Expedia 2009 Annual Report Download - page 81

Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)
office applications (including related data center costs), system monitoring and network security, and other
technology leadership and support functions. The most significant reclassification of costs occurred between
general and administrative expense and technology and content expense as, historically, a significant portion of
the information technology costs were within general and administrative expense. Technology costs to operate
our live site and call center applications in production remained in cost of revenue.
The following table presents a summary of the amounts as previously reported and as reclassified in our
consolidated statements of operations for the year ended December 31, 2008 and 2007:
Year ended December 31,
2008 2007
As reported As reclassified As reported As reclassified
(In thousands)
Cost of revenue ..................... $ 634,744 $ 638,709 $562,401 $565,056
Selling and marketing ................ 1,101,403 1,105,337 992,560 995,215
Technology and content ............... 208,952 287,763 182,483 246,063
General and administrative ............ 355,431 268,721 321,250 252,360
There was no change to operating income (loss) as a result of these reclassifications.
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. The consensus of the
authoritative accounting 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, the amount
billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of
judgment that depends on the relevant facts and circumstances. In making an evaluation of this issue, some of the
factors that should be considered are: whether we are the primary obligor in the arrangement (strong indicator);
whether we have general supply risk (before customer order is placed or upon customer return) (strong
indicator); and whether we have latitude in establishing price. The guidance clearly indicates that the evaluations
of these factors, which at times can be contradictory, are subject to significant judgment and subjectivity. If the
conclusion drawn is that we perform as an agent or a broker without assuming the risks and rewards of ownership
of goods, revenue should be reported on a net basis. For our primary transaction-based revenue models, discussed
below, we have determined net presentation is appropriate for the majority of revenue transactions.
We offer travel products and services on a stand-alone and package basis primarily through the following
business models: the merchant model, the agency model and the media model.
Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and destination
services from our travel suppliers and we are the merchant of record for such bookings.
Under the agency model, we act as the agent in the transaction, passing reservations booked by the traveler
to the relevant travel provider. We receive commissions or ticketing fees from the travel supplier and/or traveler.
For agency airline, hotel and car transactions, we also receive fees from global distribution systems partners that
control the computer systems through which these reservations are booked.
Under the media model, we 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 the TripAdvisor
Media Network and on our transaction-based websites.
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