America Online 2010 Annual Report Download - page 87

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—GOODWILL AND INTANGIBLE ASSETS
A summary of changes in the Company's goodwill during the years ended December 31, 2010 and 2009 is as follows (in millions):
Gross Goodwill Impairments Net Goodwill
December 31, 2008 $ 36,372.2 $ (34,210.7) $ 2,161.5
Amount reclassified to discontinued operations (12.6) — (12.6)
Acquisitions 7.5 — 7.5
Impairments — — —
Deferred tax adjustments (6.5) — (6.5)
Translation adjustments 21.7 — 21.7
December 31, 2009 36,382.3 (34,210.7) 2,171.6
Acquisitions 132.0 — 132.0
Dispositions (50.3) — (50.3)
Impairments — (1,414.4) (1,414.4)
Deferred tax adjustments (10.4) — (10.4)
Translation adjustments (17.6) — (17.6)
December 31, 2010 $ 36,436.0 $ (35,625.1) $ 810.9
Impairment Testing of Goodwill
Goodwill is tested annually for impairment in December or earlier upon the occurrence of certain events or substantive changes in circumstances that
indicate goodwill is more likely than not impaired.
During the second quarter of 2010, the Company entered into an agreement to sell its ICQ operations and the Company completed the sale of
substantially all of its assets of Bebo, Inc. ("Bebo"). We expect to treat the common stock of Bebo as worthless for U.S. income tax reporting purposes in our
2010 consolidated U.S. federal income tax return. In addition, the Company experienced a significant decline in its stock price in the second quarter of 2010.
As of June 30, 2010, the Company's stock price had declined 26% from its closing stock price on April 27, 2010. The Company determined that these events
occurring in the second quarter of 2010 constituted substantive changes in circumstances that would more likely than not reduce the fair value of the
Company's single reporting unit below its carrying amount. Accordingly, the Company tested its goodwill for impairment as of June 30, 2010 (the "interim
testing date").
In determining the fair value of the Company's sole reporting unit for the interim impairment analysis, the Company used a market-based approach, as
the primary input in this approach was a quoted market price in an active market. To determine the estimated fair value of the Company's sole reporting unit,
the Company calculated its market capitalization based on its stock price and adjusted it by a control premium of 25%. The premium used to arrive at a
controlling interest equity value was determined based on values observed in recent market transactions. Based on the Company's interim impairment analysis
as of June 30, 2010, the carrying value of the Company's single reporting unit exceeded its fair value. Accordingly, step two of the goodwill impairment test
was performed. In performing step two of the goodwill impairment test, the Company utilized significant unobservable inputs, including the control premium
and the valuation of the Company's unrecognized intangible assets, which overall causes the determination of the implied fair value of goodwill to fall within
level three of the GAAP fair value hierarchy. As a result of the step two evaluation, the Company recorded a goodwill impairment charge of $1,414.4 million
during the second quarter of 2010.
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