Classmates.com 2008 Annual Report Download - page 51

Table of Contents
Impairment of Goodwill
We performed our annual impairment assessment of goodwill as of October 1, 2008 and determined that goodwill at our 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 us and our competitors and a decline in our business outlook primarily due to
adverse macroeconomic factors. In accordance with SFAS No. 142, we considered whether these factors and circumstances made it more likely
than not that any of our 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, we concluded that an interim impairment assessment as of December 31, 2008 should be performed for our
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, we determined that an interim impairment assessment was not
required for these reporting units. However, in order to validate the overall enterprise valuation, we performed an updated valuation of these
reporting units at December 31, 2008.
The estimated fair values for all of our 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 our 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 market approach was weighted less heavily as the guideline companies used
in those models are not 100% comparable to our reporting units.
Solely for purposes of establishing inputs for the fair value calculations described above related to interim goodwill impairment testing of
the FTD and Interflora reporting units, we made certain assumptions, including 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 applied margin
and other cost assumptions consistent with the reporting unit's historical trends at various revenue levels and used a 3% growth factor to
calculate the terminal value of our reporting units. We used a 14.1% and 16.0% discount rate for the FTD and Interflora reporting units,
respectively, to calculate the fair values of these reporting units. The sum of the fair values of the reporting units was reconciled to our current
market capitalization (based upon our stock price) plus an estimated control premium.
As a result of the aforementioned factors, we recorded an impairment charge of $114.0 million related to goodwill within the FTD reporting
unit. These impairment charges were included in impairment of goodwill, intangible assets and long-lived assets in the consolidated statements
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