Expedia 2011 Annual Report Download - page 84

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. The seasonal revenue impact is
exacerbated with respect to income by the more stable nature of our fixed costs. As a result, revenue and income
are typically the lowest in the first quarter and highest in the third quarter. In addition, as a result of the spin-off,
the seasonal fluctuation on our revenue and operating income will be more pronounced, particularly in the first
quarter.
NOTE 2 — Significant Accounting Policies
Consolidation
Our consolidated financial statements include the accounts of Expedia, Inc., our wholly-owned subsidiaries,
and entities for which we control a majority of the entity’s outstanding common stock. We record noncontrolling
interest in our consolidated 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, which includes the
noncontrolling interest share of net income or loss from eLong as well as net income or loss from our redeemable
noncontrolling interest entities. eLong is a separately listed company on the NASDAQ and, therefore, subject to
its own audit which could result in possible adjustments that are not material to Expedia, Inc. but could be
material to eLong.
We characterized our minority interest in eLong as a noncontrolling interest and classify it as a component
of stockholders’ equity in our consolidated financial statements. Noncontrolling interests with shares redeemable
at the option of the minority holders are not significant and therefore have been included in other long-term
liabilities.
eLong has variable interests in affiliated entities in China in order to comply with Chinese laws and
regulations, which restricts foreign investment in the air-ticketing, travel agency and internet content provision
businesses. Through a series of contractual agreements with these affiliates and their shareholders, eLong is the
primary beneficiary of the cash losses or profits of their variable interest affiliates. As such, although we do not
own the capital stock of some of our Chinese affiliates, based on our controlling ownership of the subsidiaries
and these contractual arrangements, 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 or loss 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 current and long-lived assets, intangible assets and goodwill; income and indirect taxes, such as
potential settlements related to occupancy taxes; loss contingencies; stock-based compensation and accounting
for derivative instruments.
Reclassifications
We have reclassified certain amounts relating to our prior period results to conform to our current period
presentation.
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