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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 indicates the fair value of the business based on a comparison of the Company to
comparable publicly traded firms 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 weighted use of discounted cash flows and market approach 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 addition to measuring the fair value of our reporting units as described above, we consider the combined
carrying and fair values of our reporting units in relation to the Company’s total fair value of equity plus debt as
of the assessment date. Our equity value assumes our fully diluted market capitalization, using either the stock
price on the valuation date or the average stock price over a range of dates around the valuation date, plus an
estimated acquisition premium which is based on observable transactions of comparable companies. The debt
value is based on the highest value expected to be paid to repurchase the debt, which can be fair value, principal
or principal plus a premium depending on the terms of each debt instrument.
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.
Definite-Lived Intangible Assets. We review the carrying value of long-lived assets or asset groups 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 would assess the recoverability of an
asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted
cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life
of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset
group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation
methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be
measured as the difference between the asset groups carrying amount and its estimated fair value.
The use of different estimates or assumptions in determining the fair value of our goodwill, indefinite-lived
and definite-lived intangible assets may result in different values for these assets, which could result in an
impairment or, in period in which an impairment is recognized, could result in a materially different impairment
charge. As of October 1, 2011 and 2010, and as of December 20, 2011 (the date of the spin-off), the fair value of
each goodwill reporting unit significantly exceeded its carrying values.
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
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