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Impairment of Assets

6 Months Ended

Jun. 30, 2011

Note 3 Impairment of Assets

Goodwill and other indefinite-lived intangible assets are reviewed for impairment using a fair value based approach annually or earlier upon the occurrence of events or circumstances that indicate there may be an impairment charge. Our annual impairment test is performed on October 1. Asset impairments related to the carrying value of goodwill, indefinite-lived intangible assets and certain long-lived assets are calculated in accordance with the provisions of ASC Topic 350, Intangibles - Goodwill and Other, and ASC Topic 360, Property, Plant and Equipment (“ASC 360”), respectively.

Goodwill is reviewed for impairment at the reporting unit level. A reporting unit is equivalent to an operating segment, or one level below an operating segment. Our reporting units represent our reportable segments except for one component of our United States reportable segment, Allrecipes.com, which is considered a separate reporting unit. Indefinite-lived intangible assets, or tradenames, are reviewed for impairment based on their lowest unit of accounting or by asset.

During the three months ended June 30, 2011, we concluded that an interim impairment test for goodwill and other intangible assets was necessary for our Europe, APLA and LED reporting units. This conclusion was based on certain indicators of impairment for these reporting units, including lower than expected results and a decline in our most recent financial projections developed during the quarter, along with declines in market comparables since our last annual impairment test.

We have not finalized our interim impairment analysis due to the timing and complexity of the calculations required. However, during the three months ended June 30, 2011, we recorded an estimated impairment charge of $256.7, related to goodwill, other intangible assets, and property and equipment. We did not record any impairment charges in the three months ended June 30, 2010, or in the periods February 20 to June 30, 2010 and January 1 to February 19, 2010.

Our assets were established at fair value upon our emergence from bankruptcy and application of fresh start accounting on February 19, 2010.

We estimate the fair value of our tradenames based on the relief from royalty method. This method applies a hypothetical royalty rate to our projected revenue streams attributable to each respective brand. We recorded an estimated impairment charge of $31.7 against tradenames, consisting of $15.8 and $15.9 for Europe and APLA, respectively.

The goodwill impairment analysis is a two-step process. The first step, used to identify potential impairment, is a comparison of the reporting unit’s estimated fair value to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, applicable goodwill is not considered to be impaired. If the carrying value exceeds the fair value, there is an indication of impairment and the second step is performed to measure the amount of the impairment. The second step requires the Company to calculate an implied fair value of goodwill based on a hypothetical purchase price allocation.

We estimated the fair value of our reporting units based on a combination of the income and market multiple approaches. Our estimate of discounted cash flows for each reporting unit required significant judgment. Certain key assumptions utilized, including changes in revenue, operating expenses, working capital requirements and capital expenditures including pre-publication costs, are based on estimates related to strategic initiatives and current market conditions. The discounted cash flow analyses used a discount rate that corresponds to the weighted-average cost of capital. This assumed discount rate is consistent with that used for investment decisions and takes into account the specific and detailed operating plans and strategies of the individual reporting units. The market data utilized included publicly-traded prices and transaction values of comparable companies with operations considered to be similar to those of the Company’s reporting units. Collectively, these evaluations were management’s best estimate of projected fair values.

Our Europe, APLA and LED reportable units failed step one of the goodwill impairment test which required us to proceed to the second step. We recorded an estimated impairment charge of $224.7 against goodwill, consisting of $182.5, $21.7 and $20.5 for Europe, APLA and LED, respectively.

During the third quarter of 2011, we intend to finalize the second quarter interim impairment analysis and will record any adjustments at such time.

While the Company believes the assumptions used in the interim impairment analysis are reasonable, our analysis is sensitive to adverse changes in the assumptions used in the valuations. In particular, changes in the projected cash flows, the discount rate, the terminal year growth rate and market multiple assumptions could produce significantly different results for the impairment analyses. Changes in these assumptions against actual results could result in future impairment tests and charges. We will continue to monitor any changes in circumstances for indicators of impairment and closely monitor our actual results against these assumptions.

As part of our interim impairment test, we were required to perform an impairment assessment and measure certain assets at fair value. These fair value measurements are considered non-recurring under ASC 820. The assets and liabilities measured and resulting estimated impairment charge for the three months ended June 30, 2011, at fair value on a non-recurring basis, were as follows:

	Successor Company
	At the End of the Period		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss
For the six months ended June 30, 2011 (Successor Company)
Goodwill	$	476.7	$	—	$	—	$	476.7	$	224.7
Other intangible assets, net	410.0		—		—		410.0		31.7
Property and equipment	60.6		—		—		60.6		0.3
									$	256.7