LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL

6 Months Ended

Jun. 30, 2016

LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL

LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL

NOTE 8 — LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL

Valuation of Long-lived and Intangible Assets and Goodwill

We assess the impairment of indefinite-lived intangible assets and goodwill annually. We assess the impairment of finite-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review other than on an annual basis include, among others, the following:

A significant underperformance relative to expected historical or projected future operating results;

A significant change in the manner of the use of the acquired asset or the strategy for the overall business; or

A significant negative industry or economic trend.

When we determine that the carrying value of finite-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors and the carrying value exceeds the estimated undiscounted cash flows expected to be generated by the asset, impairment is measured based on a projected discounted cash flow method using a discount rate determined by management. An asset is considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the asset’s ability to generate positive cash flow in future periods or if significant changes our strategic business objectives and utilization of the assets occurred. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the estimated fair value, which is determined based on discounted future cash flows. The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows. Future expected cash flows for store assets are based on management’s estimates of future cash flows over the remaining lease period or expected life, if shorter. We consider historical trends, expected future business trends and other factors when estimating each store’s future cash flow. We also consider factors such as: the local environment for each store location, including mall traffic and competition; our ability to successfully implement strategic initiatives; and the ability to control variable costs such as cost of sales and payroll, and in some cases, renegotiate lease costs.

During the six months ended June 30, 2016, we recorded a store impairment charge of $279,000 related to one of our RG retail stores which was closed prior to the lease end date. We did not record any retail store impairment charges in the three months ended June 30, 2016.

We evaluate goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable using a two-step process. Under the first of two steps, we compare the fair value of a reporting unit to its carrying amount, including goodwill, to identify a potential impairment. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for such reporting unit and the enterprise must perform step two of the impairment test to measure the impairment, if any. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation: the fair value of the reporting unit is allocated to all assets and liabilities of that unit (including any unrecognized intangible assets) and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

We review our other indefinite-lived intangible assets for impairment on an annual basis, or when circumstances indicate their carrying value may not be recoverable. We calculate the value of the indefinite-lived intangible assets using a discounted cash flow method, based on the relief from royalty method.

Our annual impairment testing date is December 31 of each year.

Intangible assets as of June 30, 2016 consisted of the following (in thousands):


	Amortization	Gross		Accumulated		Net
	Period	Amount		Amortization		Amount

Trade names	Indefinite	$	58,337	$	—	$	58,337
Customer relationships	13 to 15 Years		33,900		7,272		26,628
Total		$	92,237	$	7,272	$	84,965

Intangible assets as of December 31, 2015 consisted of the following (in thousands):


	Amortization	Gross		Accumulated		Net
	Period	Amount		Amortization		Amount

Trade names	Indefinite	$	26,037	$	—	$	26,037
Customer relationships	15 Years		19,800		6,014		13,786
Total		$	45,837	$	6,014	$	39,823

Amortization expense related to the intangible assets amounted to approximately $683,000 and $330,000 for the three months ended June 30, 2016 and 2015, respectively, and $1,258,000 and $660,000 for the six months ended June 30, 2016 and 2015, respectively.

As of June 30, 2016, the future amortization expense related to the finite-lived intangible assets is as follows (in thousands):


2016	Remainder of the year	$	1,365
2017			2,730
2018			2,730
2019			2,730
2020			2,730
Thereafter			14,343
		$	26,628

Goodwill as of June 30, 2016 and December 31, 2015 consisted of the following (in thousands):


	June 30, 2016		December 31, 2015

Balance at January 1	$	2,286	$	2,286
Preliminary goodwill created by the RG Merger		4,238		—
Ending balance	$	6,524	$	2,286

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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