Goodwill and Intangible Assets

12 Months Ended

Dec. 28, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure

Goodwill and Intangible Assets

The Company's goodwill and intangible assets relate primarily to the December 2005 acquisition of the direct selling businesses of Sara Lee Corporation. Refer to Note 1 for the annual process for evaluating goodwill and intangible assets for impairment.

In the third quarters of 2019 and 2018, the Company completed the annual assessments for all of its reporting units and indefinite-lived intangible assets, concluding $19.7 million impairment existed as of the third quarter 2019, mainly for the impairment of goodwill associated with the Fuller Mexico beauty and personal care products business in the amount of $17.5 million. This was a triggering event to assess the recoverability of the Fuller tradename, which concluded no impairment as of the third quarter of 2019 based on actual and forecasted results of the units which support the Fuller tradename value.

The Nutrimetics tradename was also impaired by $2.2 million due to declining sales trends, leaving a $3.5 million carrying value as of September 28, 2019. There were no impairments in 2018.

The impairment evaluation of the goodwill associated with the Fuller Mexico reporting unit involved comparing the fair value of the reporting unit to its carrying value, including the goodwill balance, after consideration of impairment to its long-lived assets. There were no impairments of any long-lived assets. The fair value analysis for Fuller Mexico was completed using the income approach, which was considered a Level 3 measurement within the fair value hierarchy. The significant assumptions used in the income approach included estimates regarding future operations and the ability to generate cash flows, including projections of revenue, costs, utilization of assets and capital requirements. The income approach, or discounted cash flow approach, also requires an estimate as to the appropriate discount rate to be used. The most sensitive estimate in this valuation is the projection of operating cash flows, as these provide the basis for the estimate of fair market value. The Company’s cash flow model used a forecast period of ten years with annual revenue growth rates ranging from negative eight percent to positive four percent, a compound average growth rate of 0.2 percent, and a 2.5 percent growth rate used in calculating the terminal value. The discount rate used was 14.9 percent. The growth rates were determined by reviewing historical results of the operating unit and the historical results of the Company’s other similar business units, along with the expected contribution from growth strategies being implemented. As the fair value of Fuller Mexico was less than the carrying value by more than the recorded goodwill balance, the remaining balance of goodwill recorded at Fuller Mexico was written off.

In the fourth quarter of 2019, as part of the on-going assessment of goodwill and intangible assets, the Company noted that the financial performance of the units selling Fuller products had fallen below their previous trend lines and it concluded that they would fall significantly short of previous expectations. Sales further declined in the fourth quarter of 2019 and margins significantly declined from third to fourth quarter resulting in an approximate 30 percent decrease in margins in the forecasted period. This significant impact to margins also impacted the royalty rate which was reduced from the rate utilized in the third quarter of 2019. These declines in the financial performance were deemed to be a triggering event and a test for recoverability and impairment was performed over the definite-lived intangible asset which included comparing the sum of the estimated undiscounted future cash flows attributable to the Fuller tradename to its carrying value. The result of the impairment test was to record a $20.3 million impairment to the Fuller tradename included in the impairment of goodwill and intangible assets caption of the Company's Consolidated Statements of Income. As the units that sell Fuller products are in different geographical areas, impairments of $6.0 million, $13.6 million and $0.7 million were recorded for the Asia Pacific, North America and South America segments, respectively. The Fuller tradename carrying value was $6.5 million as of December 28, 2019.

Amortization expense related to all intangible assets, most significantly at Fuller Mexico, was $7.2 million, $7.6 million and $7.9 million in 2019, 2018 and 2017, respectively. The estimated annual amortization expense associated with intangibles is $1.8 million annually in 2020 through 2022 and $1.2 million in 2023.

The following table reflects gross goodwill and accumulated impairments allocated to each reporting segment at December 28, 2019, December 29, 2018 and December 30, 2017:

(In millions)	Europe			Asia Pacific			North America			South America			Total
Gross goodwill balance at December 30, 2017	$	29.9		$	78.1		$	134.9		$	3.6		$	246.5
Effect of changes in exchange rates	(0.7		)	(1.1		)	(0.5		)	(0.5		)	(2.8		)
Gross goodwill balance at December 29, 2018	29.2			77.0			134.4			3.1			243.7
Effect of changes in exchange rates	0.1			0.1			1.0			(0.3		)	0.9
Gross goodwill balance at December 28, 2019	$	29.3		$	77.1		$	135.4		$	2.8		$	244.6

(In millions)	Europe		Asia Pacific		North America		South America		Total
Cumulative impairments as of December 30, 2017	$	24.5	$	41.3	$	101.8	$	—	$	167.6
Goodwill impairment	—		—		—		—		—
Cumulative impairments as of December 29, 2018	24.5		41.3		101.8		—		167.6
Goodwill impairment	—		—		17.5		—		17.5
Cumulative impairments as of December 28, 2019	$	24.5	$	41.3	$	119.3	$	—	$	185.1

The gross carrying amount and accumulated amortization of the Company's intangible assets, other than goodwill, were as follows:

	December 28, 2019
(In millions)	Gross Carrying Value		Accumulated Amortization		Net
Indefinite-lived tradenames	$	18.2	$	—	$	18.2
Definite-lived tradename	53.3		46.9		6.4
Total intangible assets	$	71.5	$	46.9	$	24.6

	December 29, 2018
(In millions)	Gross Carrying Value		Accumulated Amortization		Net
Indefinite-lived tradenames	$	20.3	$	—	$	20.3
Definite-lived tradename	70.5		37.9		32.6
Total intangible assets	$	90.8	$	37.9	$	52.9

A summary of the identifiable intangible asset account activity is as follows:

	Year Ended
(In millions)	December 28, 2019			December 29, 2018
Beginning balance	$	90.8		$	94.2
Impairment of intangible assets	(22.5		)	—
Effect of changes in exchange rates	3.2			(3.4		)
Ending balance	$	71.5		$	90.8