Quarterly report pursuant to Section 13 or 15(d)

Impairment of Long-Lived Assets

v3.20.2
Impairment of Long-Lived Assets
9 Months Ended
Sep. 30, 2020
Impairment Or Disposal Of Tangible Assets Disclosure [Abstract]  
Impairment of Long-Lived Assets

13.

Impairment of Long-Lived Assets

Due to the temporary closure of the Company’s theatres effective March 18, 2020 as a result of the COVID-19 pandemic (see Note 2), the Company performed long-lived asset impairment evaluations during each quarter during the nine months ended September 30, 2020.  The following table is a summary of the evaluations performed by asset classification.

 

 

Impairment

 

Asset

 

Valuation

 

Valuation

 

Test

 

Category

 

Approach

 

Multiple

 

 

 

 

 

 

 

 

First Quarter

Quantitative

 

Goodwill

 

Market (1)

 

8 times

 

 

 

Tradename Intangible Assets

 

Income

 

N/A

 

 

 

Other Long-lived Assets

 

Market

 

6 times

 

 

 

 

 

 

 

 

Second Quarter

Qualitative

 

Goodwill

 

N/A

 

N/A

 

 

 

Tradename Intangible Assets

 

N/A

 

N/A

 

 

 

Other Long-lived Assets

 

N/A

 

N/A

 

 

 

 

 

 

 

 

Third Quarter

Quantitative

 

Goodwill

 

Market (1)

 

2.9 to 7 times

 

 

 

Tradename Intangible Assets

 

Income

 

N/A

 

 

 

Other Long-lived Assets

 

Market

 

3.2 to 6 times

 

(1)

The Company also used the income approach to test goodwill for impairment for the respective period.  

Goodwill – The Company evaluates goodwill for impairment as follows:

 

Quantitative approach The Company evaluates goodwill for impairment at the reporting unit level and has allocated goodwill to the reporting unit based on an estimate of its relative fair value. Management considers the reporting unit to be each of its twenty regions in the U.S. and seven countries internationally with Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala considered one reporting unit (the Company does not have goodwill recorded for all of its international locations).  Under its quantitative goodwill impairment analysis, the Company estimates the fair value of each reporting unit and compares it with its carrying value.   Fair value is determined using the market approach,

 

which is the most common valuation approach for the Company’s industry and based on a multiple of cash flows for each reporting unit.   The Company also performed its quantitative goodwill impairment analysis using the income approach to further validate the results of the assessment under the market approach. Significant judgment, including management’s estimates of the impact of temporary theatre closures and other considerations as a result of COVID-19, is involved in estimating future cash flows and fair values.  The Company’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on projected operating performance of each reporting unit, relevant market transactions and industry trading multiples.  

 

Qualitative approach The Company’s qualitative assessment of goodwill for each reporting unit considers economic and market conditions, industry trading multiples and the impact of recent developments and events on the estimated fair values as determined during its most recent quantitative assessment

Tradename Intangible assets – The Company evaluates tradename intangible assets for impairment as follows:

 

Quantitative approach The Company compares the carrying values of tradename assets to their estimated fair values.  Fair values were estimated by applying an estimated market royalty rate that could be charged for the use of the tradenames to forecasted future revenues, with an adjustment for the present value of such royalties.  Significant judgment, including management’s estimate of market royalty rates and long-term revenue forecasts, is involved in estimating the tradename fair values.   Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, were based on projected revenue performance and expected industry trends, considering the temporary closure of its theatres and other considerations as a result of COVID-19.

 

Qualitative approach The Company’s qualitative assessment considers industry and market conditions and recent developments that may impact the revenues forecasts and other estimates used in its most recent quantitative assessment.

Other Long-lived Assets– The Company evaluates other long-lived assets for impairment as follows:

 

Quantitative approach The Company performs a quantitative evaluation at the theatre level using estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life.  Significant judgment, including management’s estimate of the impact of temporary theatre closures and other considerations as a result of COVID-19, was involved in estimating cash flows and fair value.  Fair value is determined based on a multiple of cash flows.  Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy, as defined by FASB ASC Topic 820-10-35, are based on projected operating performance, market transactions and industry trading multiples.

 

Qualitative approach The Company’s qualitative assessment considers relevant market transactions,  industry trading multiples and recent developments that would impact its estimates of future cash flows.

The following table is a summary of the impairment recorded as a result of the evaluations discussed above during the three and nine months ended September 30, 2020:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

U.S. Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatre properties

 

$

2,075

 

 

$

24,502

 

 

$

5,718

 

 

$

26,754

 

Theatre operating lease right-of-use assets

 

 

1,123

 

 

 

2,157

 

 

 

7,075

 

 

 

10,204

 

Cost method investment

 

 

2,500

 

 

 

 

 

 

2,500

 

 

 

 

U.S. total

 

 

5,698

 

 

 

26,659

 

 

 

15,293

 

 

 

36,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatre properties

 

 

938

 

 

 

645

 

 

 

5,422

 

 

 

6,796

 

Theatre operating lease right-of-use assets

 

 

1,654

 

 

 

 

 

 

4,194

 

 

 

1,628

 

Goodwill

 

 

16,128

 

 

 

 

 

 

16,128

 

 

 

 

Intangible assets

 

 

177

 

 

 

 

 

 

177

 

 

 

 

International total

 

 

18,897

 

 

 

645

 

 

 

25,921

 

 

 

8,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impairment

 

$

24,595

 

 

$

27,304

 

 

$

41,214

 

 

$

45,382