Expedia 2010 Annual Report Download - page 84

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translation gains and losses as a component of accumulated other comprehensive income (“OCI”). Due to the
nature of our operations and our corporate structure, we also have subsidiaries that have significant transactions
in foreign currencies other than their functional currency. We record transaction gains and losses in our
consolidated statements of operations related to the recurring remeasurement and settlement of such transactions.
To the extent practicable, we attempt to minimize this exposure by maintaining natural hedges between our
current assets and current liabilities of similarly denominated foreign currencies. Additionally, as discussed
above, 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.
Debt Issuance Costs
We defer costs we incur to issue debt and amortize these costs to interest expense over the term of the debt
or, when the debt can be redeemed at the option of the holders, over the term of the redemption option.
Marketing Promotions
We periodically provide incentive offers to our customers to encourage booking of travel products and
services. Generally, our incentive offers are as follows:
Current Discount Offers. These promotions include dollar off discounts to be applied against current
purchases. We record the discounts as reduction in revenue at the date we record the corresponding revenue
transaction.
Inducement Offers. These promotions include discounts granted at the time of a current purchase to be
applied against a future qualifying purchase. We treat inducement offers as a reduction to revenue based on
estimated future redemption rates. We allocate the discount amount between the current purchase and the
potential future purchase based on our expected relative value of the transactions. We estimate our redemption
rates using our historical experience for similar inducement offers.
Concession Offers. These promotions include discounts to be applied against a future purchase to maintain
customer satisfaction. Upon issuance, we record these concession offers as a reduction to revenue based on
estimated future redemption rates. We estimate our redemption rates using our historical experience for
concession offers.
Loyalty and Points Based Offers. We offer certain internally administered traveler loyalty programs to our
customers, such as our Hotels.com welcomerewards program. Welcomerewards offers travelers one free night at
any Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions. As travelers
accumulate points towards free travel products, we record a liability for the estimated future cost of redemptions.
We determine the future redemption obligation based on judgment factors including: (i) the estimated cost of
travel products to be redeemed, and (ii) an estimated redemption rate based on the overall accumulation and
usage of points towards free travel products, which is determined through current and historical trends as well as
statistical modeling techniques.
Advertising Expense
We incur advertising expense consisting of offline costs, including television and radio advertising, and
online advertising expense to promote our brands. We expense the production costs associated with
advertisements in the period in which the advertisement first takes place. We expense the costs of
communicating the advertisement (e.g., television airtime) as incurred each time the advertisement is shown. For
the years ended December 31, 2010, 2009 and 2008, our advertising expense was $589 million, $543 million,
and $598 million. As of December 31, 2010 and 2009, we had $12 million and $10 million of prepaid marketing
expenses included in prepaid expenses and other current assets.
F-13