Goodwill and Other Intangible Assets

12 Months Ended

Apr. 25, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

We have goodwill on our consolidated balance sheet as follows:



Reportable Segment	Reporting Unit	Related Acquisition
Upholstery Segment	La-Z-Boy United Kingdom	Wholesale business in the United Kingdom and Ireland
Retail Segment	Retail	La-Z-Boy Furniture Galleries^® stores
Corporate & Other Segment	Joybird	Joybird

We test goodwill for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that it might be impaired. Due to the economic conditions during the fourth quarter of fiscal 2020 as a result of the COVID-19 pandemic, we determined that we could not assess goodwill recoverability qualitatively using the Step 0 approach and deemed it necessary to perform the quantitative Step 1 goodwill impairment test for each applicable reporting unit. In accordance with ASU 2017-04, Intangibles-Goodwill and Other, which we adopted during fiscal 2019, our quantitative goodwill impairment tests were performed by comparing the fair value of the reporting unit with its carrying value, recognizing an impairment charge, if necessary, for the amount by which the carrying value exceeds the fair value.

The quantitative Step 1 goodwill impairment test requires us to estimate the fair value of each applicable reporting unit. Estimating the fair value of each reporting unit requires management to make significant assumptions and to apply judgment to project future sales based on estimated short and long-term growth rates along with future operating margins. Significant judgment is also involved in selecting the appropriate discount rate to be applied to the projected future cash flows. Changes in these assumptions may affect our fair value estimates and the result of impairment tests in future periods. Specific assumptions used and the results of our annual goodwill impairment tests as of April 25, 2020 were as follows:

Upholstery Segment

The goodwill associated with our La-Z-Boy United Kingdom reporting unit resides in our Upholstery reportable segment. To estimate the fair value of this reporting unit, we applied the income approach using discounted future cash flows. Sales and operating income projections were based on assumptions driven by the current economic conditions. Other key assumptions used in the quantitative assessment of the reporting units' goodwill were a discount rate of 9.5%, reflecting a market participant weighted average cost of capital, and a tax rate of 18.0%, which was specific to the La-Z-Boy United Kingdom reporting unit. Based on our testing, the relative fair value of our La-Z-Boy United Kingdom reporting unit exceeded its carrying value as of April 25, 2020 and no impairment was recorded.

Retail Segment

The goodwill associated with our acquisitions of La-Z-Boy Furniture Galleries^® stores resides in our Retail reportable segment. To estimate the fair value of this reporting unit, we applied the income approach using discounted future cash flows. Sales and operating income projections were based on assumptions driven by the current economic conditions. Due to uncertainty around the future impact of COVID-19, our projections considered various scenarios and we probability-weighted the likelihood of each scenario in determining the reporting unit's fair value. Other key assumptions used in the quantitative assessment of the reporting unit's goodwill were a discount rate of 9.5%, reflecting a market participant weighted average cost of capital, and a

tax rate of 23.5%, which is specific to the jurisdictions in which our acquired stores operate in. Based on our testing, the relative fair value of our Retail reporting unit exceeded its carrying value as of April 25, 2020 and no impairment was recorded.

Corporate & Other Segment

The goodwill associated with our Joybird reporting unit resides in our Corporate and Other reportable segment. To estimate the fair value of this reporting unit, we applied the income approach using discounted future cash flows. Sales and operating income projections were based on assumptions driven by the current economic conditions. Additionally, we assumed a 2.0% terminal growth rate for the reporting unit. Financial projections used in the fiscal 2020 impairment test were based on various scenarios and were significantly lower than those used in the fiscal 2019 impairment test due to the impact of the COVID-19 pandemic, integration activities taking longer than anticipated and a slower than anticipated growth rate due to a shifting focus on profitability. Other key assumptions used in the quantitative assessment of the reporting unit's goodwill were a discount rate of 17.5%, reflecting a market participant weighed average cost of capital assuming Joybird would be sold as a stand-alone business, and a tax rate of 24.3%, which was specific to the Joybird reporting unit. Based on our testing, the carrying value of the Joybird reporting unit exceeded its relative fair value as of April 25, 2020, and we recorded a non-cash pre-tax impairment charge of $26.9 million during the fourth quarter of fiscal 2020 to reduce the carrying value of the goodwill to its fair value.

