Expedia 2007 Annual Report Download - page 43

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 trade name and trademarks, using the relief-from-royalty method. This
method assumes that the trade name 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 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. We review the carrying value of long-lived assets to be used in
operations whenever events or changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse
change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the
business climate that could affect the value of the asset, or a significant decline in the observable market value
of an asset, among others. If such facts indicate a potential impairment, an impairment loss would only be
recorded if the asset’s carrying amount is not recoverable through its undiscounted cash flows. Any impairment
would be measured as the difference between the asset’s carrying amount and estimated fair value, determined
using appropriate valuation methodologies which would typically include an estimate of discounted cash flows.
Our impairment 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 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 record liabilities to address uncertain tax positions we have taken in previously filed tax returns or
that we expect to take in a future tax return. The determination for required liabilities is based upon an
analysis of each individual tax position, taking into consideration whether it is more likely than not that our
tax position, based on technical merits, will be sustained upon examination. For those positions for which we
conclude it is more likely than not it will be sustained, we recognize the largest amount of tax benefit that is
greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. The
difference between the amount recognized and the total tax position is recorded as a liability. The ultimate
resolution of these tax positions may be greater or less than the liabilities recorded. We adopted Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109, in the first quarter of 2007.
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