Expedia 2009 Annual Report Download - page 92

Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)
As of December 31, 2009 and 2008, our recorded capitalized software development costs, net of
accumulated amortization, were $125 million and $122 million. For the years ended December 31, 2009, 2008,
and 2007, we recorded amortization of capitalized software development costs of $63 million, $47 million and
$36 million, most of which is included in technology and content expenses.
NOTE 5 — Goodwill and Intangible Assets, Net
The following table presents our goodwill and intangible assets as of December 31, 2009 and 2008:
December 31,
2009 2008
(In thousands)
Goodwill ................................................... $3,603,994 $3,538,569
Intangible assets with indefinite lives ............................. 690,028 689,541
Intangible assets with definite lives, net ........................... 133,003 143,878
$4,427,025 $4,371,988
Impairment Assessments. We perform our annual assessment of possible impairment of goodwill and
indefinite-lived intangible assets as of October 1, or more frequently if events and circumstances indicate that
impairment may have occurred. As of October 1, 2009, we had no impairments.
For 2008, 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 were 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 reconciled 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 values of our debt. In
performing the reconciliation we may, depending on the volatility of the market value of our stock price, use
either the stock price on the valuation date or the average stock price over a range of dates around that date and
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