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Goodwil, Long-lived Assets, and Other Charges

12 Months Ended

Jan. 31, 2018

Goodwill and Intangible Assets Disclosure [Abstract]



NOTE 7	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 was Vista and one of which was 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, and thereafter 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 units 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			Total
Balance at January 31, 2016	$	12,365		$	27,518	$	789		$	40,672
Foreign currency translation adjustment	(23		)	—		—			(23		)
Reporting unit transfer balance^(a)	—			—		—			—
Balance at January 31, 2017	12,342			27,518		789			40,649
Additions due to business combinations	—			5,714		—			5,714
Divestiture of business	—			—		(52		)	(52		)
Foreign currency translation adjustment	399			—		—			399
Balance at January 31, 2018	$	12,741		$	33,232	$	737		$	46,710

^(a) 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 gross and net of accumulated impairment losses were as follows:



	As of January 31,
	2018			2017
Gross goodwill	$	58,207		$	52,146
Accumulated impairment loss	(11,497		)	(11,497		)
Net goodwill	$	46,710		$	40,649

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.

Fiscal 2018 Goodwill Impairment Testing

In fiscal 2018 no triggering events were deemed to have occurred in any of the quarterly periods and no impairments were recorded as a result of the annual impairment testing. In its annual impairment testing, the Company concluded a quantitative analysis was not required for the Applied Technology and Engineered Films reporting units. This was based on the Company's qualitative analysis and the fact that the estimated fair value in the Company's most recent impairment test substantially exceeded its carrying value for each of these reporting units.

For the Aerostar reporting unit, the Company determined the excess of the fair value of the reporting unit over its carry value in the previous year's annual impairment assessment was not significant enough based on the current macroeconomic conditions to perform a qualitative analysis. As such, the Company performed a quantitative analysis for the annual impairment assessment of the Aerostar reporting unit. In determining the estimated fair value of the Aerostar reporting unit, the Company was required to estimate a number of factors, including future revenues and expenses, projected capital expenditures, changes in net working capital and the discount rate. On the basis of these estimates, the November 30, 2017 analysis indicated that the estimated fair value of the Aerostar reporting unit exceeded the reporting unit carrying value by approximately $11,600 or approximately 41%, as such there were no goodwill impairment losses reported in the year ended January 31, 2018.

Fiscal 2017 Goodwill Impairment Testing

In the fiscal 2017 third quarter, the Company determined that a triggering event occurred for its Aerostar reporting unit, which had $789 of goodwill as of October 31, 2016. The triggering event was caused by lowering the 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 was still actively pursuing these opportunities and some were in active negotiations, but the timing of certain aerostat and classified stratospheric balloon opportunities were 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.

A quantitative 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%.

There were no other triggering events during fiscal 2017 for any of the three reporting units, and no impairments were recorded as a result of the annual impairment testing for fiscal 2017.

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.

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,
	2018							2017
			Accumulated							Accumulated
	Amount		amortization			Net		Amount		amortization			Net
Existing technology	$	7,290	$	(6,996	)	$	294	$	7,136	$	(6,553	)	$	583
Customer relationships	13,264		(4,834		)	8,430		12,987		(3,680		)	9,307
Patents and other intangibles	4,241		(2,381		)	1,860		4,378		(2,220		)	2,158
Total	$	24,795	$	(14,211	)	$	10,584	$	24,501	$	(12,453	)	$	12,048

The estimated future amortization expense for these definite-lived intangible assets, as well as definite-lived intangible assets accounted for as part of the equity method investment in SST, during the next five years is as follows:



	2019		2020		2021		2022		2023
Estimated amortization expense	$	1,988	$	1,578	$	1,163	$	1,111	$	1,013

Long-lived assets

The Company assesses the recoverability of long-lived assets, including definite-lived intangibles, equity method investments, and property plant and equipment if events or changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, the Company performs impairment reviews by asset groups. 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.

When performing long-lived asset testing, the fair values of assets are determined based on valuation techniques using the best available information. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures). An impairment loss is recognized when the carrying amount of an asset is above the estimated undiscounted cash flows used in determining the fair value of the asset.

Fiscal 2018 Long-lived Intangibles and Equity-Method Investment Impairment Assessment

During first quarter of fiscal 2018, the Company determined that the investment in AgEagle, further described in Note 6 Acquisitions of and Investments in Businesses and Technologies, was impaired due to lower than expected cash flows. This impairment was determined to be other-than-temporary and an accelerated equity method investment loss of $72 was recorded in the first quarter. This loss was reported in "Other (expense), net" in the Consolidated Statements of Income and Comprehensive Income for the twelve-month period ended January 31, 2018. The Company also determined the customer relationship intangible asset related to the Ag Eagle exclusive distribution agreement was fully impaired. The total impairment loss reported related to this intangible asset was $259 and was recorded in the first quarter. This loss was reported in "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income for the twelve-month period ended January 31, 2018.

The Company did not identify any additional triggering events for any of its assets groups or equity method investments the remainder of fiscal 2018.

Fiscal 2017 Long-lived Intangibles Impairment Assessment

The Company evaluated the triggering events described in the goodwill impairment analysis for fiscal 2017 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 quantitative 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) were 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 quantitative 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.

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. There were no significant inventory write-downs in fiscal 2018 or 2016.

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 fiscal 2018 or 2017.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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