Goodwill |
12 Months Ended | ||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||
| Goodwill | Goodwill We perform our annual goodwill impairment test in the third quarter of each year. See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements. In the first quarter of 2015, we closed the sale of our Art and Groups businesses, and in the second quarter of 2015 we classified the EZ Prints business as “Assets Held for Sale” and “Liabilities Held for Sale” in accordance with FASB ASC 205-20-55, Presentation of Financial Statements and ASC 360, Property, Plant and Equipment. We considered these items to be triggering events, and accordingly, performed goodwill impairment tests as of March 31, 2015 and June 30, 2015. These tests resulted in estimated excess fair value over carrying value of 3% and 6%, respectively. Accordingly, we concluded that step two of the goodwill impairment tests was not required at either of these dates, and no impairment was recorded. In the third quarter of 2015, we performed our annual impairment test as of July 1, 2015 and, subsequently, performed an impairment test as of September 1, 2015 upon the sale of our EZ Prints business assets, which we considered a triggering event. These tests resulted in estimated excess fair value over carrying value of 6% and7%, respectively. Accordingly, we concluded that step two of the goodwill impairment tests was not required at either of these dates, and no impairment was recorded. As of December 31, 2015, our market capitalization was approximately $64.4 million compared to our carrying value of $70.3 million which did not, in management's view, suggest that the fair value estimates used in our impairment assessment required any adjustment as this shortfall was considered to be a temporary event. In addition, during the fourth quarter of 2015, there were no material changes to our operations and we exceeded our fourth quarter financial targets. Subsequent to the end of 2015 and up through March 22, 2016, the market price of our stock fluctuated from a high of $3.99 on February 25, 2016 to a low of $3.11 on January 19, 2016. Management believed this short-term volatility represented the temporary nature of our market capitalization as of December 31, 2015 and did not warrant an additional triggering event. As of March 31, 2016, our market capitalization was approximately $61.8 million compared to our carrying value of $67.5 million, which did not, in management’s view, suggest that the fair value estimates used in our previous impairment assessment required any adjustment as this shortfall was considered to be a temporary event. In addition, since September 1, 2015, the date of our last goodwill impairment analysis, there have been no material changes to our operations or financial forecasts. In the second quarter of 2016, our common stock price experienced a further, sustained decline resulting in a diminished market capitalization. The common stock fell to a low of $3.10 per share on May 12, 2016 and had an average closing price of $3.21 from the date following the 2016 first quarter's earnings release through May 31, 2016. On May 31, 2016, our market capitalization was $55.8 million compared to our carrying value of $66.0 million. Over the same time period, market capitalizations of peer group companies and the overall U.S. stock market recovered. Based upon our declining market capitalization and shortfall from financial targets, we concluded that a triggering event had occurred and proceeded with an interim goodwill impairment test as of May 31, 2016. In performing the impairment test, we determined the fair value of our single reporting unit using an average of the income and market approaches. Under the income approach, we estimated fair value based on a discounted cash flow model using a 19% discount rate determined by management to be commensurate with the risk inherent in our current business model. A long term cash flow growth rate of 5% was used to determine the terminal value. Under the market approach, we calculated our fair value using a control premium of 20%. The control premium was not applied to our cash and short term investment assets. Based upon our financial forecasts, and market capitalization, the step one analysis indicated that an impairment was likely, and we proceeded with a step two analysis. With the assistance of a third party valuation firm, we performed step two of the goodwill impairment test, which is a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if we were being acquired in a business combination in a non-taxable transaction as applied in the first step, including any significant increases in the fair value of tangible property and intangible assets. Assessing the fair value of goodwill includes making assumptions about future cash flows, discount rates and asset lives using then best available information. These assumptions are subject to a high degree of complexity and judgment. As part of the step two analysis, significant unrecorded intangible assets were identified, which included developed technology intangibles. Based on our step two analysis, the implied fair value of our goodwill was zero. As a result, we recorded a $20.9 million non-cash goodwill impairment charge during the year ended December 31, 2016, which was reflected as Impairment charges in the Consolidated Statements of Operations. The goodwill impairment charge did not adversely affect our cash flow, liquidity or compliance with financial covenants. The change in the carrying amount of goodwill is as follows (in thousands):
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