Our fiscal year ends on the Saturday in December closest to
The discussion of our financial condition and results of operations for the years ended
December 26, 2020and April 30, 2019, included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") can be found in Exhibit 99.1 of Form 8-K filed on June 25, 2021, to reflect certain retrospective revisions for discontinued operations and changes in reportable segments in the consolidated financial statements of the Company in its Annual Report on Form 10-K for the year ended December 26, 2020that was previously filed with the Securities and Exchange Commission("SEC") on March 10, 2021(the "Form 10-K").
We are an owner and operator of franchised and franchisable businesses that continually looks to grow our portfolio of brands while utilizing our operating and capital allocation philosophy to generate strong cash flows. We currently operate six reportable segments: Vitamin Shoppe,
Pet Supplies Plus, Badcock, American Freight, Buddy's, and Sylvan. 29
Our Vitamin Shoppe segment is an omnichannel specialty retailer of vitamins, minerals, herbs, specialty supplements, sports nutrition and other health and wellness products. Our
Pet Supplies Plussegment is a leading franchisor and retailer of pet supplies and services. Our Badcock segment carries a complete line of furniture, appliances, bedding, electronics, home office equipment, accessories and seasonal items in a showroom format. Our American Freight segment is a retail chain offering in-store and online access to furniture, mattresses, new and out-of-box appliances and home accessories at discount prices. On October 23, 2019, we completed the acquisition of the Sears Outletbusiness (" Sears Outlet") from Sears Hometown and Outlet Stores, Inc.(the "Sears Outlet Acquisition"). Sears Outlethas been rebranded as American Freight Outletand is included in our American Freight segment. Our Buddy's segment is a specialty retailer of high quality, name brand consumer electronic, residential furniture, appliances and household accessories through rent-to-own agreements. Our Sylvan segment is an established and growing franchisor of supplemental education for Pre-K-12 students and families in the United Statesand Canada.
Our revenue is derived primarily from merchandise sales, rental revenue, and service revenue comprised of royalties and other fees required from our franchisees, licensees, and financing programs.
When evaluating our performance, management focuses on several metrics that we believe are critical to our success:
•Net change in retail and franchise outlets. The change in retail and franchise locations from year to year is a function of new locations opening, offset by locations that we or our franchisees close. Please see section 2. Properties of this annual report for the number of locations at
•Same-store or comparable store sales. The difference in revenue generated by the segment's existing store locations over a certain period (often a fiscal week, month, or quarter), compared to an identical period in the past, usually in the previous year. A segment's store becomes a comparable store at the beginning of the fiscal period following the one year anniversary of the store open date (or the beginning of the 13th fiscal period after the store opens). If a store relocates outside of the current trade area or defined territory, it is removed from the comparable store base and is treated as a new store. On-line revenue is included in the overall segment comparable store sales calculation. •Adjusted EBITDA. Management focuses on adjusted EBITDA as a measure of the cash flow from recurring operations from the businesses. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items.
December 27, 2020, we completed our acquisition of Furniture Factory Outlet("FFO Home"). For a complete description of the FFO Home Acquisition, refer to "Note 2 - Acquisitions" in the Notes to the Consolidated Financial Statements. On March 10, 2021, we completed our acquisition of PSP Midco, LLC(" Pet SuppliesPlus"). For a complete description of the Pet Supplies Plus Acquisition, refer to "Note 2 - Acquisitions" in the Notes to the Consolidated Financial Statements. On September 27, 2021, we completed our acquisition of Sylvan. For a complete description of the Sylvan Acquisition, refer to "Note 2 - Acquisitions" in the Notes to the Consolidated Financial Statements. On November 22, 2021, we completed our acquisition of Badcock. For a complete description of the Badcock Acquisition, refer to "Note 2 - Acquisitions" in the Notes to the Consolidated Financial Statements.
