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accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial
statements and accompanying notes requires that we make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements as well as revenue and expenses during the periods reported. We base our
estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under
the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our
consolidated financial statements. We consider an accounting estimate to be critical if:
It requires us to make an assumption because information was not available at the time or it included
matters that were highly uncertain at the time we were making the estimate; and
Changes in the estimate or different estimates that we could have selected may have had a material
impact on our financial condition or results of operations.
For more information on each of these policies, see Note 2 — Significant Accounting Policies, in the notes
to consolidated financial statements. We discuss information about the nature and rationale for our critical
accounting estimates below.
Accounting for Certain Merchant Revenue
We accrue the cost of certain merchant revenue based on the amount we expect to be billed by suppliers. In
certain instances when a supplier invoices us for less than the cost we accrued, we generally recognize those
amounts as revenue six months in arrears, net of an allowance, when we determine it is not probable that we will
be required to pay the supplier, based on historical experience and contract terms. Actual revenue could be
greater or less than the amounts estimated due to changes in hotel billing practices or changes in traveler
behavior.
Loyalty Program Accruals
We offer certain internally administered traveler loyalty programs to our customers, such as our Hotels.com
Welcome Rewards program and our Expedia.com Expedia RewardsTM. Welcome Rewards offers travelers one
free night at any Hotels.com partner property after that traveler stays 10 nights, subject to certain restrictions.
Expedia Rewards enables participating travelers to earn points on all hotel, flight, package and activities made on
Expedia.com. 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. The actual future cost and rate of redemptions could
differ materially from our estimates.
Recoverability of Goodwill and Indefinite and Definite-Lived Intangible Assets
Goodwill. We assess goodwill for impairment annually as of October 1, or more frequently, if events and
circumstances indicate impairment may have occurred. In the evaluation of goodwill for impairment, we first
perform a qualitative assessment to determine whether it is more likely than not that the fair value of the
reporting unit is less than the carrying amount. If so, we perform a quantitative assessment and compare the fair
value of the reporting unit to the carrying value. If the carrying value of a reporting unit exceeds its fair value, the
goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis. In
step two of the analysis, we will record an impairment loss equal to the excess of the carrying value of the
reporting unit’s goodwill over its implied fair value should such a circumstance arise.
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