Expedia 2005 Annual Report Download - page 73

Expedia, Inc.
Notes to Consolidated Financial Statements Ì (Continued)
relationships with six major airlines in the United States. We also depend on global distribution system
partners and third party service providers for certain fulfillment services.
Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of
cash and cash equivalents. We maintain some cash and cash equivalents balances with financial
institutions that are in excess of Federal Deposit Insurance Corporation insurance limits.
Contingent Liabilities
We have a number of regulatory and legal matters outstanding, as discussed further in Note 16,
Commitments and Contingencies. We provide for contingent liabilities in accordance with SFAS No. 5
""Accounting for Contingencies,'' (""SFAS 5''). In accordance with SFAS 5 a loss contingency is charged
to income when (i) it is probable that an asset has been impaired or a liability has been incurred at the
date of the consolidated financials statements and (ii) the amount of the loss can be reasonably estimated.
Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both
these conditions if there is a reasonable possibility that a loss may have been incurred. We do not record
gain contingencies until realized. We expense all related legal costs as incurred. Periodically, we review the
status of each significant matter to assess the potential financial exposure. If a potential loss is considered
probable and the amount can be reasonably estimated as defined by SFAS 5, we record the estimated loss
in our consolidated statements of income. Significant judgment is required to determine the probability
that a liability has been incurred and whether such liability is reasonably estimable. We base accruals
made on the best information available at the time and are highly subjective. The final outcome of these
matters could vary significantly from the amounts included in the accompanying consolidated financial
statements.
NOTE 3 Ì Reclassifications
We reclassified certain amounts relating to our prior periods' results to conform with our current year
presentation. The significant reclassifications were as follows:
Consolidated Statements of Income. During 2005, we aligned our financial statement classification
across the Company. As a result, we reclassified certain amounts in 2004 and 2003 to conform to the
current year presentation as follows:
‚Agency Commission Expense Ì We reclassified agency commission expense from cost of revenue
to selling and marketing for all periods presented.
‚Personnel Expense Ì We reclassified certain personnel expense from general and administrative to
selling and marketing, technology and content, and cost of revenue.
‚Depreciation Expense Ì We allocated depreciation to selling and marketing, general and adminis-
trative, and technology and content to report the depreciation associated with each of these
operating activities.
‚Technology and Content Expense Ì We are now reporting technology and content as a separate
item on our consolidated statements of income.
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