disability”), Employee shall have been absent from the full-time performance of Employee’s duties with the Company for a period of four consecutive months and, within 30 days after written notice is provided to Employee by the Company (in accordance with Section 4A of the attached Employment Agreement), Employee shall not have returned to the full-time performance of Employee’s duties, Employee’s employment under this Agreement may be terminated by the Company for Disability. During any period prior to such termination during which Employee is absent from the full-time performance of Employee’s duties with the Company due to Disability, the Company shall continue to pay Employee’s Base Salary at the rate in effect at the commencement of such period of Disability, offset by any amounts payable to Employee under any disability insurance plan or policy provided by the Company. Upon termination of Employee’s employment due to Disability, the Company shall pay Employee within 30 days of such termination (i) Employee’s Base Salary through the end of the month in which termination occurs in a lump sum in cash, offset by any amounts payable to Employee under any disability insurance plan or policy provided by the Company; and (ii) any Accrued Obligations (as defined in Section 1(g) below).

(c) TERMINATION FOR CAUSE . The Company may terminate Employee’s employment under this Agreement with or without Cause at any time prior to the expiration of the Term. As used herein, “Cause” shall mean: (i) the plea of guilty or nolo contendere to, or conviction for, the commission of a felony offense by Employee; provided , however , that after indictment, the Company may suspend Employee 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 Employee of a fiduciary duty owed to the Company; (iii) a material breach by Employee of any of the covenants made by Employee in Section 2 hereof; (iv) the willful or gross neglect by Employee of the material duties required by this Agreement; or (v) a violation by Employee 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 Employee within 30 days after Employee is provided with written notice thereof. Upon (A) the termination of Employee’s employment by the Company for Cause or (B) Employee’s resignation prior to the expiration of the Term, the Company shall have no further obligation hereunder, except for the payment of any Accrued Obligations (as defined in Section 1(g) below).

outside of the Seattle metropolitan area, unless, in each case, Employee has approved of such relocations; provided that in no event shall Employee’s resignation be for “Good Reason” unless (x) an event or circumstance set forth in clauses (A) through (E) shall have occurred and Employee provides the Company with written notice thereof within 30 days, after the Employee has knowledge of the occurrence or existence of such event or circumstance, which notice specifically identifies the event or circumstance that Employee 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) the Employee resigns within 90 days in the case of an event or circumstance set forth in clauses (A) through (D), or 30 days in the case of an event or circumstance set forth in clause (E), after the expiration of the period referred to in clause (y) above. The payment to Employee of the severance benefits described in Section 1(d), except for Section 1(d)(ii), shall be subject to Employee’s execution and non-revocation of a general release of the Company and its affiliates, within 30 days of the date of termination of Employee’s employment, in a form substantially similar to that attached as Exhibit A, subject to modifications by the Company to comply with applicable law, the mitigation and offset provisions in Section 1(f), and Employee’s compliance with the restrictive covenants set forth in Section 2. Employee acknowledges and agrees that the Company’s payment of severance benefits, except those described in Section 1(d)(ii), constitutes good and valuable consideration for such release.

Notwithstanding the preceding provisions of Section 1(d) or this Section 1(e), in the event that Employee is a “specified employee” (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, including any regulations and guidance issued thereunder (“Section 409A”)) on the date of termination of Employee’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 Employee’s “separation from service” (within the meaning of Section 409A of the Code) and (4) any portion of the Cash Severance Payments that is payable after the Initial Payment Period shall be paid at the times set for the in Section 1(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 payments would otherwise have been made but for any required delay through the date of payment.

(f) The payment to Employee of the severance benefits described in Section 1(e), except for Section l(e)(ii), shall be subject to Employee’s execution and non-revocation of a general release of the Company and its affiliates in a form substantially similar to that attached as Exhibit A, subject to modifications by the Company to comply with applicable law, the mitigation and offset provisions in Section 1(f), and Employee’s compliance with the restrictive covenants set forth in Section 2. Employee acknowledges and agrees that the Company’s payment of severance benefits described in Section 1(e), except for Section 1(e)(ii), constitutes good and valuable consideration for such release.

