Note 5 – Goodwill and Indefinite-Lived Intangibles

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 and no goodwill was assigned to this reporting unit. The results of the impairment testing discussed below refer solely to Base USAP.

As of December 28, 2013, the Company’s intangible assets subject to amortization did not indicate a potential impairment under the provisions of ASC 360. During the second quarter of 2013, the Company recognized impairment losses on product design intellectual property and certain domain and trade names for $838 and $407, respectively. The impairment charges were primarily the result of lower sales and gross margin. Given the indicators of impairment, the Company utilized the royalty savings method in determining the fair values using a discount rate of 14.5%, and royalty rate of 1.0% and 0.1% for product design intellectual property, and domain and trade names, respectively. For the product design intellectual property, we utilized the royalty savings method rather than the cost method in determining the fair value. The decrease in future cash flows resulted in these assets being impaired, as their carrying values exceeded the fair value.

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 $21,843. 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 Company used the discounted cash flow method to determine the fair value of the goodwill and used a discount rate of 13%. 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 $18,854 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:

Intangible assets consisted of the following at December 28, 2013 and December 29, 2012:

As of December 31, 2011, the Company recorded an impairment charge of $5,138 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 $3,868. 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 using a discount rate of 15% and royalty rate of 0.1%. 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. For intangibles subject to amortization, we recorded an impairment loss to websites, customer relationships and assembled workforce of $695, $911 and $139, respectively, in the fourth quarter of 2012. The Company did not recognize impairment loss on intangible assets subject to amortization for fiscal year 2011.

Refer to “Note 1– Summary of Significant Accounting Policies and Nature of Operations” and “Note 3 – Fair Value Measurements” for additional details.

Intangible assets subject to amortization are amortized on a straight-line basis. Amortization expense relating to intangibles totaled $381, $1,189 and $3,673 for fiscal year 2013, 2012 and 2011, respectively.

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