Goodwill and Intangible Assets

6 Months Ended

Jul. 02, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

The changes in the carrying amount of goodwill for the twenty-six weeks ended July 2, 2016 are as follows (in thousands):



	North America			EMEA			Total
Balance as of January 2, 2016	$	3,947		$	7,124		$	11,071
Changes in foreign currency exchange rates	—			(241		)	(241		)
Goodwill impairment	(3,947		)	(6,883		)	(10,830		)

Balance as of July 2, 2016	$	—		$	—		$	—

The Company performs its impairment testing for goodwill in accordance with FASB ASC 350, “Intangibles-Goodwill and Other.” The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to progress to the second step. In the second step, the Company calculates the implied fair value of goodwill and compares the implied fair value of goodwill to the carrying amount of goodwill on the Company’s balance sheet. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss would be required to be recognized in an amount equal to that excess.

The Company evaluates goodwill for impairment on an annual basis on the last day of the first fiscal month of the fourth quarter and whenever events or circumstances indicate that these assets may be impaired. Due to a significant decrease in the Company’s stock price during the second quarter of fiscal 2016, the Company performed the first step of the goodwill impairment test. Based on the results of the first step of the goodwill impairment test, the estimated fair value of the reporting units did not exceed their carrying value and therefore step two of the test was required. Based on the results of the second step of the goodwill impairment test (i.e., applying the income approach and market approach described under "Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Impairment of Goodwill and Long-lived Assets"), the Company determined, as of July 2, 2016, that the implied fair value of goodwill was less than the carrying value, which resulted in goodwill impairment of $10.8 million, representing all of that goodwill. The facts and circumstances that led to the impairment of goodwill were primarily a result of the decreased market value of the Company based upon the market price of the Company's common stock.

Testing goodwill for impairment requires significant judgments, which are described more fully under Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Impairment of Goodwill and Long-lived Assets." These judgments include estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company's business, estimation of the useful life over which cash flows will occur, and determination of a weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and potential goodwill impairment for each reporting unit. In addition, financial and credit market volatility directly impacts the Company's fair value measurement through our weighted average cost of capital, used to determine the discount rate, and through the Company's stock price, used to determine our market capitalization.

The July 2015 acquisition of the Farncombe Entities resulted in $3.4 million of goodwill which was recorded in the Company’s EMEA reporting unit. All of this goodwill was determined to be impaired, as of July 2, 2016, as part of the goodwill impairment determination described above. The goodwill and intangible assets related to this acquisition are not deductible for foreign tax purposes. This acquisition is discussed further in Note 2, Acquisition.

The following table summarizes the changes in the major classes of intangible assets as of July 2, 2016 and January 2, 2016 (in thousands):



	Tradename			Non-Compete Agreements			Customer Relationships			Total
Gross Carrying Amount:
Balance as of January 2, 2016	$	86		$	57		$	1,055		$	1,198
Changes in foreign currency exchange rates	(9		)	(5		)	(100		)	(114		)

Balance as of July 2, 2016	$	77		$	52		$	955		$	1,084

Accumulated Amortization:
Balance as of January 2, 2016	$	(71	)	$	(5	)	$	(126	)	$	(202	)
Changes in foreign currency exchange rates	6			1			22			29
Amortization expense	(12		)	(6		)	(147		)	(165		)

Balance as of July 2, 2016	$	(77	)	$	(10	)	$	(251	)	$	(338	)

The identifiable intangible assets in the table above resulted from the July 2015 acquisition of the Farncombe Entities and include the effects of foreign currency translation. This acquisition is discussed further in Note 2, Acquisition. Tradename, non-compete agreements and customer relationships carry amortization periods of six months, four and one-half years and three and one-half years, respectively. The amortization periods are based on the period of expected cash flows used to measure the fair value of the intangible assets.

Aggregate amortization expense related to intangible assets was $76,000 and $165,000 for the thirteen weeks and twenty-six weeks ended July 2, 2016, respectively. There was no amortization expense recognized during the twenty-six weeks ended July 4, 2015. The following table outlines the estimated future amortization expense related to amortizing intangible assets as of July 2, 2016.



	(in thousands)
2016 (July 3, 2016 - December 31, 2016)	$	142
2017	284
2018	284
2019	35
2020	1
	$	746

- 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.

+ References + Details