Classmates.com 2008 Annual Report Download - page 50

Table of Contents
Impairment of Indefinite
-Lived Intangible Assets
We acquired the FTD and Interflora trademarks and trade names in the FTD acquisition. These were recorded at their estimated fair value
of $229.8 million as of August 26, 2008 (the "Closing Date"). 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 these indefinite-lived intangible assets.
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 us and our competitors, and a decline in our business outlook primarily due to
adverse macroeconomic factors. In accordance with SFAS No. 142, we performed an interim impairment assessment of the fair values of the
FTD and Interflora trademarks and trade names.
These assets are valued using a relief-from-royalty discounted cash flow model. The key inputs for this model are future revenues, royalty
rate and discount rate. Solely for purposes of establishing inputs for the fair value calculations, we made certain assumptions, including assuming
that the current economic downturn would continue through fiscal year 2009, followed by a recovery period in fiscal year 2010, and long-term
growth past fiscal year 2010. In addition, we used a 4% royalty rate based on an assessment of other similar royalty arrangements. Lastly, we
used a 14.6% and 16.5% discount rate for the FTD and Interflora trademarks and trade names, respectively, to determine the fair values.
As a result of the December 31, 2008 valuation, we recorded a $44.0 million and $17.9 million impairment charge of the FTD and Interflora
trademarks and trade names, respectively. These impairment charges were included in impairment of goodwill, intangible assets and long-lived
assets in the consolidated statements of operations. A reconciliation of the value of our indefinite-lived intangible assets is as follows:
Goodwill
We operate in three reportable segments, in accordance with SFAS No. 131, and we have identified five reporting units—FTD, Interflora,
Classmates Online, MyPoints, and Communications—for purposes of evaluating goodwill. These reporting units each constitute a business or
group of businesses for which discrete financial information is available and is regularly reviewed by segment management. The goodwill
related to our acquired businesses is specific to each reporting unit and the goodwill amounts are assigned as such.
Testing goodwill for impairment involves a two-step process. The first step of the impairment test involves comparing the estimated fair
values of each of our reporting units with their respective net book values, including goodwill. If the estimated fair value of a reporting unit
exceeds its net book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value
of the reporting unit is less than its net book value, including goodwill, then the carrying amount of the goodwill is compared with its implied
fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount
equal to the excess.
48
Acquired in FTD acquisition
$
229,800
Impairment charges
(61,867
)
Translation adjustment
(14,419
)
Balance at December 31, 2008
$
153,514