NOTE 6 — GOODWILL AND INTANGIBLE ASSETS

Intangible Assets

The Company’s intangible assets were acquired in connection with the acquisitions of Macrospace in 2004, iFone in 2006, MIG in 2007, Superscape in 2008, Griptonite and Blammo in 2011 and GameSpy in 2012, as well as in connection with the purchase of the Deer Hunter trademark and brand assets in 2012. The carrying amounts and accumulated amortization expense of the acquired intangible assets, including the impact of foreign currency exchange translation at December 31, 2012 and 2011 were as follows:


		December 31, 2012							December 31, 2011
		Gross		Accumulated			Net		Gross		Accumulated			Net
		Carrying		Amortization			Carrying		Carrying		Amortization			Carrying
		Value		Expense			Value		Value		Expense			Value
		(Including		(Including			(Including		(Including		(Including			(Including
	Estimated	Impact of		Impact of			Impact of		Impact of		Impact of			Impact of
	Useful	Foreign		Foreign			Foreign		Foreign		Foreign			Foreign
	Life	Exchange)		Exchange)			Exchange)		Exchange)		Exchange)			Exchange)
Intangible assets amortized to cost of revenues:
Titles, content and technology	2 yrs	$	12,781	$	(11,518	)	$	1,263	$	11,391	$	(11,097	)	$	294
Catalogs	1 yr		1,257		(1,257	)		—		1,216		(1,216	)		—
ProvisionX Technology	6 yrs		207		(207	)		—		200		(200	)		—
Carrier contract and related relationships	5 yrs		19,585		(16,421	)		3,164		19,206		(13,451	)		5,755
Licensed content	5 yrs		2,952		(2,952	)		—		2,924		(2,924	)		—
Service provider license	9 yrs		467		(262	)		205		463		(208	)		255
Trademarks	7 yrs		5,225		(760	)		4,465		222		(222	)		—

			42,474		(33,377	)		9,097		35,622		(29,318	)		6,304

Other intangible assets amortized to operating expenses:
Emux Technology	6 yrs		1,341		(1,341	)		—		1,297		(1,297	)		—
Noncompete agreement	4 yrs		5,187		(3,395	)		1,792		5,167		(1,393	)		3,774

			6,528		(4,736	)		1,792		6,464		(2,690	)		3,774

Total intangibles assets		$	49,002	$	(38,113	)	$	10,889	$	42,086	$	(32,008	)	$	10,078

The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenues. The Company has included amortization of acquired intangible assets not directly attributable to revenue-generating activities in operating expenses. The Company acquired approximately $1,550 of intangible assets as part of the GameSpy acquisition in the third quarter of 2012. The Company acquired approximately $7,400 of intangible assets as part of the Griptonite and Blammo acquisitions in the third quarter of 2011, which includes approximately $300 of Blammo IPR&D that was reclassified as “Titles, Content and Technology” in the fourth quarter of 2011; see Note 3 for further details.

On April 1, 2012, the Company acquired from Atari, Inc. (“Atari”) its Deer Hunter trademark and associated domain names and also took a license to the other intellectual property associated with the Deer Hunter brand for total consideration of $5,000 in cash (the “Consideration”). The License Agreement has a term equal to the longer of (i) 99 years and ii) the expiration of the copyrights in and copyrightable elements of the Deer Hunter intellectual property assets. The acquisition price has been recorded as acquired intangible assets and classified within “Trademarks” in the above table and will be amortized over the estimated useful life of seven years.

During the years ended December 31, 2012, 2011 and 2010, the Company recorded amortization expense in the amounts of $3,783, $5,447 and $4,226, respectively, in cost of revenues. During the years ended December 31, 2012, 2011 and 2010, the Company recorded amortization expense in the amounts of $1,980, $825 and $205, respectively, in operating expenses. The Company recorded no impairment charges during the years ended December 31, 2012, 2011 and 2010.

As of December 31, 2012, the total expected future amortization related to intangible assets was as follows:


	Amortization		Amortization
	Included in		Included in		Total
	Cost of		Operating		Amortization
Period Ending December 31,	Revenues		Expenses		Expense
2013	$	4,212	$	1,315	$	5,527
2014		1,495		382		1,877
2015		1,019		95		1,114
2016		764		—		764
2017		714		—		714
2018 and thereafter		893		—		893

	$	9,097	$	1,792	$	10,889

Goodwill

The Company has goodwill resulting from its MIG, GameSpy, Blammo and Griptonite acquisitions as of December 31, 2012. The Company attributed all of the goodwill resulting from the MIG acquisition to its Asia and Pacific (“APAC”) reporting unit. The Company acquired $17,044 and $1,031 of goodwill during 2011 and 2012 respectively as part of the GameSpy, Blammo and Griptonite acquisitions, which was fully assigned to its Americas reporting unit; see Note 3 for further details. The Company had fully impaired in prior years all goodwill allocated to its EMEA reporting unit related to the Superscape acquisition. The goodwill allocated to the Americas reporting unit is denominated in U.S. Dollars (“USD”) and the goodwill allocated to the APAC reporting unit is denominated in Chinese Renminbi (“RMB”). As a result, the goodwill attributed to the APAC reporting unit is subject to foreign currency fluctuations.

