ServiceMagic 2012 Annual Report Download - page 78

IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
The Company assesses goodwill and indefinite-lived intangible assets for impairment annually or more frequently if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible
asset below its carrying value. The Company also reviews definite-lived intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of a definite-lived intangible asset may not be recoverable. The Company performs its annual
assessment for impairment of goodwill and indefinite-lived intangible assets as of October 1 in connection with the preparation of its annual
financial statements.
The Company determines the fair values of its reporting units using discounted cash flow ("DCF") analyses, and typically corroborates the
concluded fair value using a market based valuation approach. Determining fair value requires the exercise of significant judgment, including
judgment about the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF
analyses are based on the Company's most recent budget and, for years beyond the budget, the Company's estimates, which are based, in part, on
forecasted growth rates. The discount rates used in the DCF analyses reflect the risks inherent in the expected future cash flows of the respective
reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed annually based on the reporting units' current
results and forecast, as well as macroeconomic and industry specific factors. The discount rates used in the Company's annual goodwill
impairment assessment ranged from 13% to 25% in 2012 and 13% to 20% in 2011.
The Company determines the fair values of its indefinite-lived intangible assets using avoided royalty DCF analyses. Significant
judgments inherent in these analyses include the selection of appropriate royalty and discount rates and estimating the amount and timing of
expected future cash flows. The discount rates used in the DCF analyses reflect the risks inherent in the expected future cash flows generated by
the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market
participant would pay to license the Company's trade names and trademarks. Assumptions used in the avoided royalty DCF analyses, including
the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as
macroeconomic and industry specific factors. The discount rates used in the Company's annual indefinite-lived impairment assessment ranged
from 10% to 18% in 2012 and 13% to 20% in 2011, and the royalty rates used ranged from 1% to 9% in both 2012 and 2011.
In connection with its annual assessment in 2010, the Company identified and recorded impairment charges at the Other segment related to
the write-down of the goodwill and indefinite-lived intangible assets of Shoebuy of $28.0 million and $4.5 million , respectively, and the write-
down of an indefinite-lived intangible asset of Search & Applications of $11.0 million . The indefinite-lived intangible asset impairment charge
at Shoebuy related to trade names and trademarks. The goodwill and indefinite-lived intangible asset impairment charges at Shoebuy reflected
expectations of lower revenue and profit performance in future years due to Shoebuy's 2010 fourth quarter revenue and profit performance,
which is its seasonally strongest quarter. The indefinite-lived intangible asset impairment charge at Search & Applications was primarily due to
lower future revenue projections associated with a trade name and trademark based largely upon the impact of 2010's full year results.
The indefinite-lived and definite-
lived intangible asset impairment charges are included in amortization of intangibles in the accompanying
consolidated statement of operations.
The balance of goodwill and intangible assets, net is as follows:
61
December 31,
2012
2011
(In thousands)
Goodwill
$
1,616,154
$
1,358,524
Intangible assets with indefinite lives
378,964
351,488
Intangible assets with definite lives, net
103,940
26,619
Total goodwill and intangible assets, net
$
2,099,058
$
1,736,631