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PURCHASED INTANGIBLE ASSETS

12 Months Ended

Jan. 31, 2021

NOTE 7 – PURCHASED INTANGIBLE ASSETS

The balance of goodwill related to TRC and included in the consolidated balance sheet as of January 31, 2021 was $9.5 million. The Company performed a goodwill impairment assessment for TRC as of November 1, 2020 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 $1.5 million; accordingly, there was no impairment loss recorded as of that date. The fair value amount for TRC determined as of November 1, 2020 reflected a weighting of results determined using various business valuation approaches. As in the past, the majority of the weighted average fair value was based on the result of modeling discounted future net-after-tax cash flows of the business. The discounted cash flows of TRC were based on a management forecast of operating results. The forecast reflects a complete recovery of annual revenues from the COVID-19 pandemic year (Fiscal 2021) to Fiscal 2019 levels by the year ending January 31, 2024 and an average annual growth rate of approximately 3% thereafter. Annual earnings before interest and taxes are forecast to increase from 3.1% of revenues for the year ending January 31, 2022 to 6.8% of revenues by the year ending January 31, 2026.

The goodwill impairment assessments performed for TRC as of November 1, 2019 and 2018 determined that the fair value of TRC was less than the corresponding carrying value at each date, and goodwill impairment losses of approximately $2.8 million and $1.5 million were recorded during Fiscal 2020 and Fiscal 2019, respectively. The fair value amounts for TRC determined at each date reflected a weighting of results determined using various business valuation approaches. The majority of the weighted average fair value amount determined at each date was based on discounted future net-after-tax cash flows of the business that were forecasted at the time.

Although the Company believes that the forecasted financial results for TRC as of November 1, 2020 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 2021 that caused the Company to perform a subsequent impairment assessment.

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, the Company recorded an impairment loss during Fiscal 2020 in the amount of $2.1 million.

The changes in the balances of goodwill for Fiscal 2021, Fiscal 2020 and Fiscal 2019 were as follows:


	GPS		TRC		APC		Totals
Balances, February 1, 2018	$	18,476	$	13,781	$	2,072	$	34,329
Impairment loss		—		(1,491)		—		(1,491)
Balances, January 31, 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 loss		—		—		—		—
Balances, January 31, 2021	$	18,476	$	9,467	$	—	$	27,943

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 $16.4 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, 2021.


		January 31, 2021						January 31,
	Estimated	Gross		Accumulated		Net		2020, (net
	Useful Life	Amounts		Amortization		Amounts		amounts)
Trade names
TRC	15 years	$	4,499	$	1,550	$	2,949	$	3,249
GPS	15 years		3,643		3,435		208		450
Process certifications	7 years		1,897		1,400		497		768
Customer relationships	4-10 years		1,346		903		443		534
Totals		$	11,385	$	7,288	$	4,097	$	5,001

The Company determined the fair values of the trade names using a relief-from-royalty methodology. The Company believes that the useful lives of the trade names for GPS and TRC represent the remaining number of years that such intangibles are 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, 2021 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. There were no additions to other purchased intangible assets during Fiscal 2021, Fiscal 2020 or Fiscal 2019, nor were there any impairment losses related to the assets for those years. Amortization expense related to purchased intangible assets for Fiscal 2021, Fiscal 2020 and Fiscal 2019 were $0.9 million, $1.1 million and $1.0 million, respectively.

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


2022	$	870
2023		617
2024		392
2025		392
2026		376
Thereafter		1,450
Total	$	4,097