Goodwill and Acquired Intangible Assets

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Note 9 - Goodwill and Acquired Intangible Assets

Goodwill

The changes in the carrying amount of goodwill are presented below:


(In thousands)	Amount
Balance at December 31, 2020	$	68,512
Acquisition of Great Wall Group	11,745
Balance at December 31, 2021	80,257
Acquisition of Sealand Food, Inc.	4,861
Balance at December 31, 2022	$	85,118

Accumulated impairment for goodwill is $338.2 million as of both December 31, 2022 and 2021.

Towards the end of first quarter of fiscal year 2020, the Company experienced significant decline in business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the intensification of the COVID-19 pandemic. The Company determined that the B&R Global reporting unit was very sensitive to these declines and that it was more-likely-than-not that an impairment may exist. The Company, therefore, performed an analysis of the fair value of the B&R Global reporting unit as of March 31, 2020 using a discounted cash flow method for goodwill impairment testing purposes. Based upon the analysis, the Company concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by approximately $338.2 million. As a result, the Company recorded the amount as an impairment loss during the first quarter of fiscal year 2020.

The Company estimated the fair value of the B&R Global reporting unit using the income approach, discounting projected future cash flows based upon management’s expectations of the current and future operating environment. The calculation of the impairment charge included substantial fact-based determinations and estimates including weighted average cost of capital ("WACC"), future revenue, profitability, perpetual growth rates and fair values of assets and liabilities. The fair value conclusions as of March 31, 2020 for the reporting unit were highly sensitive to changes in the WACC, which considered as observable data for publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization. The Company also observed that the WACC applied on March 31, 2020 increased significantly from the original WACC value as of the acquisition date, mainly driven by the increased risk and volatility observed in the market. Volatility had primarily been due to concerns about demand for food distribution services, as restaurant activity in much of the country had been reduced to takeout and delivery offerings. Continued uncertainty about the removal or perpetuation of these restrictions and levels of consumer spending cause ongoing volatility.

Due to structural changes at the Company during 2021, there is only one aggregated reporting unit at December 31, 2022 and 2021. Due to the sustained decline in the Company’s stock price during 2022, the Company performed a quantitative goodwill impairment assessment. The fair value was determined using an average of the discounted cash flow approach, comparable public company analysis, and comparable acquisitions analysis. The fair value of the reporting unit exceeded the carrying value, and therefore the Company concluded no impairment was required to be recorded during the year ended December 31, 2022. For the year ended December 31, 2021, the Company performed a qualitative goodwill impairment assessment and concluded no impairment was required to be recorded during the year ended December 31, 2021.

Acquired Intangible Assets

In connection with the Sealand acquisition, the Company acquired $14.7 million of intangible assets, primarily representing tradenames and trademarks of $4.4 million, customer relationships of $8.9 million and non-compete agreements of $1.4 million. The useful lives of the tradenames and trademarks are ten years, customer relationships are ten years and non-compete agreements are three years, with a weighted average amortization period of approximately nine years. The associated goodwill is deductible for tax purposes.

In connection with the Great Wall Group acquisition, HF Group acquired $30.1 million of intangible assets, primarily representing a non-competition agreement, tradenames and customer relationships, which have an estimated amortization period of approximately 3 years, 10 years, and 10 years, respectively.

In connection with the acquisition of B&R Global, HF Group acquired $188.5 million of intangible assets, primarily representing tradenames and customer relationships which have an estimated amortization period of 10 and 20 years, respectively.

The components of the intangible assets are as follows:


	December 31, 2022						December 31, 2021
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Non-competition agreement	$	3,892	$	(1,132)	$	2,760	$	2,407	$	—	$	2,407
Trademarks	44,256		(10,673)		33,583		39,833		(6,349)		33,484

Customer relationships	185,266		(27,518)		157,748		176,408		(17,247)		159,161
Total	$	233,414	$	(39,323)	$	194,091	$	218,648	$	(23,596)	$	195,052

The Company evaluated possible triggering events that would indicate long-lived asset impairment assessment. The Company impaired its acquired developed technology and recognized impairment expense of $0.4 million in distribution, selling and administrative expenses in the consolidated statements of operations during the year ended December 31, 2022. There were no triggering events identified for the remaining intangible assets at December 31, 2022. No impairment was recorded for the years ended December 31, 2021 and 2020.

HF Group’s amortization expense for acquired intangible assets was $15.7 million in 2022, $10.9 million in 2021 and $10.9 million in 2020. The estimated future amortization expense for intangible assets is presented below:



(In thousands)	Amount
Year ending December 31,
2023	$	16,285
2024	16,285
2025	15,152
2026	14,987
2027	14,987
Thereafter	116,395
Total	$	194,091