Goodwill and Other Intangible Assets

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. The accounting standards for goodwill permit 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 three reporting units during the fourth quarter of 2013 where the fair value was substantially 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 product industries and recent and forecasted financial performance of these units. General economic conditions considered included GDP, CEO confidence, small business confidence, corporate profitability, office vacancy rates, commodity prices, housing starts and remodel activity.

The Corporation performed a two-step goodwill impairment test for all other reporting units. 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. 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 all but one 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 2013, the Corporation determined the fair value of its nine reporting units all exceeded the respective carrying value and, therefore, no impairment of goodwill was recorded.

Under the income approach, the Corporation assumed a forecasted cash flow period of ten to fifteen years with discount rates ranging from 10 percent to 13 percent, near term growth rates ranging from negative 15.4 percent to positive 17.5 percent and terminal growth rates ranging from 3 percent to 5 percent.

For all reporting units included in the two-step impairment test except two, the estimated fair value is significantly in excess of carrying value. The other two reporting units were recently acquired and therefore have a carrying value that is closer to the current fair value. These two reporting units within the office furniture segment, exceeded their carrying value by approximately 7 percent and 6 percent. These reporting units have goodwill of approximately $12 million and $14 million, respectively.

For the office furniture reporting unit that exceeded its carrying value by approximately 7 percent, the Corporation assumed a discount rate of 10.5 percent, near term growth rates ranging from 0.8 percent to 10.4 percent and a terminal growth rate of 3 percent. The fair value model assumes continued positive economic momentum and transformation of the reporting unit including sales and marketing initiatives, new product development, operational processes and structural costs. Holding other assumptions constant a 100 basis point increase in the discount rate would result in a $7 million decrease in the estimated fair value of the reporting unit and a 100 basis point decrease in the long-term growth rate would result in a $4 million decrease in the estimated fair value of the reporting unit. Both of these scenarios individually would result in the reporting unit failing step 1.

For the office furniture reporting unit that exceeded its carrying value by approximately 6 percent, the Corporation assumed a discount rate of 13 percent, near term growth rates ranging from negative 15.4 percent to positive 17.5 percent and a terminal growth rate of 5 percent. The fair value model assumes positive economic momentum and transformation of the reporting unit including sales and marketing initiatives, new product development, operational processes and structural costs. The Corporation did not use the market approach for this reporting unit due to it being in a developing market so market multiples are not as meaningful as well as the lack of comparable companies. Holding other assumptions constant, a 100 basis point increase in the discount rate would result in a $5 million decrease in the estimated fair value of the reporting unit and a 100 basis point decrease in the long-term growth rate would result in a $2 million decrease in the estimated fair value of the reporting unit. Both of these scenarios individually would result in the reporting unit failing step 1.

Assessing the fair value of goodwill includes, among other things, making key assumptions for estimating future cash flows and appropriate market multiples. These assumptions are subject to a high degree of judgment and complexity. The Corporation makes every effort to estimate future cash flows as accurately as possible with the information available at the time the forecast is developed. However, changes in assumptions and estimates may affect the estimated fair value of the reporting unit, and could result in an impairment charge in future periods. Factors that have the potential to create variances in the estimated fair value of the reporting unit include but are not limited to economic conditions in the U.S. and other countries where the Corporation has a presence, competitor behavior, the mix of product sales, commodity costs, wage rates, the level of manufacturing capacity, the pricing environment and currency exchange fluctuations. In addition, estimates of fair value are impacted by estimates of the market-participant derived weighted average cost of capital.

Additionally, the Corporation compared the aggregate fair value of its reporting units to its overall market capitalization.

The Corporation also owns trade names having a net value of $41 million as of December 28, 2013, $41 million as of December 29, 2012, and $41 million as of December 31, 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 performed its fiscal 2013 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 performed in the fourth quarter of 2013, the Corporation determined the fair value of all trade names exceeded the respective carrying value and, therefore no impairment was recorded.

For all trade names except one, the estimated fair value is significantly in excess of carrying value. The one trade name within the office furniture segment, exceeded its carrying value by approximately 5 percent and had a carrying value of $7.6 million. For this trade name the Corporation assumed a discount rate of 12 percent, terminal growth rate of 3 percent and a royalty rate of 2.5 percent. A 100 basis point change in any of these assumptions could trigger an impairment.

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



(In thousands)	2013		2012		2011
Patents	$	18,905	$	18,905	$	18,905
Less: accumulated amortization	18,685		18,609		18,526
Net patents	220		296		379
Software	52,778		36,126		15,525
Less: accumulated amortization	14,380		13,839		12,014
Net software	38,398		22,287		3,511
Customer lists and other	110,609		113,811		102,825
Less: accumulated amortization	54,592		49,520		42,688
Net customer lists and other	56,017		64,291		60,137
Net intangible assets	$	94,635	$	86,874	$	64,027

Amortization expense for capitalized software for 2013, 2012 and 2011, was $2.9 million, $1.9 million and $1.7 million, respectively. Amortization expense for all other definite-lived intangibles for 2013, 2012 and 2011, was $7.4 million, $7.0 million and $5.9 million, respectively. All amortization expense 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)	2014		2015		2016		2017		2018
Amortization expense	$	9.6	$	11.2	$	10.5	$	9.9	$	9.8

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 1, 2011, are as follows by reporting segment:



(In thousands)	Office Furniture			Hearth Products			Total
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
Goodwill acquired during the year	—			—			—
Impairment losses	—			—			—
Goodwill related to the sale of business units	—			—			—
Final purchase price allocations/contingent payments from prior year acquisitions	—			—			—
Foreign currency translation adjustment	(1,693		)	—			(1,693		)
Balance as of December 28, 2013
Goodwill	149,969			166,188			316,157
Accumulated impairment losses	(29,359		)	(143		)	(29,502		)
	$	120,610		$	166,045		$	286,655

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