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Goodwill and Other Intangible Assets

12 Months Ended

Mar. 04, 2023

Goodwill and Other Intangible Assets

14. Goodwill and Other Intangibles

Goodwill and indefinite-lived assets, such as certain trademarks acquired in connection with acquisition transactions, are not amortized, but are instead evaluated for impairment on an annual basis at the end of the fiscal year, or more frequently if events or circumstances indicate it may be more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, the Company performs a quantitative goodwill impairment test. The fair value estimates used in the quantitative impairment test are calculated using an average of the income and market approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the market approach is based on certain multiples of selected guideline public companies or selected guideline transactions. The approaches, which qualify as Level 3 within the fair value hierarchy, incorporate a number of market participant assumptions including future growth rates, discount rates, income tax rates and market activity in assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit’s fair value, the

Company recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. In addition, the Company considers the income tax effect of any tax deductible goodwill when measuring a goodwill impairment loss.

In the fourth quarter of fiscal 2021, the Company completed a quantitative goodwill impairment assessment and determined after evaluating the results, events and circumstances, that sufficient evidence existed to assert that it is more likely than not that the fair values of the reporting units exceeded their carrying values. Therefore, no goodwill impairment charge was recorded for the fiscal year ended February 27, 2021.

In the fourth quarter of fiscal 2022, the Company completed a qualitative goodwill impairment assessment, at which time it was determined after evaluating results, events and circumstances that a quantitative assessment was necessary for the Pharmacy Services Segment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services Segment exceeded its fair value principally due to a decrease in Adjusted EBITDA that was driven by commercial and Medicare Part D business compression due to industry consolidation, an increase in the medical loss ratio at Elixir Insurance, and a decision to exit our rebate aggregation business. This resulted in goodwill impairment charges of $229,000 for the fiscal year ended February 26, 2022.

In the second quarter of fiscal 2023, the Company completed a qualitative goodwill impairment assessment, at which time it was determined after evaluating results, events, and circumstances that a quantitative assessment was necessary for the Pharmacy Services Segment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services Segment exceeded its fair value principally due to an update to the Company’s preliminary fiscal 2024 and beyond forecasted revenue driven by current updates in the estimate of lives for calendar year 2023 based on the latest estimates of existing client retention for 2023, the latest selling season and EI bid results and other business factors which only became evident during the second quarter. This resulted in goodwill impairment charges of $252,200 in the second quarter of fiscal 2023.

In the fourth quarter of fiscal 2023, the Company completed a qualitative goodwill impairment assessment, at which time it was determined after evaluating results, events, and circumstances that a quantitative assessment was necessary for the Pharmacy Services Segment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services Segment exceeded its fair value principally due to downward macroeconomic pressure during the fourth quarter of fiscal 2023 which manifested in increased interest rates, increased cost of borrowing and a decrease of industry multiples. The market factors that drove the goodwill impairment charges of $119,000 in the fourth quarter of fiscal 2023 were not known in prior quarters.

The goodwill related to the Pharmacy Services Segment is at risk of future impairment if the fair value of this segment, and its associated assets, decrease in value due to further declines in its operating results or an inability to execute management’s business strategies. Future cash flow estimates are, by their nature, subjective, and actual results may differ materially from the Company's estimates. If the Company's ongoing cash flow projections are not met or if market factors utilized in the impairment test deteriorate, including an unfavorable change in the terminal growth rate or the weighted-average cost of capital, the Company may have to record impairment charges in future periods.

As of March 4, 2023 and February 26, 2022, the accumulated impairment losses for the Pharmacy Services Segment was $1,174,912 and $803,712, respectively.

Below is a summary of the changes in the carrying amount of goodwill by segment for the fiscal years ended March 4, 2023 and February 26, 2022:


	Retail		Pharmacy
	Pharmacy		Services		Total
Balance, February 27, 2021	$	43,492	$	1,064,644	$	1,108,136
Goodwill impairment		—		(229,000)		(229,000)
Balance, February 26, 2022		43,492		835,644		879,136
Goodwill impairment		—		(371,200)		(371,200)
Balance, March 4, 2023	$	43,492	$	464,444	$	507,936

The Company’s intangible assets are primarily finite-lived and amortized over their useful lives. Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets as of March 4, 2023 and February 26, 2022.


	March 4, 2023								February 26, 2022
							Remaining								Remaining
							Weighted								Weighted
	Gross						Average		Gross						Average
	Carrying		Accumulated				Amortization		Carrying		Accumulated				Amortization
	Amount		Amortization		Net		Period		Amount		Amortization		Net		Period
Non-compete agreements and other^(a)	$	201,919	$	(182,957)	$	18,962	3	years	$	197,651	$	(178,958)	$	18,693	3	years
Prescription files		1,029,665		(928,478)		101,187	5	years		1,030,169		(918,773)		111,396	6	years
Customer relationships^(a)		388,000		(306,139)		81,861	9	years		388,000		(286,090)		101,910	10	years
CMS license		57,500		(23,798)		33,702	4	years		57,500		(15,372)		42,128	5	years
Claims adjudication and other developed software		58,985		(58,985)		—	0	years		58,985		(56,316)		2,669	1	years
Total finite	$	1,736,069	$	(1,500,357)		235,712			$	1,732,305	$	(1,455,509)	$	276,796
Trademarks		14,400		—		14,400	Indefinite			14,400		—		14,400	Indefinite
Total	$	1,750,469	$	(1,500,357)	$	250,112			$	1,746,705	$	(1,455,509)	$	291,196

(a)	Amortized on an accelerated basis which is determined based on the remaining useful economic lives of the customer relationships that are expected to contribute directly or indirectly to future cash flows.

The Company is continuing to reposition its approach to the Elixir Insurance Part D business including an expectation of a purposeful shrinkage of the business. As a result, at the end of fiscal 2022, the Company adjusted the remaining amortization period of the CMS License to five years. Prior to such adjustment, the remaining life was nineteen years.

In connection with the restructuring initiatives previously announced on March 16, 2020, the Company rebranded its EnvisionRxOptions and MedTrak subsidiaries to its new brand name, Elixir. These trademarks qualify as Level 3 within the fair value hierarchy. Upon the implementation of the rebranding initiatives during the first quarter of fiscal 2021, the Company has determined that the carrying value exceeded the fair value and consequently the Company incurred an impairment charge of $29,852 for these trademarks, which is included within intangible asset impairment charges within the consolidated statement of operations.

Amortization expense for these intangible assets and liabilities was $74,024, $78,047 and $89,020 for fiscal 2023, 2022 and 2021, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2024—$61,343; 2025—$50,209; 2026—$39,771; 2027—$32,779 and 2028—$25,299.