

NOTE 6	GOODWILL, LONG-LIVED ASSETS, AND OTHER CHARGES

Goodwill

For goodwill, the Company performs impairment reviews by reporting unit. At the end of fiscal 2016, the Company determined the reporting units to be Engineered Films Division, Applied Technology Division, and two separate reporting units in the Aerostar Division, one of which is Vista and one of which is all other Aerostar operations (Aerostar excluding Vista).

During the first quarter of fiscal 2017, management implemented managerial and financial reporting changes within Vista and Aerostar to further integrate Vista into the Aerostar Division. Integration actions included leadership re-alignment, including selling and business development leadership functions, re-deployment of employees across the division, and consolidation of administrative functions, among other actions. Based on the changes made, the Company consolidated the two separate reporting units within the Aerostar Division into one reporting unit for the purposes of goodwill impairment review. As such, as of April 30, 2016, the Company has three reporting units: Engineered Films Division, Applied Technology Division, and Aerostar Division. The Company reviewed the quantitative and qualitative factors associated with the change in reporting unit and determined there were no indicators of impairment at the time of the reporting unit change.

The changes in the carrying amount of goodwill by reporting unit are shown below:



	Applied Technology			Engineered Films		Aerostar⁽^b⁾		Vista			Total
Balance at January 31, 2014	$	9,892		$	96	$	789	$	11,497		$	22,274
Acquired goodwill	3,250			27,216		—		—			30,466
Foreign currency translation adjustment	(592		)	—		—		—			(592		)
Balance at January 31, 2015	12,550			27,312		789		11,497			52,148
Purchase price adjustment to acquired goodwill^(a)	—			206		—		—			206
Goodwill disposed from sale of business	(69		)	—		—		—			(69		)
Goodwill impairment loss	—			—		—		(11,497		)	(11,497		)
Foreign currency translation adjustment	(116		)	—		—		—			(116		)
Balance at January 31, 2016	12,365			27,518		789		—			40,672
Foreign currency translation adjustment	(23		)	—		—		—			(23		)
Reporting unit transfer balance^(b)	—			—		—		—			—
Balance at January 31, 2017	$	12,342		$	27,518	$	789	$	—		$	40,649

^(a) Working capital adjustment and final deferred tax adjustment for Integra acquisition (see Note 5 Acquisitions of and Investments in Businesses and Technologies).

^(b) The Company combined the Aerostar and Vista reporting units in fiscal 2017. No goodwill amount was transferred between reporting units due to the goodwill impairment loss recorded at the Vista reporting unit during fiscal 2016.

Goodwill is tested for impairment on an annual basis and between annual tests whenever a triggering event indicates there may be an impairment. The annual impairment tests were completed for each reporting unit in the fourth quarter based on a November 30th valuation date. No triggering events were deemed to have occurred in the fourth quarter and no impairments were recorded as a result of the annual impairment testing. The Aerostar reporting unit was also tested earlier in fiscal 2017 as a result of a triggering event that had occurred.

Fiscal 2017 Goodwill Impairment Testing

In the fiscal 2017 third quarter, the Company determined that a triggering event occurred for its Aerostar reporting unit. The triggering event was caused by lower financial expectations for net sales and operating income of the reporting unit and certain asset groups due to delays and uncertainties regarding the reporting unit’s pursuit of certain opportunities, including aerostat orders, certain classified stratospheric balloon pursuits, and radar pursuits. Aerostar is still actively pursuing these opportunities and some are in active negotiations, but the timing of certain aerostat and classified stratospheric balloon opportunities are being delayed more than previously expected and the likelihood of radar sales is lower due to the Company's decision to no longer actively pursue certain radar product opportunities. The Step 1 impairment analysis was completed using fair value techniques as of October 31, 2016. In determining the estimated fair value of the Aerostar reporting unit, the Company was required to estimate a number of factors, including projected revenue growth rates, projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, and the discount rate. On the basis of these estimates, the October 31, 2016 analysis indicated that the estimated fair value of the Aerostar reporting unit exceeded the reporting unit carrying value by approximately $9,000, or approximately 30%.

