Goodwill and Other Intangible Assets

During 2012, the Corporation acquired net assets with related goodwill of $15.9 million as part of the purchase of BP Ergo. 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 nine 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 utilized this guidance for the annual impairment evaluation for certain reporting units during the fourth quarter of 2012 where the fair value was well in excess of carrying value in 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 and hearth products industries 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 10.5% to 11%. 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 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 2012, the Corporation determined the fair value of its reporting units exceeds the carrying value and, therefore, no impairment of goodwill was recorded.

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 two recently acquired reporting units within the office furniture segment where the fair value exceeds the carrying value by fourteen percent and twenty-three percent. There is approximately $28 million of total goodwill associated with these two reporting units.

The Corporation also owns trade names having a net value of $41 million as of December 29, 2012, $41 million as of December 31, 2011, and $41 million as of January 1, 2011. 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 estimates the fair value of the trade names 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 table below summarizes amortizable definite-lived intangible assets, which are reflected in Other Assets in the Corporation’s Consolidated Balance Sheets:



(In thousands)	2012		2011		2010
Patents	$	18,905	$	18,905	$	18,605
Software	36,126		15,525		12,698
Customer lists and other	113,811		102,825		107,964
Less: accumulated amortization	81,968		73,228		81,094
Less: impairments	—		—		4,879
Net intangible assets	$	86,874	$	64,027	$	53,294

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 $2.0 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 2012, 2011 and 2010, was $8.9 million, $7.6 million and $9.5 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)	2013		2014		2015		2016		2017
Amortization expense	$	10.2	$	8.8	$	7.8	$	7.5	$	7.4

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 2, 2010, are as follows by reporting segment:



(In thousands)	Office Furniture			Hearth Products			Total
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
Goodwill acquired during the year	15,867			—			15,867
Impairment losses	—			—			—
Goodwill related to the sale of business units	—			—			—
Final purchase price allocations/contingent payments from prior year acquisitions	1,720			—			1,720
Balance as of December 29, 2012
Goodwill	151,662			166,188			317,850
Accumulated impairment losses	(29,359		)	(143		)	(29,502		)
	$	122,303		$	166,045		$	288,348

The goodwill increases relate to acquisitions completed. See the Business Combinations note. 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.