Expedia 2008 Annual Report Download - page 91

NOTE 4 — Property and Equipment, Net
Our property and equipment consists of the following:
2008 2007
December 31,
(In thousands)
Capitalized software development ............................... $286,935 $ 230,168
Computer equipment ......................................... 103,866 74,569
Furniture and other equipment .................................. 57,423 40,706
Leasehold improvements . . . ................................... 64,620 30,746
512,844 376,189
Less: accumulated depreciation ................................. (292,650) (250,094)
Projects in progress.......................................... 27,760 53,395
Property and equipment, net ................................... $247,954 $ 179,490
As of December 31, 2008 and 2007, our recorded capitalized software development costs, net of
accumulated amortization, were $122 million and $113 million. For the years ended December 31, 2008, 2007
and 2006, we recorded amortization of capitalized software development costs of $47 million, $36 million and
$28 million, most of which is included in technology and content expenses.
NOTE 5 — Goodwill and Intangible Assets, Net
We performed our annual impairment assessment for goodwill and indefinite-lived intangible assets as of
October 1, 2008 and determined we had no impairment as of that date. However, during the fourth quarter of
2008, we experienced a significant decline in our stock price and operating results in part due to an increased
negative impact of foreign exchange rates and the continued weakness in the macroeconomic environment.
Based on these and other contributing factors, we concluded that sufficient indicators existed to require us to
perform an interim assessment of goodwill and indefinite-lived intangible assets as of December 1, 2008.
Accordingly, we performed an interim first step of our impairment assessment for each of our reporting units
and determined there was a potential impairment of goodwill in certain reporting units. Therefore, we
performed the second step of the assessment in which we compared the implied fair value of those reporting
unit’s goodwill to the book value of that goodwill. The implied fair value of goodwill is determined in the
same manner as the amount of goodwill recognized in a business combination. That is, the estimated fair value
of the reporting unit is allocated to all of the assets and liabilities of that unit (including both recognized and
unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the
estimated fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting
unit’s goodwill exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an
amount equal to that excess.
We measured the fair value of each of our reporting units and both our indefinite-lived and definite lived
intangible assets using accepted valuation techniques as described above in Note 2 — Significant Accounting
Policies. The significant estimates used included our weighted average cost of capital, long-term rate of growth
and profitability of our business, and working capital effects. Our assumptions are based on the actual
historical performance of each of the reporting units and take into account the recent weakening of operating
results and implied risk premiums based on market prices of our equity and debt as of the assessment date. To
validate the reasonableness of the reporting unit fair values, we reconcile the aggregate fair values of the
reporting units determined in step one to the enterprise market capitalization. Enterprise market capitalization
includes, among other factors, the fully diluted market capitalization of our stock, an acquisition premium
based on historical data from acquisitions within the same or similar industries and the appropriate redemption
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Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)