Goodwill and Other Intangible Assets

12 Months Ended

Jan. 02, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

As a result of the required annual impairment assessment performed in the fourth quarter of 2015, the Corporation determined the fair value of a recently acquired reporting unit within the office furniture segment was below its carrying value. The decline in the estimated fair value of this reporting unit was largely driven by lower than expected operating performance in 2015. The projections used in the impairment model reflected management's assumptions regarding revenue growth rates, economic and market trends, cost structure, investments required for sales force and operational transformation and other expectations about the anticipated short-term and long-term operating results of the reporting unit. Based on the two-step analysis, the Corporation recorded a $3.0 million goodwill impairment charge in 2015, and there was no remaining net goodwill in the reporting unit as of January 2, 2016. Additionally and prior to the goodwill impairment assessment, the Corporation tested the recoverability of the long-lived assets in that reporting unit, other than goodwill, which included definite-lived intangible assets consisting of customer lists and trade names, and recorded an impairment charge of $8.3 million.

Based on the results of the annual impairment tests, the Corporation concluded that no other goodwill impairment existed apart from the impairment charges discussed above. For all other reporting units included in the annual two-step impairment test except the two noted below, the estimated fair value is significantly in excess of carrying value.

For one of the office furniture reporting units that exceeded its carrying value by approximately 12.9 percent, the Corporation assumed a discount rate of 13.0 percent, near term growth rates ranging from 3.5 percent to 7.5 percent and a terminal growth rate of 3.0 percent. The fair value model assumes continued positive economic momentum and transformation of the reporting unit including sales and marketing initiatives, new product development and operational processes. Holding other assumptions constant a 100 basis point increase in the discount rate would result in a $5.0 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 $2.0 million decrease in the estimated fair value of the reporting unit. Neither of these scenarios individually would result in the reporting unit failing step one.

For the other office furniture reporting unit that exceeded its carrying value by approximately 17.8 percent, the Corporation assumed a discount rate of 15.0 percent, near term growth rates ranging from negative 10.7 percent to positive 8.0 percent and a terminal growth rate of 4.0 percent. The fair value model assumes continued positive economic momentum and transformation of the reporting unit including sales and marketing initiatives, new product development and operational processes. Holding other assumptions constant a 100 basis point increase in the discount rate would result in a $5.0 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 $2.5 million decrease in the estimated fair value of the reporting unit. Neither of these scenarios individually would result in the reporting unit failing step one.

The Corporation also owns certain trademarks and trade names having a carrying value of $41.0 million as of January 2, 2016, $41.0 million as of January 3, 2015, and $41.0 million as of December 28, 2013. These trademarks and trade names are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. As a result of the review performed in the fourth quarter of 2015, the Corporation determined the fair value of all trade names exceeded the respective carrying value and, therefore no impairment was recorded.

One trade name within the office furniture segment had a minimal amount of headroom on its valuation. This trade name exceeded its carrying value by approximately $1.0 million and had a carrying value of $11.2 million. For this trade name the Corporation assumed a discount rate of 12.0 percent, terminal growth rate of 3.0 percent and a royalty rate of 2.5 percent. Holding other assumptions constant, a nominal change in the discount rate or royalty rate 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:



	January 2, 2016						January 3, 2015
(In thousands)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Patents	$	18,645	$	18,615	$	30	$	18,945	$	18,724	$	221
Software	122,892		21,193		101,699		93,343		17,711		75,632
Trademarks and trade names	6,564		753		5,811		11,424		1,724		9,700
Customer lists and other	105,586		60,063		45,523		113,671		58,019		55,652
Net definite lived intangible assets	$	253,687	$	100,624	$	153,063	$	237,383	$	96,178	$	141,205

The Corporation recorded an impairment charge of $8.3 million to adjust the customer list and trade names associated with a small office furniture reporting unit to fair market value as discussed above.

Amortization expense for capitalized software for 2015, 2014 and 2013, was $3.5 million, $3.3 million and $2.9 million, respectively. Amortization expense for all other definite-lived intangibles for 2015, 2014 and 2013, was $7.6 million, $7.2 million and $7.4 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)	2016		2017		2018		2019		2020
Amortization expense	$	11.6	$	17.6	$	17.8	$	17.1	$	16.5

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 December 28, 2013, are as follows by reporting segment:



(In thousands)	Office Furniture			Hearth Products			Total
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
Goodwill acquired during the year	—			15,713			15,713
Impairment losses	(22,802		)	—			(22,802		)
Foreign currency translation adjustment	(256		)	—			(256		)
Balance as of January 3, 2015
Goodwill	149,713			181,901			331,614
Accumulated impairment losses	(52,161		)	(143		)	(52,304		)
	97,552			181,758			279,310
Impairment losses	(2,963		)	—			(2,963		)
Final purchase price allocations/contingent payments from prior year acquisitions	—			1,298			1,298
Foreign currency translation adjustment	5			—			5
Balance as of January 2, 2016
Goodwill	149,718			183,199			332,917
Accumulated impairment losses	(55,124		)	(143		)	(55,267		)
	94,594			183,056			277,650

The goodwill increases relate to acquisitions completed. See the Business Combinations note. The decreases in goodwill in the office furniture segment in 2014 and 2015 were due to the impairment charges described above.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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