GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2015

NOTE D — GOODWILL AND INTANGIBLE ASSETS

The Company’s intangible assets, all of which are included in the U.S. Wholesale and International segments, consist of the following (in thousands):


	Year Ended December 31,
	2015							2014
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net

Goodwill	$	18,101	$	—		$	18,101	$	18,101	$	—		$	18,101
Indefinite-lived intangible assets:
Trade names		7,616		—			7,616		7,616		—			7,616

Finite-lived intangible assets:
Licenses		15,847		(8,462	)		7,385		15,847		(8,007	)		7,840
Trade names		29,724		(6,818	)		22,906		29,768		(4,568	)		25,200
Customer relationships		50,823		(10,806	)		40,017		50,823		(6,754	)		44,069
Other		1,202		(634	)		568		1,202		(431	)		771

Total	$	123,313	$	(26,720	)	$	96,593	$	123,357	$	(19,760	)	$	103,597

The Company performed its 2015 annual impairment test for its indefinite-lived trade names as of October 1, 2015. The Company elected to first perform a qualitative assessment to determine if it is more likely than not that the fair value of the Company’s indefinite-lived trade names are less than the carrying values. The Company considered events and circumstances that could affect the significant inputs used to determine the fair values of the indefinite-lived trade names. Based on the qualitative assessment, the Company determined it is not more likely than not that the fair values of the Company’s indefinite-lived trade names are less than the carrying values.

In 2014, the Company performed quantitative impairment test for its indefinite-lived trade names which involved the assessment of the fair market values of the Company’s indefinite-lived trade names based on Level 3 unobservable inputs, using a relief from royalty approach, assuming a discount rate of 14.0%-15.5% and an average long term growth rate of 2.5%-3%. The result of the impairment assessment of the Company’s indefinite-lived trade names indicated that the carrying values of the Elements^® and Melannco^® trade names exceeded their fair values as of October 1, 2014. The Company’s home décor products category has experienced a decline in sales and profit in recent years. The Company believes the most significant factor resulting in the decline was the reduction in retail space allocated by the Company’s customers to the category which has also contributed to pricing pressure. As a result of these factors, the Company recorded an impairment charge of $3.4 million, related to these brands, in its consolidated statement of operations for the year ended December 31, 2014.

In addition, as of October 1, 2015 and December 31, 2015, the Company assessed the carrying value of its goodwill and determined based on quantitative and qualitative factors that no impairment existed. The Company bypassed the optional qualitative impairment analysis for its three reporting units with goodwill for its October 1, 2015 impairment test. Accordingly, the first step of the two step goodwill impairment test as described was performed.

Under the first step, the estimated fair value of the reporting unit is calculated by the discounted cash flow method. The significant assumptions used under the discounted cash flow method are projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital. Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are three primary drivers of the projected cash flows in the discounted cash flow fair value model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. Under this approach, the resultant estimated fair value of each of the reporting units exceeded their carrying value as of October 1, 2015 and no goodwill impairment charges were recorded.

For one of the reporting units tested under the first step, the Kitchen Craft reporting unit, which carried goodwill of $13.0 million, the excess of fair value over its carrying value was 5%. This reporting unit was acquired in 2014, and therefore the Company did not expect the fair value to be significantly in excess of the carrying value. There were no fundamental changes in the business that would indicate a significant decline in the fair value since the acquisition date, however macroeconomic conditions in Europe have contributed to a decline in EBITDA. Management’s projections used to estimate the undiscounted cash flows included increasing net sales and operational improvements designed to reduce costs. Changes in any of the significant assumptions used can materially affect the expected cash flows, and such impacts can result in the requirement to proceed to the second step of the test and potentially a material non-cash impairment charge could result. The Company is not currently aware of any negative changes in its assumptions that could lead to the fair value of the reporting units being less than the carrying value.

A summary of the activities related to the Company’s intangible assets for the years ended December 31, 2015, 2014 and 2013 consists of the following (in thousands):


	Intangible Assets			Goodwill		Total Intangible Assets and Goodwill
Goodwill and Intangible Assets, December 31, 2012	$	52,757		$	5,085	$	57,842
Amortization		(2,693	)		—		(2,693	)

Goodwill and Intangible Assets, December 31, 2013		50,064			5,085		55,149

Acquisition of trade names		12,348			—		12,348
Acquisition of customer relationships		32,417			—		32,417
Acquisition of other intangible assets		618			—		618
Goodwill from Kitchen Craft acquisition		—			13,016		13,016
Impairment of trade names		(3,384	)		—		(3,384	)
Amortization		(6,567	)		—		(6,567	)

Goodwill and Intangible Assets, December 31, 2014		85,496			18,101		103,597


Amortization		(7,004	)		—		(7,004	)

Goodwill and Intangible Assets, December 31, 2015	$	78,492		$	18,101	$	96,593

The weighted-average amortization periods for the Company’s finite-lived intangible assets as of December 31, 2015 are as follows:


	Years
Trade names		14
Licenses		33
Customer relationships		13
Other		11

Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):


Year ending December 31,
2016	$	6,993
2017		6,705
2018		6,705
2019		6,705
2020		6,690

Amortization expense for the years ended December 31, 2015, 2014 and 2013 was $7.0 million, $6.6 million and $2.7 million, respectively.

- 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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