ServiceMagic 2014 Annual Report Download - page 70

Download and view the complete annual report

Please find page 70 of the 2014 ServiceMagic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company also maintains allowances to reserve for potential credits issued to customers or other revenue adjustments. The amounts of these
reserves are based, in part, on historical experience.
Property and Equipment
Property and equipment, including significant improvements, are recorded at cost. Repairs and maintenance costs are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
The Company capitalizes certain internal use software costs including external direct costs utilized in developing or obtaining the software
and compensation for personnel directly associated with the development of the software. Capitalization of such costs begins when the preliminary
project stage is complete and ceases when the project is substantially complete and ready for its intended purpose. The net book value of capitalized
internal use software is $36.9 million and $30.9 million at December 31, 2014 and 2013 , respectively.
Business Combinations
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of
acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value
of these intangible assets is based on detailed valuations that use information and assumptions provided by management. The excess purchase price
over the net tangible and identifiable intangible assets is recorded as goodwill.
In connection with some business combinations, the Company has entered into contingent consideration arrangements that are determined to
be part of the purchase price. Each of these arrangements are recorded at its fair value at the time of the acquisition and reflected at current fair
value for each subsequent reporting period thereafter until settled. The contingent consideration arrangements are generally based upon earnings
performance and/or operating metrics. The Company generally determines the fair value of contingent consideration using probability-weighted
analyses over the period in which the obligation is expected to be settled, and, to the extent the arrangement is long-term in nature, applies a
discount rate that appropriately captures the risk associated with the obligation. Significant changes in forecasted earnings or operating metrics
would result in a significantly higher or lower fair value measurement. Determining fair value is inherently difficult and subjective and can have a
material impact on our consolidated financial statements. The changes in the remeasured fair value of the contingent consideration arrangements
each reporting period are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. See Note
7 for a discussion of contingent consideration arrangements.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill acquired in business combinations is assigned to the reporting unit(s) that is expected to benefit from the combination as of the
acquisition date. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually 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.
There were no material impairment charges recorded in the three year period ended December 31, 2014. At October 1, 2014, the date of our
most recent annual impairment assessment, the fair value of the Company's reporting units exceed their carrying values. The fair value of the
Search & Applications reporting unit currently exceeds its carrying value by approximately 15% . If operating results vary significantly from
anticipated results, future, potentially material, impairments of goodwill and/or indefinite-lived intangible assets could occur. To illustrate the
magnitude of a potential impairment charge relative to future changes in estimated fair value, had the estimated fair value of Search & Applications
been hypothetically
56
Asset Category Estimated
Useful Lives
Buildings and leasehold improvements 3 to 39 Years
Computer equipment and capitalized software 2 to 3 Years
Furniture and other equipment 3 to 12 Years