Expedia 2007 Annual Report Download - page 74

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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 decreases in the fourth quarter.
Because revenue in the 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 — Significant Accounting Policies
Consolidation
Our consolidated financial statements include the accounts of Expedia, Inc., our wholly-owned subsidiar-
ies, and entities for which we control a majority of the entity’s outstanding common stock. We record minority
interest in our consolidated financial statements to recognize the minority ownership interest in our
consolidated subsidiaries. Minority interests in the earnings and losses of consolidated subsidiaries represent
the share of net income or loss allocated to members or partners in our consolidated entities, which includes
the minority interest share of net income or loss from eLong.
In addition, we hold variable interests in certain affiliated entities of eLong in order to meet the laws and
regulations of China, which restricts foreign investment in the air-ticketing, travel agency, internet content
provision and advertising businesses. Through a series of agreements with affiliated Chinese entities, eLong is
the primary beneficiary of expected cash losses or profits by contractual right. As such, although we do not
own capital stock of the Chinese affiliates, we consolidate their results.
We have eliminated significant intercompany transactions and accounts in our consolidated financial
statements.
Accounting Estimates
We use estimates and assumptions in the preparation of our consolidated financial statements in
accordance with accounting principles generally accepted in the United States (“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 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 consolidated financial statements include
revenue recognition, recoverability of long-lived and intangible assets and goodwill, income taxes, potential
settlements related to occupancy taxes, stock-based compensation and accounting for derivative instruments.
Reclassifications
We have reclassified prior period financial statements to conform to the current period presentation.
Revenue Recognition
We recognize revenue when it is earned and realizable based on the following criteria: persuasive
evidence that an arrangement exists, services have been rendered, the price is fixed or determinable and
collectibility is reasonably assured.
We also evaluate the presentation of revenue on a gross versus a net basis through application of
Emerging Issues Task Force No. (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent. The consensus of this literature is that the presentation of revenue as “the gross amount billed to a
customer because it has earned revenue from the sale of goods or services or the net amount retained (that is,
F-8
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)