Expedia 2006 Annual Report Download - page 69

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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 the People’s Republic 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 future 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, occupancy
tax, stock-based compensation and accounting for derivative instruments.
Reclassifications
We have reclassified prior period financial statements to conform to the current period presentation.
In our consolidated statements of cash flows for the years ended December 31, 2005 and 2004, we
reclassified net foreign exchange gains and losses on cash of U.S. functional subsidiaries held in foreign
currencies from operating cash flows to effect of exchange rate changes on cash and cash equivalents to
appropriately reflect foreign currency impacts on cash and cash equivalents for the periods presented.
In our consolidated statements of income for the years ended December 31, 2005 and 2004, we
reclassified stock-based compensation expense to the same operating expense line items as cash compensation
paid to employees in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 107.
In our consolidated balance sheet as of December 31, 2005, we reclassified $19.7 million from accounts
payable, other, to accounts payable, merchant ($19.3 million) and other current liabilities ($0.4 million).
F-9
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)