ServiceMagic 2009 Annual Report Download - page 53

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Table of Contents
value of indefinite-
lived intangible assets are determined using an avoided royalty DCF valuation analysis. Significant judgments inherent in this
analysis 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 are intended to 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. The discount rates used in the Company's annual impairment assessments were the same
in 2009 and 2008. The royalty rates were unchanged from 2008 to 2009 with the exception of the reduced royalty rates used in the determination
of the fair values of certain trade names and trademarks of IAC Search & Media.
The Company has seven reporting units with goodwill. Of these, IAC Search & Media, InstantAction.com and Connected Ventures have
fair values that approximate their carrying values. The amount of goodwill of each of the reporting units is $527.6 million, $31.6 million and
$8.4 million, respectively, at December 31, 2009. If operating results of these businesses vary significantly from anticipated results, future,
potentially material, impairments of goodwill and/or indefinite-lived intangible assets could occur. To illustrate the magnitude of potential
impairment charges relative to future changes in estimated fair values, had the estimated fair values of each of these reporting units been
hypothetically lower by 10% as of October 1, 2009, the carrying values of IAC Search & Media, InstantAction.com and Connected Ventures
would have exceeded their respective fair values by approximately $80 million, $4 million and $4 million, respectively. Had the estimated fair
values of each of these reporting units been hypothetically lower by 20% as of October 1, 2009, the carrying values of IAC Search & Media,
InstantAction.com and Connected Ventures would have exceeded their respective fair values by approximately $160 million, $8 million and
$8 million, respectively.
Any impairment charge that might result in the future would be determined based upon the excess of the carrying value of goodwill over its
implied fair value using the second step of the impairment analysis that is described above but, in any event, would not be expected to be lower
than the excess of the carrying value of the reporting unit over its fair value. The primary driver in the DCF valuation analyses and the
determination of the fair values of the Company's reporting units is the estimate of future revenue and profitability. Generally, the Company
would expect to record an impairment if forecasted revenue and profitability are no longer expected to be achieved and as a result, the carrying
value of a reporting unit(s) exceeds its fair value. This assessment would be based, in part, upon the performance of its businesses relative to
budget, the Company's assessment of macroeconomic factors, industry and competitive dynamics and the strategies of its businesses in response
to these factors.
Recoverability of Long-Lived Assets
We review the carrying value of all long-lived assets, comprising property and equipment and definite-lived intangible assets, for
impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value
of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the
carrying value of the long-lived asset exceeds its fair value. During 2009, the Company recorded an impairment charge related to the definite-
lived intangible assets of IAC Search & Media. The definite-lived intangible asset impairment charge primarily relates to certain technology and
advertiser relationships, the carrying values of which were no longer considered recoverable based upon an assessment of future cash flows
related to these assets. Accordingly, these assets were written down to fair value. The value of long-lived assets that is subject to assessment for
impairment is $312.8 million at December 31, 2009.
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