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Goodwill and intangibles | 12 Months Ended
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Jan. 30, 2021
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 and more frequently if events or conditions are identified indicating the carrying value of a reporting unit or an indefinite-lived intangible asset may not be recoverable. In evaluating goodwill and indefinite-lived trade names for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value. If the Company concludes that it is not more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, then no further testing is required. However, if the Company concludes that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, then a goodwill impairment test is performed to identify a potential impairment and measure the amount of impairment to be recognized, if any. When the carrying amount of the reporting unit or an indefinite-lived intangible assets exceeds its fair value, an impairment charge is recorded. The impairment test for goodwill involves estimating the fair value of the reporting unit through either estimated discounted future cash flows or market-based methodologies. The impairment test for other indefinite-lived intangible assets involves estimating the fair value of the asset, which is typically performed using the relief from royalty method for indefinite-lived trade names. Fiscal 2019 During Fiscal 2019, the Company performed its annual evaluation of its indefinite-lived intangible assets, including goodwill and trade names identified in the Zale and R2Net acquisitions, for impairment indicators. The Company noted that no impairment indicators existed at the date of the annual evaluation. Additionally, due to a sustained decline in the Company’s market capitalization during the first quarter of Fiscal 2019, 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 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. 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. As a result of the interim impairment assessment, the Company recognized pre-tax impairment charges related to goodwill in the consolidated statement of operations of $308.8 million within its North America segment. Additionally, due to a second triggering event in the fourth quarter of Fiscal 2019 and using similar methodologies as the first quarter impairment assessment, the Company recognized additional pre-tax impairment charges related to goodwill, primarily R2Net goodwill, in the consolidated statement of operations of $208.8 million and $3.6 million within its North America and Other segments, respectively. In conjunction with the interim goodwill impairment tests noted above, during the first quarter of Fiscal 2019 the Company determined that the fair values of indefinite-lived intangible assets related to certain Zales trade names were less than their carrying value. Accordingly, in the first quarter, the Company recognized pre-tax impairment charges related to its indefinite-lived intangible assets in the consolidated statement of operations of $139.9 million within its North America segment. Additionally, in conjunction with the interim goodwill impairment tests associated with the second triggering event in the fourth quarter of Fiscal 2019, the Company determined that the fair values of indefinite-lived intangible assets related to trade names, primarily James Allen, were less than their carrying value. Accordingly, in the fourth quarter of Fiscal 2019, the Company recognized pre-tax impairment charges related to indefinite-lived intangible assets in the consolidated statement of operations of $74.3 million within its North America segment. Fiscal 2020 During Fiscal 2020, the Company performed its annual evaluation of its indefinite-lived intangible assets, including goodwill and trade names identified in the Zales and R2Net acquisition, for impairment indicators. The Company noted that no impairment indicators existed at the date of the annual evaluation. Additionally, due to a continued decline in the Company’s market capitalization during the second quarter of Fiscal 2020, the Company determined a triggering event had occurred requiring interim impairment assessments for its remaining reporting units with goodwill and indefinite-lived intangible assets. Using methodologies similar to the assessments performed in Fiscal 2019 described above, the Company determined no additional impairment charges were required to be recognized during Fiscal 2020 related to the annual evaluation or interim assessment. During the second quarter of Fiscal 2020, 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 Goodwill and intangible impairments on the consolidated statements of operations related to an error in the calculation of goodwill impairments during Fiscal 2019. Fiscal 2021 During Fiscal 2021, the Company performed its annual evaluation of its indefinite-lived intangible assets, including goodwill and trade names identified in the Zales and R2Net acquisitions, for impairment indicators. The Company noted that no impairment indicators existed at the date of the annual evaluation. Additionally, due to various impacts of COVID-19 to the Company’s business during the first quarter Fiscal 2021, 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 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, during the first quarter of Fiscal 2021 the Company recognized pre-tax impairment charges related to goodwill of $10.7 million in the consolidated statement of operations within its North America segment related to R2Net and Zales Canada goodwill. In conjunction with the interim goodwill impairment tests noted above, during the first quarter of Fiscal 2021 the Company determined that the fair values of indefinite-lived intangible assets related to certain Zales trade names were less than their carrying value. Accordingly, in the first quarter of Fiscal 2021, the Company recognized pre-tax impairment charges within asset impairments on the consolidated statements of operations of $83.3 million within its North America segment. The Company will continue to monitor the share price of the Company’s stock, as well as key business metrics and inputs used to estimate fair value, such as sales trends and interest rates. In addition, as a result of the impairment of goodwill and trade names during the first quarter of Fiscal 2020, goodwill of $69.3 million associated with the R2Net acquisition and the Company’s trade names within the North America segment continue to approximate their respective fair values and could be at risk for future impairments should there be negative business or economic change in future periods. Goodwill The following table summarizes the Company’s goodwill by reportable segment:
(in millions) | North America |  |  |  |  |  |
Balance at February 2, 2019 | $ | 296.6 |  |  |  |  |  |  |
Impairment | (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 January 30, 2021 | $ | 238.0 |  |  |  |  |  |  |
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 consolidated balance sheets. Intangible liabilities, net is comprised of unfavorable contracts and is recorded within accrued expense and other current liabilities and other liabilities on the consolidated balance sheets. The following table provides additional detail regarding the composition of intangible assets and liabilities:
|  | January 30, 2021 |  | February 1, 2020
(in millions) |  | Gross carrying amount |  | Accumulated amortization |  | Accumulated impairment loss |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization |  | Accumulated impairment loss |  | Net carrying amount
Intangible assets, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Definite-lived intangible assets |  | $ | 53.6 |  |  | $ | (52.2) |  |  | $ | — |  |  | $ | 1.4 |  |  | $ | 53.2 |  |  | $ | (50.9) |  |  | $ | — |  |  | $ | 2.3 |
Indefinite-lived intangible assets |  | 476.8 |  |  | $ | — |  |  | (299.2) |  |  | 177.6 |  |  | 475.4 |  |  | $ | — |  |  | (213.9) |  |  | 261.5 |
Total intangible assets, net |  | $ | 530.4 |  |  | $ | (52.2) |  |  | $ | (299.2) |  |  | $ | 179.0 |  |  | $ | 528.6 |  |  | $ | (50.9) |  |  | $ | (213.9) |  |  | $ | 263.8 |
Intangible liabilities, net |  | $ | (114.2) |  |  | $ | 103.7 |  |  | $ | — |  |  | $ | (10.5) |  |  | $ | (113.9) |  |  | $ | 98.0 |  |  | $ | — |  |  | $ | (15.9) |
Amortization expense relating to intangible assets was $0.9 million in Fiscal 2021 (Fiscal 2020: $0.9 million; Fiscal 2019: $4.0 million). The unfavorable contracts are classified as liabilities and recognized over the term of the underlying contract. Amortization relating to intangible liabilities was $5.4 million in Fiscal 2021 (Fiscal 2020: $5.5 million; Fiscal 2019: $7.9 million). Expected future amortization for intangible assets and future amortization for intangible liabilities recorded at January 30, 2021 follows:
(in millions) | Intangible assets, net amortization |  | Intangible liabilities amortization
Fiscal 2022 | $ | 0.8 |  |  | $ | (5.4) |
Fiscal 2023 | 0.6 |  |  | (5.1) |
Total | $ | 1.4 |  |  | $ | (10.5) |

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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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