Intangible Asset and Goodwill

Indefinite-lived intangible asset

The Company has an indefinite-lived intangible asset that is comprised of trademarks that were purchased on April 2, 2008 as part of the acquisition of the businesses owned and operated by Emeril Lagasse and certain affiliated parties, except for Emeril Lagasse’s restaurant-related business and foundation. This intangible asset, reported within the Merchandising segment, had carrying amounts as of December 31, 2013 and September 30, 2014 as set forth in the schedule below:



	Intangible Asset - Trademarks
Balance at December 31, 2013	$	45,200
Impairment Charge	(10,500		)
Balance at September 30, 2014	$	34,700

The Company's trademarks, which are classified as intangible assets with indefinite useful lives, are reviewed annually on October 1^st, or more frequently if circumstances warrant, for impairment by applying a fair-value based test in accordance with Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other" ("ASC 350"). The Company performs the impairment test by comparing the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment charge for the excess value must be recorded. The Company estimates fair value using the discounted cash flow ("DCF") valuation methodology, in which future after-tax cash flows are discounted based on a market comparable weighted average cost of capital rate, adjusted for market and other risks where appropriate. The Company’s estimates, which are Level 3 unobservable inputs, are based on historical results and current economic and market trends, which drive key assumptions of revenue growth rates and operating margins, and therefore, are subject to uncertainty.

The Company’s annual test of its trademarks as of October 1, 2013 included a DCF analysis that was based on estimated long-term growth projections for the Emeril Lagasse business. At that time, the assumptions used for the 2014 fiscal year and beyond included growth in royalty revenue in the housewares and new food categories.

During the nine months ended September 30, 2014, the financial results of the Emeril Lagasse business were lower than expected, largely as a result of lower wholesale royalties in the housewares category that were impacted by a slower than expected start of certain new initiatives. In September 2014, in connection with the Company's 2015 budgeting process, the Company determined that: (1) the expected increase in wholesale royalties in the housewares category would be delayed; (2) the distribution of housewares products to wider retail outlets was less certain; and (3) new food licensing partnerships that were expected to generate long-term growth were not yet meeting expectations. Accordingly, the Company reduced its long-term projections with respect to both the housewares and new food licensing businesses. As a result of lower-than-expected financial results and lower long-term projections, and in conjunction with the overall evaluation of the business, the Company determined that a triggering event had occurred during the three months ended September 30, 2014.

The Company completed an evaluation of the fair value of its indefinite-lived trademarks as of September 30, 2014 using a DCF analysis, which included lower future growth assumptions, as discussed above. Other significant assumptions used in this DCF analysis included expected future margins, the discount rate and the perpetual growth rate. These assumptions are considered Level 3 unobservable inputs under the fair value hierarchy established by ASC 820, "Fair Value Measurements and Disclosures." As of September 30, 2014, the DCF analysis provided for a fair value of $34.7 million, which was below the carrying value of $45.2 million. This difference resulted in a non-cash intangible asset impairment charge of $10.5 million for the three months ended September 30, 2014. The impairment charge is included in "Impairment of trademark and goodwill" in the Consolidated Statements of Operations for the three and nine months ended September 30, 2014.

Although the Company considered all current information in calculating the amount of the impairment charge, future changes in events or circumstances could result in further decreases in the fair value of its indefinite-lived intangible asset. If actual results differ from the Company’s estimate of future cash flows, revenues, earnings and other factors, the Company may record additional impairment charges in the future.

Goodwill

The Company also had goodwill that was generated upon the April 2, 2008 acquisition of certain businesses owned and operated by Emeril Lagasse and certain affiliated parties. This goodwill, reported within the Merchandising segment, had carrying amounts as of December 31, 2013 and September 30, 2014 as set forth in the schedule below:



	Goodwill
Balance at December 31, 2013	$	850
Impairment charge	(850		)
Balance at September 30, 2014	$	—

The Company reviews goodwill for impairment by applying a fair-value based test annually on October 1^st, or more frequently if circumstances warrant, in accordance with ASC 350. Goodwill impairment is measured based upon a two-step process. In the first step, the Company compares the fair value of a reporting unit with its carrying amount, including goodwill, using a DCF valuation method. Future after-tax cash flows are discounted based on a market comparable weighted average cost of capital rate, adjusted for market and other risks where appropriate. The Company’s estimates, which are Level 3 unobservable inputs, are based on historical results and current economic and market trends, which drive key assumptions of revenue growth rates and operating margins, and therefore, are subject to uncertainty. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is considered not impaired, thus rendering the second step in impairment testing unnecessary. If the fair value of the reporting unit is less than the carrying value, a second step is performed in which the implied fair value of the reporting unit's goodwill is compared to the carrying value of the goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the estimated fair value of the reporting unit was the purchase price paid. The implied fair value of the reporting unit’s goodwill is compared with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment charge for the excess value must be recorded.

As a result of the intangible asset impairment charge associated with the Emeril Lagasse trademarks, described above, the Company determined that a triggering event had also occurred with respect to the goodwill associated with the Emeril Lagasse business during the three months ended September 30, 2014. The Company considers all business related to Emeril Lagasse to be aggregated into a single reporting unit, which is a component of the Merchandising segment. The Company calculated the fair value of the reporting unit using a DCF analysis based upon updated long-term projections as of September 30, 2014, which included lowered expectations for both the housewares and new food categories and lower future growth assumptions. Other significant assumptions used in this DCF analysis included expected future margins, the discount rate and the perpetual growth rate. All these assumptions are considered Level 3 unobservable inputs under the fair value hierarchy established by ASC 820, "Fair Value Measurements and Disclosures."

The step one impairment test as of September 30, 2014 resulted in a fair value of the reporting unit that was less than its carrying value. Therefore, the Company performed the second step of the goodwill impairment test in which the implied fair value of the reporting unit’s goodwill was compared to the carrying value of its goodwill. The implied fair value of the reporting unit’s goodwill was determined based on the difference between the fair value of the reporting unit and the net fair value of its identifiable assets and liabilities, which included minimal accounts receivable, accounts payable and deferred revenue. The reporting unit’s identifiable assets also included the revalued indefinite-lived intangible asset described above. As a result of performing this goodwill impairment test as of September 30, 2014, the Company determined that the implied fair value of the Emeril Lagasse reporting unit’s goodwill was zero. Therefore, the Company also recorded a non-recurring, non-cash goodwill impairment charge of $0.9 million for the three-month period ended September 30, 2014. The impairment charge is included in "Impairment of trademark and goodwill" in the Consolidated Statements of Operations for the three and nine months ended September 30, 2014.