Fiscal 2016 Goodwill Impairment Testing

In the fiscal 2016 third quarter, the Company determined that a triggering event occurred for its Vista reporting unit. The triggering event was caused by the lowering of financial expectations for sales and operating income of the reporting unit due to delays and uncertainties regarding the reporting unit’s pursuit of large international opportunities. Despite the Company having a pre-authorization letter from the prime contractor and being in negotiations on a large international contract through the fiscal 2016 second quarter, the contract did not materialize in the fiscal 2016 third quarter as expected. Expectations were lowered as the timing and likelihood of completing certain international pursuits became less certain. In addition, the Company made a change in the executive leadership of the reporting unit during the third quarter. The Step 1 impairment analysis was completed using fair value techniques as of October 31, 2015. In determining the estimated fair value of the Vista reporting unit, the Company was required to make assumptions and estimate a number of factors, including projected revenue growth rates (particularly those related to being successful in being awarded large, international contracts and the timing thereof), operating profit margin percentage, and the discount rate. On the basis of these estimates, the October 31, 2015 analysis indicated that the estimated fair value of the Vista reporting unit was less than the carrying value. The carrying value exceeded the estimated fair value by approximately $14,000, or 64%.

Pursuant to the applicable accounting guidance, the Company performed a Step 2 impairment analysis. In the Step 2 impairment analysis, the fair value determined was allocated to the assets and liabilities of the reporting unit. Based on this Step 2 impairment analysis the resulting implied fair value of the Vista goodwill was determined to have no value compared to the carrying value recorded for the reporting unit, $11,497. In the fiscal 2016 third quarter an impairment charge to operating income of $11,497 was reported as "Goodwill impairment loss" in the Consolidated Statements of Income and Comprehensive Income.

Goodwill gross of accumulated impairment losses at January 31, 2017, 2016, and 2015 was $52,146, $52,169, and $52,148, respectively. Goodwill net of accumulated impairment losses at January 31, 2017, 2016 and 2015 was $40,649, $40,672, and $52,148, respectively.

Intangible Assets

The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:



	For the years ended January 31,
	2017							2016							2015
			Accumulated							Accumulated							Accumulated
	Amount		amortization			Net		Amount		amortization			Net		Amount		amortization			Net
Existing technology	$	7,136	$	(6,553	)	$	583	$	7,144	$	(6,265	)	$	879	$	8,870	$	(5,239	)	$	3,631
Customer relationships	12,987		(3,680		)	9,307		12,628		(2,641		)	9,987		14,128		(1,271		)	12,857
Patents and other intangibles	4,378		(2,220		)	2,158		3,967		(1,877		)	2,090		3,657		(1,655		)	2,002
Total	$	24,501	$	(12,453	)	$	12,048	$	23,739	$	(10,783	)	$	12,956	$	26,655	$	(8,165	)	$	18,490

The estimated future amortization expense for these definite-lived intangible assets, as well as definite-lived intangible assets held by SST, during the next five years is as follows:



	2018		2019		2020		2021		2022
Estimated amortization expense	$	1,936	$	1,822	$	1,576	$	1,096	$	1,067

Long-lived assets, including definite-lived intangibles, are tested for recoverability whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Management periodically assesses for triggering events and discusses any significant changes in the utilization of long-lived assets. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Fiscal 2017 Long-lived Intangibles Impairment Assessment

The Company evaluated the triggering events described in the goodwill impairment analysis and determined there were also triggering events with respect to the assets associated with the aerostat and stratospheric programs (Lighter than Air) and the radar product and radar services (Radar) asset groups in the Aerostar reporting unit in the third quarter of fiscal 2017, which resulted in an asset impairment test.

Using the sum of the undiscounted cash flows associated with each of the two asset groups, a Step 1 test was performed for each asset group. The undiscounted cash flows for the Lighter than Air asset group exceeded the carrying value of the long-lived assets by approximately $110,000, or 800%, and no Step 2 test was deemed to be necessary based on the recoverability of the long-lived assets. For the Radar asset group, however, the undiscounted cash flows did not exceed the carrying value of the long-lived assets and the Company performed a Step 2 impairment analysis for the long-lived assets.

