ASSET IMPAIRMENTS

The Company performs its annual impairment assessment of the carrying value of its goodwill and intangible franchise rights as of October 31st of each year. The Company also performs interim reviews of all of its long-lived and indefinite-lived assets for impairment when evidence exists that the carrying value may not be recoverable. In the Company’s 2017 annual goodwill assessment, the fair value of each of its reporting units exceeded the carrying value of its net assets (step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill. If, in future periods, the Company determines that the carrying amount of its net assets exceeds the respective fair value of its goodwill for any or all of its reporting units, the Company could be required to recognize a material non-cash impairment charge to the goodwill associated with the reporting unit(s). In the Company’s 2017 interim and annual impairment assessments of long-lived assets and intangible franchise rights, the Company recorded the following non-cash impairment charges, all of which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:


•	The Company determined that the carrying values of certain of its intangible franchise rights were greater than the fair value and, as a result, recognized $19.3 million in aggregate pre-tax non-cash asset impairment charges during the third and fourth quarters of 2017.


•	In addition, the Company determined that the carrying value of various other long-term assets was no longer recoverable, and recognized $0.2 million in pre-tax non-cash asset impairment charges.

If any of the Company’s assumptions change, or fail to materialize, the resulting decline in its estimated fair market value of intangible franchise rights could result in a material non-cash impairment charge. For example, the Company performed two separate sensitivity analyses on its 2017 annual impairment assessment of goodwill and intangible franchise rights. If the Company’s assumptions regarding the risk-free rate and cost of debt differed such that the estimated WACC used in its 2017 assessment increased by 200 basis points, and all other assumptions remained constant, an additional $33.2 million of non-cash franchise rights impairment charges would have resulted, excluding franchises acquired since the previous annual test. This additional impairment would have consisted of $33.1 million in the U.S. and $0.1 million in the U.K. The Company’s Brazil reporting unit would have failed the step one impairment test for goodwill in this scenario, while the U.S. and U.K. reporting units would have passed step one. The Company’s second sensitivity analysis represented a recessionary sales environment in the U.S., utilizing the U.S. SAAR equivalent to 2009 levels for 2018. Similar industry sales levels were also applied to the U.K. reporting unit. Relative to the Brazil reporting unit, the recessionary case forecasted revenues to be flat in 2019 and 2020, with increases for the remaining years at lower levels as compared to the base case. In this sensitivity analysis, an additional $51.8 million of non-cash franchise rights impairment charges would have resulted, including $51.0 million and $0.8 million for the U.S. and the U.K., respectively. In this scenario, none of the Company’s reporting units would have failed the step one impairment test for goodwill.

On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the EU. The majority vote in favor of Brexit has created uncertainty in the global markets and in the regulatory environment in the U.K., as well as the overall European Union. The impact on our financial results and operations may not be known for some time, but could be adverse. In addition, automotive dealers in the U.K. rely on the legislative doctrine of Block Exemption to govern market representation activities of competing dealers and dealer groups. To date, there has been no clear indication of how such legislation may be effected by Brexit, but a change to such legislation could be adverse. If, as a result of the clarification of any of these uncertainties, the estimates, assumptions and inputs utilized in our annual impairment test for goodwill and intangible franchise rights change or fail to materialize, the resulting decline in the estimated fair market value of such assets could result in a material non-cash impairment charge. While the Company is not aware of any changes in circumstances that has resulted in a decline in fair value of these assets at this time, the Company continues to closely monitor the situation.

In the Company’s 2016 annual goodwill assessment, the fair value of each of its reporting units exceeded the carrying value of its net assets (step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill. If, in future periods, the Company determines that the carrying amount of its net assets exceeds the respective fair value of its goodwill for any or all of its reporting units, the Company could be required to recognize a material non-cash impairment charge to the goodwill associated with the reporting unit(s). During 2016, the Company also completed other impairment assessments on an annual and interim basis, as applicable, and recorded the following non-cash impairment charges, all of which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:


•	The Company determined that the carrying values of certain of its intangible franchise rights were greater than the fair value and, as a result, recognized a $30.0 million pre-tax non-cash asset impairment charge.


•	In addition, the Company determined that the carrying amounts of various real estate holdings and other long-lived assets were no longer fully recoverable, and recognized $2.8 million in pre-tax non-cash asset impairment charges.

In the Company’s 2015 goodwill assessment, the fair value of its two U.S. reporting units, as well as the U.K. reporting unit, exceeded the carrying value of its net assets (i.e., step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill relating to its two U.S. and U.K. reporting units. The Brazil reporting unit’s fair value did not exceed the carrying value of its net assets. As a result, the Company performed a step two analysis for this reporting unit, measured the estimated fair value of the reporting unit’s assets and liabilities as of the test date using level 3 inputs and compared the resulting implied fair value of the reporting unit’s goodwill to its carrying value. As a result of the carrying value of goodwill exceeding the implied fair value, a $55.4 million impairment was recorded as of December 31, 2015. During 2015, the Company also completed other impairment assessments on an annual or interim basis, as applicable, and recorded the following non-cash impairment charges, all of which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:


•	The Company determined that the carrying values of certain of its intangible franchise rights were greater than the fair value and, as a result, recognized a $30.1 million pre-tax non-cash asset impairment charge.


•	In addition, the Company determined that the carrying amounts of various real estate holdings were no longer recoverable, and recognized $1.3 million in pre-tax non-cash asset impairment charges.


•	The Company also determined that the carrying values of various other long-term assets were no longer recoverable, and recognized $0.8 million in pre-tax non-cash asset impairment charges.