Current report filing

Intangible Assets and Goodwill

v2.4.0.6
Intangible Assets and Goodwill
12 Months Ended
Dec. 31, 2011
Intangible Assets and Goodwill [Abstract]  
Intangible Assets and Goodwill

5. Intangible Assets and Goodwill

The changes in the carrying amount of franchise assets and goodwill for the years ended December 31, 2011 and 2010 were as follows:

 

                                 
(In thousands)   Franchise
Agreements
    Gross Goodwill     Accumulated
Impairment
    Net Goodwill  

Balance, December 31, 2009

  $ 64,835     $ 1,266,207     $ (796,725   $ 469,482  
         

Reductions from dispositions

    —         (3,767     —         (3,767

Reclassification from assets held for sale, net

    —         2,801       —         2,801  
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2010

  $ 64,835     $ 1,265,241     $ (796,725   $ 468,516  
         

Reductions from dispositions

    —         (51     —         (51
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

  $ 64,835     $ 1,265,190     $ (796,725   $ 468,465  
   

 

 

   

 

 

   

 

 

   

 

 

 

Pursuant to applicable accounting pronouncements, Sonic tests goodwill for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. If Sonic determines that the amount of its goodwill is impaired at any point in time, Sonic is required to reduce goodwill on its balance sheet. In completing step one of the impairment analyses, Sonic uses a discounted cash flow model in order to estimate its reporting unit’s fair value. The result from this model is then analyzed to determine if an indicator of impairment exists.

Management has determined that the first and second steps of the goodwill impairment test are not necessary as of December 31, 2011 as management does not believe it is more likely than not that the book value (carrying value, including goodwill) of Sonic exceeds its fair value. See the discussion under the heading “Goodwill” in Note 1, “Description of Business and Summary of Significant Accounting Policies,” for further information about management’s assessment. As a result of Sonic’s impairment testing for the years ended December 31, 2011 and 2010, no goodwill impairment was required. For the year ended December 31, 2009, Sonic recorded goodwill impairment charges of approximately $2.7 million based on the determination that a portion of the goodwill was not recoverable based on estimated proceeds while dealership operations were held for sale. Of the $2.7 million impairment charge in the year ended December 31, 2009, approximately $0.7 million is included in impairment charges and approximately $2.0 million is included in income (loss) from operations and the sale of dealerships in the Consolidated Statements of Income.

 

There were no franchise asset impairment charges in the years ended December 31, 2011 and December 31, 2010. Franchise asset impairment charges of $4.3 million were recorded within continuing operations in the year ended December 31, 2009 and are included in impairment charges in the Consolidated Statements of Income. These impairment charges were recorded based on management’s conclusion that the recorded values would not be recoverable either through operating cash flows or through the eventual sale of the dealerships associated with the franchise assets. Approximately $2.1 million of the impairment charges recorded during the year ended December 31, 2009 relate to franchise agreements that were terminated based on notifications from General Motors.

Definite life intangible assets consist of the following:

 

                 
    December 31,  
(In thousands)   2011     2010  

Lease agreements

  $ 19,918     $ 21,987  

Less accumulated amortization

    (8,477     (7,673
   

 

 

   

 

 

 

Definite life intangibles, net

  $ 11,441     $ 14,314  
   

 

 

   

 

 

 

Franchise assets and definite life intangible assets are classified as other intangible assets, net, on the accompanying Consolidated Balance Sheets.

Amortization expense for definite life intangible assets was approximately $1.5 million recorded in continuing operations and approximately $0.2 million in discontinued operations for each of the years ended December 31, 2011, 2010 and 2009. The weighted-average amortization period for lease agreements and definite life intangible assets is 15 years.

Future amortization expense is as follows:

 

         
    (In thousands)  

Year Ending December 31,

       

2012

  $ 1,555  

2013

    1,555  

2014

    1,189  

2015

    823  

2016

    823  

Thereafter

    5,496  
   

 

 

 

Total

  $ 11,441