Goodwill and Other Identifiable Intangible Assets

3 Months Ended

May 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Identifiable Intangible Assets

The carrying amount of goodwill attributable to each reporting segment was:



(In thousands)	Architectural Framing Systems			Architectural Glass			Architectural Services		Large-Scale Optical		Total
Balance at March 2, 2019	$	148,446		$	25,709		$	1,120	$	10,557	$	185,832
Foreign currency translation	(263		)	(53		)	—		—		(316		)
Balance at February 29, 2020	148,183			25,656			1,120		10,557		185,516
Adjustment ⁽¹⁾	6,315			—			—		—		6,315
Foreign currency translation	(955		)	(332		)	—		—		(1,287		)
Balance at May 30, 2020	$	153,543		$	25,324		$	1,120	$	10,557	$	190,544

⁽¹⁾ During the quarter ended May 30, 2020, we recorded a $6.3 million increase to goodwill and corresponding increase to deferred tax liabilities to correct an immaterial error related to prior periods. The error was not material to any previously reported annual or interim consolidated financial statements.

We evaluate goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. During the first quarter of fiscal 2021, we identified qualitative indicators of impairment, including a significant decline in our stock price and market capitalization, along with concerns resulting from the COVID-19 pandemic at four of our nine identified reporting units. Therefore, we performed a quantitative goodwill impairment evaluation as of May 30, 2020 at these four reporting units, EFCO Corporation ("EFCO"), Alumicor Limited ("Alumicor"), Sotawall Limited ("Sotawall") and Viracon, Inc ("Viracon").

Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by management on a regular basis. If the fair value of a reporting unit exceeds the carrying value, goodwill impairment is not indicated.

We base our determination of fair value on a discounted cash flow methodology that involves significant judgment and projections of future performance. We also consider a market approach in our analysis by reviewing available data from recent transactions of comparable public companies when available. Assumptions about future revenues and expenses, capital expenditures and changes in working capital are based on the annual operating plan and long-term business plan for each reporting unit. These plans take into consideration numerous factors, including historical experience, current and future operational plans, anticipated future economic conditions and growth expectations for the industries and end markets in which we participate. These plans also take into consideration our assessment of risks inherent in our projections of future cash flows. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in the forecasts. Inputs used to estimate these fair values included significant unobservable inputs that reflect the Company's assumptions about the inputs that market participants would use and, therefore, the fair value assessments are classified within Level 3 of the fair value hierarchy. We derived the discount rates using a capital asset pricing model and analyzing published rates for industries relevant to the reporting units to estimate the cost of equity financing. We used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the internally developed forecasts, updated for recent events.

Based on the results of the interim quantitative goodwill impairment analysis, the estimated fair value of each reporting unit exceeded its carrying value and, therefore, goodwill impairment was not indicated as of May 30, 2020. We utilized a discount rate of 11.0 percent in determining the discounted cash flows for EFCO and Alumicor, and a discount rate of 10.4 percent in determining the discounted cash flows for Sotawall and Viracon. We utilized a long-term growth rate of 3.0 percent in our fair value analysis for all reporting units. While these discount rates have increased from the time of our annual goodwill impairment evaluation at year-end, impairment is not indicated at this time due to the long-term future performance expectations for these businesses.

The gross carrying amount of other intangible assets and related accumulated amortization was:



(In thousands)	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation			Net
May 30, 2020
Definite-lived intangible assets:
Customer relationships	$	119,647	$	(34,136	)	$	(2,304	)	$	83,207
Other intangibles	41,095		(32,271		)	(824		)	8,000
Total definite-lived intangible assets	160,742		(66,407		)	(3,128		)	91,207
Indefinite-lived intangible assets:
Trademarks	45,300		—			(436		)	44,864
Total intangible assets	$	206,042	$	(66,407	)	$	(3,564	)	$	136,071
February 29, 2020
Definite-lived intangible assets:
Customer relationships	$	120,239	$	(33,121	)	$	(592	)	$	86,526
Other intangibles	41,069		(32,516		)	(189		)	8,364
Total definite-lived intangible assets	161,308		(65,637		)	(781		)	94,890
Indefinite-lived intangible assets:
Trademarks	45,421		—			(120		)	45,301
Total intangible assets	$	206,729	$	(65,637	)	$	(901	)	$	140,191

We hold intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We evaluate the reasonableness of the useful life and test indefinite-lived intangible assets for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. During the first quarter of fiscal 2021, we identified qualitative indicators of impairment, including deteriorating macroeconomic conditions resulting from the COVID-19 pandemic. Therefore, we performed an interim impairment evaluation on indefinite-lived intangible assets as of May 30, 2020. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If an impairment loss is recognized, the adjusted carrying amount becomes the asset's new accounting basis.

Fair value is measured using the relief-from-royalty method. This method assumes the trade name or trademark has value to the

extent that the owner is relieved of the obligation to pay royalties for the benefits received from the asset. This method requires

us to estimate the future revenue from the related asset, the appropriate royalty rate, and the weighted average cost of capital. The assessment of fair value involves significant judgment and projections about future performance. In determining the discounted future revenue in our fair value analysis, we utilized a discount rate of 11.5 percent for EFCO and Alumicor and a discount rate

of 10.9 percent for Sotawall. A royalty rate of 1.5 percent was utilized for Alumicor and EFCO and a royalty rate of 2.0 percent was utilized for Sotawall. We utilized a long-term growth rate of 3.0 percent in the fair value analysis for all reporting units. Based on our analysis, the fair value of each of our trade names and trademarks exceeded its carrying amount and impairment was not indicated. We continue to conclude that the useful life of our indefinite-lived intangible assets is appropriate. If future revenue were to fall below forecasted levels or if market conditions were to decline in a material or sustained manner, due to COVID-19 or otherwise, impairment could be indicated on one or more of our indefinite-lived intangible assets.

Amortization expense on definite-lived intangible assets was $1.8 million and $1.9 million for the three-month periods ended May 30, 2020 and June 1, 2019, respectively. Amortization expense of other identifiable intangible assets is included in selling, general and administrative expenses. At May 30, 2020, the estimated future amortization expense for definite-lived intangible assets was:



(In thousands)	Remainder of Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		Fiscal 2025
Estimated amortization expense	$	5,858	$	7,807	$	7,716	$	7,039	$	7,111