Does Management Recruiters operate as a single reporting unit for impairment testing purposes?

According to Management Recruiters' 2024 Franchise Disclosure Document, the company conducts impairment testing for goodwill annually during the third quarter, or earlier if certain events or changes in circumstances indicate potential impairment. For these impairment tests, Management Recruiters operates as a single reporting unit. This means that the entire company is evaluated as one entity when assessing the value of goodwill.

The FDD specifies that determining the fair value of this single reporting unit involves significant estimates and assumptions made by the management of Management Recruiters. These judgments can significantly impact the outcome of goodwill impairment testing and the amount of any impairment recognized. Factors that could trigger an impairment test include a decline in the stock price, a decrease in expected future cash flows, significant asset disposition, or adverse changes in the economic or business environment.

Management Recruiters has the option to first assess qualitative factors to determine if a quantitative impairment test is necessary. These qualitative factors include macroeconomic conditions, industry and market conditions, and overall company financial performance. If the qualitative assessment suggests that the fair value of the reporting unit is greater than its carrying amount, a quantitative test is not required. Alternatively, Management Recruiters can bypass the qualitative assessment and proceed directly to the quantitative test, which compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value exceeds the fair value, an impairment loss is recognized.