Note F — Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price of an acquisition over the fair values of the identifiable net assets acquired. Other intangible assets with definite and indefinite useful lives are recorded at fair value at the date of acquisition. The Company tests its goodwill and other intangible assets with indefinite useful lives for impairment as of November 30 of each year and as of an interim date should factors or indicators become apparent that would require an interim test. The company assesses the impairment of its goodwill by determining the fair value of each of its reporting units and comparing the fair value to the carrying value for each reporting unit. We have identified our reporting units as Direct Marketing and Shoppers.

Prior to the sale of our Florida Shoppers in 2012, our Shoppers business operated in regional markets in both California and Florida and was greatly affected by the strength of the state and local economies. Revenues from our Shoppers business were largely dependent on local advertising expenditures in the areas of California and Florida in which we operated. During 2012, the poor economic conditions that we have experienced since the second half of 2007 in California and Florida continued. These conditions were initially created by weakness in the real estate and associated financing markets and have spread and persist across virtually all categories. Management sees little, if any, improvement in the California and Florida economies and the Company expects to have further challenges before performance improves. In response, during the first half of 2012, the Company continued its efforts to reduce expenses in the Shoppers business, primarily through organizational restructuring and the discontinuation of a number of unprofitable digital initiatives, including SaverTime and mobile apps.

As a result of continuing revenue declines in Shoppers, and in conjunction with management’s evaluation of the business, the Company determined that a triggering event had occurred and that an interim step-one impairment test of Shoppers’ goodwill was warranted in connection with the preparation of its second quarter 2012 financial statements. The fair value of the Shoppers unit was estimated using a discounted cash flow model and a cash flow multiple model, which were consistent with those used in our most recent annual impairment testing as of November 30, 2011. The fair value of our Shoppers unit was estimated to be less than its related carrying value. Management determined that the goodwill balance with respect to this reporting unit was impaired and step-two testing was deemed necessary.

Step-two of the goodwill test consists of performing a hypothetical purchase price allocation, under which the estimated fair value of the reporting unit is allocated to its tangible and intangible assets based on their estimated fair values, with any residual amount being assigned to goodwill. During the step-two analysis, book value was estimated to approximate fair value for all working capital items, as well as a number of insignificant assets and liabilities. Owned real estate and buildings were valued using the market approach and comparable property values. Other significant property, plant and equipment items were valued using the cost approach and trending models to estimate the cost of reproduction and then adjusting for the diminution of value from physical deterioration and obsolescence.

The models used to value the total Shoppers unit in step-one relied heavily on management’s assumptions. These assumptions, which are significant to the calculated fair values, are considered Level 3 inputs under the fair value hierarchy established by FASB ASC 820 as they are unobservable. The assumptions in step-one include discount rate, revenue growth rates, tax rates and operating margins. The discount rate represents the expected return on capital of the Shoppers unit. The discount rate was determined using a target structure of 30% debt and 70% equity.

We used the interest rate of a 30-year government security to determine the risk-free rate in our weighted average cost of capital calculation. Projected growth rates and terminal growth rates are primarily driven by management’s best estimate of future performance, giving consideration to historical performance and existing and anticipated economic and competitive conditions. Assumed tax rates represent management’s best estimates of blended federal and state income tax rates. Operating margin assumptions are primarily driven by management’s best estimate of future performance, giving consideration to historical performance and existing and anticipated economic and competitive conditions.

The impairment analysis indicated that $156.9 million of goodwill and $8.4 million of other intangibles, relating to trade names and client relationships associated with the Tampa Flyer (included in the Florida Shoppers operations) acquisition in April 2005, were impaired. As a result, a total impairment charge of $165.3 million was recorded in the Consolidated Statements of Comprehensive Income (Loss) in the second quarter of 2012. The Company had not previously recorded impairments of either goodwill or other intangible assets. Therefore the amount of impairments recorded in the second quarter of 2012 represents the cumulative amount of goodwill and other intangible asset impairment charges through June 30, 2012.

We performed our annual goodwill impairment testing for both the Direct Marketing and Shoppers segments as of November 30, 2012. Consistent with prior periods, fair value was determined using a discounted cash flow model, a cash flow multiple model, and with consideration of our overall market capitalization. Based on the results of our November 30, 2012 impairment tests, we did not record any additional impairment losses in 2012 related to goodwill. We did not record an impairment loss related to goodwill in 2011 or 2010.

The Company continues to monitor potential triggering events, including changes in the business climate in which it operates, attrition of key personnel, the current volatility in the capital markets, the Company’s market capitalization compared to its book value, the Company’s recent operating performance, and the Company’s financial projections. The occurrence of one or more triggering events could require additional impairment testing, which could result in additional impairment charges in the future.

Excluding the Florida Shoppers operations, which were sold in 2012 and are included in discontinued operations in our Consolidated Financial Statements, the total impairment charge related to our Shoppers business was $156.9 million, all of which related to goodwill.

The changes in the carrying amount of goodwill are as follows:

	Direct
In thousands	Marketing		Shoppers			Total
Balance at December 31, 2010	$	398,164	$	167,487		$	565,651

Purchase consideration	0		0			0
Impairment	0		0			0
Balance at December 31, 2011	$	398,164	$	167,487		$	565,651

Purchase consideration	0		0			0
Impairment	0		(156,936		)	(156,936		)
Balance at December 31, 2012	$	398,164	$	10,551		$	408,715

Other intangibles with indefinite useful lives relate to trade names associated with the Aberdeen acquisition in September 2006. Excluding the Florida Shoppers operations, we did not record an impairment loss related to other intangibles with indefinite lives in any of the years in the three year period ended December 31, 2012. All other intangible asset balances and activity related to the Florida Shoppers operations have been excluded from the following rollforward table.

The changes in the carrying amount of other intangibles with indefinite lives are as follows:

	Direct
In thousands	Marketing		Shoppers		Total
Balance at December 31, 2010	$	5,000	$	0	$	5,000

Purchase consideration	0		0		0
Impairment	0		0		0
Balance at December 31, 2011	$	5,000	$	0	$	5,000

Purchase consideration	0		0		0
Impairment	0		0		0
Balance at December 31, 2012	$	5,000	$	0	$	5,000

Other intangibles with definite useful lives all relate to contact databases, client relationships and non-compete agreements. Other intangible assets with definite useful lives are amortized on a straight-line basis over their respective estimated useful lives, typically a period of 3 to 10 years, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Excluding the Florida Shoppers operations, we did not record an impairment loss related to other intangibles with definite useful lives in any of the years in the three year period ended December 31, 2012. All other intangible asset balances and activity related to the Florida Shoppers operations have been excluded from the following rollforward table.

The changes in the carrying amount of other intangibles with definite lives are as follows:

	Direct
In thousands	Marketing			Shoppers		Total
Balance at December 31, 2010	$	733		$	0	$	733

Purchase consideration	0			0		0
Amortization	(229		)	0		(229		)
Impairment	0			0		0
Balance at December 31, 2011	$	504		$	0	$	504

Purchase consideration	0			0		0
Amortization	(245		)	0		(245		)
Impairment	0			0		0
Balance at December 31, 2012	$	259		$	0	$	259

Amortization expense related to other intangibles with definite useful lives was $0.2 million, $0.2 million and $0.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. Expected amortization expense for the next five years is as follows:

In thousands
2013	$	207
2014	$	52
2015	$	0
2016	$	0
2017	$	0