Goodwill and Intangible Assets

12 Months Ended

Dec. 26, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure

Note 12: Trade Names and Goodwill

The Company's trade names and goodwill relate primarily to the December 2005 acquisition of the direct selling businesses of Sara Lee Corporation.

Trade Names

The trade names balance was:

	As of
	December 26, 2020						December 28, 2019
(In millions)	Gross Carrying Value		Accumulated Amortization		Net		Gross Carrying Value		Accumulated Amortization		Net
Indefinite-lived trade names	$	19.1	$	—	$	19.1	$	18.2	$	—	$	18.2
Definite-lived trade name	51.9		47.4		4.5		53.3		46.9		6.4
Total trade names	$	71.0	$	47.4	$	23.6	$	71.5	$	46.9	$	24.6

Changes in gross carrying value of trade names were:

	As of
(In millions)	December 26, 2020		December 28, 2019
Beginning balance	$	71.5	$	90.8
Trade name impairment	—		(22.5)
Effect of changes in exchange rates	(0.5)		3.2
Ending balance	$	71.0	$	71.5

Amortization expense for definite-lived trade name was:

	Year Ended
	December 26, 2020		December 28, 2019		December 29, 2018
Definite-lived trade name amortization expense	$	1.6	$	7.6	$	7.9

The estimated annual amortization expense for definite-lived trade name is:

(In millions)	Estimated Amortization Expense
2021	$	1.6
2022	1.6
2023	1.3
Thereafter	—
Total	$	4.5

Goodwill

Gross goodwill balances were:

(In millions)	Asia Pacific		Europe		North America		South America		Total
Gross goodwill balance at December 29, 2018	$	77.0	$	29.2	$	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	77.1		29.3		135.4		2.8		244.6
Effect of changes in exchange rates	1.9		(0.2)		(0.5)		(0.3)		0.9
Gross goodwill balance at December 26, 2020	$	79.0	$	29.1	$	134.9	$	2.5	$	245.5
Cumulative impairments as of December 29, 2018	$	41.3	$	24.5	$	101.8	$	—	$	167.6
Goodwill impairment	—		—		17.5		—		17.5
Cumulative impairments as of December 28, 2019	41.3		24.5		119.3		—		185.1
Goodwill impairment	—		—		—		—		—
Cumulative impairments as of December 26, 2020	$	41.3	$	24.5	$	119.3	$	—	$	185.1
Goodwill as of December 29, 2018	$	35.7	$	4.7	$	32.6	$	3.1	$	76.1
Goodwill as of December 28, 2019	$	35.8	$	4.8	$	16.1	$	2.8	$	59.5
Goodwill as of December 26, 2020	$	37.7	$	4.6	$	15.6	$	2.5	$	60.4

Annual Impairment Assessment

In the third quarter of 2020, the Company completed the annual impairment assessments for all of its reporting units and indefinite-lived intangible assets. As part of this testing, the Company analyzed certain qualitative and quantitative factors in completing the annual impairment assessment. The Company’s assessments reflected a number of significant management assumptions and estimates including the Company’s forecast of sales, profit margins, and discount rates, along with the royalty rate related to trade names. Changes in these assumptions could materially impact the Company’s conclusions. Based on its assessments, the Company concluded there were no impairments.

Although no reporting units failed the assessments noted above, in management’s opinion, the goodwill associated with the Japan reporting unit is at risk of impairment in the near term if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate. The significant assumptions for the goodwill associated with the Japan quantitative impairment assessment included annual revenue growth rates and a discount rate utilized within the analysis, which impact the Company’s conclusion regarding the likelihood of goodwill impairment for the unit. Total goodwill associated with this reporting unit was $11.0 million as of September 26, 2020. Based on the 2020 annual impairment test, the estimated fair value of Japan reporting unit exceeded its carrying value by approximately 11.0 percent. The projected future cash flows, which included revenue growth rates ranging from negative 15.5 percent to positive 9.0 percent with an average growth rate of 1.3 percent, were discounted at 9.0 percent.

Similarly, while no trade names failed the assessment, in management’s opinion, the NaturCare trade name is at risk of impairment in the near term if there is a negative change in the long-term outlook for the business or in other factors such as the royalty rate or discount rate. The significant assumptions for the quantitative impairment assessment of the NaturCare trade name included annual revenue growth rates, royalty rate, and the discount rate utilized within the analysis, which impact the Company’s conclusion regarding the likelihood of impairment of the trade name. Total carrying value of the NaturCare trade name was $11.5 million as of September 26, 2020. Based on the 2020 annual impairment test, the estimated fair value of the NaturCare exceeded its carrying value by approximately 11.0 percent. The projected future cash flows, which included annual revenue growth rates ranging from negative 4.0 percent to 2.0 percent with an average growth rate of 1.3 percent and a royalty rate of 4.0 percent, were discounted at 10.0 percent.

In 2019, the Company recorded goodwill impairment of $17.5 million and trade name impairment of $22.5 million which was primarily related to the Fuller Mexico reporting unit.

In the third quarter of 2019, 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 trade name, which concluded no impairment as of the third quarter of 2019 based on actual and forecasted results of the units which support the Fuller trade name value.

The Nutrimetics trade name was also impaired by $2.2 million due to declining sales trends, leaving a $3.5 million carrying value as of September 28, 2019.

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 8.0 percent to positive 4.0 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 trade name to its carrying value. The result of the impairment test was to record a $20.3 million impairment to the Fuller trade name 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 trade name carrying value was $6.5 million as of December 28, 2019.