As disclosed above, on
February 21, 2021, we entered into the Purchase Agreement with NextPointto sell our Liberty Taxbusiness. In connection with the Purchase Agreement, the parties entered into a transition services agreement pursuant to which both parties agreed to provide certain transition services to each other for a period not to exceed twelve months. On July 2, 2021, we completed the transaction and received total consideration of $255.3 million, consisting of $181.2 millionin cash and $74.1 millionin proportionate voting shares of NextPointrecorded as an investment in equity securities in "Other non-current assets" on the Consolidated Balance Sheet. The transaction resulted in a gain on the sale of $188.1 millionrecorded in "Income (loss) from discontinued operations, net of tax" on the Consolidated Statement of Operations. As part of the divestiture, we incurred transaction costs of $7.1 millionwhich were paid using shares of NextPoint. As a result of the transaction, the financial position and results of operations of the Liberty Tax business are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. 30
Table of Contents Results of Operations
For the year ended
As described above, our
Liberty Taxbusiness is reported as a discontinued operation and its results of operations are excluded from our results of operations. For the fiscal year ended April 30, 2019, Liberty Taxwas our only business, therefore, no continuing operations existed for that fiscal year and comparative information is not provided. The following table sets forth the results of our operations for the years ended December 25, 2021, and December 26, 2020: Fiscal Years Ended Change (In thousands) 12/25/2021 12/26/2020 $ % Total revenues $ 3,255,204 $ 2,029,727 $ 1,225,47760 % Total operating expenses 3,028,853 1,977,216 1,051,637 53 % Income (loss) from operations 226,351 52,511 173,840 331 % Net income (loss) from continuing operations 191,966 20,645 171,321 830 % Net income (loss) from discontinued operations, net of tax 171,822 4,419 167,403 3,788 % Net income (loss) attributable to Franchise Group, Inc. $ 363,788 $ 25,064 $ 338,7241351 %
Revenues. The table below presents the components and the evolution of our revenues for the financial years ended
Fiscal Years Ended Change (In thousands) 12/25/2021 12/26/2020 $ % Product
$ 3,012,471 $ 1,899,662 $ 1,112,80959 % Service and other 209,103 65,798 143,305 218 % Rental 33,630 64,267 (30,637) (48) % Total revenue $ 3,255,204 $ 2,029,727 $ 1,225,47760 % Our total revenue increased by $1.2 billion, or 60%, in the year ended December 25, 2021compared to the year ended December 26, 2020. This increase was primarily due to the Pet Supplies Plus Acquisition on March 10, 2021, which increased revenue by $917.4 million, the Badcock Acquisition on November 22, 2021, which increased revenue by $102.1 million, and the Sylvan Acquisition on September 27, 2021, which increased revenue by $9.7 million. The $30.6 milliondecrease in rental revenue was due to the refranchising of 47 Buddy's' Company-owned stores on November 10, 2020and an additional 8 stores on August 25, 2021. Operating expenses. The following table details the amounts and changes in our operating expenses for the years ended December 25, 2021and December 26, 2020: Fiscal Years Ended Change (In thousands) 12/25/2021 12/26/2020 $ % Cost of revenue: Product $ 1,892,741 $ 1,136,054 $ 756,68767 % Service and other 16,506 2,149 14,357 668 % Rental 11,552 21,905 (10,353) (47) % Total cost of revenue 1,920,799 1,160,108 760,691 66 % Selling, general and administrative expenses 1,108,054 817,108 290,946 36 % Total operating expenses $ 3,028,853 $ 1,977,216 $ 1,051,63753 % Total operating expenses increased $1.1 billion, or 53%, in the year ended December 25, 2021compared to the year ended December 26, 2020. This increase was primarily due to the Pet Supplies Plus Acquisition on March 10, 2021, which increased operating expenses by $875.8 million, the Badcock Acquisition on November 22, 2021, which increased operating expenses by $79.4 millionand the Sylvan Acquisition on September 27, 2021, which increased operating expenses by $10.431
Non-operating income (expenses). The following table presents certain information regarding our non-operating income (expenses) for the years ended
Fiscal Years Ended Change (Fiscal 2021 vs. Fiscal 2020) (In thousands) 12/25/2021 12/26/2020 4/30/2019 $ % Bargain purchase gain
$ 132,559$ - - $ 132,559100 % Other (67,368) (5,294) - (62,074) 1,173 % Interest expense, net (133,114) (96,774) - (36,340) 38 % Non-operating income (expense) $ (67,923) $ (102,068)$ - $ 34,145(33) %
Non-operating income (expenses) increased
• Increased bargain purchase gain
•Other expenses increased
$62.1 millionfor the year ended December 25, 2021due to a prepayment penalty of $36.7 millionfrom the repayment of the Franchise Group New Holdco Term Loan and ABL Term Loan and a $31.8 millionloss related to our investment in NextPoint; and •Interest expense, net increased by $36.3 milliondue to the write-off of $29.3 million, $6.1 millionand $4.7 millionof deferred financing costs from the termination of the Franchise Group New Holdco Term Loan and ABL Term Loan, the $182.1 millionprincipal payment on the First Lien Term Loan and the $219.0 millionprincipal payment on the First Lien Badcock Term Loan. These increases were partially offset by the reduction in amortization of deferred financing costs.
