CarParts.com, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Goodwill and Intangible Assets

Goodwill and Intangible Assets

12 Months Ended

Dec. 29, 2012

Goodwill and Intangible Assets [Abstract]

Note 6 – Goodwill and Intangible Assets

The Company evaluates goodwill for impairment on an annual basis or more frequently if events or circumstances occur that would indicate a reduction in fair value. We identified two reporting units, Base USAP, which is the core auto parts business, and AutoMD, an online automotive repair source, (refer to “Segment Data” above in “Note 1 - Summary of Significant Accounting Policies and Nature of Operations”) in accordance with ASC 280 Segment Reporting. We identified AutoMD as a reporting unit for purposes of the goodwill impairment testing and no impairment charge was recorded related to this reporting unit. The results of the impairment testing discussed below refer solely to Base USAP.

During the fourth quarter of 2012, the Company identified adverse events related to the Company’s overall financial performance, including the continued downward trend in the Company’s revenues and negative cash flows from operations, and a sustained decline in the Company’s share price, that would more likely than not reduce the fair value of our reporting unit below its carrying amount. As of October 31, 2012, the Company performed its annual impairment test and the excess of carrying value estimates over fair value for our reporting unit was approximately $21.8 million. Therefore, the Company performed the second step of the goodwill impairment test to measure the amount of impairment loss. The second step compares the implied fair value of goodwill with the carrying amount of goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. Based on its analysis, the Company recognized an impairment loss on goodwill of $18.9 million during the fourth quarter of 2012. Refer to “Note 1 – Summary of Significant Accounting Policies and Nature of Operations” and “Note 3 – Fair Value Measurements” for additional details.

The following table summarizes the changes in our goodwill (in thousands):


	Gross Amount		Accum. Impairment Losses			Net Amount
Balance at January 1, 2011	$	23,077	$	(4,430	)	$	18,647
Adjustment to goodwill		207		—			207

Balance at December 31, 2011	$	23,284	$	(4,430	)	$	18,854
Impairment loss on goodwill		—		(18,854	)		(18,854	)

Balance at December 29, 2012	$	23,284	$	(23,284	)	$	—

Intangible assets, excluding goodwill, consisted of the following at December 29, and December 31, 2011 (in thousands):


			December 29, 2012							December 31, 2011
	Useful Life		Gross Carrying Amount		Accum. Amort. and Impairment			Net Carrying Amount		Gross Carrying Amount		Accum. Amort. and Impairment			Net Carrying Amount
Intangible assets subject to amortization:
Websites		5 years	$	2,035	$	(2,035	)	$	—	$	2,035	$	(1,001	)	$	1,034
Internet platform intellectual property		10 months		4,300		(4,300	)		—		4,300		(4,300	)		—
Product design intellectual property ⁽¹⁾		2 years		2,750		(722	)		2,028		2,750		(416	)		2,334
Customer relationships		4 years		2,050		(2,050	)		—		2,050		(712	)		1,338
Assembled workforce		7 years		512		(512	)		—		481		(275	)		206
Favorable lease		2.5 years		78		(78	)		—		78		(56	)		22
Domain and trade names⁽²⁾		10 years		5,067		(3,868	)		1,199		5,050		—			5,050

Total			$	16,792	$	(13,565	)	$	3,227	$	16,744	$	(6,760	)	$	9,984

⁽¹⁾	During the fourth quarter of 2012, the Company determined an estimated useful life of 2 years. Prior to this, estimated useful life was 9 years.

⁽²⁾	Prior to fiscal year 2012, domain and trade names had an indefinite useful life. During the fourth quarter of 2012, after the impairment charges were recognized (see discussion below), the Company determined an estimated useful life of 10 years.

As of December 31, 2011, the Company recorded an impairment charge of $5.1 million related to certain trade name intangible assets associated with the WAG acquisition. During the fourth quarter of 2012, we recognized additional impairment losses on certain trade names for $3.9 million. The impairment charges were primarily the result of the deterioration in the economic environment and lower sales and profitability. Given the indicators of impairment, the Company utilized the Royalty Savings method in determining fair value of the trade name intangible assets. The decrease in future cash flows resulted in these indefinite-lived assets being impaired, as the carrying value of the trade names exceeded the fair value. No impairment loss was recognized for indefinite-lived intangible assets during fiscal year 2010. For intangibles subject to amortization, we recorded an impairment loss to websites, customer relationships and assembled workforce of $0.7 million, $0.9 million and $0.1 million, respectively, in the fourth quarter of 2012. The Company did not recognize impairment loss on intangible assets subject to amortization for fiscal year 2011 and 2010. Refer to “Note 1– Summary of Significant Accounting Policies and Nature of Operations” and “Note 3 – Fair Value Measurements” for additional details.

Intangibles subject to amortization are expensed on a straight-line basis, except for the internet platform intellectual property which was amortized on an accelerated basis. Amortization expense relating to intangibles totaled $1.2 million, $3.7 million and $2.8 million for fiscal year 2012, 2011 and 2010, respectively.

The following table summarizes the future estimated annual amortization expense for these assets over the next five years (in thousands):


2013	$	1,134
2014		1,134
2015		120
2016		120
2017		120
Thereafter		599

Total	$	3,227

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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