PURCHASED INTANGIBLE ASSETS

12 Months Ended

Jan. 31, 2022

PURCHASED INTANGIBLE ASSETS

PURCHASED INTANGIBLE ASSETS

NOTE 7 – PURCHASED INTANGIBLE ASSETS

The balance of goodwill related to TRC and included in the consolidated balance sheets as of January 31, 2022 and 2021 was $9.5 million. The Company performed a goodwill impairment assessment for TRC as of November 1, 2021 with the assistance of a professional business valuation firm. It was determined that the fair value of TRC exceeded the corresponding carrying value by approximately $8.9 million; accordingly, there was no impairment loss recorded as of that date. Although the Company believes that the forecasted financial results for TRC as of November 1, 2021 are reasonable considering recent operating and current business prospects, any future results that would compare unfavorably with the projected results could result in additional goodwill impairment losses. No events related to TRC occurred during the fourth quarter of Fiscal 2022 that caused the Company to perform a subsequent impairment assessment.

The goodwill impairment assessment performed for TRC as of November 1, 2019 determined that the fair value of TRC was less than the corresponding carrying value and goodwill impairment loss of approximately $2.8 million was recorded during Fiscal 2020. The fair value amount for TRC reflected a weighting of results determined using various business valuation approaches. The majority of the weighted average fair value amount determined was based on discounted future net-after-tax cash flows of the business that were forecasted at the time.

Primarily due to the significant reduction of the fair value of the business of APC deemed to have occurred as a result of the substantial subcontract loss discussed in Note 4 above which was considered to be an assessment triggering event, the Company recorded an impairment loss during Fiscal 2020 in the amount of $2.1 million.

The Company used a qualitative approach to assess the goodwill of GPS as of November 1, 2021, 2020 and 2019. At each date, the Company concluded that it was more likely than not that the fair value of the GPS reporting unit exceeded the corresponding carrying value by a substantial margin. Therefore, completion of the quantitative impairment assessment was considered to be unnecessary in each case.

During Fiscal 2022, SMC completed the acquisition of Lee Telecom, Inc. (“LTI”) which is located in Hampton, Virginia. The acquisition represented a purchase of the assets of LTI, for which SMC paid $0.6 million cash, including customer contracts and goodwill.

The changes in the balances of the Company’s goodwill for Fiscal 2022, Fiscal 2021 and Fiscal 2020 were as follows:

	GPS		TRC		APC		SMC		Totals
Balances, February 1, 2019	$	18,476	$	12,290	$	2,072	$	—	$	32,838
Impairment losses		—		(2,823)		(2,072)		—		(4,895)
Balances, January 31, 2020		18,476		9,467		—		—		27,943
Impairment losses		—		—		—		—		—
Balances, January 31, 2021		18,476		9,467		—		—		27,943
Impairment losses		—		—		—		—		—
Acquisition of LTI		—		—		—		90		90
Balances, January 31, 2022	$	18,476	$	9,467	$	—	$	90	$	28,033

The impairment losses recorded by the Company for TRC and APC since the fiscal year ended January 31, 2016, the year that both companies were acquired, represents 34% of the goodwill amount originally established for TRC and 100% of the original amount of goodwill related to APC.

For income tax reporting purposes, goodwill related to acquisitions in the approximate amount of $16.5 million is being amortized on a straight-line basis over periods of 15 years. The other amounts of the Company’s goodwill are not amortizable for income tax reporting purposes.

Purchased intangible assets, other than goodwill, consisted of the following elements as of January 31, 2022:

		January 31, 2022						January 31,
	Estimated	Gross		Accumulated		Net		2021, (net
	Useful Life	Amounts		Amortization		Amounts		amounts)
Trade names
TRC	15 years	$	4,499	$	1,849	$	2,650	$	2,949
GPS	15 years		3,643		3,643		—		208
Process certifications	7 years		1,897		1,671		226		497
Customer relationships	10 years		916		565		351		443
Customer contracts	< 1 year		95		—		95		—
Totals		$	11,050	$	7,728	$	3,322	$	4,097

The Company determined the fair values of the trade names using a relief-from-royalty methodology. The Company believes that the useful life of the trade name for TRC represents the remaining number of years that such intangible asset is expected to contribute to future cash flows. In order to value the process certifications of TRC, the Company applied a reproduction cost method that required the estimation of the costs to replace the assets with certifications that would have the same functionality or utility as the acquired assets. The balance for customer relationships as of January 31, 2022 is associated primarily with TRC; the corresponding gross amount was determined at the time of the acquisition of TRC by discounting cash flows expected from existing significant customer relationships. Other than the addition to customer contracts related to the acquisition of LTI, there were no additions to other purchased intangible assets during Fiscal 2022, Fiscal 2021 or Fiscal 2020. There were not any impairment losses related to the assets for those years. Amortization expense related to purchased intangible assets for Fiscal 2022, Fiscal 2021 and Fiscal 2020 were $0.9 million, $0.9 million and $1.1 million, respectively.

The future amounts of amortization related to purchased intangibles are presented below for the years ending January 31,

2023	$	712
2024		392
2025		392
2026		376
2027		300
Thereafter		1,150
Total	$	3,322