Aarons 2014 Annual Report Download - page 67

Download and view the complete annual report

Please find page 67 of the 2014 Aarons annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 102

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102

57
well as the sale of the net assets of the RIMCO disposal group, and are generally included in other operating (income) expense,
net within the consolidated statements of earnings.
The disposal of assets held for sale resulted in the recognition of net losses of $754,000 in 2014 and net gains of $1.2 million in
2012. Gains and losses on the disposal of assets held for sale were not significant in 2013.
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 value 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 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.
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.
The Company 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:
(In Thousands) 2014 2013
Sales and Lease Ownership $ 226,828 $ 224,523
Progressive 289,184 —
HomeSmart 14,658 14,658
Total $ 530,670 $ 239,181
The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of the
reporting unit to its carrying value, including goodwill. The Company uses a combination of valuation techniques to determine
the fair value of its 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.
If the carrying value of the reporting unit exceeds the fair value, a second step is performed in order 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 that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an impairment
charge is recognized in an amount equal to that excess.
During the performance of the annual assessment of goodwill for impairment in the 2014, 2013 and 2012 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. While no impairment was noted in our impairment testing, if profitability is delayed as a result of