ServiceMagic 2009 Annual Report Download - page 52

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Table of Contents
Critical Accounting Policies and Estimates
The following disclosure is provided to supplement the descriptions of IAC's accounting policies contained in Note 2 to the consolidated
financial statements in regard to significant areas of judgment. Management of the Company is required to make certain estimates and
assumptions during the preparation of its consolidated financial statements in accordance with generally accepted accounting principles. These
estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of
the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from
those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have
a more significant impact on our consolidated financial statements than others. What follows is a discussion of some of our more significant
accounting policies and estimates.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets, which consist of certain of the Company's trade names and trademarks, are tested annually
for impairment as of October 1 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 annual assessments identified
impairment charges in 2009 related to the IAC Search & Media reporting unit and in 2008 related to the Connected Ventures and IAC Search &
Media reporting units. These impairment charges are more fully described above in "Results of Operations for the Years Ended December 31,
2009, 2008 and 2007". The value of goodwill and indefinite-lived intangible assets that is subject to annual assessment for impairment is
$999.4 million and $245.7 million, respectively, at December 31, 2009.
Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of each of the
Company's reporting units to its carrying value, including goodwill. In performing the first step, the Company determines the fair value of a
reporting unit using a discounted cash flow ("DCF") analysis. 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 are intended to reflect the risks inherent in the expected future cash flows
of the respective reporting units. The discount rates used in the Company's annual impairment assessments were the same in 2009 and 2008. If
the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired and the second step of the
impairment test is not necessary. If the carrying value of a reporting unit exceeds its estimated fair value, then the second step of the goodwill
impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's
goodwill with its carrying value to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated
to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit was the purchase price paid. If the carrying value of the reporting unit's goodwill
exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess.
The Company's indefinite-lived intangible assets consist of acquired trade names and trademarks. The impairment test for indefinite-lived
intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the
intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair
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