Goodwill and Other Intangibles

Goodwill was allocated to reporting units that closely reflect the regions served by the Company: New York, Boston, Washington, D.C., Philadelphia, Florida, California, Puerto Rico and Switzerland. The Company has acquired several clubs in 2018 and the first half of 2019 and has recorded goodwill as applicable to the appropriate regions. For more information on these acquisitions, refer to Note 12 - Acquisitions. Goodwill for all acquisitions was recorded at fair value at the time of such acquisitions and may have changes to the balances up to one year after acquisition. As of June 30, 2019, the New York, Boston, California, Florida, Puerto Rico and Switzerland regions have a goodwill balance.

Beginning in the first quarter of 2018, the Company’s annual goodwill impairment test is performed on August 1, or more frequently, should circumstances change which would indicate the fair value of goodwill is below its carrying amount. The Company has historically performed its goodwill impairment test annually as of the last day of February. The determination as to whether a triggering event exists that would warrant an interim review of goodwill and whether a write-down of goodwill is necessary involves significant judgment based on short-term and long-term projections of the Company.

As of February 28, 2018, the Company performed a goodwill impairment test on the Switzerland region in line with the historical policy. As of August 1, 2018, the Company performed a goodwill impairment test on the New York, Boston, California and Switzerland regions, which was within 12 months of the related acquisitions. For the Florida and Puerto Rico regions, the acquired goodwill was related to the acquisitions of clubs after the annual testing date. As such, these intangible assets were recorded at fair value at the time of acquisitions. The next goodwill impairment test for all reporting units will be August 1, 2019.

The Company’s annual goodwill impairment tests as of August 1, 2018 and February 28, 2018 were performed by comparing the fair value of the Company’s reporting unit with its carrying amount and then recognizing an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The estimated fair value was determined by using an income approach. The income approach was based on discounted future cash flows and required significant assumptions, including estimates regarding revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. The August 1, 2018 and February 28, 2018 annual impairment tests supported the goodwill balance and as such, no impairment of goodwill was required.

The changes in the carrying amount of goodwill from December 31, 2018 through June 30, 2019 are detailed in the chart below:



	New York			Boston			California		Florida		Puerto Rico		Switzerland			Outlier Clubs			Total
Goodwill	$	38,376		$	23,348		$	1,584	$	2,467	$	2,380	$	1,175		$	3,982		$	73,312
Changes due to foreign currency exchange rate fluctuations	—			—			—		—		—		(129		)	—			(129		)
Less: accumulated impairment of goodwill	(31,549		)	(15,775		)	—		—		—		—			(3,982		)	(51,306		)
Balance as of December 31, 2018	6,827			7,573			1,584		2,467		2,380		1,046			—			21,877
Acquired goodwill (Refer to Note 12 - Acquisitions)	—			—			—		8,038		—		—			—			8,038
Measurement period adjustments	(5		)	544			—		2,079		268		—			—			2,886
Changes due to foreign currency exchange rate fluctuations	—			—			—		—		—		10			—			10
Balance as of June 30, 2019	$	6,822		$	8,117		$	1,584	$	12,584	$	2,648	$	1,056		$	—		$	32,811

Amortization expense was $996 and $1,742 for the three and six months ended June 30, 2019, respectively, compared to $556 and $1,034 for the prior periods. Intangible assets are as follows:



	As of June 30, 2019							As of December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization			Net Intangible Assets
Membership lists	$	7,652	$	(5,362	)	$	2,290	$	7,042	$	(4,224	)	$	2,818
Favorable lease commitment⁽¹⁾	—		—			—		2,390		(553		)	1,837
Non-compete agreement	3,761		(637		)	3,124		3,050		(295		)	2,755
Trade names⁽²⁾	5,071		(550		)	4,521		2,337		(308		)	2,029
	$	16,484	$	(6,549	)	$	9,935	$	14,819	$	(5,380	)	$	9,439


(1)	Balances in favorable lease commitment were reclassified effective January 1, 2019 to Operating lease right-of-use assets in connection with Topic 842. Prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under previous lease guidance.


(2)	During the three months ended June 30, 2019, the Company discontinued the TMPL trade name and wrote off the remaining net balance of $180.