Aarons 2014 Annual Report Download - page 40

30
Goodwill and Other Intangible Assets
Intangible assets are classified into one of three categories: (1) intangible assets with definite lives subject to amortization, (2)
intangible assets with indefinite lives not subject to amortization and (3) goodwill. For intangible assets with definite lives, tests
for impairment must be performed if conditions exist that indicate the carrying value may not be recoverable. For intangible
assets with indefinite lives and goodwill, tests for impairment must be performed annually and when 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.
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 following table presents the carrying value of goodwill and other intangible assets, net as of December 31, 2014:
(In Thousands) 2014
Goodwill $ 530,670
Other Indefinite-Lived Intangible Assets 53,000
Definite-Lived Intangible Assets 244,471
Goodwill and Other Intangibles, Net $ 828,141
The Company has historically performed its annual goodwill impairment test as of September 30 each year for its Sales and
Lease Ownership and HomeSmart reporting units. During the three months ended December 31, 2014, the Company
voluntarily changed its annual impairment assessment date from September 30 to October 1 for those reporting units. Upon the
acquisition of Progressive, the Company selected October 1 as the annual impairment assessment date for the goodwill of the
Progressive reporting unit and its indefinite-lived intangible assets. The Company believes this change in measurement date,
which represents a change in method of applying an accounting principle, is preferable under the circumstances. The change
was made to align the annual goodwill impairment test for the Sales and Lease Ownership and HomeSmart reporting units with
the annual goodwill impairment and indefinite-lived intangible asset tests for the Progressive reporting unit and to provide the
Company with additional time to complete its annual goodwill impairment testing in advance of its year-end reporting.
In connection with the change in the date of the annual goodwill impairment test, the Company performed a goodwill
impairment test as of both September 30, 2014 and October 1, 2014, and no impairment was identified. The change in
accounting principle does not delay, accelerate or avoid an impairment charge. The Company has determined that it is
impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of
October 1 for periods prior to October 1, 2014 without the use of hindsight. As such, the Company prospectively applied the
change in the annual goodwill impairment assessment date beginning October 1, 2014.
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, 2014, the Company had five operating segments
and reporting units: Sales and Lease Ownership, Progressive, HomeSmart, Franchise and Manufacturing. As of December 31,
2014, the Company’s Sales and Lease Ownership, Progressive and HomeSmart 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,
2014:
(In Thousands) 2014
Sales and Lease Ownership $ 226,828
Progressive 289,184
HomeSmart 14,658
Total $ 530,670
We use a combination of valuation techniques to determine the fair value of our reporting units, including a multiple of gross
revenue approach and discounted cash flow models that use assumptions consistent with those we believe hypothetical
marketplace participants would use. We estimate the fair value of indefinite-lived trade name and trademark intangible assets
based on projected discounted future cash flows under a relief from royalty type method. Under the income approach, we
estimate fair value based on estimated discounted cash flows, which require assumptions about short-term and long-term