Goodwill and Other Intangible Assets

3 Months Ended

Jun. 03, 2023

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

9. Goodwill and Other Intangible Assets

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.

During the thirteen week period ended June 3, 2023, the Company completed a qualitative goodwill impairment assessment, at which time it was determined after evaluating results, events, and circumstances that were not known in prior quarters 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 projected performance at EI. Unfavorable drug costs and utilization trends that became apparent during the thirteen week period ended June 3, 2023, resulted in an unfavorable MLR which also increased the projected working capital needs of the business and subsequently contributed to the decision to exit the Individual Part D market, effective January 1, 2024. This resulted in goodwill impairment charges of $151,500 for the thirteen week period ended June 3, 2023.

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 June 3, 2023 and March 4, 2023, accumulated impairment losses for the Pharmacy Services Segment was $1,326,412 and $1,174,912, respectively.

	Retail		Pharmacy
	Pharmacy		Services		Total
Balance, March 4, 2023		43,492		464,444		507,936
Goodwill impairment		—		(151,500)		(151,500)
Balance, June 3, 2023	$	43,492	$	312,944	$	356,436

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 June 3, 2023 and March 4, 2023.

	June 3, 2023								March 4, 2023
							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)	$	205,249	$	(184,911)	$	20,338	3	years	$	201,919	$	(182,957)	$	18,962	3	years
Prescription files		1,035,505		(934,114)		101,391	5	years		1,029,665		(928,478)		101,187	5	years
Customer relationships(a)		388,000		(310,842)		77,158	8	years		388,000		(306,139)		81,861	9	years
CMS license		57,500		(25,904)		31,596	3	years		57,500		(23,798)		33,702	4	years
Claims adjudication and other developed software		58,985		(58,985)		—	0	years		58,985		(58,985)		—	0	years
Total finite	$	1,745,239	$	(1,514,756)		230,483			$	1,736,069	$	(1,500,357)	$	235,712
Trademarks		14,400		—		14,400	Indefinite			14,400		—		14,400	Indefinite
Total	$	1,759,639	$	(1,514,756)	$	244,883			$	1,750,469	$	(1,500,357)	$	250,112

(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.

Amortization expense for these intangible assets and liabilities was $17,133 and $20,626 for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2024—$63,486; 2025—$52,554; 2026—$42,028; 2027—$35,018 and 2028—$27,538.