Quarterly report pursuant to Section 13 or 15(d)

Impairments

v3.21.2
Impairments
9 Months Ended
Sep. 30, 2021
Impairments [Abstract]  
Impairments 7. Impairments

Goodwill

The activity in the balance of the Company’s goodwill was as follows (in thousands):

For the Three Months Ended

For the Nine Months

Ended

September 30,

September 30,

2021

2020

2021

2020

Balance, beginning of period

$

20,796

14,864

$

8,277

37,248

Deconsolidation of IT'SUGAR

(14,864)

(14,864)

IT'SUGAR emergence from bankruptcy

222

14,082

Impairment losses

(22,384)

Colonial Elegance acquisition adjustments to goodwill

(2,796)

(4,137)

Balance, end of period

$

18,222

$

18,222

The Company tests goodwill associated with its reporting units for potential impairment on an annual basis as of December 31 or during interim periods if impairment indicators exist.

As of March 31, 2020, the Company concluded that the effects of the COVID-19 pandemic, including the recessionary economic environment and the impact on certain of the Company’s operations, indicated that it was more likely than not that the fair values of certain of its reporting units with goodwill had declined below the respective carrying amounts of such reporting units. As a result, the Company tested the goodwill associated with such reporting units for impairment by estimating the fair values of the respective reporting units as of March 31, 2020 and recognized goodwill impairment losses of $22.4 million associated primarily with IT’SUGAR and, to a lesser extent, certain of its other reporting units during the three months ended March 31, 2020. The Company deconsolidated IT’SUGAR on September 22, 2020 as a result of IT’SUGAR filing petitions for Chapter 11 bankruptcy and derecognized the remaining goodwill balance of approximately $14.9 million as of that date. The decline in the fair value of these reporting units from December 31, 2019 primarily resulted from the effects of the COVID-19 pandemic on these businesses.

There were no impairment indicators relating to the Company’s goodwill during the three and nine months ended September 30, 2021, and accordingly, the Company did not test its goodwill for impairment during the nine months ended September 30, 2021. See the Company’s 2020 Annual Report for further discussion related to the Company’s accounting policies for goodwill and its method and assumptions used to estimate the fair value of its reporting units in connection with its goodwill impairment testing.

In June 2021, IT’SUGAR emerged from Chapter 11 bankruptcy pursuant to a plan of reorganization confirmed by the Bankruptcy Court. As a result of the confirmation and effectiveness of the plan and the revesting of its equity interests in IT’SUGAR, the Company was deemed to have reacquired a controlling financial interest in IT’SUGAR and consolidated the results of IT’SUGAR into its consolidated financial statements as of the Effective Date. The Company applied the acquisition method of accounting to the consolidation of IT’SUGAR on the Effective Date and recognized $14.1 million of goodwill. See Note 17 for further discussion of the IT’SUGAR bankruptcy proceedings.

Long-Lived Assets

The Company’s long-lived assets include property and equipment, amortizable intangible assets, and right-of-use assets associated with its lease agreements. The Company tests its long-lived assets, or asset groups which include long-lived assets, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such assets or asset groups may not be recoverable.

During the nine months ended September 30, 2020, the Company concluded that the effects of the COVID-19 pandemic indicated that the carrying amount of certain of its long-lived assets may not be recoverable, including asset groups associated with certain of its retail locations which were temporarily closed as a result of the pandemic. As a result of the Company’s testing of its long-lived assets for impairment, the Company recognized impairment losses of $5.4 million during the nine months ended September 30, 2020 related primarily to leasehold improvements and right-of-use assets associated with certain of IT’SUGAR’s retail locations. The recognition of these impairment losses primarily resulted from the effects of the COVID-19 pandemic on the estimated cash flows expected to be generated by the related assets.

There were no impairment indicators relating to the Company’s long-lived assets during the three and nine months ended September 30, 2021, and accordingly, the Company did not test its long-lived assets for impairment during the nine months ended September 30, 2021. See the Company’s 2020 Annual Report for further discussion related to the Company’s accounting policies for long-lived assets and its method and assumptions used to estimate the future cash flows and fair values of its long-lived assets in connection with its impairment testing for such assets.

Equity Method Investments

The Company evaluates its equity method investments for impairment when events or changes in circumstances indicate that the fair values of the investments may be below the carrying values. When a decline in the fair value of an investment is determined to be other than temporary, an impairment loss is recorded to reduce the carrying amount of the investment to its fair value.

During the nine months ended September 30, 2020, the Company recognized impairment losses of $2.2 million associated with certain of its investments in unconsolidated real estate joint ventures. The Company estimated the fair value of these investments utilizing a discounted cash flow methodology which estimated the present value of the projected future cash flows expected to be generated from such investments. There were no indicators that the fair values of the Company’s equity method investments had declined below their respective carrying values during the three and nine months ended September 30, 2021.

See the Company’s 2020 Annual Report for further discussion related to the Company’s accounting policies for equity method investments and its method and assumptions used to estimate the fair value of its investments in connection with its impairment testing for such investments.