Aarons 2015 Annual Report Download - page 63

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During the years ended 2015, 2014 and 2013, the Company recorded impairment charges of $459,000, $805,000 and $3.8 million, respectively. These
impairment charges related primarily to the impairment of various parcels of land and buildings included in the Sales and Lease Ownership segment that the
Company decided not to utilize for future expansion, as well as the sale of the net assets of the RIMCO disposal group in January 2014, and are generally
included in other operating expense (income), net within the consolidated statements of earnings.
Gains and losses on the disposal of assets held for sale were not significant in 2015 or 2013. The disposal of assets held for sale resulted in the recognition of
net losses of $754,000 in 2014.
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net tangible and intangible assets acquired in connection with
business acquisitions. Impairment occurs when the carrying amount of goodwill is not recoverable from future cash flows. The Company’s goodwill is not
amortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate that
impairment may have occurred. Factors which could necessitate an interim impairment assessment include a sustained decline in the Company’s stock price,
prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results.
The Company has deemed its operating segments to be reporting units because 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:
 

Sales and Lease Ownership $ 233,851
$ 226,828
Progressive 290,605
289,184
HomeSmart 14,729
14,658
DAMI 290
—
$ 539,475
$ 530,670
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, as part of the annual goodwill impairment analysis, the Company performed a
qualitative assessment for the Progressive reporting unit and concluded no indications of impairment existed.
If the Company does not perform a qualitative assessment, or if the Company determines that it is not more likely than not that the fair value of the reporting
unit or intangible asset group exceeds its carrying amount, the Company performs a goodwill impairment test that consists of a two-step process, if necessary.
The first step is to calculate the estimated fair value of the reporting unit and compare its fair value to its carrying amount, including goodwill. The Company
uses a combination of valuation techniques to calculate the fair value of its reporting units, including a multiple of gross projected revenues approach, a
multiple of projected earnings before interest, taxes, depreciation and amortization approach and a discounted cash flow model that use assumptions
consistent with those the Company believes a hypothetical marketplace participant would use.
If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to determine the amount of impairment loss, if any. The second
step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of its goodwill. If the carrying amount of the reporting unit’s
goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess.
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