11. Goodwill and Intangible Assets

Goodwill

The activity in the balance of the Company’s goodwill was as follows (in thousands):



	For the Years Ended December 31,
	2019		2018		2017
Balance, beginning of period	$	37,248		39,482		6,731
Acquisitions		—		1,727		35,164
Impairment losses		—		(3,961)		(2,413)
Balance, end of period	$	37,248		37,248		39,482

The Company recognized $1.7 million of goodwill in connection with the acquisition of an operating business through a loan foreclosure during the year ended December 31, 2018 and $35.2 million of goodwill in connection with the acquisition of IT’SUGAR during the year ended December 31, 2017. The goodwill associated with IT’SUGAR is included in the Company’s BBX Sweet Holdings reportable segment, while the remaining goodwill relates to an operating business included in the “Other” category for segment reporting.

As described in Note 2, the Company tests goodwill for potential impairment on an annual basis as of December 31 or during interim periods if impairment indicators exist. During the year ended December 31, 2019, the Company determined that its goodwill was not impaired. During the years ended December 31, 2018 and 2017, the Company determined that the fair values of certain of BBX Sweet Holdings’ reporting units were below their respective carrying values as of the applicable testing dates and recognized goodwill impairment losses of $4.0 million and $2.4 million, respectively. The goodwill impairment losses recognized during the years ended December 31, 2018 and 2017 were measured based on the excess of the applicable reporting unit’s carrying value over its fair value.

The decline in the fair values of these reporting units and the related recognition of goodwill impairment losses primarily resulted from ongoing losses in these operations and various strategic initiatives related to such businesses, including the consolidation of manufacturing facilities, a reduction in corporate personnel and infrastructure, and the elimination of various unprofitable brands.

Intangible Assets

The Company’s intangible assets consisted of the following (in thousands):




	December 31,
Class	2019		2018
Intangible assets:
Management contracts	$	61,293		61,293
Trademarks		8,522		8,522
Customer relationships		70		70
Lease premium		—		2,313
Franchise agreements		—		740
Other		721		777
		70,606		73,715
Accumulated amortization		(2,420)		(4,005)
Total intangible assets	$	68,186		69,710

Management contracts are indefinite-lived intangible assets and are not amortized.

Trademarks and customer relationships are amortized using the straight-line method over their expected useful lives, which range from 12 to 20 years.

The off-market lease intangibles were amortized using the straight-line method over the remaining lease terms following the acquisition date of the related lease agreements, which is 5 to 9 years. Upon the Company’s adoption of the new lease accounting standard on January 1, 2019, the unamortized balances of these intangibles were reclassified and included in the measurement of the right-of-use assets associated with the applicable lease agreements.

As discussed in Note 1, the Company previously entered into area development and franchise agreements with MOD Pizza related to the development of MOD Pizza franchised restaurant locations throughout Florida. The costs related to entering into these agreements were previously capitalized and being amortized using the straight-line method over their expected useful lives, which ranged from 7 to 10 years. As a result of the Company’s termination of these agreements in 2019, the unamortized balance of these costs was written off and included in impairment losses in the Company’s statement of operations and comprehensive income during the year ended December 31, 2019.

Amortization Expense

During the years ended December 31, 2019, 2018, and 2017, the Company recognized approximately $0.7 million, $0.8 million and $0.9 million, respectively, of amortization expense related to its intangible assets which is reflected in selling, general and administrative expenses in the Company’s statements of operations and comprehensive income.

The table below sets forth the estimated aggregate amortization expense of intangible assets during each of the five years subsequent to December 31, 2019 (in thousands):



Years Ending December 31,	Total
2020	$	630
2021		609
2022		556
2023		500
2024		500

Impairment Testing

As described in Note 2, the Company tests indefinite-lived intangible assets for impairment on at least an annual basis, or during interim periods if impairment indicators exist, and amortizable intangible assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of an intangible asset, or an asset group which includes an intangible asset, may not be recoverable. Due to ongoing losses associated with certain of BBX Sweet Holdings’ businesses in the confectionery industry and strategic initiatives related to such businesses, as described above, the Company tested certain asset groups associated with these businesses for recoverability during the years ended December 31, 2019, 2018, and 2017 and determined that the carrying amounts of certain asset groups exceeded the estimated undiscounted future cash flows expected to result from the use of such assets during the year ended December 31, 2017. As a result, during the year ended December 31, 2017, the Company recognized intangible asset impairment losses of $1.9 million. The intangible asset impairment losses were measured based on the amount by which the carrying amounts of the intangible assets exceeded their respective estimated fair values. The Company did not recognize any intangible asset impairment losses during the years ended December 31, 2019 and 2018.

Valuation Methods for Goodwill and Intangible Asset Impairment Testing

The Company utilizes a discounted cash flow methodology and the guideline public company market approach to determine the fair value of its goodwill and indefinite-lived intangible assets. The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from reporting units or asset groups. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The Company generally used a five to ten-year period in computing discounted cash flow values. The most significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal value, and the forecast of future cash flows. The guideline public company approach method determines fair value based upon the consideration of trading prices of publicly held stocks of comparable companies. The significant inputs are enterprise value to revenue and enterprise value to earnings before interest, taxes, depreciation and amortization (“EBITDA”). Based on the inputs, multiples of revenue and EBITDA are derived to approximate the fair value of the reporting unit.

To the extent that impairment testing was required, the Company estimated the fair values of certain of its trademark and customer relationship intangible assets. The relief from royalty valuation method, a form of the income approach, was used to estimate the fair value of trademarks. Under this method, the fair value of trademarks was determined by calculating the present value using a risk-adjusted discount rate of the estimated future royalty payments that would have to be paid if the trademarks were not owned. The multi-period excess earnings method, a form of the income approach, was used to estimate the fair value of customer relationships. The multi-period excess earnings method isolates the expected cash flows attributable to the customer relationship intangible asset and discounts these cash flows at a risk adjusted discount rate.

Inherent in the Company’s determinations of fair value are certain judgments and estimates relating to future cash flows, including the Company’s assessment of current economic indicators and market valuations and assumptions about the Company’s strategic plans with regard to its operating businesses. Due to the uncertainties associated with such evaluations, actual results could differ materially from such estimates.