Expedia 2005 Annual Report Download - page 38

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as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating
income multiples in estimating the fair value of the reporting units.
We believe the weighted use of discounted cash flows and market approach is the best method for
determining the fair value of our reporting units because:
‚ It excludes the impact of short-term volatility,
‚ It includes all information available to management, which is generally more than that is available
to the external capital markets,
‚ The weighted blended use of the two approaches was recommended by our third-party valuation
firm, including the low number of recent transactions and volatility in the capital markets,
‚ Both models are the most common valuation methodologies used within the travel industry,
‚ The blended used of both models would compensate for the inherent risks associated with each
model if used on a stand-alone basis.
The use of different estimates or assumptions in determining the fair value of our goodwill may result
in different values for these assets, which could result in an impairment.
Indefinite-Lived Intangible Assets. We base our measurement of fair value of indefinite-lived
intangible assets, which primarily consist of tradename and trademarks, using the relief-from-royalty
method. This method assumes that the tradename and trademarks have value to the extent that their
owner is relieved of the obligation to pay royalties for the benefits received from them. This method
requires us to estimate the future revenue and expenses for the related brands, the appropriate royalty rate
and the weighted average cost of capital.
The use of different estimates or assumptions in determining the fair value of our indefinite-lived
intangible assets may result in different values for these assets, which could result in an impairment.
Definite-Lived Intangible Assets. In accordance with SFAS No. 144, ""Accounting for the
Impairment or Disposal of Long-Lived Assets,'' we review the carrying value of intangible assets with
definite lives and other long-lived assets, which we amortize over the estimated useful lives of two to ten
years, on a regular basis for the existence of facts that may indicate that the assets are impaired. If such
facts indicate a potential impairment, we estimate the fair value of the asset using appropriate valuation
methodologies, usually based on estimated future discounted cash flows. If the fair value is determined to
be less than an asset's carrying value, we then evaluate if the carrying value is deemed to be
unrecoverable. Our analysis is based on available information and on assumptions and projections that we
consider to be reasonable and supportable. This analysis requires us to estimate current and future cash
flows attributable to the group of assets, the time period for which they will be held and used as well as a
discount rate to incorporate the time value of money and the risks inherent in future cash flows.
The use of different estimates or assumptions in determining the fair value of our definite-lived
intangible assets may result in different values for these assets, which could result in an impairment.
Income Taxes
In accordance with SFAS No. 109, ""Accounting for 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 tax rates that we expect will 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, the
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