Goodwill and Other Intangible Assets
|9 Months Ended|
Nov. 03, 2018
|Goodwill and Other Intangible Assets|
|Goodwill and Other Intangible Assets||
13. Goodwill and Other Intangible Assets
Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the nine months ended November 3, 2018 are as follows (in thousands):
Goodwill is evaluated for impairment at least annually. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock.
During the third quarter of 2018, sales, profitability and cash flow of our corporate apparel reporting unit underperformed in comparison to our forecast. The performance of our corporate apparel business was and continues to be impacted by increasing uncertainty surrounding Brexit, which is resulting in lower replenishment demand from existing accounts in the United Kingdom (“UK”). In addition, in the third quarter of 2018, we received notification from a significant U.S. customer of their decision not to renew their existing agreement with us in 2019. As a result of the continued uncertainty surrounding Brexit and the notification from our U.S. customer, we appropriately lowered our forecast of sales, profitability and cash flow for the corporate apparel reporting unit for the fourth quarter of 2018 and future years.
As a result of the factors above, we determined that a triggering event occurred during the third quarter of 2018 and an interim goodwill impairment test for our corporate apparel reporting unit was required. We concluded that the reporting unit’s goodwill was fully impaired and recorded a non-cash goodwill impairment charge of $24.0 million during the third quarter of 2018, which is included as a separate line in the condensed consolidated statement of earnings. As of November 3, 2018, October 28, 2017, and February 3, 2018, accumulated goodwill impairment totaled $804.0 million, $778.5 million and $780.0 million, respectively.
Consistent with the procedures followed in our annual impairment test, we estimated the fair value of the reporting unit using a combined income and market comparable approach. Our income approach uses projected future cash flows that are discounted using a weighted‑average cost of capital analysis that reflects current market conditions. The market comparable approach primarily considers market price multiples of comparable companies and applies those price multiples to certain key drivers of the reporting unit. We believe these two approaches are appropriate valuation techniques and we weighted the two values equally as an estimate of reporting unit fair value for the purposes of our impairment testing.
Management judgment is a significant factor in the goodwill impairment evaluation process. The computations require management to make estimates and assumptions. Critical assumptions used in the interim impairment test for the corporate apparel reporting unit included:
During the third quarter of 2018, we also performed an interim impairment test of the intangible assets of the corporate apparel reporting unit totaling $10.7 million, consisting of a customer relationship asset with a carrying value of $8.2 million and tradenames with a carrying value of $2.5 million and determined, as of November 3, 2018, that none were impaired.
The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):
Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and $2.9 million for the three and nine months ended November 3, 2018. Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and $3.1 million for the three and nine months ended October 28, 2017. Pre-tax amortization associated with intangible assets subject to amortization at November 3, 2018 is estimated to be $0.9 million for the remainder of fiscal 2018, $3.7 million for fiscal 2019, $3.5 million for fiscal 2020, $3.4 million for fiscal 2021 and $2.1 million for fiscal 2022.
The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.
Reference 1: http://www.xbrl.org/2003/role/presentationRef