Intangible Assets and Goodwill

Goodwill represents the excess of cost over fair market value of identifiable net assets acquired through business purchases. In accordance with the FASB's Accounting Standards Codification, ("ASC"), Topic 350 - Intangibles-Goodwill and Other, we review goodwill for impairment on at least an annual basis by applying a fair-value-based test and on an interim basis when indicators of impairment exist. In evaluating the recoverability of the carrying value of goodwill, we must make assumptions regarding the fair value of our reporting units, as defined under FASB ASC Topic 350. Goodwill is evaluated using a two-step impairment test at the reporting unit level. The first step compares the book value of a reporting unit, including goodwill, with its fair value, as determined by its discounted cash flows. If the book value of a reporting unit exceeds its fair value, we complete the second step to determine the amount of goodwill impairment loss that we should record. In the second step, we determine an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The amount of impairment loss is equal to the excess of the book value of the goodwill over the implied fair value of goodwill.

In performing our annual review of goodwill balances for impairment, we estimate the fair value of each of our reporting units based on projected future operating results and cash flows, market assumptions and comparative market multiple methods. Determining fair value requires significant estimates and assumptions based on an evaluation of a number of factors, such as marketplace participants, relative market share, future expansion or contraction expectations, amount and timing of future cash flows and the discount rate applied to the cash flows. Projected future operating results and cash flows used for valuation purposes may reflect considerable improvements relative to historical periods with respect to, among other things, revenue growth and operating margins. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, historically projected operating results and cash flows have not always been achieved. The failure of one of our reporting units to achieve projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit below its carrying value and result in the recognition of a goodwill impairment charge. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. In addition to cash flow estimates, our valuations are sensitive to the rate used to discount cash flows and future growth assumptions.

During the quarter ended January 30, 2016, the Company voluntarily changed the date of its annual goodwill and indefinite-lived intangible assets impairment testing from the last day of the fiscal year to the first day of the fourth quarter. This voluntary change is preferable under the circumstances as it provides the Company with additional time to complete its annual goodwill and indefinite-lived intangible asset impairment testing in advance of its year-end reporting and results in better alignment with the Company’s strategic planning and forecasting process. The voluntary change in accounting principle related to the annual testing date is not a material change and will not delay, accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly, the change will be applied prospectively.

At the beginning of the fourth quarter of fiscal 2016, we performed "step one" of the goodwill test on our two reporting units with goodwill. Based on this test, we determined that the fair value for these reporting units exceeded their carrying values by approximately 135% and 163%. Therefore, management concluded, based on the results, that goodwill was not impaired for either of the reporting units. At the end of fiscal 2016, we had goodwill of $0.7 million for one reporting unit in the Interface segment and goodwill of $1.0 million for one reporting unit in the Power Products segment, for a total of $1.7 million. The assumptions used in the valuation of these reporting units were made using management's most recent projections which are considered level 3 inputs in the fair value hierarchy. We continue to monitor the operating results and cash flows of our reporting units on a quarterly basis for signs of possible declines in estimated fair value and goodwill impairment.

At the end of fiscal 2015, we performed a qualitative goodwill screening test of goodwill impairment on our Power Systems Group in the Power Products segment and Hetronic in our Interface segment. We considered the qualitative factors and weighed the evidence obtained and we determined that it is more likely than not that the fair value of the two reporting units is greater than the carrying value, and therefore concluded that the assets were not impaired.

Also at the end of fiscal 2015, we completed "step two" of the goodwill test for our TouchSensor reporting unit which had a fair value less than the carrying value and concluded that goodwill was impaired, and recorded a goodwill impairment charge of $11.1 million in our Interface segment related to these assets.

At the end of fiscal 2014, we performed a qualitative goodwill screening test of goodwill impairment on our Power Systems Group in the Power Products segment and Hetronic in our Interface segment. We considered the qualitative factors and weighed the evidence obtained and we determined that it is more likely than not that the fair value of the two reporting units is greater than the carrying value and therefore concluded that the goodwill for these reporting units was not impaired. Also at the end of fiscal 2014, we performed "step one" of the quantitative goodwill test on our TouchSensor reporting unit in our Interface segment. Based on this test, we determined that the fair value of this reporting unit exceeded the carrying value by approximately 17% and thus concluded that the reporting unit was not impaired.

Intangible assets subject to amortization are evaluated for impairment if events or changes in circumstances indicate that the carrying value of an asset might be impaired. Due to a change in strategic direction in the fourth quarter of fiscal 2015, management performed an impairment analysis on the TouchSensor operating unit's intangible assets and determined that the assets were not impaired but did reduce the remaining estimated useful lives. Due to changes in market conditions in fiscal 2014, management performed an impairment analysis on our Eetrex reporting unit in our Power Products segment and determined that the asset was impaired. The Company recorded an impairment charge of $1.7 million related to these assets.

The fair value of our indefinite-lived trade names are estimated and compared to the carrying value. We estimate the fair value of the intangible assets using the relief-from-royalty method, which requires assumptions related to projected revenues from our annual operating budgets; assumed royalty rates that could be payable if we did not own the trademarks; and a discount rate which are considered level 3 inputs in the fair value hierarchy. An impairment loss would be recognized if the estimated fair value of the indefinite-lived intangible asset is less than its carrying value. The fair values of the trademarks tested exceeded their carrying value by approximately 17%, 64% and 117% for fiscal 2016, fiscal 2015 and fiscal 2014, respectively.

The following table shows the roll-forward of goodwill.



	Interface			Power Products		Total
Balance as of April 27, 2013	$	11.9		$	1.0	$	12.9

Foreign currency translation	0.1			—		0.1
Balance as of May 3, 2014	12.0			1.0		13.0

Impairment	(11.1		)	—		(11.1		)
Foreign currency translation	(0.2		)	—		(0.2		)
Balance as of May 2, 2015	0.7			1.0		1.7

Impairment	—			—		—
Foreign currency translation	—			—		—
Balance as of April 30, 2016	$	0.7		$	1.0	$	1.7

Intangible Assets

The following tables present details of our remaining identifiable intangible assets:



	As of April 30, 2016
	Gross		Accumulated Amortization		Net		Wtd. Avg. Remaining Amortization Periods (Years)
Customer relationships and agreements	$	16.3	$	15.3	$	1.0	7.8
Trade names, patents and technology licenses	25.8		17.9		7.9		2.4
Covenants not to compete	0.1		0.1		—		1.4
Total	$	42.2	$	33.3	$	8.9



	As of May 2, 2015
	Gross		Accumulated Amortization		Net		Wtd. Avg. Remaining Amortization Periods (Years)
Customer relationships and agreements	$	16.3	$	15.0	$	1.3	8.8
Trade names, patents and technology licenses	25.8		15.8		10.0		3.3
Covenants not to compete	0.1		0.1		—		2.4
Total	$	42.2	$	30.9	$	11.3

The estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows:



2017	$2.3
2018	$2.2
2019	$2.1
2020	$0.2
2021	$0.1

At the end of fiscal 2015 the Company reviewed the estimated useful lives of some of the patents due to current business conditions and shift in strategic direction and changed the remaining useful lives of these assets from 12.0 years to 4.0 years.

As of April 30, 2016 and May 2, 2015, the trade names, patents and technology licenses include $1.8 million of trade names that are not subject to amortization.