GOODWILL AND INTANGIBLE ASSETS, NET

Annual Impairment Test

For the 2015 annual goodwill impairment assessment, management concluded that the Company's reporting units had fair values estimated using a discounted cash flow method (income approach) substantially in excess of their respective carrying values, except for approximately $12 million of goodwill associated with the Lucky Vitamin reporting unit, which had an estimated fair value that exceeded its carrying value by less than 15%. If actual market conditions are less favorable than those projected, or if events occur or circumstances change that would reduce the fair value of the Lucky Vitamin reporting unit below its carrying value, management may be required to conduct an interim test or possibly recognize impairment charges in future periods. With the exception of the Discount Supplements reporting unit, no other goodwill impairments have been recorded to date. Management also performed a quantitative impairment test for its indefinite-lived brand intangible assets and concluded that the fair values under the income approach were substantially in excess of their respective carrying values.

Discount Supplements

Acquisition

On October 2, 2013, the Company acquired the assets and assumed the liabilities of Discount Supplements, which was accounted for as a business combination. The total purchase price for this acquisition was approximately $33.3 million, of which $24.6 million, $9.6 million, $0.9 million was allocated to goodwill, definite-lived intangible assets and other net liabilities, respectively.

Impairment Charge

During the third quarter of 2015, the Company evaluated the financial results of key strategic initiatives, which were undertaken as a result of declining results in the first half of 2015 and continued deterioration of market share. Based on the financial results for the quarter ended September 30, 2015, the Company concluded that these strategic measures were unsuccessful. As a result, the Company determined the Discount Supplements business did not fit into its strategic plan for maximizing long-term shareholder returns based on the Company’s expectations of the required investments necessary to improve the financial performance of the business, both in the short and long-term. The current and anticipated financial performance of the business, coupled with the Company’s consideration of future strategic options was considered a triggering event requiring an interim goodwill impairment review of the Discount Supplements reporting unit as of September 30, 2015.

The Company determined the fair value of the Discount Supplements reporting unit at September 30, 2015 using a discounted cash flow method (income approach). The key assumptions used were as follows:

•

Future cash flow assumptions - The Company's projections for Discount Supplements were based on organic growth and were derived from historical experience and assumptions regarding future growth and profitability trends. These projections also took into account the current economic climate in the United Kingdom where Discount Supplements operated, and the extent to which the regulatory environment was expected to impact future growth opportunities. The Company's analysis incorporated an assumed period of cash flows of five years with a terminal value.

•

Discount rate - The discount rate was based on Discount Supplements' estimated weighted average cost of capital ("WACC"). The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. The Company developed its cost of equity estimate based on perceived risks and predictability of future cash flows. At September 30, 2015, the WACC used to estimate the fair value of the Discount Supplements reporting unit was 16.5%.

As a result of the review, the Company concluded that the carrying value of the Discount Supplements reporting unit exceeded its fair value and proceeded to step two of the impairment analysis. Based on the results of step two, the Company concluded that this reporting unit was fully impaired; as a result, a goodwill impairment charge of $23.3 million was recorded in the third quarter of 2015.

As a result of the impairment indicators, the Company also performed an impairment analysis with respect to the definite-long-lived assets of Discount Supplements, consisting of trade name and website intangibles and property and equipment. The fair value of these assets were determined using various income approaches. Based on the results of the analyses, the Company recorded impairment charges of $4.4 million on the trade name and website intangible assets and $0.6 million on property and equipment. All of the aforementioned charges totaling $28.3 million are recorded in long-lived asset impairments in the consolidated statement of operations for the year ended December 31, 2015.

Asset Sale

The Company completed an asset sale of Discount Supplements on December 31, 2015, resulting in a loss of $2.7 million recorded within other income, net on the consolidated statement of income primarily consisting of the release of cumulative translation losses to earnings, lease-related exit costs and inventory losses primarily related to packaging materials. The Company considers the Discount Supplements legal entity to be substantially liquidated as there are no future ongoing operations. The proceeds from the sale of $1.3 million were received in the first quarter of 2016.