Goodwill by geographic region is as follows:


	December 31, 2012												December 31, 2011
	Americas			EMEA			APAC			Total			Americas			EMEA			APAC			Total
Balance as of January 1
Goodwill	$	41,915		$	25,354		$	24,220		$	91,489		$	24,871		$	25,354		$	24,039		$	74,264
Accumulated Impairment Losses		(24,871	)		(25,354	)		(19,273	)		(69,498	)		(24,871	)		(25,354	)		(19,273	)		(69,498	)

		17,044			—			4,947			21,991			—			—			4,766			4,766
Goodwill Acquired during the year		1,031			—			—			1,031			17,044			—			—			17,044
Effects of Foreign Currency Exchange		—			—			31			31			—			—			181			181
Impairment Losses		—			—			(3,613	)		(3,613	)		—			—			—			—

Balance as of period ended:		18,075			—			1,365			19,440			17,044			—			4,947			21,991
Goodwill		42,946			25,354			24,251			92,551			41,915			25,354			24,220			91,489
Accumulated Impairment Losses		(24,871	)		(25,354	)		(22,886	)		(73,111	)		(24,871	)		(25,354	)		(19,273	)		(69,498	)

Balance as of period ended:	$	18,075		$	—		$	1,365		$	19,440		$	17,044		$	—		$	4,947		$	21,991

In accordance with ASC 350, the Company’s goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, the Company performs the annual impairment review of its goodwill balance as of September 30 or more frequently if triggering events occur.

Under new accounting guidance adopted for 2011, the Company evaluates qualitative factors and overall financial performance to determine whether it is necessary to perform the first step of the two-step goodwill test. This step is referred to as “Step 0.” Step 0 involves, among other qualitative factors, weighing the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors. After assessing those various factors, if it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity will need to proceed to the first step of the two-step goodwill impairment test. ASC 350 requires a multiple-step approach to testing goodwill for impairment for each reporting unit annually, or whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. The first step measures for impairment by applying the fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying the fair value-based tests to individual assets and liabilities within each reporting unit. The fair value of the reporting units is estimated using a combination of the market approach, which utilizes comparable companies’ data, and/or the income approach, which uses discounted cash flows.

The Company has three reporting units comprised of the 1) Americas, 2) EMEA and 3) APAC regions. As of September 30, 2012, the Company had goodwill attributable to the APAC and Americas reporting units. The cash flows of these reporting units reflect the income and expenses of assets directly employed by, and liabilities related to, the operations of the reporting unit, including revenue related to local contractual relationships, but excludes revenue related to global contractual relationships such as digital store fronts which are owned by the U.S. and allocated directly to the Americas reporting unit. In performing its annual goodwill impairment assessment for 2012, the Company performed this qualitative assessment for its Americas reporting unit; based on this qualitative assessment, the Company concluded that performing the two-step impairment test was unnecessary for its Americas reporting unit. The Company performed the first step of the goodwill impairment test for its APAC reporting unit as prescribed in ASC 350 and concluded that it failed the step, since the estimated fair value of the reporting unit was less than its carrying value due to accelerated declines in the local feature phone business and the recent restructuring of the Company’s operations in the APAC region. In order to determine the fair value of the APAC reporting unit, the Company utilized the discounted cash flow method and market method. The Company has consistently utilized both methods in its goodwill impairment tests and weights both results equally. The Company uses both methods in its goodwill impairment tests since it believes that both in conjunction provide a reasonable estimate of the determination of fair value of the reporting unit – the discounted cash flow method being specific to anticipated future results of the reporting unit and the market method, which is based on the Company’s market sector including its competitors.

In step two of its impairment analysis, the Company allocated the fair value of the APAC reporting unit to all tangible and intangible assets and liabilities in a hypothetical sale transaction to determine the implied fair value of the reporting unit’s goodwill. As a result of the step two analysis, the Company concluded that a portion of the goodwill remaining that had been attributed to the APAC reporting unit was impaired. The total non-cash goodwill impairment charge recorded in the third quarter of 2012 was $3,613.

The determination as to whether a write-down of goodwill is necessary involves significant judgment based on short-term and long-term projections of the Company. The assumptions supporting the estimated future cash flows of the reporting unit, including operating margins, long-term forecasts, discount rates and terminal growth rates, reflect the Company’s best estimates. Changes in the Company’s market capitalization, long-term forecasts and industry growth rates could require additional impairment charges to be recorded in future periods for the remaining goodwill.