Aarons 2015 Annual Report Download - page 34

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The following table presents the carrying amount of goodwill and other intangible assets, net as of December 31, 2015:
 
Goodwill $ 539,475
Other Indefinite-Lived Intangible Assets 53,000
Definite-Lived Intangible Assets, Net 222,912
Goodwill and Other Intangibles, Net $ 815,387
Management has deemed its operating segments to be reporting units due to the fact that the operations included in each operating segment have similar
economic characteristics. As of December 31, 2015, the Company had six operating segments and reporting units: Sales and Lease Ownership, Progressive,
HomeSmart, DAMI, Franchise and Manufacturing. As of December 31, 2015, the Company’s Sales and Lease Ownership, Progressive, HomeSmart and DAMI
reporting units were the only reporting units with assigned goodwill balances. The following is a summary of the Company’s goodwill by reporting unit at
December 31, 2015:
 
Sales and Lease Ownership $ 233,851
Progressive 290,605
HomeSmart 14,729
DAMI 290
$ 539,475
The Company performs its annual goodwill impairment testing as of October 1 each year . When evaluating goodwill for impairment, the Company may first
perform a qualitative assessment to determine whether it is more likely than not that a reporting unit or intangible asset group is impaired. The decision to
perform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, including the size of the
reporting unit's goodwill, the current and projected operating results, the significance of the excess of the reporting unit's estimated fair value over carrying
amount at the last quantitative assessment date and the amount of time in between quantitative fair value assessments and the date of acquisition. During
2015, the Company performed a qualitative assessment for the goodwill of the Progressive reporting unit and concluded no indications of impairment
existed.
For the other reporting units, we use a combination of valuation techniques to determine the fair value of our reporting units, including an income approach
and a market approach. Under the income approach, we estimate fair value based on estimated discounted cash flows, which require assumptions about short-
term and long-term revenue growth rates, operating margins, capital requirements, and a weighted-average cost of capital and/or discount rate. Under the
market approach, we use a combination of valuation techniques to calculate the fair value of our reporting units, including a multiple of gross revenues
approach and a multiple of projected earnings before interest, taxes, depreciation and amortization approach using assumptions consistent with those we
believe a hypothetical marketplace participant would use.
We believe the benchmark companies we evaluate as marketplace participants for each reporting unit serve as an appropriate reference when calculating fair
value because those benchmark companies have similar risks, participate in similar markets, provide similar products and services for their customers and
compete with us directly. The values separately derived from each of the income and market approach valuation techniques were used to develop an overall
estimate of each reporting unit's fair value. The selection and weighting of the various fair value techniques, which requires the use of management judgment
to determine what is most representative of fair value, may result in a higher or lower fair value.
The Company completed its goodwill impairment testing for reporting units other than Progressive as of October 1, 2015 and determined that no impairment
had occurred. During the performance of the goodwill impairment testing, the Company did not identify any reporting units that were not substantially in
excess of their carrying values, other than the HomeSmart reporting unit for which the estimated fair value exceeded the carrying value of the reporting unit
by approximately 9%. While no impairment was noted in the impairment testing, if HomeSmart is unable to sustain its recent profitability improvements,
there could be a change in the valuation of the HomeSmart reporting unit that may result in the recognition of an impairment loss in future periods.
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