GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Jun. 02, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill 

There was $6.3 million of goodwill reported on our balance sheet at both June 2, 2018 and May 27, 2017. The goodwill balance in its entirety relates to our IMES reporting unit that is included in the Healthcare segment.

We test goodwill for impairment annually and whenever events or circumstances indicate an impairment may have occurred, such as a significant adverse change in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel or a decision to sell or dispose of a reporting unit.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates step 2 from the goodwill impairment test as defined in ASU 2011-08. As amended, the goodwill impairment test will consist of one-step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. ASU 2017-04 will be effective for fiscal years and interim periods beginning after December 15, 2019. ASU 2017-04 is required to be applied prospectively and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company elected to early adopt ASU 2017-04 for our fiscal 2018 annual impairment test.

On March 4, 2018, our goodwill balance was reviewed for impairment on a qualitative basis. We determined that it was more likely than not that the fair value of our IMES reporting unit was less than its carrying amount after reviewing the totality of events or circumstances as provided in FASB ASC 350-20-35. Accordingly, the quantitative goodwill impairment test as described in FASB ASC 350-20-35 was performed. We performed the quantitative impairment test using the income method, which is based on a discounted future cash flow approach that uses the significant assumptions of projected revenue, projected operational profit, terminal growth rates and the cost of capital. The Guideline Public Company Method was also included in the goodwill impairment study.

The Company engaged a third party to assist with the goodwill impairment testing. Management concluded that the results of our goodwill impairment test as of March 4, 2018 indicated that the value of goodwill attributed to our IMES reporting unit was not impaired due to its fair value exceeded its carrying value. In the three years since the acquisition, the Company has made significant investments in the IMES business, including capital expenditures, new product development and inventory, that are expected to increase IMES’ product offerings and result in increased future sales, operating profits and cash flows.

Although we believe our projected future operating results and cash flows and related estimates regarding fair values were based on reasonable assumptions, historically, projected operating results and cash flows have not always been achieved. As of the first day of our fourth quarter, we determined that our IMES reporting unit had an estimated fair value in excess of its carrying value of at least 8.0%. Factors considered in calculating the fair value of the reporting unit were the historical performance of the reporting unit, forecasted financials for the following ten years and comparable publically held companies. Management’s projections used to estimate cash flows included increasing sales volumes from new product offerings, expanded sales into new geographies, and operational improvements designed to reduce costs. While all product lines are expected to grow, new product offerings are the largest component of the sales growth with more than 50% of future sales projected to be from new product offerings. The Company used a weighted average cost of capital of 19% for these cash flows. Changes in any of the significant assumptions used, including if the Company does not successfully achieve its operating plan, which is largely dependent on sales from new product offerings, can materially affect the expected cash flows, and such impacts could result in a material non-cash impairment charge of goodwill and potentially other long lived assets.

Potential events or changes in circumstances that could reasonably be expected to negatively affect key assumptions are deterioration in general market conditions or the environment in which the reporting unit or entity operates, an increased competitive environment in which the reporting unit or entity operates or other relevant entity-specific events such as market acceptance of our new CT tubes and other new product offerings, approvals to sell in foreign markets, and changes in management or key personnel.

Intangible Assets

Intangible assets are initially recorded at their fair market values determined on quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives and are tested for impairment when events or changes in circumstances occur that indicate possible impairment.

Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology acquired in connection with our acquisitions. Intangible assets subject to amortization were as follows (in thousands):

	June 2, 2018		May 27, 2017
Gross Amounts:
Trade Name	$	659	$	659
Customer Relationships(1)		3,408		3,397
Non-compete Agreements		177		177
Technology		230		230
Total Gross Amounts	$	4,474	$	4,463
Accumulated Amortization:
Trade Name	$	651	$	441
Customer Relationships		617		446
Non-compete Agreements		115		84
Technology		77		51
Total Accumulated Amortization	$	1,460	$	1,022
Net Intangibles	$	3,014	$	3,441

(1) Change from prior periods reflect impact of foreign currency translation.

We determined that intangible assets were not impaired as of June 2, 2018 on the basis that no adverse events or changes in circumstances were identified that could indicate that the carrying amounts of such assets may not be recoverable.

The amortization expense associated with the intangible assets subject to amortization for the next five years is presented in the following table (in thousands):

Fiscal Year	Amortization Expense
2019	$	245
2020		257
2021		245
2022		253
2023		246
Thereafter		1,768
Total amortization expense	$	3,014

The amortization expense associated with the intangible assets totaled approximately $0.4 million during fiscal 2018, fiscal 2017 and fiscal 2016. The weighted average number of years of amortization expense remaining is 15.1 years.