Income taxes. The following table sets forth certain information regarding our income taxes for the years ended
Fiscal Years Ended
(In thousands) 12/25/2021 12/26/2020 $ % Gain (loss) before income taxes
$ 158,428 $ (49,557) $ 207,985(420) % Income tax benefit (33,538) (60,501) 26,963 (45) % Effective tax rate (21.2) % 122.1 % The decrease in the effective tax rate from 122.1% to (21.2)% for the year ended December 25, 2021compared to the year ended December 26, 2020is primarily due to a $45.2 millionrelease of a valuation allowance in the current year, on the basis of management's reassessment of the amount of its deferred tax assets that are more likely than not to be realized. In addition, the bargain purchase gain recorded in the Badcock Acquisition in the current year is disregarded for tax purposes, resulting in a permanent benefit. In the prior year, the Company recorded an income tax benefit of $52.3 millionon a pre-tax loss of $50.0 millionrelated to the Coronavirus Aid, Relief, and Economic Security (the "CARES Act"), which was enacted on March 27, 2020. The CARES Act retroactively changed the eligibility of certain assets for expense treatment in the year placed in service, back to 2018, and permitted any net operating loss for the tax years 2018, 2019, and 2020 to be carried back for five years.
Net revenue. In the year ended
in the year ended
Our operations are conducted in six reporting business segments: Vitamin Shoppe,
Pet Supplies Plus, Badcock, American Freight, Buddy's, and Sylvan. We define our segments as those operations whose results our chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. Because the Pet Supplies Plus Acquisition, Sylvan Acquisition, and Badcock Acquisition occurred in the year ended December 25, 2021, comparable information is not available; therefore, Pet Supplies Plus, Sylvan, and Badcock segment information is not provided. 32
Table of Contents Vitamin Shoppe
The following table summarizes the results of operations of our Vitamin Shoppe segment for the years ended
Fiscal Years Ended Change (In thousands) 12/25/2021 12/26/2020 $ % Total revenues
$ 1,172,725 $ 1,035,964 $ 136,76113 % Operating expenses 1,068,721 1,030,593 38,128 4 % Operating income (loss) $ 104,004 $ 5,371 $ 98,6331,836 % Total revenue for our Vitamin Shoppe segment increased $136.8 million, or 13%, for the year ended December 25, 2021as compared to the year ended December 26, 2020. The increase in revenue was the result of a 14.4% increase in comparable store sales, which was the driven by strong customer traffic, several new product introductions throughout the year and the continuation in demand for health and wellness products. Operating expenses for the Vitamin Shoppe segment increased $38.1 million, or 4%, for the year ended December 25, 2021as compared to the year ended December 26, 2020. The increase in operating expenses was primarily driven by: •a $55.2 millionincrease in cost of revenue correlated to the revenue growth noted above, as a percentage of revenue. Gross margin, excluding the inventory step-up amortization in 2020 due to purchase price accounting, decreased approximately ten basis points to 45.2% compared to 45.3% in the prior year due to higher sales for supplement products which have a lower margin.
Increases in operating expenses were partially offset by:
• $20.6 million amortization of inventory increase during the prior year period;
$9.8 milliondecrease in occupancy costs due to 32 fewer stores compared to the prior year; a $2.9 millionright-of-use asset impairment in the prior year period; and
The following table summarizes the operating results of our American Freight segment for the years ended
December 25, 2021and December 26, 2020. Because the American Freight Acquisition occurred in the year ended December 26, 2020, comparable information for the year ended April 30, 2019is not available: Fiscal Years Ended Change (In thousands) 12/25/2021 12/26/2020 $ % Total revenues $ 988,892 $ 896,431 $ 92,46110 % Operating expenses 922,351 856,083 66,268 8 % Operating income (loss) $ 66,541 $ 40,348 $ 26,19365 % Total revenue for our American Freight segment increased $92.5 million, or 10%, for the year ended December 25, 2021as compared to the year ended December 26, 2020. The increase in revenue was primarily driven by the following:
•the inclusion of full first quarter results in the current year (American Freight was acquired on
•increase in turnover linked to the opening of new stores; and
•the FFO Home acquisition.
