Restoration Hardware 2014 Annual Report Download - page 86

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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 2014, 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 2014 and fiscal 2013.
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 2014, 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 operating results 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.
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