Juno 2013 Annual Report Download - page 45

Table of Contents
exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the
estimated fair value of a reporting unit is less than its carrying amount, including goodwill, then the carrying amount of the goodwill is compared with
its implied fair value, and an impairment loss is recognized in an amount equal to the excess.
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We performed the annual quantitative goodwill impairment assessment for all of our reporting units in the fourth quarter of 2013. The first step of
the quantitative goodwill impairment test resulted in the determination that the fair values of our Classmates, MyPoints, and Communications reporting
units substantially exceeded their carrying amounts, including goodwill. Accordingly, the second step was not required for these reporting units.
The determination of whether or not goodwill is impaired involves a significant level of judgment in the assumptions underlying the approaches
used to determine the estimated fair value of our reporting units. We believe our analysis included sufficient tolerance for sensitivity in key assumptions.
The determination of the fair value of our reporting units included a study of market comparables, including the selection of appropriate valuation
multiples and discounted cash flow models based on our internal forecasts and projections. We believe the assumptions and rates used in our
impairment assessment are reasonable, but they are judgmental, and variations in any assumptions could result in materially different calculations of fair
value and, if applicable, the impairment amount.
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During the quarter ended September 30, 2013, due to a decline in internal financial projections, we performed an interim quantitative goodwill
assessment for our Classmates reporting unit. Due to the complexity and the effort required to estimate the fair value of the Classmates reporting unit in
step one of the impairment test and to estimate the fair value of all assets and liabilities of the Classmates reporting unit in step two of the test, the fair
value estimates were derived based on preliminary assumptions and analysis that were subject to change. Based on our preliminary analysis, the implied
fair value of goodwill was substantially lower than the carrying value of goodwill for our Classmates reporting unit. As a result, we recorded our best
estimate of $50.2 million for the goodwill impairment charge during the quarter ended September 30, 2013. We recorded an adjustment of $2.7 million
to the estimated impairment charge during the quarter ended December 31, 2013 for a total impairment charge of $52.9 million for the year ended
December 31, 2013. The impairment charge was included in impairment of goodwill, intangible assets and long-lived assets in the consolidated
statements of operations.
The estimated fair value of the Classmates reporting unit was determined using the income approach, as a meaningful base of market data was not
available as to also use the market approach, which was 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. The inputs for the fair value calculations of the Classmates reporting unit included a 4% growth rate to calculate the terminal value
and a discount rate of 12% for the annual impairment assessment. In addition, the Company assumed revenue growth and applied margin and other cost
assumptions consistent with the reporting unit's historical trends.
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