Operating expenses for the American Freight segment increased
$66.3 million, or 8%, for the year ended December 25, 2021as compared to the year ended December 26, 2020. The increase in operating expenses was primarily driven by the following:
•the inclusion of the first full quarter in the current year (American Freight was acquired on
•higher occupancy costs due to new store openings and store acquisitions; and
•an increase in advertising expenses due to a reduction in advertising in the prior year due to the COVID-19 pandemic.
The following table summarizes the operating results of our Buddy's segment for the years ended
December 25, 2021and December 26, 2020. Because the Buddy's Acquisition occurred in the Transition Period, comparable information for the year ended April 30, 2019is not available: Fiscal Years Ended Change (In thousands) 12/25/2021 12/26/2020 $ % Total revenues $ 64,409 $ 97,332 $ (32,923)(34) % Operating expenses 47,724 76,968 (29,244) (38) % Operating income (loss) $ 16,685 $ 20,364 $ (3,679)(18) % Total revenue for our Buddy's segment decreased $32.9 million, or (34)%, for the year ended December 25, 2021as compared to the year ended December 26, 2020. The decrease in revenue was primarily driven by the following: •a $30.6 milliondecrease in rental revenue due to the refranchising of 47 Company-owned stores on November 10, 2020and an additional 8 stores on August 25, 2021. Rental revenue for comparable stores for the year increased to $30.4 millionfrom $29.7 millionin the prior year.
•The decline in rental income was partially offset by an increase in
Operating expenses for the Buddy's segment decreased
$29.2 million, or (38)%, for the year ended December 25, 2021as compared to the year ended December 26, 2020. The decrease in operating expenses was primarily driven by the following: •a $10.4 milliondecrease in rental cost of sales, an $8.2 milliondecrease in employee compensation, and a $7.3 milliondecrease in other expenses due to the refranchising of 47 Company-owned stores on November 10, 2020and an additional 8 stores on August 25, 2021. Adjusted EBITDA. To provide additional information regarding our financial results, we have disclosed Adjusted EBITDA in the table below and within this Annual Report. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items specified below. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure. We have included Adjusted EBITDA in this Annual Report because we believe the presentation of these measures is useful to investors as supplemental measures in evaluating the aggregate performance of our operating businesses and in comparing our results from period to period because they exclude items that we do not believe are reflective of our core or ongoing operating results. These measures are used by our management to evaluate performance and make resource allocation decisions each period. Adjusted EBITDA is also the primary operating metric used in the determination of executive management's compensation. In addition, a measure similar to Adjusted EBITDA is used in our credit facilities. Adjusted EBITDA is not a recognized financial measure under GAAP and may not be comparable to similarly-titled measures used by other companies in our industry. Adjusted EBITDA should not be considered in isolation from or as an alternative to net income (loss), operating income (loss), or any other performance measures derived in accordance with GAAP. 34
The following table presents a reconciliation of Adjusted EBITDA for the fiscal years ended
December 25, 2021and December 26, 2020. Amounts for the year ended April 30, 2019are not provided as they are all attributable to discontinued operations. Fiscal Years Ended (In thousands) 12/25/2021 12/26/2020 Net income (loss) from continuing operations $ 191,966 $ 10,944Add back: Interest expense 133,114 96,774 Income tax benefit (33,538) (60,501) Depreciation and amortization charges 69,086 52,152 Total Adjustments 168,662 88,425 EBITDA 360,628 99,369 Adjustments to EBITDA Executive severance and related costs 302
Stock based compensation 14,956
Litigation costs and settlements (1,130) (1,070) Corporate compliance costs 2,172 543 Store closures 2,429 592 Securitized receivables, net (19,919) - Prepayment penalty on early debt repayment 36,726 44,996 Right-of-use asset impairment 2,948 2,895 Integration costs 16,655 2,703 Divestiture costs 515 - Acquisition costs 22,878 26,309 Loss on investment in equity securities 31,773 - Acquisition bargain purchase gain (132,559) - Total Adjustments to EBITDA (22,254) 91,534 Adjusted EBITDA
$ 338,374 $ 190,903Funding Requirements We believe that we have sufficient liquidity to support our ongoing operations and maintain a sufficient liquidity position to meet our obligations and commitments. Our liquidity plans are established as part of our financial and strategic planning processes and consider the liquidity necessary to fund our operating, capital expenditure and debt service needs. We primarily fund our operations and acquisitions through operating cash flows and, as needed, a combination of borrowings under various credit agreements, availability under our revolving credit facilities and the issuance of equity securities. Cash generation can be subject to variability based on many factors, including seasonality, receipt of prepaid payments from area developers, timing of repayment of loans to franchisees and the effects of changes in end markets.
