Classmates.com 2007 Annual Report Download - page 118

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UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. IMPAIRMENT OF GOODWILL, INTANGIBLE ASSETS AND LONG-LIVED ASSETS
Under SFAS No. 142, goodwill and indefinite-lived intangible assets must be tested for impairment annually or when events occur or
circumstances change that would indicate that goodwill or indefinite-lived intangible assets might be permanently impaired. In the December
2006 quarter, the Company tested goodwill for impairment and recorded a goodwill impairment charge of $5.7 million related to its photo
sharing service within the Communications segment. The Company had no indefinite-lived intangible assets at December 31, 2007, 2006 or
2005.
Under SFAS No. 144, identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets, must be tested
for impairment when events occur or circumstances change that would indicate the carrying amount of an asset may not be recoverable. In the
December 2006 quarter, the Company recognized asset impairment charges of $4.5 million attributable to certain assets of its VoIP services and
$3.0 million related to its photo sharing services within the Communications segment.
As a result of slower than expected growth of the VoIP market in the United States, current period operating losses and projected continuing
operating losses, the Company evaluated the recoverability of certain assets and wrote off $4.3 million of capitalized software and $0.2 million
of prepaid marketing and domain names in the December 2006 quarter. The Company was required to reduce the carrying value of the assets to
fair value and recognized asset impairment charges because the carrying value of the affected assets exceeded the Company's estimate of future
undiscounted cash flows.
As a result of strong competition in the photo sharing market, historical operating losses and projected continuing losses, the Company
evaluated the recoverability of its photo sharing assets and impaired $3.0 million of intangible assets in the December 2006 quarter. The
$3.0 million intangible assets impairment charge was comprised of $2.9 million of acquired software technology and $0.1 million of acquired
pay accounts, proprietary rights and domain names. The Company determined the amount of the charge based on an estimate of the fair value of
the photo sharing assets, using the income approach, discounted cash flow method.
The Company determined that its goodwill was not impaired based on its annual tests during the year ended December 31, 2007 and the
year ended December 31, 2005.
The following table summarizes the impairment charges in the Communications segment recorded by the Company during the quarter and
year ended December 31, 2006 (in thousands):
F-36
Intangible assets related to the Company's VoIP service
$
4,504
Goodwill related to the Company's photo sharing service
5,738
Intangible assets related to the Company's photo sharing service
3,043
Total impairment charges
$
13,285