North Face 2015 Annual Report Download - page 63

fair value and a potential impairment charge. For example, a 10% decrease in the forecasted cumulative average
revenue growth rate for the licensing business, or a 100 basis point increase in the discount rate, would cause the
estimated fair value of the trademark to decline below its carrying value.
Splendid®and Ella Moss®impairment analysis
VF performed a fair value assessment of the trademark intangible asset for the Splendid®and Ella Moss®
reporting unit as of the beginning of the fourth quarter of 2015, and recorded a $15.3 million impairment charge.
The Splendid®and Ella Moss®reporting unit, acquired in 2009, sells premium tops and casual apparel
primarily in the women’s contemporary apparel space. In recent years, the brand has been negatively impacted
by challenging consumer trends in women’s contemporary apparel, which has led to reduced foot traffic and
increased promotional activity in department stores and in our VF-operated stores. As a result, all goodwill
related to the Splendid®and Ella Moss®reporting unit was written off as part of the 2014 impairment analysis
($142.4 million). Additionally in 2014, management recognized impairment charges related to the Splendid®and
Ella Moss®trademark and definite-lived customer relationship asset of $45.7 million and $64.2 million,
respectively.
In 2015, the Splendid®and Ella Moss®reporting unit continued to be challenged by reduced consumer
demand for contemporary apparel, particularly in the later months of the year, which caused brand performance
to miss the revenue and profitability projections used in the 2014 impairment analysis. Management’s revenue
and profitability forecasts used in the Splendid®and Ella Moss®trademark valuation were developed in
conjunction with management’s annual strategic plan review conducted in the fourth quarter. Our resulting
revised outlook for business performance took a more cautious view and considered recent performance and
trends, strategic initiatives, the general softness of the contemporary apparel market, and expected further
declines in this market. Key assumptions developed by VF management and used in our quantitative analysis of
the Splendid®and Ella Moss®trademark include:
• Modest revenue decline, primarily driven by the wholesale channel
• Market-based discount rates
• Royalty rate based on active license agreements of these brands
The Splendid®and Ella Moss®trademark has a remaining carrying value of $37.9 million as of December
2015. Because actual results for the Splendid®and Ella Moss®reporting unit may vary from projected results,
management performed sensitivity analysis on the trademark impairment valuation, noting that a 50% increase in
the forecasted cumulative average revenue rate of decline used in the valuation would increase the 2015
trademark impairment charge by approximately $2.5 million. Separately, a 100 basis point increase in the
discount rate would increase the impairment charge by approximately $3.2 million.
Also in 2015, management concluded that a triggering event occurred related to the Splendid®and Ella
Moss®definite-lived customer relationship intangible asset based on the results of the trademark valuation, as
well as management’s annual strategic plan review conducted in the fourth quarter. Accordingly, management
performed a quantitative impairment analysis, which utilized the assumptions listed above for the trademark
valuation, and also considered historical attrition rates, revenues and profitability related to wholesale customers
that existed at acquisition. VF recorded an $11.7 million impairment charge for the Splendid®and Ella Moss®
customer relationship asset, which has no remaining carrying value as of December 2015.
7 For All Mankind®impairment analysis
VF performed a fair value assessment of the trademark intangible asset at the 7 For All Mankind®reporting
unit as of the beginning of the fourth quarter of 2015, and recorded a $76.1 million impairment charge.
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