NOTE 7—GOODWILL AND INTANGIBLE ASSETS

The Company has seven goodwill reporting units, three of which represent separate operating segments and are aggregated within the Wholesale reportable segment, three of which are separate operating segments that do not qualify as separate reportable segments, and a single retail reporting unit, which is included within discontinued operations.

During fiscal 2019, a relative fair value allocation was performed when the Canada Wholesale reporting unit became a separate operating segment and reporting unit.

In conjunction with the acquisition of Supervalu, goodwill resulting from the acquisition was assigned to the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, as both of these reporting units are expected to benefit from the synergies of the business combination. The assignment was based on the relative synergistic value estimated as of the acquisition date. This systematic approach utilized the relative cash flow contributions and value created from the acquisition to each reporting unit on a stand-alone basis. As of the acquisition date, approximately $82.0 million was attributed to the legacy Company Wholesale reporting unit, which is preliminary and subject to the final determinations of the fair value of net assets acquired and a proportionate assignment adjustment between the Supervalu Wholesale reporting unit and the legacy Company reporting unit.

The Company reviews goodwill for impairment at least annually and more frequently if events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit is below its carrying amount. The annual review for goodwill impairment is performed as of the first day of the fourth quarter of each fiscal year. The Company tests for goodwill impairment at the reporting unit level, which is one level below the operating segment level.

Goodwill Impairment Reviews

During the first quarter of fiscal 2019, the Company experienced a decline in its stock price and market capitalization. During the second quarter of fiscal 2019, the stock price continued to decline, and the decline in the stock price and market capitalization became significant and sustained. Due to this sustained decline in stock price, the Company determined that it was more likely than not that the carrying value of the Supervalu Wholesale reporting unit exceeded its fair value and performed an interim quantitative impairment test of goodwill.

The Company estimated the fair values of all reporting units using both the market approach, applying a multiple of earnings based on guidelines for publicly traded companies, and the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment for each reporting unit. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities. The rates used to discount projected future cash flows under the income approach reflect a weighted average cost of capital of 10%, which considered guidelines for publicly traded companies, capital structure and risk premiums, including those reflected in the Company’s then-current market capitalization. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling those fair values to its enterprise value and market capitalization. Based on this analysis, the Company determined that the carrying value of its Supervalu Wholesale reporting unit exceeded its fair value by an amount that exceeded the assigned goodwill as of the acquisition date. As a result, the Company recorded a goodwill impairment charge of $292.8 million in fiscal 2019, which reflects the preliminary goodwill impairment charge recorded in the second quarter of fiscal 2019 and adjustments to the charge recorded in the third and fourth quarters of fiscal 2019. The goodwill impairment charge adjustments recorded in the third and fourth quarters of fiscal 2019 were attributable to changes in the preliminary fair value of net assets, most notably changes in tax assets and liabilities, intangible assets and property and equipment, which affected the initial goodwill resulting from the Supervalu acquisition. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Consolidated Statements of Operations. The goodwill impairment charge reflects all of Supervalu Wholesale’s reporting unit goodwill, based on preliminary acquisition date assigned fair values. The quantitative goodwill impairment review indicated that the estimated fair value of the legacy Company Wholesale and Canada Wholesale reporting units were in excess of their carrying values by over 20%. Other continuing operations reporting units were substantially in excess of their carrying value.

The goodwill impairment charge recorded in fiscal 2019 is subject to change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition. There can be no assurance that such final assessments will not result in material increases or decreases to the recorded goodwill impairment charge based upon the preliminary purchase price allocations, due to changes in the provisional opening balance sheet estimates of goodwill. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date). Refer to Note 4—Acquisitions for further information about the preliminary purchase price allocation and provisional goodwill estimated as of the acquisition date.

In fiscal 2019, the Company performed quarterly reviews of the composition of its reporting units. Any future changes in the Company’s goodwill reporting units would require a relative fair value allocation of goodwill, and may require a quantitative impairment assessment of goodwill, which may result in material goodwill impairment charges.

In the fourth quarter of fiscal 2019, the Company performed its annual goodwill qualitative impairment test and determined that a quantitative impairment test was not required for any of its reporting units.

2018 Earth Origins Market Impairment

During the second quarter of fiscal 2018, the Company made the decision to close three non-core, under-performing stores of its total twelve stores. Based on this decision, coupled with the decline in results in the first half of fiscal 2018 and the future outlook as a result of competitive pressure, the Company determined that both a test for recoverability of long-lived assets and a goodwill impairment analysis should be performed. The determination of the need for a goodwill analysis was based on the assertion that it was more likely than not that the fair value of the reporting unit was below its carrying amount. As a result of both these analyses, the Company recorded a total impairment charge of $3.4 million on long-lived assets and $7.9 million to goodwill, respectively, during the second quarter of fiscal 2018. During the fourth quarter of fiscal 2018 the Company disposed of its Earth Origins retail business.

Goodwill and Intangible Assets Changes

Changes in the carrying value of Goodwill by reportable segment that have goodwill consisted of the following:



(in thousands)	Wholesale			Other			Total
Goodwill as of July 29, 2017⁽¹⁾⁽²⁾	$	353,234		$	18,025		$	371,259
Impairment charge	—			(7,872		)	(7,872		)
Goodwill adjustment for prior fiscal year business combinations	220			—			220
Change in foreign exchange rates	(1,112		)	—			(1,112		)
Goodwill as of July 28, 2018⁽¹⁾⁽²⁾	352,342			10,153			362,495
Goodwill from current fiscal year business combinations	374,757			—			374,757
Impairment charge	(292,757		)	—			(292,757		)
Other adjustments	(1,951		)	—			(1,951		)
Change in foreign exchange rates	(288		)	—			(288		)
Goodwill as of August 3, 2019⁽¹⁾⁽²⁾	$	432,103		$	10,153		$	442,256


(1)	Wholesale amounts are net of accumulated goodwill impairment charges of $0.0 million, $0.0 million and $292.8 million for fiscal 2017, 2018 and 2019, respectively.


(2)	Other amounts are net of accumulated goodwill impairment charges of $1.4 million, $9.3 million and $9.3 million for fiscal 2017, 2018 and 2019, respectively.

Intangible assets, net consisted of the following:



	2019						2018
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortizing intangible assets:
Customer relationships	$	1,007,089	$	111,940	$	895,149	$	197,246	$	61,543	$	135,703
Non-compete agreements	12,900		6,237		6,663		2,900		1,914		986
Operating lease intangibles	32,103		2,209		29,894		—		—		—
Trademarks and tradenames	67,700		14,161		53,539		1,700		981		719
Total amortizing intangible assets	1,119,792		134,547		985,245		201,846		64,438		137,408
Indefinite lived intangible assets:
Trademarks and tradenames	55,813		—		55,813		55,801		—		55,801
Intangibles assets, net	$	1,175,605	$	134,547	$	1,041,058	$	257,647	$	64,438	$	193,209

Amortization expense was $70.3 million, $15.0 million and $15.2 million for fiscal 2019, 2018 and 2017, respectively. The estimated future amortization expense for each of the next five fiscal years and thereafter on definite lived intangible assets existing as of August 3, 2019 is shown below:



Fiscal Year:	(In thousands)
2020	$	87,304
2021	73,192
2022	67,544
2023	67,232
2024	67,453
Thereafter	622,520
	$	985,245