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Goodwill and intangibles | 3 Months Ended
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May 05, 2018
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill and intangibles | Goodwill and intangibles In connection with the acquisition of R2Net on September 12, 2017, the Company recognized $299.1 million of goodwill, which is reported in the North America segment. The amount of goodwill generated will be adjusted for any additional assets or liabilities identified by the Company or for any adjustments to the preliminary fair values identified for the assets acquired and liabilities assumed in the R2Net acquisition. Goodwill and other indefinite-lived intangible assets, such as indefinite-lived trade names, are evaluated for impairment annually during the second quarter of the fiscal year. Additionally, if events or conditions were to indicate the carrying value of a reporting unit or an indefinite-lived intangible asset may not be recoverable, the Company would evaluate the asset for impairment at that time. Impairment testing compares the carrying amount of the reporting unit or other intangible assets with its fair value. When the carrying amount of the reporting unit or other intangible assets exceeds its fair value, an impairment charge is recorded. Due to a sustained decline in the Company’s market capitalization during the 13 weeks ended May 5, 2018, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite-lived intangible assets. As part of the assessment, it was determined that the an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projections associated with finalizing certain initial aspects of the Company’s Path to Brilliance transformation plan in the first quarter, resulted in lower than previously projected long-term future cash flows for the reporting units which negatively affected the valuation compared to previous valuations. Due to the inherent uncertainties involved in making the estimates and assumptions used in the fair value analysis, actual results may differ, which could alter the fair value of the reporting units and trade names, and possibly result in impairment charges in future periods. As a result of the interim impairment assessment, the Company recognized pre-tax impairment charges totaling $448.7 million in the 13 weeks ended May 5, 2018. Goodwill Using a combination of discounted cash flow and guideline public company methodologies, the Company compared the fair value of each of its reporting units with their carrying value and concluded that a deficit existed. Accordingly, in the 13 weeks ended May 5, 2018, the Company recognized pre-tax impairment charges in operations of $23.2 million and $285.6 million at its’ legacy Sterling Jewelers and Zale Jewelry segments, which are within the Company’s current North America segment. The following table summarizes the Company’s goodwill by reportable segment:
(in millions) |  | North America |  | Other |  | Total
Balance at January 28, 2017 |  | $ | 514.0 |  |  | $ | 3.6 |  |  | $ | 517.6 |
Acquisitions |  | 301.7 |  |  | — |  |  | 301.7 |
Impact of foreign exchange and other adjustments |  | 2.4 |  |  | — |  |  | 2.4 |
Balance at February 3, 2018 |  | 818.1 |  |  | 3.6 |  |  | 821.7 |
Impairment |  | (308.8 | ) |  | — |  |  | (308.8 | )
Impact of foreign exchange and other adjustments (1) |  | (3.8 | ) |  | — |  |  | (3.8 | )
Balance at May 5, 2018 |  | $ | 505.5 |  |  | $ | 3.6 |  |  | $ | 509.1 |
(1) | During the 13 weeks ended May 5, 2018, other adjustments include a purchase price accounting adjustment of $2.6 million related to a revised valuation of acquired intangible assets from the R2Net acquisition. Refer to Note 5 for additional details.
Intangibles Definite-lived intangible assets include trade names and favorable lease agreements. Indefinite-lived intangible assets include trade names. Both definite and indefinite-lived assets are recorded within intangible assets, net on the consolidated balance sheets. Intangible liabilities, net is comprised of unfavorable lease agreements and contracts and is recorded within other liabilities on the consolidated balance sheets. In conjunction with the interim goodwill impairment tests, the Company reviewed its indefinite-lived intangible assets for potential impairment by calculating the fair values of the assets using the relief from royalty method and comparing the fair value to their respective carrying amounts. The interim impairment test resulted in the determination that the fair values of indefinite-lived intangible assets related to certain Zales trade names were less than their carrying value. Accordingly, in the 13 weeks ended May 5, 2018, the Company recognized pre-tax impairment charges in operations of $139.9 million at its’ legacy Zale Jewelry segment, which is within the Company’s current North America segment. The following table provides additional detail regarding the composition of intangible assets and liabilities:
|  | May 5, 2018 |  | February 3, 2018 |  | April 29, 2017
(in millions) |  | Gross carrying amount |  | Accumulated amortization |  | Accumulated impairment loss |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization |  | Net carrying amount
Intangible assets, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Definite-lived intangible assets |  | 53.5 |  |  | (47.2 | ) |  | — |  |  | 6.3 |  |  | 49.8 |  |  | (46.7 | ) |  | 3.1 |  |  | 48.6 |  |  | (39.7 | ) |  | 8.9 |
Indefinite-lived intangible assets |  | 476.6 |  |  | — |  |  | (139.7 | ) |  | 336.9 |  |  | 478.4 |  |  | — |  |  | 478.4 |  |  | 403.0 |  |  | — |  |  | 403.0 |
Total intangible assets, net |  | $ | 530.1 |  |  | $ | (47.2 | ) |  | $ | (139.7 | ) |  | $ | 343.2 |  |  | $ | 528.2 |  |  | $ | (46.7 | ) |  | $ | 481.5 |  |  | $ | 451.6 |  |  | $ | (39.7 | ) |  | $ | 411.9 |
Intangible liabilities, net |  | $ | (114.1 | ) |  | $ | 87.1 |  |  | $ | — |  |  | $ | (27.0 | ) |  | $ | (114.5 | ) |  | $ | 85.2 |  |  | $ | (29.3 | ) |  | $ | (113.5 | ) |  | $ | 76.2 |  |  | $ | (37.3 | )

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -URI http://asc.fasb.org/topic&trid=2144416 + Details
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