Goodwill

Subsequent to September 30, 2016, the Company observed a sustained decrease in its stock price, thereby providing a potential indicator of goodwill impairment. As a result, the Company will initiate an impairment test during the fourth quarter of 2016.

The Company performed its annual impairment analysis, which is required as of June 30 each year. In addition, during the second quarter of 2016 the Company observed another sustained decrease in the stock price and lower than expected earnings, as well as the completion of the Netherlands Sale, thereby providing potential indicators of goodwill impairment. As a result, the Company initiated an impairment test in the three months ended June 30, 2016.

We compared the carrying values of our International and North America reporting units to their estimated fair values at June 30, 2016. We estimated the fair value of each reporting unit based on a weighting of both the income approach and the market approach. The discounted cash flows for each reporting unit serve as the primary basis for the income approach, and were based on discrete financial forecasts developed by management. Cash flows beyond the discrete forecast period of five years were estimated using the perpetuity growth method calculation. The annual average revenue growth rates forecasted for our reporting units for the first five years of our projections were approximately 3%. We have projected a minor amount of operating profit margin improvement based on expected margin benefits from certain internal initiatives. The terminal value was calculated assuming projected growth rates of 3% after five years, which reflects our current estimate of minimum long-term growth in Information Technology ("IT") spending. The income approach valuations also included each reporting unit’s estimated weighted average cost of capital, which were 17% and 13% for International and North America, respectively. The income approach was weighted as 75% and 50% of the fair value of the International and North America reporting units, respectively.

The market approach applied pricing multiples derived from publicly-traded companies that are comparable to the respective reporting units to determine their values. For our International and North America reporting unit, the Company used enterprise value/EBITDA multiples of approximately 3 and 6 using the guideline public company method. The difference in the enterprise value/EBITDA multiples used in the International and North America segments is due to under performance during 2016 in the International segment compared to its peers. For the International reporting unit, a revenue multiple was also utilized to determine the fair value using the guideline public company method. The Company used an enterprise value/EBITDA multiple of approximately 7 for the North America reporting unit using the guideline transaction method. The market approach was weighted as 25% and 50% of the fair value of the International and North America reporting units, respectively. In addition, the fair value under the market approach using the guideline public company method included a control premium of 30%. The control premium was determined based on a review of comparative market transactions. Publicly-available information regarding our market capitalization was also considered in assessing the reasonableness of the cumulative fair values of our reporting units.

Upon completing step one of the impairment test for each reporting unit, the Company determined that the fair value of the North America reporting unit was greater than the carrying value by approximately 25%. It was determined that the fair value of International reporting unit was less than the carrying value by approximately 25%, thus indicating potential impairment and requiring step two analysis.

The Company performed the second step of the goodwill test to determine the implied fair value of goodwill for the International reporting unit. The estimated implied fair value of goodwill was determined in a consistent manner utilized to estimate the amount of goodwill recognized in a business combination. As a result, we calculated the estimated fair value of certain non-recorded assets, including customer relationships, trade name and workforce. The implied fair value of goodwill was measured as the excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities. The impairment loss for the reporting unit was measured by the amount that the carrying value of goodwill exceeded the implied fair value of the goodwill. Based on this assessment using reasonable estimates for the theoretical purchase price allocation, we recognized an impairment charge of $29.6 million in the three months ended June 30, 2016, resulting in no remaining goodwill in the International segment. The impairment charge in our International reporting unit is primarily a result of the Netherlands Sale, decreased operating performance of the reporting unit, including a lag in new sales and our inability to achieve additional operational efficiencies.

During the first quarter of 2016, the Company observed a sustained decrease in the stock price and lower than expected earnings during the three months ended March 31, 2016, thereby providing a potential indicator of goodwill impairment. As a result, the Company initiated an impairment test in the three months ended March 31, 2016.

We compared the carrying values of our International and North America reporting units to their estimated fair values at March 31, 2016. We estimated the fair value of each reporting unit based on a weighting of both the income approach and the market approach. The discounted cash flows for each reporting unit serve as the primary basis for the income approach, and were based on discrete financial forecasts developed by management. Cash flows beyond the discrete forecast period of five years were estimated using the perpetuity growth method calculation. The annual average revenue growth rates forecasted for our reporting units for the first five years of our projections were approximately 3%. We have projected a minor amount of operating profit margin improvement based on expected margin benefits from certain internal initiatives. The terminal value was calculated assuming projected growth rates of 3% after five years, which reflects our current estimate of minimum long-term growth in IT spending. The income approach valuations also included each reporting unit’s estimated weighted average cost of capital, which were 17% and 14% for International and North America, respectively. The market approach applied pricing multiples derived from publicly-traded companies that are comparable to the respective reporting units to determine their values. For our International and North America reporting units, we used enterprise value/EBITDA multiples of approximately 5 and 6, respectively, under the market approach using the guideline public company method and approximately 7 and 7, respectively, under the market approach using the guideline transaction method in order to value each of our reporting units. In addition, the fair value under the market approach using the guideline public company method included a control premium of 30%. The control premium was determined based on a review of comparative market transactions. Publicly-available information regarding our market capitalization was also considered in assessing the reasonableness of the cumulative fair values of our reporting units.

Upon completing step one of the impairment test for each reporting unit, the Company determined that the fair value of the North America reporting unit was greater than the carrying value by approximately 30%. It was determined that the fair value of International reporting unit was less than the carrying value by approximately 30%, thus indicating potential impairment and requiring step two analysis.

The Company performed the second step of the goodwill test to determine the implied fair value of goodwill for the International reporting unit. The estimated implied fair value of goodwill, with respect to March 31, 2016, was determined in a consistent manner utilized to estimate the amount of goodwill recognized in a business combination. As a result, we calculated the estimated fair value of certain non-recorded assets, including customer relationships, trade name and workforce. The implied fair value of goodwill was measured as the excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities. The impairment loss for the reporting unit was measured by the amount that the carrying value of goodwill exceeded the implied fair value of the goodwill. Based on this assessment using reasonable estimates for the theoretical purchase price allocation, we recognized an impairment charge of $85.9 million in the three months ended March 31, 2016, which represented 69% of the goodwill of the International reporting unit prior to the impairment charge. The impairment charge in our International reporting unit was primarily a result of the decreased operating performance of the reporting unit, including a lag in new sales and our inability to achieve operational efficiencies.

We have updated our cash flow forecasts and our other assumptions used to calculate the estimated fair value of our reporting units to account for our beliefs and expectations of the current business environment. While we believe our estimates are appropriate based on our view of current business trends, no assurance can be provided that impairment charges will not be required in the future.

The changes in the carrying amount of goodwill during the nine months ended September 30, 2016, were as follows:



	International			North America		Total
	(In thousands)
Balance at January 1, 2016	$	123,055		$	133,681	$	256,736
Goodwill Impairment	(115,483		)	—		(115,483		)
Sale of assets	(8,620		)	—		(8,620		)
Effect of foreign exchange rate changes	1,048			—		1,048
Balance at September 30, 2016	$	—		$	133,681	$	133,681