Goodwill and Other Intangible Assets

During 2011, the Corporation acquired net assets with related goodwill of $10.1 million as part of the purchase of Sagus. See Business Combinations footnote for details of the acquisition.

The Corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter or whenever indicators of impairment exist. The Corporation had seven reporting units within its office furniture and hearth products operating segments, which contained goodwill during the fourth quarter analysis. These reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management. In September 2011, the FASB issued guidance that simplified how entities test for goodwill impairment. This guidance permits entities to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. The Corporation early adopted this guidance for the annual impairment evaluation for certain reporting units during the fourth quarter of 2011 where the fair value was well in excess of carrying value in the prior year analysis. The Corporation determined that based on relevant qualitative factors that it was more likely than not that the fair values of the reporting units were greater than their carrying amount. Therefore no further testing was performed on these reporting units. The qualitative factors considered included, but were not limited to, general economic conditions, outlook for the office furniture industry and recent and forecasted financial performance.

For all other reporting units the Corporation performed a two-step goodwill impairment test. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The estimate of fair value of each reporting unit is based on management’s projection of revenues, gross margin, operating costs and cash flows considering historical and estimated future results, general economic and market conditions as well as the impact of planned business and operational strategies. The valuations employ present value techniques to measure fair value and consider market factors. Management believes the assumptions used for the impairment test are consistent with those utilized by a market participant in performing similar valuations of its reporting units. A separate discount rate was utilized for each reporting unit with rates ranging from 10.0% to 10.5%. Management bases its fair value estimates on assumptions they believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. In addition, for reasonableness, the Corporation also computed the fair value of the two reporting units using EBIT multiples of market competitors, noting the fair value as determined by the discounted cash flow analysis was consistent with these estimates.

If the fair value of the reporting unit is less than its carrying value, an additional step is required to determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and, accordingly such impairment is recognized.

As a result of the review performed in the fourth quarter of 2011, the Corporation determined the fair value of its reporting units exceeds the carrying value and, therefore, no impairment of goodwill was recorded. The Corporation recorded $7 million of impairment charges in 2009. The reporting unit impacted was an office furniture manufacturing unit acquired in 2008.

The significant estimates and assumptions used in estimating future cash flows of the Corporation's reporting units are based on management’s view of longer-term broad market trends. Management combines this trend data with estimates of current economic conditions in the U.S., competitor behavior, the mix of products sales, commodity costs, wage rates, the level of manufacturing capacity, and the pricing environment. In addition, estimates of fair value are impacted by estimates of the market participant derived weighted average cost of capital.

The Corporation has one reporting unit where the fair value exceeds the carrying value by eleven percent. There is approximately $24 million of goodwill associated with this reporting unit.

The Corporation also owns trade names having a net value of $41.0 million as of December 31, 2011, $41.0 million as of January 1, 2011, and $42.1 million as of January 2, 2010. The trade names are deemed to have an indefinite useful life because they are expected to generate cash flow indefinitely. The Corporation determines the fair value of indefinite-lived trade names on an annual basis during the fourth quarter or whenever indication of impairment exists. The Corporation performed its fiscal 2011 assessment of indefinite-lived trade names during the fourth quarter. The estimate of the fair value of the trade names was based on a discounted cash flow model using inputs which included: projected revenues from management’s long-term plan, assumed royalty rates that could be payable if the trade names were not owned and a discount rate. As a result of the review the Corporation determined the fair value of all trade names exceed their carrying value. The Corporation recorded an impairment charge of $1.1 million in 2010 due to the sale of a non-core business in the office furniture segment which was included in discontinued operations on the Consolidated Statements of Income. The Corporation recorded a $18 million impairment charge for certain office furniture trade names in 2009.

The table below summarizes amortizable definite-lived intangible assets, which are reflected in Other Assets in the Corporation’s Consolidated Balance Sheets:



(In thousands)	2011		2010		2009
Patents	$	18,905	$	18,605	$	19,325
Customer lists and other	102,825		107,964		115,451
Less: accumulated amortization	61,214		70,139		68,004
Less: impairments	—		4,879		—
Net intangible assets	$	60,516	$	51,551	$	66,772

The Corporation made the decision to sell certain hearth products retail and distribution locations during the fourth quarter of 2010. The assets to be sold were moved to held for sale, and the Corporation recorded an impairment charge of $4.9 million to adjust the carrying value of customer lists to fair market value. The Corporation also recorded an impairment charge of $2 million due to the sale of a non-core business in the office furniture segment which was included in discontinued operations in the Consolidated Statements of Income.

Amortization expense for definite-lived intangibles for 2011, 2010 and 2009, was $5.9 million, $8.4 million and $12.1 million, respectively and was recorded in Selling and Administrative Expenses on the Consolidated Statements of Income. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows:



(in millions)	2012		2013		2014		2015		2016
Amortization expense	$	5.9	$	5.5	$	4.9	$	4.6	$	4.4

The occurrence of events such as acquisitions, dispositions or impairments in the future may result in changes to amounts.

The changes in the carrying amount of goodwill since January 3, 2009, are as follows by reporting segment:



(In thousands)	Office Furniture			Hearth Products			Total
Balance as of January 3, 2009
Goodwill	$	123,948		$	167,053		$	291,001
Accumulated impairment losses	(22,609		)	—			(22,609		)
	101,339			167,053			268,392
Goodwill acquired during the year	—			—			—
Impairment losses	(6,750		)	—			(6,750		)
Goodwill related to the sale of business units	—			(1,028		)	(1,028		)
Final purchase price allocations/contingent payments from prior year acquisitions	—			500			500
Balance as of January 2, 2010
Goodwill	123,948			166,525			290,473
Accumulated impairment losses	(29,359		)	—			(29,359		)
	94,589			166,525			261,114
Goodwill acquired during the year	—			—			—
Impairment losses	—			(143		)	(143		)
Goodwill related to the sale of business units	—			(486		)	(486		)
Final purchase price allocations/contingent payments from prior year acquisitions	—			149			149
Balance as of January 1, 2011
Goodwill	123,948			166,188			290,136
Accumulated impairment losses	(29,359		)	(143		)	(29,502		)
	94,589			166,045			260,634
Goodwill acquired during the year	10,127			—			10,127
Impairment losses	—			—			—
Goodwill related to the sale of business units	—			—			—
Final purchase price allocations/contingent payments from prior year acquisitions	—			—			—
Balance as of December 31, 2011
Goodwill	134,075			166,188			300,263
Accumulated impairment losses	(29,359		)	(143		)	(29,502		)
	$	104,716		$	166,045		$	270,761

The goodwill increases relate to acquisitions completed. See the Business Combinations note. The decrease in goodwill in the office furniture segment in 2009 was due to impairment charges described above. The impairment loss recorded in the hearth products segment in 2010 relates to adjusting the carrying value of a business unit held for sale as of the end of 2010 and sold in 2011 to fair market value. The remaining decreases in the hearth products segment relate to the sale of a few small service and distribution locations and final purchase price allocations for previous acquisitions.