Goodwill

As of September 30, 2015 and December 31, 2014, we had goodwill of $219.0 million and $398.2 million, respectively.

On March 16, 2015 the Company acquired the stock of a privately-owned digital marketing agency. The Company paid some consideration upon closing, with additional consideration payable upon the achievement of revenue performance goals over the three-year period following the closing. The Company performed a valuation to determine the estimate of the total purchase consideration and to estimate values for the tangible and identifiable intangible assets. As a result of the calculation, we recorded $41.8 million in goodwill.

On April 14, 2015 the Company sold its B2B research businesses, Aberdeen Group and Harte Hanks Market Intelligence (the "B2B research business”). The B2B research business asset group was a part of our Customer Interaction segment (see Note L below). The allocated fair value to the B2B research business within the net book value of Customer Interaction goodwill was $11.1 million. This amount was written-off and is reflected in the Loss on sale in the Other expenses section of the Condensed Consolidated Statements of Income (Loss). See Note M, Acquisition and Disposition, below for further discussion.

Under the provisions of FASB ASC 350, Intangibles-Goodwill and Other (ASC 350), goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate that it is “more likely than not” that goodwill might be impaired. Such events could include a significant change in business conditions, a significant negative regulatory outcome or other events that could negatively affect our business and financial performance. We perform our annual goodwill impairment assessment as of November 30th of each year for each of our reportable segments.

We continuously monitor potential triggering events, including changes in the business climate in which we operate, attrition of key personnel, the current volatility in the capital markets, the Company’s market capitalization compared to our book value, our recent operating performance, and financial projections. During the third quarter of 2015 as a result of a sustained decline in our market capitalization below our book value of equity and recent operating performance, the Company determined that a triggering event had occurred. In accordance with ASC 350, we determined that an interim Step One impairment test of Customer Interaction and Trillium Software goodwill was warranted. The fair value of each reporting unit was estimated using both the income approach and market approach models. The fair value of our Customer Interaction reporting unit was estimated to be less than the carrying value, including goodwill. The fair value of our Trillium Software reporting unit was estimated to be more than the carrying value, including goodwill. The Company determined that the goodwill balance with respect to the Customer Interaction was impaired and Step Two testing on that reporting unit balance was deemed necessary.

Step Two of the goodwill test consists of performing a hypothetical purchase price allocation, under which the estimated fair value of the reporting unit is allocated to its tangible and intangible assets based on their estimated fair values, with any residual amount being assigned to goodwill. During the Step Two analysis, book value was estimated to approximate fair value for all working capital items, as well as a number of insignificant assets and liabilities. Intangible assets related to trade names, customer relationships and non-compete agreements were identified and the fair value of these intangible assets was estimated.

The models used to value the Customer Interaction reporting unit in Step One and the identified intangible assets in Step Two relied on management’s assumptions. These assumptions, which are significant to the calculated fair values, are considered Level 3 inputs under the fair value hierarchy established by ASC 350, as they are unobservable. The assumptions in the Step One test include discount rate, revenue growth rates, tax rates and operating margins. In addition to these assumptions, the Step Two assumptions include customer attrition rates and royalty rates.

The impairment analysis indicated an impairment of Customer Interaction goodwill that is recorded in the Consolidated Statements of Comprehensive Income (Loss) in the third quarter of 2015 of $209.9 million and a corresponding $36.8 million tax benefit resulting in a net income impact of $173.1 million.

The changes in the carrying amount of goodwill are as follows:



In thousands	Customer Interaction			Trillium Software	Total
Balance at December 31, 2014	$	248,891		149,273	$	398,164
Purchase consideration	41,845			—	41,845
Write-off related to disposition of assets	(11,099		)	—	(11,099		)
Impairment	(209,938		)	—	(209,938		)
Balance at September 30, 3015	$	69,699		149,273	$	218,972

The Company’s next annual impairment test will be performed as of November 30, with the Company performing a qualitative assessment of whether it is more likely than not that the Customer Interaction and Trillium Software reporting units carrying amounts are greater than their fair value (Step Zero analysis). We will continue to monitor for potential triggering events that may require consideration of a Step One analysis.