Sources and uses of cash
Net cash provided by operating activities decreased
$135.5 millionin 2021 compared to 2020 due to a $219.1 millionincrease in cash used for inventory and a $36.1 milliondecrease in accounts payable and accrued expenses due to the timing of payments. These were partially offset by a $127.5 millionincrease in cash net income and an $18.5 millionincrease in other assets due to our investment in NextPoint. Cash net income represents net income adjusted for non-cash or non-operating 35
activities such as bargain purchase gains, gain on disposal of our Liberty tax business, debt prepayment penalties, change in fair value of investments and amortization of deferred financing costs . Investing activities
Net cash used in investing activities increased
$572.9 millionin 2021 compared to 2020. This increase was primarily driven by an increase of $710.4 millionin cash used for acquisitions and a $23.5 milliondecrease of proceeds from the sale of company-owned stores partially offset by $179.5 millionin cash received from divestitures. Financing activities Net cash provided by financing activities increased $743.6 millionin 2021 compared to 2020. The increase was driven by a $1,689.0 millionincrease in proceeds from the issuance of debt, a $150.7 milliondecrease in repayments of revolving credit facilities and a $50.1 millionincrease in proceeds from the issuance of preferred stock. The increases in cash provided by financing activities were partially offset by a $671.1 millionincrease in repayments of long-term obligations, a $198.0 millionreduction in proceeds from the issuance of common stock, a $157.9 millionreduction in borrowing under our revolving credit facilities, a $49.1 millionincrease in payments for debt issuance costs, a $37.9 millionincrease in dividends paid and a $36.7 millionincrease in cash paid for penalties for early debt repayment.
The following tables summarize our contractual obligations as of
December 25, 2021: Contractual Obligations (in thousands) Total 2022 2023 2024 2025 2026 Thereafter
Finance leases Liabilities related to finance leases
375 $ - Operating lease liabilities 730,172 66,834 199,063 155,360 112,046 80,557 116,312 Long-Term Obligations Secured Borrowing 407,502 302,246 105,256 - - - - Term Loans 1,482,016 4,319 362,252 - - 1,115,445 - ABL Revolver 20,000 - - - - 20,000 - Total Obligations
$ 1,909,518 $ 306,565 $ 467,508$ - $ - $ 1,135,445$ - Commitments Expiring in Expiring in Expiring in Expiring in (in thousands) Total 2022 2023 2024 2025 Expiring in 2026 Thereafter Guarantees $ 23,925 $ 4,228 $ 3,860 $ 4,506 $ 3,039$ 2,597 $ 5,695Purchase obligations 145,890 84,249 58,462 2,969 210 - - Total commitments $ 169,815 $ 88,477 $ 62,322 $ 7,475 $ 3,249$ 2,597 $ 5,695
For more information on long-term obligations, refer to “Note 9 – Long-term obligations”, to the consolidated financial statements in section 8.
Operating lease obligations. Refer to "Note 8 - Leases", to the Consolidated Financial Statements in Item 8 for information on our operating leases. The obligation above includes amounts for leases that were signed prior to
December 25, 2021for stores that were not yet open on December 25, 2021.
