Goodwill and Other Intangible Assets

6 Months Ended

Sep. 02, 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.

As further discussed in Note 16, Subsequent Events, the Company concluded that there is substantial doubt about its ability to continue as a going concern within one year from the date of issuance of the unaudited consolidated financial statements. As a result of overall lower current year projections, the Company concluded that a quantitative assessment was necessary and tested its goodwill and intangible assets for impairment.

During the thirteen week period ended September 2, 2023, the Company completed a qualitative and quantitative impairment assessment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services Segment exceeded its fair value principally due to further erosion of the future cash flow projections for fiscal years ending after fiscal 2024 due to an inability to execute management’s business strategies for the 2024 selling season. The unfavorable results of the selling season became apparent during the thirteen week period ended September 2, 2023, which resulted in lower renewals of existing customers as well as less new business earned. This resulted in goodwill and the CMS license intangible incurring impairment charges of $266,000 and $29,490, respectively for the thirteen week period ended September 2, 2023. The qualitative and quantitative impairment assessment of the Retail Pharmacy Segment resulted in no adjustment to the carrying values as the fair value of its reporting unit exceeds its carrying amount.

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.

During the thirteen week period ended June 3, 2023, the Company recorded a goodwill impairment charge of $151,500. As of September 2, 2023 and March 4, 2023, accumulated impairment losses for the Pharmacy Services Segment was $1,592,412 and $1,174,912, respectively.

Below is a summary of the changes in the carrying amount of goodwill by segment for the twenty-six week period ended September 2, 2023:

	Retail		Pharmacy
	Pharmacy		Services		Total
Balance, March 4, 2023		43,492		464,444		507,936
Goodwill impairment		—		(417,500)		(417,500)
Balance, September 2, 2023	$	43,492	$	46,944	$	90,436

The Company’s intangible assets are primarily finite-lived and amortized over their useful lives. The following is a summary of the Company’s finite-lived and indefinite-lived intangible assets as of September 2, 2023 and March 4, 2023.

	September 2, 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)	$	203,632	$	(184,551)	$	19,081	3	years	$	201,919	$	(182,957)	$	18,962	3	years
Prescription files		1,030,619		(935,466)		95,153	5	years		1,029,665		(928,478)		101,187	5	years
Customer relationships(a)		386,000		(313,062)		72,938	8	years		388,000		(306,139)		81,861	9	years
CMS license		57,500		(57,500)		—	0	years		57,500		(23,798)		33,702	4	years
Total finite	$	1,677,751	$	(1,490,579)		187,172			$	1,677,084	$	(1,441,372)	$	235,712
Trademarks		14,400		—		14,400	Indefinite			14,400		—		14,400	Indefinite
Total	$	1,692,151	$	(1,490,579)	$	201,572			$	1,691,484	$	(1,441,372)	$	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 $16,590 and $33,723 for the thirteen and twenty-six week periods ended September 2, 2023, respectively. Amortization expense for these intangible assets and liabilities was $18,420 and $39,046 for the thirteen and twenty-six week periods ended August 27, 2022, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2024—$55,339; 2025—$44,505; 2026—$34,144; 2027—$27,154 and 2028—$19,674.