Expedia 2007 Annual Report Download - page 77

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 the evaluation of indefinite-lived intangible assets, an impairment charge is recorded for the excess of
the carrying value of indefinite-lived intangible assets over their fair value.
We generally base our measurement of fair value of reporting units on a blended analysis of the present
value of estimated future discounted cash flows and market valuation approach, which compares revenue and
operating income multiples for companies of similar industry and/or size. Our analysis is based on available
information and on assumptions and projections that we consider to be reasonable and supportable. The
discounted cash flow analysis considers the likelihood of possible outcomes and is based on our best estimates
of projected future cash flows. 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.
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 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.
Assets held for sale, to the extent we have any, are reported at the lower of cost or fair value less costs to
sell.
Investments
We record investments, which are non-marketable, using the cost basis when we do not have the ability
to exercise significant influence over the investee and generally when our ownership in the investee is less
than 20%. We record investments using the equity method when we have the ability to exercise significant
influence over the investee.
We periodically evaluate the recoverability of investments and record a write-down if a decline in value is
determined to be other-than-temporary. Such an evaluation resulted in the write-off of an investment in 2005.
See Note 13 — Other Income (Expense).
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
F-11
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)