Other factors affecting our liquidity
Tax Receivable Agreement. We may be required to make payments under the Tax Receivable Agreement ("TRA Payments") to the owners of Buddy's (the "Buddy's Members"). As of
December 25, 2021, we had TRA Payments due to the Buddy's Members of $17.3 million. Refer to "Note 12 - Income Taxes", to the Consolidated Financial Statements in Item 8 for more information on the Tax Receivable Agreement. 36
Off-balance sheet arrangements
The Company remains secondarily liable under various real estate leases that were assigned to franchisees who acquired stores from the Company. In the event of the failure of an acquirer to pay lease payments, the Company could be obligated to pay the remaining lease payments which extend through 2033 and aggregated
$22.9 millionas of December 25, 2021. If the Company is required to make payments under these guarantees, the Company could seek to recover those amounts from the franchisees or in some cases their affiliates. The Company believes that payment under these guarantees is remote as of December 25, 2021.
Interest rate risk
We are exposed to various types of market risk in the normal course of our business, including the impact of interest rate changes. We may enter into interest rate swaps to manage exposure to interest rate changes. We do not enter into derivative instruments for any purpose other than cash flow hedging and we do not hold derivative instruments for trading purposes.
Long-term debt. We use short-term and long-term financing to manage our overall interest expense related to our existing floating rate debt, as well as to cover variability in cash flows due to changes in benchmark interest rates related to issuances expected debt. See “Note 9 – Long-term obligations” to the consolidated financial statements in section 8 for more details on the components of our long-term debt as at
Changes in fair value
10 Basis Point Increase in Underlying 10 Basis Point Decrease Fair Value Rate in Underlying Rate
$ 1,909,518$ 190,952 $ (190,952)
Critical accounting policies
The preparation of financial statements requires the use of estimates. Certain of our estimates require a high level of judgment and have the potential to have a material effect on the financial statements if actual results vary significantly from those estimates. Following is a discussion of the estimates that we consider critical. Long-Lived and Right-of-Use Assets. We review our long-lived assets, such as property, plant and equipment, purchased intangibles subject to amortization, and operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable. We measure recoverability by comparison of the carrying value of an asset to its estimated undiscounted future cash flows expected to be generated by the asset. We recognize and measure potential impairment at the lowest level where cash flows are individually identifiable. If the carrying amount of an asset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying value of the asset exceeds the fair value of the asset. We determine fair value through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals. Business Combinations-Purchase Price Allocation. For acquisitions which meet the definition of a business combination in accordance with ASC 805, we allocate the purchase price to the various tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values, some of which are preliminary as of
December 25, 2021. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed represents goodwill derived from the acquisition. The amount by which the net fair value of assets acquired and liabilities assumed exceeds the fair value of consideration transferred as the purchase price is recorded as a bargain purchase gain. Determining the fair value of certain assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, which are inherently uncertain. Many of the estimates and assumptions used to determine fair values, such as those used for intangible assets are made based on forecasted information and discount rates. In addition, the judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. Refer to "Note 2 - Acquisitions" to the Consolidated Financial Statements in Item 8 for additional information. Goodwilland Non-amortizing Intangible Assets. Goodwilland non-amortizing intangible assets are initially recorded at their fair values. These assets are not amortized but are evaluated as of the end of July of each fiscal year, and a more frequent evaluation is performed if an event occurs or circumstances change that would more likely than not reduce the assets fair values below their carrying values. Such events or circumstances could include, but are not limited to, significant negative industry or 37
economic trends, unanticipated changes in the competitive environment and a significant and sustained decline in our share price.
For goodwill, the Company performs a qualitative and/or quantitative assessment to determine whether it is more likely than not that each reporting unit's fair value is less than its carrying value, including goodwill. If the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, the Company then estimates the fair value. The Company uses either a market multiple method or a discounted cash flow method to estimate the fair value of its reporting units and recognizes goodwill impairment for any excess of the carrying amount of a reporting unit's goodwill over its estimated fair value. For non-amortizing intangible assets, the Company evaluates its tradenames for impairment by comparing the fair value, based on an income approach using the relief-from-royalty method, to its carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The Company's reporting units are determined in accordance with the provisions of Accounting Standards Codification ("ASC") 350, "Intangibles -
Goodwilland Other (Topic 350)."
Refer to “Note 6 –
Recently issued accounting standards
See “Note 1 – Organization and significant accounting policies” in our consolidated financial statements.
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