NOTE 6: GOODWILL

The Company's impairment testing for goodwill is performed annually on December 31, or whenever events or circumstances indicate that there may be an impairment. The Company has determined that its operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by segment management. For the purpose of the goodwill impairment test, the Company can elect to perform a qualitative analysis to determine if it is more likely than not that the fair values of its reporting units are less than the respective carrying values of those reporting units. If, after assessing the qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value, then a company is required to perform the second step of the two-step goodwill impairment test.

The following table presents details of the Company's goodwill:


	As of December 31,
		2013			2012
	($ in thousands)
Beginning of year, Goodwill - Unified Communications	$	9,121		$	9,121
Disposals		(115	)		-
End of year, Goodwill - Unified Communications	$	9,006		$	9,121

For its 2013 goodwill impairment testing, the Company elected to bypass performing the qualitative screen and went directly to performing the first step quantitative analysis of the goodwill impairment test in the current year, primarily due to the UC segment's historical operating losses that have been generated since the goodwill was acquired in August 2011. Management believes that these operating losses were a result of the investments made to support the future growth of the UC segment and are not indicative of the future operating performance of the UC segment.

The estimated fair value of the Company's UC reporting unit is based on a weighting of the income and market approaches, with significant weighting given to the income approach. The Company principally relied on a discounted cash flow analysis to determine the fair value of the UC reporting unit, which considers forecasted cash flows discounted at an appropriate discount rate. The Company believes that market participants would use a discounted cash flow analysis to determine the fair value of its reporting units in a sale transaction. The annual goodwill impairment test requires us to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization and working capital requirements, which are based upon the Company's long-range plan. The Company's long-range plan is updated as part of its annual planning process and is reviewed and approved by management. The growth rates are based upon the UC segment's historical performance and the future expectations of the unified communications industry. The future profitability is based upon the Company's estimated expenses required to obtain and support the estimated revenue growth, and the UC segment's ability to leverage its current infrastructure. The UC segment and unified communications industry have experienced strong growth in recent years. The discount rate is an estimate of the overall after-tax rate of return required by a market participant, whose weighted average cost of capital includes both equity and debt, including a risk premium. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. In order to evaluate the sensitivity of the goodwill impairment test to changes in the fair value calculations, the Company applied a hypothetical 20% decrease in fair value of the UC reporting unit. The 2013 results (expressed as a percentage of carrying value for the unit) showed that, despite the hypothetical 20% decrease in fair value, the fair value of the Company's UC reporting unit still exceeded the carrying value by over 10%.