Classmates.com 2008 Annual Report Download - page 129

Table of Contents
UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS (Continued)
$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. These impairment charges were
included in impairment of goodwill, intangible assets and long-lived assets in the consolidated statements of operations.
Impairment of Goodwill
2008 Impairment Charge
The Company performed its annual impairment assessment of goodwill as of October 1, 2008 and determined that goodwill at its
Classmates, MyPoints and Communications reporting units was not impaired. Due to the proximity of the Closing Date to the annual impairment
assessment date of October 1, 2008, management reviewed the validity of the assumptions included in the Closing Date valuation and
determined that there was no impairment of the FTD and Interflora reporting units as of October 1, 2008.
During the latter half of the December 2008 quarter, there was deterioration in the general business environment, weakening consumer
spending, a significant decline in the market capitalization of the Company and its competitors and a decline in the Company's business outlook
primarily due to adverse macroeconomic factors. In accordance with SFAS No. 142, the Company considered whether these factors and
circumstances made it more likely than not that any of its reporting units would have a fair value less than carrying value and an interim
impairment assessment should be performed. As a result of this review, the Company concluded that an interim impairment assessment as of
December 31, 2008 should be performed for its FTD and Interflora reporting units. Due to the significant excess of fair value over carrying value
of the Classmates, MyPoints and Communications reporting units at the annual impairment assessment date, the Company determined that an
interim impairment assessment was not required for these reporting units. However, in order to validate the overall enterprise valuation, the
Company performed an updated valuation of these reporting units at December 31, 2008.
The estimated fair values for all of the Company's reporting units were determined using a combination of the income approach and the
market approach. Under the income approach, a reporting unit's fair value is estimated based on the discounted cash flow method. The
discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and
cash flows, assumed discount rates and other assumptions. Under the market approach, using the guideline company method, a reporting unit's
fair value is estimated based on multiples of the cash-free market value of invested capital to revenue and EBITDA of the guideline companies.
The revenue and EBITDA multiples of the Company's reporting units were selected based on a comparison of each reporting unit's operating
performance and margins, among other factors, to those of the guideline companies.
In arriving at the final estimated fair values of each of the reporting units, the estimated fair values as calculated under both the income
approach and the market approach were multiplied by a weighting factor, the sum of which was the final estimated fair value. The income
approach was weighted 75% and the market approach was weighted 25%. The income approach was weighted more heavily as the data included
in that method is based on our projections and forecasts whereas the
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