Restoration Hardware 2015 Annual Report Download - page 74

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71
Impairment
Goodwill
The Company evaluates goodwill annually to determine whether it is impaired. Goodwill is also tested between annual
impairment tests if an event occurs or circumstances change that would indicate that the fair value of a reporting unit is less than its
carrying amount. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer
demand or business climate that could affect the value of an asset; general economic conditions, such as increasing Treasury rates or
unexpected changes in gross domestic product growth; a change in the Company’s market share; budget-to-actual performance and
consistency of operating margins and capital expenditures; a product recall or an adverse action or assessment by a regulator; or
changes in management or key personnel. If an impairment indicator exists, the Company tests the intangible asset for recoverability.
The Company has identified only one single reporting unit. The Company selected the fourth fiscal quarter to perform its annual
goodwill impairment testing.
The Company qualitatively assesses goodwill impairment to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. During fiscal 2015, the Company performed a qualitative analysis examining key
events and circumstances affecting fair value and determined it is more likely than not that the reporting unit’s fair value is greater
than its carrying amount. As such, no further analysis was required for purposes of testing of the Company’s goodwill for impairment.
If goodwill is not qualitatively assessed or if goodwill is qualitatively assessed and it is determined it is not more likely than not
that the reporting unit’s fair value is greater than its carrying amount, a two-step quantitative approach is used. In the first step, the
Company compares the fair value of the reporting unit, generally defined as the same level as or one level below an operating
segment, to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit,
goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets
assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the
impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.
The Company’s tests for impairment of goodwill resulted in a determination that the fair value of the Company substantially
exceeded the carrying value of the Company’s net assets in fiscal 2015 and fiscal 2014. No impairment to goodwill has been recorded
in any period.
Trademarks and Domain Names
The Company annually evaluates whether trademarks and domain names continue to have an indefinite life. Trademarks and
domain names are reviewed for impairment annually in the fourth quarter and may be reviewed more frequently if indicators of
impairment are present. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in
customer demand or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a
regulator.
The Company qualitatively assesses indefinite-lived intangible asset impairment to determine whether it is more likely than not
that the fair value of the asset is less than its carrying amount. During fiscal 2015, the Company performed a qualitative analysis
examining key events and circumstances affecting fair value and determined it is more likely than not that the asset’s fair value is
greater than its carrying amount. As such, no further analysis was required for purposes of testing of the Company’s trademarks or
domain names for impairment.
If trademarks and domain names are not qualitatively assessed or if trademarks and domain names are qualitatively assessed and
it is determined it is not more likely than not that the asset’s fair value is greater than its carrying amount, an impairment review is
performed by comparing the carrying value to the estimated fair value, determined using a discounted cash flow methodology. Factors
used in the valuation of intangible assets with indefinite lives include, but are not limited to, management’s plans for future operations,
brand initiatives, recent results of operations and projected future cash flows.
The Company tested the trademarks and domain names for impairment and concluded that there has been no impairment in any
period.