(g) MITIGATION; OFFSET . In the event of termination of Employee’s employment prior to the end of the Term, Employee shall use his reasonable best efforts to seek other employment and to take other reasonable actions to mitigate the amounts payable under Section 1(d), except for Section 1(d)(ii), and/or Section 1(e), except for Section 1(e)(ii) hereof, if any. If Employee obtains other employment during the Salary Continuation Period, the amount of any payment or benefit provided to Employee under Sections 1(d) and 1(e), except for Sections l(d)(ii) and 1(e)(ii) hereof, which has been paid to Employee shall be refunded to the Company by Employee in an amount equal to any compensation earned by Employee as a result of employment with or services provided to another employer during the Salary Continuation Period. In addition, all future amounts payable by the Company under Sections 1(d) and 1(e) to Employee during the Salary Continuation Period, except for Sections l(d)(ii) and 1(e)(ii) hereof, shall be offset by the amount earned by Employee from another employer. For purposes of this Section 1(f),

(i) CHANGE IN CONTROL . The 23,544 restricted stock units granted to Employee by IAC/InterActiveCorp (“IAC”) on February 10, 2005 pursuant to the IAC (formerly, USA Networks, Inc.) 1997 Stock and Annual Incentive Plan shall vest upon a Change in Control (as defined in Exhibit A to the related Restricted Stock Unit Agreement) in accordance with Section 11(a) of such Plan.

(j) SECTION 409A . This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, including any regulations and guidance issued thereunder (“Section 409A”), to the extent Section 409A is applicable to this Agreement. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered by the Company in a manner consistent with such intention and to avoid the pre-distribution inclusion in income of amounts deferred under this Agreement and the imposition of any additional tax or interest with respect thereto. Without limiting the generality of the foregoing, to the extent required in order to comply with Section 409A, amounts that would otherwise be payable under this Agreement during the six-month period immediately following the date of termination of the Employee’s employment shall instead be paid on the first business day after the date that is six months following the Employee’s “separation from service” within the meaning of Section 409A.

2. CONFIDENTIAL INFORMATION; DUTY OF LOYALTY; NON-SOLICITATION; AND PROPRIETARY RIGHTS .

and their respective businesses, employees, consultants, contractors, suppliers, clients and customers that is not disclosed by the Company or any of its subsidiaries or affiliates for financial reporting purposes and that was learned by Employee in the course of employment by the Company or any of its subsidiaries or affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, processes, methods, research, secret data, costs, names of users or purchasers of their respective products or services, business methods, operating procedures or programs or methods of promotion and sale, information relating to accounting or tax strategies and data, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. For purposes of this Section 2(a), information shall not cease to be Confidential Information merely because it is embraced by general disclosures for financial reporting purposes or because individual features or combinations thereof are publicly available. Notwithstanding the foregoing provisions, if Employee is required to disclose any such confidential or proprietary information pursuant to applicable law or a subpoena or court order, Employee 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. Employee 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 Employee is required to make the disclosure, or the Company waives compliance with the provisions hereof, Employee 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. Employee 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. Employee agrees to deliver or return to the Company, at the Company’s request at any time or upon termination or expiration of Employee’s employment, all documents, computer tapes and disks, plans, initiatives, strategies, records, lists, data, drawings, prints, notes and written information (and all copies thereof) created by or on behalf of the Company or its subsidiaries or affiliates or prepared by Employee in the course of Employee’s employment by the Company and its subsidiaries or affiliates. As used in this Agreement, “subsidiaries” and “affiliates” shall mean any company controlled by, controlling or under common control with the Company.

the Effective Date or at any time thereafter (such affiliates including, without limitation, Hotels.com, Hotwire, Inc. and TripAdvisor); and (ii) Employee shall be considered to have become “associated with a Competitive Activity” if Employee 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, Employee may make and retain investments during the Restricted 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 Employee is not otherwise affiliated with such corporation.

(e) PROPRIETARY RIGHTS; ASSIGNMENT . All Employee Developments shall be made for hire by the Employee for the Company or any of its subsidiaries or affiliates. “Employee Developments” means any idea, discovery, invention, design, method, technique, improvement, enhancement, development, computer program, machine, algorithm or other work or authorship that (i) relates to the business or operations of the Company or any of its subsidiaries or affiliates, or (ii) results from or is suggested by any undertaking assigned to the Employee or work performed by the Employee 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. All Confidential Information and all Employee Developments shall remain the sole property of the Company or any of its subsidiaries or affiliates. The Employee shall acquire no proprietary interest in any Confidential Information or Employee Developments developed or acquired during the Term. To the extent the Employee may, by operation of law or otherwise, acquire any right, title or interest in or to any Confidential Information or Employee Development, the Employee hereby assigns to the Company all such proprietary rights. The Employee 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 discretion deem necessary or desirable to evidence, establish, maintain, perfect, enforce or defend the Company’s rights in Confidential Information and Employee Developments.

