GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

May 27, 2017

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 May 27, 2017 and May 28, 2016. The goodwill balance in its entirety relates to our IMES reporting unit which is included in the Healthcare segment.

Goodwill is initially recorded based on the premium paid for acquisitions and is subsequently tested for impairment, using the first day of our fourth quarter as the measurement date. We test goodwill for impairment annually and whenever events or circumstances indicates an impairment may have occurred, such as a significant adverse change in the business climate, loss of key personnel or a decision to sell or dispose of a reporting unit. 

After reviewing the totality of events or circumstances as provided in ASU 2011-08, we determined that it was not more likely than not that the fair value for the IMES reporting unit exceeded its carrying value. Accordingly, the first step of the two step goodwill impairment test as described in FASB ASC 350-20-35 was performed. We performed the first step of the two step 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 results of our goodwill impairment test as of February 26, 2017 indicated that the value of goodwill attributed to our IMES reporting unit was not impaired. Since the acquisition of IMES in June 2015, there have been no fundamental changes in the business or market that would indicate a significant decline in the fair value since the acquisition date. In the two years since acquisition, the Company has made significant investments in the IMES business, including $6 million in capital expenditures that are expected to increase IMES’ product offerings and result in increased future sales, operating profit and cash flows.

Management’s projections used to estimate the undiscounted cash flows included increasing sales volumes from new product offerings being developed and expanded sales into new geographies and operational improvements designed to reduce costs. Changes in any of the significant assumptions used, including if the Company does not successfully achieve its operating plan, which is dependent on the creation of 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 other long lived assets.

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.

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 as well as amortization expense are as follows (in thousands):

	Intangible Assets Subject to Amortization as of
	May 27, 2017		May 28, 2016
Gross Amounts:
Trade Name	$	659	$	659
Customer Relationships		3,397		3,434
Non-compete Agreements		177		177
Technology		230		230
Total Gross Amounts	$	4,463	$	4,500
Accumulated Amortization:
Trade Name	$	441	$	231
Customer Relationships		446		374
Non-compete Agreements		84		55
Technology		51		22
Total Accumulated Amortization	$	1,022	$	682
Net Intangibles	$	3,441	$	3,818

We determined that intangible assets were not impaired as of May 27, 2017 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):

	Amortization Expense
Fiscal Year
2018	$	432
2019		245
2020		257
2021		245
2022		252
Thereafter		2,010
Total amortization expense	$	3,441

The amortization expense associated with the intangible assets totaled approximately $0.4 million during fiscal 2017, $0.4 million during fiscal 2016 and $0.1 million during fiscal 2015. The weighted average number of years of amortization expense remaining is 15.1 years.