Annual report pursuant to Section 13 and 15(d)

GOODWILL AND INTANGIBLE ASSETS

v3.6.0.2
GOODWILL AND INTANGIBLE ASSETS
12 Months Ended
Jan. 28, 2017
GOODWILL AND INTANGIBLE ASSETS  
GOODWILL AND INTANGIBLE ASSETS

3.    GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the years ended January 28, 2017 and January 30, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

    

Retail

    

Apparel

    

Total

 

Balance at January 31, 2015

 

$

861,180

 

$

26,756

 

$

887,936

 

Adjustments to purchase price allocation of acquired businesses

 

 

3,062

 

 

 —

 

 

3,062

 

Goodwill impairment charge

 

 

(769,021)

 

 

 —

 

 

(769,021)

 

Translation adjustment

 

 

(2,020)

 

 

(1,371)

 

 

(3,391)

 

Balance at January 30, 2016

 

$

93,201

 

$

25,385

 

$

118,586

 

     Translation adjustment

 

 

1,310

 

 

(2,870)

 

 

(1,560)

 

Balance at January 28, 2017

 

$

94,511

 

$

22,515

 

$

117,026

 

As of both January 28, 2017 and January 30, 2016, accumulated goodwill impairment totaled $778.5 million, all within our retail segment.

Intangible Assets

The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

January 28,

    

January 30,

 

 

 

2017

    

2016

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames and franchise agreements

 

$

15,966

 

$

16,292

 

Favorable leases

 

 

13,826

 

 

14,675

 

Customer relationships

 

 

25,483

 

 

29,129

 

Total carrying amount

 

 

55,275

 

 

60,096

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames and franchise agreements

 

 

(10,055)

 

 

(9,728)

 

Favorable leases

 

 

(3,961)

 

 

(2,739)

 

Customer relationships

 

 

(13,804)

 

 

(13,459)

 

Total accumulated amortization

 

 

(27,820)

 

 

(25,926)

 

Total amortizable intangible assets, net

 

 

27,455

 

 

34,170

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks and tradename

 

 

144,204

 

 

144,340

 

Total intangible assets, net

 

$

171,659

 

$

178,510

 

 

The pre-tax amortization expense associated with intangible assets subject to amortization totaled approximately $4.8 million, $14.4 million and $9.9 million for fiscal 2016, 2015 and 2014, respectively.  Pre-tax amortization expense associated with intangible assets subject to amortization at January 28, 2017 is estimated to be approximately $4.2 million for fiscal year 2017, $3.9 million for fiscal year 2018, $3.7 million for fiscal year 2019, $3.6 million for fiscal year 2020 and $3.5 million for fiscal year 2021.

Fiscal 2015 Goodwill and Indefinite-Lived Intangible Asset Impairment Assessment

During the second and third quarters of 2015, the effectiveness of the existing Jos. A. Bank promotional model began to deteriorate quicker than we anticipated.  As a result, we made the decision to accelerate the transition away from the historical promotional cadence by removing, at the end of the third quarter of 2015, the most excessive offers (the Buy-One-Get-Three or more Free events), and began seeking sustainable volume and margin growth.  While we expected some top-line volatility as we changed the promotional model, we did not anticipate that the impact on sales from the traffic decline would occur to the degree it did.  During the fourth quarter of 2015, the performance of the Jos. A. Bank brand was far below our expectations.

As a result, the projections used in the fiscal 2015 annual quantitative goodwill impairment assessment were significantly lower than the projections used in the fiscal 2014 assessment.  In particular, the sales growth assumptions were lowered to reflect the sales trend at Jos. A. Bank and the impact of our store rationalization and profit improvement programs (see Note 4).  Conversely, gross margin rates were increased compared to the fiscal 2014 assessment to reflect our expectation that the transition away from the historical promotional model will accelerate the realization of higher gross margins.  In addition, our market capitalization decreased further during the fourth quarter of 2015.  Our consideration of all of these factors resulted in a significant reduction in the estimated fair value of the Jos. A. Bank reporting unit with the estimated fair value decreasing significantly below its carrying value, which required us to proceed to the second step of the quantitative goodwill impairment test for Jos. A. Bank. 

In the second step of the quantitative goodwill impairment test, we compared the implied fair value of the Jos. A. Bank goodwill with its carrying amount.  The estimated fair value of the Jos. A. Bank reporting unit was allocated to its individual assets and liabilities in the same manner as if Jos. A. Bank was being acquired in a business combination and the fair value was the purchase price paid to acquire Jos. A. Bank.  As a result of this valuation, it was determined that the entire carrying amount of Jos. A. Bank’s goodwill was impaired, resulting in a non-cash pre-tax goodwill impairment charge of $769.0 million, which is included within “Goodwill and intangible asset impairment charges” in our statements of earnings (loss). 

In addition, in connection with the second step of the quantitative goodwill impairment test, because of the lower revenue assumptions discussed above, it was determined that the estimated fair value of the Jos. A. Bank tradename had decreased below its carrying value.  The fair value of the Jos. A. Bank tradename was estimated using a relief from royalty method, which calculates the present value of savings resulting from the right to sell products without having to pay a royalty fee.  Critical assumptions that are used in this method include future sales projections, an estimated royalty rate and a discount rate.  Based on the estimated fair value of the Jos. A. Bank tradename, we recognized total impairment charges of $425.9 million related to the Jos. A. Bank tradename during 2015, which is included within “Goodwill and intangible asset impairment charges” in our statements of earnings (loss).  After giving effect to these impairment charges, the carrying value of the Jos. A. Bank tradename was $113.2 million as of January 30, 2016.

Other Intangible Asset Impairments in Fiscal 2015

In addition to our fiscal 2015 assessment of goodwill and indefinite-lived intangible assets, we determined that certain finite-lived intangible assets related to Jos. A. Bank were impaired.  Specifically, it was determined that the Jos. A. Bank customer relationship was impaired.  The fair value of the Jos. A. Bank customer relationship was estimated using a return on assets model.  Critical assumptions that are used in this method include estimated revenues and cash flows attributable to the Jos. A. Bank existing customer base and the expected attrition of such customers over time.  Based on the estimated fair value of the Jos. A. Bank customer relationship, it was determined that the entire carrying value of the Jos. A. Bank customer relationship was impaired, resulting in a non-cash pre-tax impairment charge of $41.5 million, which is included within “Goodwill and intangible asset impairment charges” in our statements of earnings (loss).

Lastly, we determined that certain favorable lease intangible assets related to Jos. A. Bank were impaired.  The fair value of the Jos. A. Bank favorable leases was evaluated in conjunction with our long-lived asset impairment process, whereby we group and evaluate assets at the lowest level of which there are identifiable cash flows, which is generally at a store level.  As a result of this process, we recognized an impairment charge of $7.0 million, which is included within “Goodwill and intangible asset impairment charges” in our statements of earnings (loss). 

The following table summarizes the goodwill and other intangible asset impairment charges related to Jos. A. Bank recorded in fiscal 2015 (amounts in thousands):

 

 

 

 

 

Goodwill impairment charge

    

$

769,021

 

Tradename impairment charge

 

 

425,900

 

Customer relationship impairment charge

 

 

41,474

 

Favorable lease impairment charge

 

 

6,959

 

Total goodwill and intangible asset impairment charges

 

$

1,243,354