3. TERMINATION OF PRIOR AGREEMENTS . 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. Employee acknowledges and agrees that neither the Company nor anyone acting on its behalf has made, and is not making, and in executing this Agreement, the Employee has not relied upon, any representations, promises or inducements except to the extent the same is expressly set forth in this Agreement. Employee hereby represents and warrants that by entering into this Agreement, Employee will not rescind or otherwise breach an employment agreement with Employee’s current employer prior to the natural expiration date of such agreement.

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, or extended beyond expiration of the Term (regardless of continued employment), except by a writing executed by each party hereto. Notwithstanding anything to the contrary herein, neither the assignment of Employee to a different Reporting Officer due to a reorganization or an internal restructuring of the Company or its affiliated companies nor a change in the title of the Reporting Officer shall constitute a modification or a breach of this Agreement.

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.

ACKNOWLEDGED AND AGREED AS OF THE EFFECTIVE DATE:


EXPEDIA, INC.

/S/ Burke F. Norton
By:		Burke F. Norton
Title:		Executive Vice President, General Counsel
Dated:		March 16, 2009

/S/ Gary M. Fritz
Gary M. Fritz

Dated:		March 16, 2009

Exhibit 10.5

EXPEDIA, INC. STOCK OPTION AGREEMENT

THIS AGREEMENT (this “ Agreement ”), dated as of the Grant Date specified on the Summary of Award (as defined below), by and between Expedia, Inc., a Delaware corporation (the “ Corporation ”), and Gary M. Fritz (the “ Eligible Individual ”).

1.	Award of Stock Option

2.	Vesting


*Vesting Date*	*Percentage of Stock Option Vesting*
On the first anniversary of the Grant Date	25	%
On the second anniversary of the Grant Date	25	%
On the third anniversary of the Grant Date	25	%
On the fourth anniversary of the Grant Date	25	%

3.	Termination of Employment by the Corporation for Cause

4.	Taxes and Withholding

5.	Conflicts and Interpretation

-2-

6.	Data Protection

7.	Amendment

8.	Notification of Changes

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-3-


EXPEDIA, INC.

/S/ Burke F. Norton
Name:		Burke F. Norton
Title:		Executive Vice President,
		General Counsel & Secretary

ELIGIBLE INDIVIDUAL

/S/ Gary M. Fritz
Name:		Gary M. Fritz

-4-

Exhibit 10.6

EXPEDIA, INC. STOCK OPTION AGREEMENT

THIS AGREEMENT (this “ Agreement ”), dated as of the Grant Date specified on the Summary of Award (as defined below), by and between Expedia, Inc., a Delaware corporation (the “ Corporation ”), and Gary M. Fritz (the “ Eligible Individual ”).

1.	Award of Stock Option

2.	Vesting

(b) In the event of the Eligible Individual’s Termination of Employment by the Eligible Individual for Good Reason or by the Corporation without Cause (each a “Qualifying Termination”), a number of shares of Common Stock covered by the Stock Option shall vest on the date of such Qualifying Termination equal to the total number of Shares of Common Stock covered by the Stock Option multiplied by a fraction, the numerator of which is the number of full months from the Grant Date to the date of the Qualifying termination and the denominator of which is thirty-six (36). For the purposes of this provision, Good Reason and Cause shall have the definitions set forth in the Employment Agreement between the Eligible Individual and the Corporation dated March 16, 2009.

3.	Termination of Employment by the Corporation for Cause

4.	Taxes and Withholding

5.	Conflicts and Interpretation

6.	Data Protection

-2-

7.	Amendment

8.	Notification of Changes

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-3-


EXPEDIA, INC.

/S/ Burke F. Norton
Name:		Burke F. Norton
Title:		Executive Vice President,
		General Counsel & Secretary

ELIGIBLE INDIVIDUAL

/S/ Gary M. Fritz
Name:		Gary M. Fritz

-4-

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;

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:

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;

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;

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

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

5.	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):

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

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: April 29, 2010				/s/ BARRY DILLER
				Barry Diller
				Chairman and Senior Executive

Exhibit 31.2

Certification

I, Dara Khosrowshahi, Chief Executive Officer 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;

5.	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):

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: April 29, 2010				/s/ DARA KHOSROWSHAHI
				Dara Khosrowshahi
				Chief Executive Officer

Exhibit 31.3

Certification

I, Michael B. Adler, Chief Financial Officer 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;

5.	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):

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: April 29, 2010				/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 March 31, 2010 (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: April 29, 2010				/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: April 29, 2010				/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: April 29, 2010				/s/ MICHAEL B. ADLER
				Michael B. Adler
				Chief Financial Officer

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