Current and Prior Years Activity

The following table summarizes the Company's goodwill activity by reportable segment:



	Retail			Franchising		Manufacturing/Wholesale		Total
	(in thousands)
Balance at December 31, 2013	$	346,202		$	117,303	$	202,841	$	666,346
Acquired franchise stores	1,372			—		—		1,372
Acquisition of The Health Store	6,853			—		—		6,853
Translation effect of exchange rates	(2,278		)	—		—		(2,278		)
Balance at December 31, 2014	$	352,149		$	117,303	$	202,841	$	672,293
Acquired franchise stores	1,935			—		—		1,935
Translation effect of exchange rates	(1,077		)	—		—		(1,077		)
Goodwill impairment - Discount Supplements	(23,259		)	—		—		(23,259		)
Balance at December 31, 2015	$	329,748		$	117,303	$	202,841	$	649,892

Intangible assets, net consisted of the following:



	Retail Brand		Franchise Brand		Operating Agreements			Other Intangibles			Total
	(in thousands)
Balance at December 31, 2013	$	500,000	$	220,000	$	125,665		$	17,109		$	862,774
Acquired franchise stores	—		—		—			781			781
Acquisition of The Health Store	—		—		—			788			788
Amortization expense	—		—		(6,653		)	(4,222		)	(10,875		)
Translation effect of exchange rates	—		—		—			(476		)	(476		)
Balance at December 31, 2014	$	500,000	$	220,000	$	119,012		$	13,980		$	852,992
Acquired franchise stores	—		—		—			963			963
Amortization expense	—		—		(6,653		)	(3,599		)	(10,252		)
Translation effect of exchange rates	—		—		—			(138		)	(138		)
Impairment charge - Discount Supplements	—		—		—			(4,361		)	(4,361		)
Balance at December 31, 2015	$	500,000	$	220,000	$	112,359		$	6,845		$	839,204

The following table reflects the gross carrying amount and accumulated amortization/impairment for each major intangible asset:



		December 31, 2015							December 31, 2014
	Weighted- Average Life	Gross		Accumulated Amortization/Impairment			Carrying Amount		Gross		Accumulated Amortization			Carrying Amount
		(in thousands)
Goodwill	Indefinite	$	673,151	$	(23,259	)	$	649,892	$	672,293	$	—		$	672,293
Brands—retail	Indefinite	500,000		—			500,000		500,000		—			500,000
Brands—franchise	Indefinite	220,000		—			220,000		220,000		—			220,000
Retail agreements	30.3	31,000		(9,407		)	21,593		31,000		(8,354		)	22,646
Franchise agreements	25.0	70,000		(24,617		)	45,383		70,000		(21,817		)	48,183
Manufacturing agreements	25.0	70,000		(24,617		)	45,383		70,000		(21,817		)	48,183
Other intangibles	11.8	10,222		(4,560		)	5,662		20,457		(7,427		)	13,030
Franchise rights	3.0	7,206		(6,023		)	1,183		6,243		(5,293		)	950
Total		$	1,581,579	$	(92,483	)	$	1,489,096	$	1,589,993	$	(64,708	)	$	1,525,285

The following table represents future amortization expense of definite-lived intangible assets at December 31, 2015:



Years ending December 31,	Amortization expense
	(in thousands)
2016	$	8,108
2017	7,544
2018	7,369
2019	7,257
2020	7,204
Thereafter	81,722
Total future amortization expense	$	119,204

For the years ended December 31, 2015, 2014 and 2013, the Company acquired 44, 25 and 16 franchise stores, respectively. These acquisitions are accounted for utilizing the acquisition method of accounting, and the Company allocated the purchase price by recognizing acquired inventory, fixed assets, franchise rights and other net assets at fair value with any excess being recognized as goodwill. For the years ended December 31, 2015, 2014 and 2013, the total purchase prices associated with these acquisitions was $6.2 million, $3.7 million and $2.9 million, respectively.

On April 17, 2014, the Company acquired the assets and assumed the liabilities of The Health Store, which was accounted for as a business combination. The total purchase price for this acquisition was approximately $8.9 million, of which $6.9 million, $0.8 million, and $1.2 million was allocated to goodwill, definite-lived intangible assets and other net assets, respectively.