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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, judgments
and assumptions during the preparation of its consolidated financial statements in accordance with U.S. generally accepted accounting
principles. These estimates, judgments and assumptions impact the reported amount of assets, liabilities, revenue and expenses and the related
disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. 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 the Company's acquired trade names and trademarks, are assessed
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 no impairment charges in 2013, 2012 or 2011. The value of goodwill and indefinite-lived intangible assets that is subject to annual
assessment for impairment is $ 1.7 billion and $376.3 million, respectively, at December 31, 2013.
In 2012, the Company adopted Accounting Standards Update ("ASU") 2011-08, "Testing Goodwill for Impairment," which gives
companies the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
If the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is
less than its carrying value, no further assessment of that reporting unit's goodwill is necessary; otherwise goodwill must be tested for
impairment 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.
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
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
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
that excess.
At October 1, 2013, the date of our most recent annual impairment assessment, the fair value of six of the Company's eight reporting units
significantly exceed their carrying values, and the fair value of Tutor and Felix, both of which were acquired in 2012, approximates their
carrying value. 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.
In 2012, the Company adopted ASU 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment," which gives companies the
option to qualitatively assess whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying
value. If the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of an indefinite-
lived intangible asset is less than its carrying value, the fair value of the asset does not need to be determined; otherwise the fair value of the
indefinite-lived intangible asset must be determined and
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