In the Step 2 impairment analysis, the fair value determined was allocated to the assets and liabilities of the Radar asset group. The resulting estimated fair value of the Radar asset group long-lived assets was $175 compared to the carrying value of $262 for the asset group. The shortfall of $87 was recorded in the fiscal 2017 third quarter as an impairment charge to operating income reported as "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income. The total impairment loss related to property, plant, and equipment and patents was $62 and $25, respectively.

Fiscal 2016 Long-lived Intangibles Impairment Assessment

As described in our Annual Report on Form 10-K/A for the fiscal year ended January 31, 2016, the Company determined that the relevant cash flows for long-lived asset testing (the lowest level of cash flows that are largely independent of other assets) are one level below the Vista reporting unit. For Vista, these levels were determined to be asset groups identified for the client private business (CP) and Radar. Based on the assessment of the forecasts of cash flows and these asset groups, the Company concluded that certain long-lived assets of the Vista reporting unit, including finite-lived intangible assets, were impaired as of October 31, 2015.

Using the sum of the undiscounted cash flows associated with each of the two asset groups, a Step 1 test was performed for each asset group. The undiscounted cash flows for the CP asset group exceeded the carrying value of the long-lived assets and no Step 2 test was deemed to be necessary based on the recoverability of the long-lived assets. For the Radar asset group, however, the undiscounted cash flows did not exceed the carrying value of the long-lived assets and the Company performed a Step 2 impairment analysis for the long-lived assets.

In the Step 2 impairment analysis, the fair value determined was allocated to the assets and liabilities of the Radar asset group. The resulting implied fair value of the Radar asset group long-lived assets was $103 compared to the carrying value of $3,916 for the asset group. The shortfall of $3,813 was recorded in the third quarter of fiscal 2016 as an impairment charge to operating income reported as "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income. Of the total long-lived asset impairment of $3,813, $3,154 was related to amortizable intangible assets related to radar technology and radar customers, $554 was related to property, plant, and equipment, and $105 was related to patents. In addition, expenditures of $13 for additional patents related to the Radar asset group in the fiscal 2016 fourth quarter were also considered to have been impaired. The carrying value was fully impaired in the third quarter of fiscal 2016.

Fiscal 2015 Long-lived Intangibles Impairment Assessment

There were no long-lived asset impairment losses reported in fiscal year 2015.

Other Charges

Inventory Write-downs

Due to the Company's decision to no longer actively pursue certain radar opportunities, during the fiscal 2017 third quarter the Company wrote-down radar inventory, purchased primarily during fiscal 2016. The decision to write-down this inventory is consistent with the triggering event identified during the fiscal 2017 third quarter relating to the Aerostar reporting unit and the Radar asset group. This radar-specific inventory write-down increased "Cost of sales" by $2,278 in fiscal 2017. At January 31, 2017 the carrying value of Aerostar's radar systems inventory was $4,260. There were no specific radar inventory write-downs in fiscal 2016 or 2015.

Pre-contract Deferred Cost Write-offs

From time to time, the Company incurs costs before a contract is finalized and such pre-contract costs are deferred to the balance sheet to the extent they relate to a specific project and the Company has concluded that is probable that the contract will be awarded for more than the amount deferred. Pre-contract cost deferrals are common with Vista's business pursuits. As described above, Vista was pursuing international opportunities and was in the process of negotiating a large international contract that did not materialize in the fiscal 2016 third quarter as expected. Expectations were lowered as the timing and likelihood of completing certain international pursuits became less certain. Corresponding to these lower expectations, the pre-contract costs associated with these pursuits were written off during the fiscal 2016 third quarter. Vista recorded a charge of $2,933, (which is comprised of $2,075 of costs capitalized as of July 31, 2015 and additional costs of $858 capitalized during August and September 2015) for the write-off of these pre-contract costs. This charge is recorded in “Cost of sales” in the Consolidated Statements of Income and Comprehensive Income. There were no pre-contract costs written-off in 2017 or 2015.