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Note 6 - Goodwill and Intangible Assets, Net

9 Months Ended

Apr. 02, 2023

Goodwill and Intangible Assets Disclosure [Text Block]

Note 6 – Goodwill and Intangible Assets, Net

The following table presents goodwill by segment and the related change in the net carrying amount:

	Consumer Floral & Gifts		BloomNet		Gourmet Foods & Gift Baskets			Total
	(in thousands)
Balance at July 3, 2022	$	151,600	$	-	$	61,687		$	213,287
Measurement period adjustment for Vital Choice Acquisition		-		-		600			600
Measurement period adjustment for Alice's Table Acquisition		112		-		-			112
Acquisition of Things Remembered		1,664		-		-			1,664
Goodwill impairment		-		-		(62,287	)		(62,287	)
Balance at April 2, 2023	$	153,376	$	-	$	-		$	153,376

The Company’s other intangible assets consist of the following:

				April 2, 2023						July 3, 2022
	Amortization Period			Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(in years)			(in thousands)
Intangible assets with determinable lives
Investment in licenses	14	-	16	$	7,420	$	6,543	$	877	$	7,420	$	6,464	$	956
Customer lists	3	-	6		29,071		20,538		8,533		28,509		17,473		11,036
Other	5	-	14		2,946		2,589		357		2,946		2,543		403
Total intangible assets with determinable lives					39,437		29,670		9,767		38,875		26,480		12,395
Trademarks with indefinite lives					131,235		-		131,235		133,173		-		133,173
Total identifiable intangible assets				$	170,672	$	29,670	$	141,002	$	172,048	$	26,480	$	145,568

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal 2023 - $1.1 million, fiscal 2024 - $4.5 million, fiscal 2025 - $1.9 million, fiscal 2026 - $1.3 million, fiscal 2027 - $0.5 million and thereafter - $0.5 million.

The Company performs its annual assessment of goodwill and indefinite-lived intangible impairment during its fiscal fourth quarter, or more frequently if events occur or circumstances change such that it is more likely than not that an impairment may exist. During the year ended July 3, 2022, the Company experienced a sustained decline in its share price and a resulting decrease in its market capitalization, primarily due to the overall macroeconomic environment. Inflationary cost increases, which began during the first half of our fiscal year, were exacerbated by geopolitical events, further pressuring the Company’s gross margin and operating expenses. Due to this overall market decline and the Company’s operating performance, the Company completed impairment assessments of the goodwill and intangible assets of its three reporting units. The quantitative impairment tests as of July 3, 2022 did not indicate an impairment.

Although originally projected to be transitory, through the three months and nine months ended April 2, 2023, the trend of adverse macroeconomic conditions and geopolitical pressures continued, and there was a sustained decline in the Company’s market capitalization. As the expected duration of these factors changed during the three months ended April 2, 2023, the Company made downward projections to its business forecasts, and therefore determined a triggering event had occurred that required an interim impairment assessment of the goodwill, intangibles and other long-lived assets of the Gourmet Foods & Gift Baskets reporting unit as of April 2, 2023.

The Company performed its goodwill impairment test by comparing the fair value of its Gourmet Foods & Gift Baskets reporting unit to its respective carrying value. The Company estimated the fair value of the Gourmet Foods & Gift Baskets reporting unit using an equal weighting of the income and market approaches, and a discount rate of 13%. The Company used industry accepted valuation models and set criteria that were reviewed and approved by various levels of management. Under the income approach, the Company used a discounted cash flow methodology which required management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company used the guideline public company method. Under this method, the Company utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that were applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. The Company also reconciled the aggregate fair values of its reporting units to its current market capitalization.

The Company’s impairment test for indefinite-lived intangible assets encompassed calculating a fair value of the indefinite-lived intangible asset and comparing that result to its carrying value. To determine fair value of indefinite-lived intangible assets, the Company used an income approach, the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. Indefinite-lived intangible assets’ fair values require significant judgments in determining both the assets’ estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value.

The Company’s impairment test for definite-lived intangibles was performed through a recoverability test, comparing projected undiscounted cash flows from the use and eventual disposition of the asset or asset group to its carrying value.

Based on the impairment assessment performed for the period ending April 2, 2023, the Company recorded a goodwill and intangible impairment charge against its Gourmet Foods & Gift Baskets reporting unit of $64.6 million, comprised of $62.3 million which was attributable to goodwill and $2.3 million which was attributable to certain tradenames within the same reporting unit. The Company concluded that the definite-lived and other long-lived assets of the reporting unit were not impaired.