Banana Republic 2015 Annual Report Download - page 38

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In connection with the acquisitions of Athleta in September 2008 and Intermix in December 2012, we allocated
$99 million and $81 million of the respective purchase prices to goodwill. The aggregate carrying amount of
goodwill was $180 million as of January 30, 2016. We review goodwill for impairment by first assessing qualitative
factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its
carrying amount, including goodwill, as a basis for determining whether it is necessary to perform the two-step
goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is
less than its carrying amount, the two-step test is performed to identify potential goodwill impairment. If it is
determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying
amount, it is unnecessary to perform the two-step goodwill impairment test. Based on certain circumstances, we
may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step
goodwill impairment test. The first step of the two-step goodwill impairment test compares the fair value of the
reporting unit to its carrying amount, including goodwill. The second step includes hypothetically valuing all the
tangible and intangible assets of the reporting unit as if the reporting unit had been acquired in a business
combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying amount of
that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill,
we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying amount.
A reporting unit is an operating segment or a business unit one level below that operating segment, for which
discrete financial information is prepared and regularly reviewed by segment management. We have deemed
Athleta and Intermix to be the reporting units at which goodwill is tested for Athleta and Intermix, respectively.
During the fourth quarter of fiscal 2015, we completed our annual impairment testing of goodwill and we did not
recognize any impairment charges. We determined that the fair value of goodwill attributed to Athleta significantly
exceeded its carrying amount as of the date of our annual impairment review. The fair value of goodwill attributed
to Intermix exceeded its carrying amount by approximately 15 percent as of the date of our annual impairment
review.
In connection with the acquisitions of Athleta in September 2008 and Intermix in December 2012, we allocated
$54 million and $38 million of the respective purchase prices to trade names. The aggregate carrying amount of
the trade names was $92 million as of January 30, 2016. A trade name is considered impaired if the carrying
amount exceeds its estimated fair value. If a trade name is considered impaired, we recognize a loss equal to the
difference between the carrying amount and the estimated fair value of the trade name. The fair value of the trade
names is determined using the relief from royalty method. During the fourth quarter of fiscal 2015, we completed
our annual impairment review of the trade names and we did not recognize any impairment charges. We
determined that the fair value of the Athleta trade name significantly exceeded its carrying amount as of the date
of our annual impairment review. The fair value of the Intermix trade name exceeded its carrying amount by
approximately 30 percent as of the date of our annual impairment review.
These analyses require management to make assumptions and to apply judgment, including forecasting future
sales and expenses, and selecting appropriate discount rates and royalty rates, which can be affected by
economic conditions and other factors that can be difficult to predict.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or
assumptions we use to calculate impairment losses of long-lived assets, goodwill, and intangible assets.
However, if actual results are not consistent with our estimates and assumptions used in the calculations, we may
be exposed to impairment losses that could be material.
Revenue Recognition
While revenue recognition for the Company does not involve significant judgment, it represents an important
accounting policy. We recognize revenue and the related cost of goods sold at the time the products are received
by the customers. For sales transacted at stores, revenue is recognized when the customer receives and pays for
the merchandise at the register. For sales where we ship the merchandise to the customer from a distribution
center or store, revenue is recognized at the time we estimate the customer receives the merchandise.