TripAdvisor 2011 Annual Report Download - page 82

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Table of Contents
We generally base our measurement of fair value of our reporting units on a blended analysis of the present value of future discounted cash
flows and market valuation approach. The discounted cash flows model indicates the fair value of the reporting units based on the present value
of the cash flows that we expect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model
include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market
valuation approach estimates the fair value of the business based on a comparison of TripAdvisor to comparable publicly traded companies in
similar lines of business. Our significant estimates in the market approach model include identifying similar companies with comparable
business factors such 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 use of discounted cash flows and market approach on a weighted basis is the best method for determining the fair value of
our reporting units because these are the most common valuation methodologies used within the travel and Internet industries and the blended
use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis. In the evaluation of goodwill
for impairment, we first 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.
In September 2011, the Financial Accounting Standards Board (the “FASB”) issued updated guidance, Accounting Standards Update
(“ASU”) 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”),
on the periodic testing of goodwill for impairment. This guidance allows
companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to
perform the two-step goodwill impairment test required under current accounting standards. This guidance is applicable for annual and interim
goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. On October 1, 2011, we
early adopted this guidance and our adoption did not materially impact our consolidated and combined financial statements. Based on our
assessment of goodwill as of October 1, 2011 and December 31, 2011 (after Spin-Off), using qualitative factors we have concluded there was no
indication of a goodwill impairment and did not find it necessary to perform a two-step goodwill impairment test.
In the evaluation of indefinite-lived intangible assets, an impairment charge is recorded for the excess of the carrying value of the
indefinite-lived intangible asset over its fair value. We base our measurement of fair value of indefinite-lived intangible assets, which 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. Based on our assessment of indefinite-
lived intangibles as of October 1, 2011 and December 31, 2011(after Spin-Off), we have not identified any circumstances that would warrant an
impairment assessment.
Recoverability of Intangible Assets with Definite Lives and Other Long
-Lived Assets
Intangible assets with definite lives and other long-lived assets are carried at cost and are amortized on a straight-line basis over their
estimated useful lives of two to ten years. We review the carrying value of long-lived assets or asset groups, including property and equipment,
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, we assess the recoverability of the asset by
determining if the carrying value of the asset exceeds the sum of the projected undiscounted cash flows expected to result from
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