Expedia 2010 Annual Report Download - page 83

from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the
asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we
will estimate the fair value of the asset group using appropriate valuation methodologies which would typically
include an estimate of discounted cash flows. Any impairment would be measured as the difference between the
asset groups carrying amount and its estimated fair value. See Note 6 — Goodwill and Intangible Assets, Net for
discussion of impairment of other long-lived assets in 2008.
Assets held for sale, to the extent we have any, are reported at the lower of cost or fair value less costs to
sell.
Income Taxes
We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation
of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for
book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and
timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset
or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize
the underlying items of income and expense. We consider many factors when assessing the likelihood of future
realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of
future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other
relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe
is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses,
future changes in income tax law, tax sharing agreements or variances between our actual and anticipated
operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary
from these estimates.
We recognize in our financial statements the impact of a tax position, if that position is more likely than not
to be sustained upon an examination, based on the technical merits of the position.
Presentation of Taxes in the Income Statement
We present taxes that we collect from customers and remit to government authorities on a net basis in our
consolidated statements of operations.
Derivative Instruments
Derivative instruments are carried at fair value on our consolidated balance sheets. The fair values of the
derivative financial instruments generally represent the estimated amounts we would expect to receive or pay
upon termination of the contracts as of the reporting date.
At December 31, 2010 and 2009, our derivative instruments primarily consisted of foreign currency forward
contracts. We use foreign currency forward contracts to economically hedge certain merchant revenue exposures
and in lieu of holding certain foreign currency cash for the purpose of economically hedging our foreign
currency-denominated operating liabilities. Our goal in managing our foreign exchange risk is to reduce, to the
extent practicable, our potential exposure to the changes that exchange rates might have on our earnings, cash
flows and financial position. Our foreign currency forward contracts are typically short-term and, as they do not
qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. We do not hold or
issue financial instruments for speculative or trading purposes.
Foreign Currency Translation and Transaction Gains and Losses
Certain of our operations outside of the United States use the related local currency as their functional
currency. We translate revenue and expense at average rates of exchange during the period. We translate assets
and liabilities at the rates of exchange as of the consolidated balance sheet dates and include foreign currency
F-12