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Goodwill and Intangible Assets
 12 Months Ended
Jan. 01, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets GOODWILL AND INTANGIBLE ASSETS
Goodwill

In 2021, the Company determined that it has two operating and reportable segments – namely AMS and EAAA. See Note 20 entitled “Segment Information” for additional information. The Company tests goodwill for impairment at least annually at the reporting unit level. The Company’s reporting units remain unchanged following the realignment of its operating segments and consist of (1) the Americas, (2) Europe, Middle East and Africa (“EMEA”), and (3) Asia-Pacific. The Americas reporting unit is the same as the AMS reportable segment, and the EMEA and Asia-Pacific reporting units are one level below the EAAA reportable segment.

During the fourth quarter of 2022, we performed our annual goodwill impairment testing. The Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, utilizing a combination of the present value of expected future cash flows and the guideline public company method to determine the estimated fair value of our reporting units. We test goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. In preparing the valuations, past, present and future expectations of performance were considered, including our expectations for the short-term and long-term impacts of macroeconomic conditions, including inflation, foreign currency exchange rates and our expected financial performance, including planned revenue and operating income of each reporting unit. The present value model requires management to estimate future cash flows, the timing of these cash flows, and a discount rate based on a weighted average cost of capital. The discount rate used for each reporting unit ranged from 13.5% to 14.0%, which primarily fluctuated based on a country risk premium assigned to the geographical region of the reporting unit. There is inherent uncertainty associated with key assumptions and estimates used in our impairment testing, including the impact of macroeconomic conditions.

As a result of our 2022 annual goodwill testing, we determined that the carrying value of our EMEA reporting unit exceeded its fair value and that the associated goodwill was impaired at the measurement date. We recorded a goodwill impairment charge of $29.4 million in 2022 to write off all the goodwill allocated to our EMEA reporting unit, as the excess of carrying value over fair value exceeded the recorded amount of goodwill for the EMEA reporting unit. Macroeconomic factors, including inflation, foreign currency exchange rates, and the expected impact to planned revenue and operating income contributed to the lower estimated fair value of our EMEA reporting unit. Higher discount rates also contributed to the lower fair value of our reporting units. We determined that the fair value of our Americas reporting unit exceeded its carrying value by 71% at the 2022 measurement date, and therefore no impairment was indicated. The remaining goodwill balance of $102.4 million at January 1, 2023 is allocated to our Americas reporting unit. The goodwill balance allocated to our Asia-Pacific reporting unit was previously written off in connection with the 2020 goodwill impairment, as discussed below.

During the fourth quarters of 2021 and 2020, the Company performed the annual goodwill impairment test, consistent with the methodology discussed above. The Company performed this test at the reporting unit level, which is an operating segment or one level below the operating segment level. In performing the impairment testing, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, and those valuations were compared with the respective carrying values of the reporting units to determine whether any goodwill impairment existed. In preparing the valuations, past, present and future expectations of performance were considered, including the ongoing impact of the COVID-19 pandemic in 2021 and 2020. Each of the Company’s reporting units maintained fair values in excess of their respective carrying values as of the measurement dates, and therefore no impairment was indicated as a result of the annual impairment testing in the fourth quarters of 2021 and 2020.

