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Goodwill and intangibles | 6 Months Ended
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Aug. 01, 2020
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill and intangibles | Goodwill and intangibles Goodwill and other indefinite-lived intangible assets, such as indefinite-lived trade names, are evaluated for impairment annually. Additionally, if events or conditions were to indicate the carrying value of a reporting unit or an indefinite-lived intangible asset may be greater than its fair value, 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 various impacts of COVID-19 to the Company’s business during the 13 weeks ended May 2, 2020, 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. The income approach was used to estimate the fair value of each reporting unit, whereby the Company calculates the fair value based on the present value of estimated future cash flows, using a discount rate aligned with market-based assumptions. The relief-from-royalty method was used to estimate the fair value of indefinite-lived intangible assets. As part of the assessment, it was determined that an increase in the discount rates were required to reflect the prevailing uncertainty inherent in the forecasts due to current market conditions and potential COVID-19 impacts. This higher discount rate, in conjunction with revised long-term projections associated with certain aspects of the Company’s forecast, resulted in lower than previously projected long-term future cash flows for the reporting units and indefinite-lived intangible assets which negatively affected the valuation compared to previous valuations. As a result of the interim impairment assessment, the Company recognized pre-tax impairment charges for goodwill and indefinite-lived intangible assets totaling $94 million in the 13 weeks ended May 2, 2020. During the second quarter of Fiscal 2021, the Company completed its annual evaluation of its indefinite-lived intangible assets, including goodwill and trade names identified in the Zale acquisition, and through this assessment, the Company did not identify any events or conditions that would indicate that it was more likely than not that the carrying values of the reporting units and indefinite-lived trade names exceeded their fair values. Additionally, the Company completed its quarterly trigger event assessment and determined that no triggering event had occurred during the second quarter of Fiscal 2021 requiring interim impairment assessments for its remaining reporting units with goodwill and indefinite-lived intangible assets. Goodwill During the 13 weeks ended August 3, 2019, a non-cash immaterial out-of-period adjustment of $47.7 million, with $35.2 million related to Zales goodwill and $12.5 million related to R2Net goodwill, was recognized within asset impairments on the condensed consolidated statements of operations related to an error in the calculation of goodwill impairments during Fiscal 2019. During the 13 weeks ended May 2, 2020, the Company recognized pre-tax impairment charges within asset impairments on the condensed consolidated statements of operations of $10.7 million within its North America segment related to R2Net and Zales Canada goodwill. The following table summarizes the Company’s goodwill by reportable segment:
(in millions) |  | North America |  |  |  |  |  |
Balance at February 2, 2019 |  | $ | 296.6 |  |  |  |  |  |  |
Impairment(1) |  | (47.7) |  |  |  |  |  |  |
Impact of foreign exchange and other adjustments |  | (0.1) |  |  |  |  |  |  |
Balance at February 1, 2020 |  | 248.8 |  |  |  |  |  |  |
Impairment |  | (10.7) |  |  |  |  |  |  |
Impact of foreign exchange |  | (0.1) |  |  |  |  |  |  |
Balance at August 1, 2020 |  | $ | 238.0 |  |  |  |  |  |  |
(1) During Fiscal 2020, an immaterial out-of-period adjustment was recognized related to an error in the calculation of goodwill impairments during Fiscal 2019. Intangibles Definite-lived intangible assets include trade names and favorable lease agreements. All indefinite-lived intangible assets consist of trade names. Both definite and indefinite-lived assets are recorded within intangible assets, net, on the condensed consolidated balance sheets. Intangible liabilities, net, is comprised of unfavorable lease agreements and contracts and is recorded within other liabilities on the condensed consolidated balance sheets. The following table provides additional detail regarding the composition of intangible assets and liabilities:
|  | August 1, 2020 |  |  |  |  |  | February 1, 2020 |  |  |  |  |  | August 3, 2019 |  |  |  |
(in millions) |  | Gross carrying amount |  | Accumulated amortization(1) |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization(1) |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization(1) |  | Net carrying amount
Intangible assets, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Definite-lived intangible assets |  | $ | 53.0 |  |  | $ | (51.2) |  |  | $ | 1.8 |  |  | $ | 53.2 |  |  | $ | (50.9) |  |  | $ | 2.3 |  |  | $ | 53.2 |  |  | $ | (50.7) |  |  | $ | 2.5 |
Indefinite-lived intangible assets |  | 474.7 |  |  | (297.5) |  |  | 177.2 |  |  | 475.4 |  |  | (213.9) |  |  | 261.5 |  |  | 475.9 |  |  | (214.1) |  |  | 261.8 |
Total intangible assets, net |  | $ | 527.7 |  |  | $ | (348.7) |  |  | $ | 179.0 |  |  | $ | 528.6 |  |  | $ | (264.8) |  |  | $ | 263.8 |  |  | $ | 529.1 |  |  | $ | (264.8) |  |  | $ | 264.3 |
Intangible liabilities, net |  | $ | (113.7) |  |  | $ | 100.6 |  |  | $ | (13.1) |  |  | $ | (113.9) |  |  | $ | 98.0 |  |  | $ | (15.9) |  |  | $ | (113.8) |  |  | $ | 95.3 |  |  | $ | (18.5) |
(1) Accumulated amortization amounts related to the indefinite-lived intangible assets represents accumulated impairment losses recorded to date and includes the impact of foreign currency. 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 2, 2020, the Company recognized pre-tax impairment charges within asset impairments on the condensed consolidated statements of operations of $83.3 million within its North America segment. The uncertainty of the COVID-19 impact could continue to further negatively affect the share price of the Company’s stock, as well as key assumptions used to estimate fair value, such as sales trends, margin trends, long term growth and discount rates. In addition, as a result of the impairment of goodwill and trade names during the first quarter of Fiscal 2021, the Company’s goodwill and trade names within the North America segment approximate their respective fair values and could be at risk for additional impairments should there be an adverse business or economic change in future periods.

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- Definition The entire disclosure for goodwill and intangible assets. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -URI http://asc.fasb.org/topic&trid=2144416 + Details
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