Aarons 2015 Annual Report Download - page 64

During the performance of the annual assessment of goodwill for impairment in the 2015, 2014 and 2013 fiscal years, the Company did not identify any
reporting units that were not substantially in excess of their carrying values, other than the HomeSmart reporting unit in 2015 and 2014. 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.
The goodwill of the DAMI reporting unit was recognized in conjunction with the October 15, 2015 DAMI acquisition. Therefore, an annual impairment test
for this reporting unit was not performed in 2015.
The Company determined that there were no events that occurred or circumstances that changed in the fourth quarter of 2015 that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. As a result, the Company did not perform an interim impairment test for any reporting unit
as of December 31, 2015.
Other Intangibles
Other intangibles include customer relationships, non-compete agreements and franchise development rights acquired in connection with store-based
business acquisitions. The customer relationship intangible asset is amortized on a straight-line basis over a two-year estimated useful life. The non-compete
intangible asset is amortized on a straight-line basis over the life of the agreement (generally two or three years). Acquired franchise development rights are
amortized on a straight-line basis over the unexpired life of the franchisee’s ten year area development agreement.
Other intangibles also include the identifiable intangible assets acquired as a result of the DAMI and Progressive acquisitions, which the Company recorded
at the estimated fair value as of the respective acquisition dates. As more fully described in Note 2 to these consolidated financial statements, the Company
amortizes the definite-lived intangible assets acquired as a result of the DAMI acquisition on a straight-line basis over five years for the technology asset and
non-compete agreements and ten years for trademarks and tradenames. The Company amortizes the definite-lived intangible assets acquired as a result of the
Progressive acquisition on a straight-line basis over periods ranging from one to three years for customer lease contracts and internal use software and ten to
12 years for technology and merchant relationships.
Indefinite-lived intangible assets represent the value of trade names and trademarks acquired as part of the Progressive acquisition. At the date of acquisition,
the Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful life of the trade name and trademark
intangible asset and, therefore, the useful life is considered indefinite. The Company reassesses this conclusion quarterly and continues to believe the useful
life of this asset is indefinite.
Indefinite-lived intangible assets are not amortized but are subject to an impairment test annually and when events or circumstances indicate that impairment
may have occurred. The Company performs the impairment test for its indefinite-lived intangible assets on October 1 by comparing the asset’s fair value to its
carrying amount. The Company estimates the fair value based on projected discounted future cash flows under a relief from royalty method. An impairment
charge is recognized if the asset’s estimated fair value is less than its carrying amount.
The Company completed its indefinite-lived intangible asset impairment test as of October 1, 2015 and determined that no impairment had occurred.
Insurance Reserves
Estimated insurance reserves are accrued primarily for workers compensation, vehicle liability, general liability and group health insurance benefits provided
to the Company’s employees. Estimates for these insurance reserves are made based on actual reported but unpaid claims and actuarial analysis of the
projected claims run off for both reported and incurred but not reported claims.
Asset Retirement Obligations
The Company accrues for asset retirement obligations, which relate to expected costs to remove exterior signage, in the period in which the obligations are
incurred. These costs are accrued at fair value. When the related liability is initially recorded, the Company capitalizes the cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of
the related asset. Upon settlement of the liability, the Company recognizes a gain or loss for any differences between the settlement amount and the liability
recorded. Asset retirement obligations amounted to approximately $2.6 million and $2.7 million as of December 31, 2015 and 2014, respectively.
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