During the first quarter of 2020, we performed a qualitative assessment of goodwill impairment indicators, considering macroeconomic conditions related to the COVID-19 pandemic and its potential impact to net sales and operating income. We expected that the duration of the COVID-19 pandemic and its adverse impacts on the global economy, global travel restrictions, COVID-19 related government shutdowns, disruptions to our supply chain, distribution disruption, and disruption to our customers’ plans to spend capital on projects that use our products and services would result in lower revenue and operating income. As a result, we determined that there were indicators of impairment, and the Company proceeded with a quantitative assessment of goodwill for all reporting units at the end of the first quarter.
In performing the quantitative goodwill impairment testing in the first quarter of 2020, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, and those valuations were compared with the respective carrying values of the reporting units to determine whether any goodwill impairment existed. Our reporting units were one level below our operating segment level. In preparing the valuations, past, present and future expectations of performance were considered, including the impact of the COVID-19 pandemic. This methodology was consistent with the approach used to perform the annual quantitative goodwill assessment in prior years. The weighted average cost of capital used in the goodwill impairment testing ranged between 10.0% and 10.5%, which primarily fluctuated based on a country risk premium assigned to the geographical region of the reporting unit. There is inherent uncertainty associated with key assumptions used in our impairment testing including the duration of the economic downturn associated with the COVID-19 pandemic and the recovery period. As a result of the 2020 first quarter assessment, we determined that the fair value for two reporting units was less than the carrying value and recognized a goodwill impairment loss of $116.5 million in the first quarter of 2020. The expected decline in revenue due to the impact of COVID-19 contributed to the lower fair value of our EMEA and Asia-Pacific reporting units. As such, the goodwill impairment loss was allocated to our EMEA and Asia-Pacific reporting units in the amounts of $99.2 million and $17.3 million, respectively. We determined that the goodwill in our Americas reporting unit was not impaired as the fair value exceeded the carrying value by more than 90% at April 5, 2020.

The ending balances and the changes in the carrying amounts of goodwill allocated to each reportable segment for the years ended January 1, 2023 and January 2, 2022 are as follows:

AMSEAAATotal
(in thousands)
Goodwill balance, at January 3, 2021$122,344 $43,433 $165,777 
Foreign currency translation(1)
(13,839)(4,913)(18,752)
Goodwill balance, at January 2, 2022108,505 38,520 147,025 
Impairment— (29,384)(29,384)
Foreign currency translation(1)
(6,088)(9,136)(15,224)
Goodwill balance, at January 1, 2023$102,417 $— $102,417 

(1) A portion of the goodwill balance allocated to the AMS reportable segment is comprised of goodwill denominated in foreign currency attributable to the nora acquisition.

Intangible Assets

In the fourth quarter of 2022, we determined that the trademark and trade name intangible assets related to the acquired nora business were impaired and recognized an impairment loss of $6.3 million. The impairment loss consisted of charges of $3.6 million and $2.7 million attributable to the AMS and EAAA reportable segments, respectively. In the first quarter of 2020, we determined that the trademark and trade name intangible assets related to the acquired nora business were also impaired and recognized an impairment loss of $4.8 million. The impairment loss consisted of charges of $2.7 million and $2.1 million attributable to the AMS and EAAA reportable segments, respectively.
The Company’s intangible assets other than goodwill consisted of the following as of January 1, 2023 and January 2, 2022(1):
January 1, 2023January 2, 2022
Gross Carrying AmountAccumulated ImpairmentAccumulated AmortizationNet Carrying Amount
Gross Carrying Amount (2)
Accumulated Impairment
Accumulated Amortization (2)
Net Carrying Amount
(in thousands)
Intangible assets subject to amortization:
Technology$36,069 $— $(22,854)$13,215 $38,330 $— $(18,850)$19,480 
Other764 (478)(17)269 1,458 — (818)640 
Total intangible assets subject to amortization36,833 (478)(22,871)13,484 39,788 — (19,668)20,120 
 
Indefinite-lived intangible assets:
Trademarks and trade names57,375 (11,081)— 46,294 60,822 (4,763)— 56,059 
 
Total intangible assets$94,208 $(11,559)$(22,871)$59,778 $100,610 $(4,763)$(19,668)$76,179 

(1) Certain intangible asset balances are subject to changes attributable to foreign currency translation.
(2) Net of a $3.3 million write off for fully amortized backlog intangible assets.
Amortization expense related to intangible assets during the years 2022, 2021 and 2020 was $5.0 million, $5.6 million and $5.5 million, respectively, and is recorded in cost of sales in the consolidated statements of operations. Amortization expense related to intangible assets is expected to be approximately $5 million per year for fiscal years 2023 and 2024 and approximately $3 million for fiscal year 2025. The developed technology intangible asset will be amortized over its estimated useful life, which ends in fiscal year 2025.
Reclassifications (2) Net of a $3.3 million write off for fully amortized backlog intangible assets.