TripAdvisor 2012 Annual Report Download - page 82

our consolidated and combined financial statements to recognize the minority ownership interest in our
consolidated subsidiaries. Noncontrolling interest 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. Significant
intercompany transactions between the TripAdvisor consolidated entities and accounts have been eliminated.
Certain of our subsidiaries that operate in China, have variable interests in affiliated entities in China in
order to comply with Chinese laws and regulations, which restrict foreign investment in Internet content
provision businesses. Although we do not own the capital stock of some of our Chinese affiliates, we consolidate
their results as we are the primary beneficiary of the cash losses or profits of these variable interest affiliates and
have the power to direct the activities of these affiliates. Our variable interest entities are not material for all
periods presented.
Accounting Estimates
We use estimates and assumptions in the preparation of our consolidated and combined 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 consolidated and combined financial
statements. These estimates and assumptions also affect the reported amount of net income or loss during any
period. Our actual financial results could differ significantly from these estimates. The significant estimates
underlying our consolidated and combined financial statements include revenue recognition; recoverability of
long-lived assets and investments, intangible assets and goodwill; income taxes; useful lives of property and
equipment; purchase accounting and stock-based compensation.
Reclassifications
Certain reclassifications have been made to conform the prior period to the current presentation, which
include the reclassifications of our redeemable noncontrolling interest on the consolidated balance sheets from
accrued expenses and other current liabilities to the mezzanine section and the reclassification of accrued
marketing costs from accounts payable to accrued expenses and other current liabilities on our consolidated
balance sheets. These reclassifications had no net effect on our consolidated and combined financial statements.
Revenue Recognition
We recognize revenue from the advertising services rendered when the following four revenue recognition
criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or
determinable, and collectability is reasonably assured.
Click-based Advertising. Revenue is derived primarily from click-through fees charged to our travel partners
for traveler leads sent to the travel partners’ website. We record revenue from click-through fees after the traveler
makes the click-through to the travel partners’ websites.
Display and Other Advertising. We recognize display advertising revenue ratably over the advertising
period or upon delivery of advertising impressions, depending on the terms of the advertising contract.
Subscription-based revenue is recognized ratably over the related subscription period. We recognize revenue
from all other sources either upon delivery or when we provide the service.
Deferred revenue, which primarily relates to our subscription-based programs, is recorded when payments
are received in advance of our performance as required by the underlying agreements.
Cost of Revenue
Cost of revenue consists of expenses that are closely correlated or directly related to revenue generation,
including ad serving fees, flight search fees, credit card fees and data center costs.
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