The following table summarizes changes in the carrying amount of our goodwill by reportable segment:



(Amounts in thousands)	Upholstery Segment			Retail Segment			Corporate and Other			Total Goodwill
Balance at April 28, 2018	$	12,967		$	62,287		$	—		$	75,254
Acquisitions	—			31,987			79,616			111,603
Translation adjustment	(819		)	(171		)	—			(990		)
Balance at April 27, 2019	12,148			94,103			79,616			185,867
Prior period adjustment (1)	—			—			2,692			2,692
Impairment charge	—			—			(26,862		)	(26,862		)
Translation adjustment	(518		)	(162		)	—			(680		)
Balance at April 25, 2020	$	11,630		$	93,941		$	55,446		$	161,017


(1)	Includes $3.5 million adjustment made during the fourth quarter of fiscal 2020, as we determined that both goodwill and the customer deposit liability were understated, partially offset by a $0.8 million working capital adjustment made in the first quarter of fiscal 2020.

The carrying amount of our goodwill could be at risk for future impairment. There continues to be uncertainty surrounding the macroeconomic factors impacting our business, most notably, the impact of the COVID-19 pandemic, and a sustained economic downturn, significantly extended recovery, change in the assumed long-term revenue growth or profitability for our respective reporting units, especially Joybird, or change in market participant assumptions such as an increased discount rate, could increase the likelihood of future goodwill impairment charges.

We have intangible assets on our consolidated balance sheet as follows:



Reportable Segment	Intangible Asset	Useful Life
Upholstery segment	Primarily acquired customer relationships from our acquisition of the wholesale business in the United Kingdom and Ireland	Amortizable over useful lives that do not exceed 15 years
Casegoods segment	American Drew^® trade name	Indefinite-lived
Retail segment	Reacquired rights to own and operate La-Z-Boy Furniture Galleries^® stores	Indefinite-lived
Corporate & Other	Joybird^® trade name	Amortizable over eight-year useful life

We test amortizable intangible assets and indefinite-lived intangibles for impairment on an annual basis in the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value might be impaired. Due to the economic conditions during the fourth quarter of fiscal 2020 as a result of the COVID-19 pandemic, we tested all intangible assets for impairment based on the multi-period excess earnings method, a variant of the income approach, and also using the relief from royalty method. Sales projections were based on assumptions driven by the current economic conditions. Our testing in the fourth quarter of fiscal 2020 did not indicate impairment of our intangible assets.

The following summarizes changes in our intangible assets:



(Amounts in thousands)	Indefinite-Lived Trade Names		Finite-Lived Trade Name			Indefinite-Lived Reacquired Rights			Other Intangible Assets			Total Intangible Assets
Balance at April 28, 2018	$	1,155	$	—		$	13,645		$	3,390		$	18,190
Acquisitions	—		6,400			6,600			—			13,000
Amortization	—		(599		)	—			(346		)	(945		)
Translation adjustment	—		—			(128		)	(210		)	(338		)
Balance at April 27, 2019	$	1,155	$	5,801		$	20,117		$	2,834		$	29,907
Amortization	—		(798		)	—			(220		)	(1,018		)
Translation adjustment	—		—			(121		)	(115		)	(236		)
Balance at April 25, 2020	$	1,155	$	5,003		$	19,996		$	2,499		$	28,653

There continues to be uncertainty surrounding the macroeconomic factors impacting our business, most notably, the impact of the COVID-19 pandemic, and a sustained economic downturn, significantly extended recovery, or change in the assumed long-term revenue growth rates could increase the likelihood of future intangible asset impairment charges.

For our intangible assets recorded as of April 25, 2020, we estimate annual amortization expense to be $1.0 million for each of the five succeeding fiscal years.