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Goodwill and Intangible Assets | 12 Months Ended
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Dec. 31, 2020
Goodwill And Intangible Assets Disclosure [Abstract] |
Goodwill and Intangible Assets |
8. | Goodwill and Intangible Assets
During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions arising from the COVID-19 pandemic and the estimated impact on our Paper segment and its projected future results of operations, we identified a triggering event indicating possible impairment of goodwill and our long lived assets within our Paper reporting unit. Goodwill Due to the triggering event identified above an interim quantitative impairment analysis was performed as of May 31, 2020 for the Paper reporting unit, which is the same as our Paper reportable segment. We estimated the fair value of the Paper reporting unit using a combination of the income approach and the market approach, as further described below. Based on the evaluation performed, we determined that the carrying value of the Paper reporting unit exceeded its fair value, which resulted in a goodwill impairment charge totaling $55.2 million. The impairment charge is included in “Goodwill impairment” on our Consolidated Statements of Income and Comprehensive Income and is not tax deductible. For purposes of our goodwill impairment analysis, we estimated the fair value of the Paper reporting unit using a combination of the income approach and the market approach applying an equal weighting. The income approach incorporated the estimated future cash flows and a terminal value discounted to their present value using an appropriate risk-adjusted discount rate. The estimated future cash flows and terminal value were based on internal forecasts and industry trends, including the long-term outlook for the paper industry. Our expected cash flows include assumptions about industry pricing, expected paper demand, and anticipated input and conversion costs. The discount rate utilized in the income approach was 9%, which was derived using a capital asset pricing model based on relevant industry data to estimate the cost of equity financing. The discount rate is commensurate with the risks and uncertainties inherent in the business and the cash flow forecasts, updated for recent events. The market approach estimated the fair value of the Paper reporting unit by using valuation metrics of publicly traded companies or historically completed transactions of comparable businesses. The valuation of our Paper reporting unit requires significant judgment in evaluating recent indicators of market activity and estimated future cash flows, discount rates, and other factors. Our impairment analysis contains inherent uncertainties due to uncontrollable events that could positively or negatively impact anticipated future economic and operating conditions. In making these estimates, the weighted-average cost of capital is utilized to calculate the present value of future cash flows and terminal value. Many variables go into estimating future cash flows, including estimates of our future revenue growth and operating results. When estimating our projected revenue growth and future operating results, we considered industry trends, economic data, and our competitive situation. Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At both December 31, 2020 and 2019, we had $863.5 million of goodwill recorded in our Packaging segment on our Consolidated Balance Sheets. At December 31, 2020 and 2019, we had $0 million and $55.2 million of goodwill recorded in our Paper segment on our Consolidated Balance Sheets, respectively. Changes in the carrying amount of our goodwill were as follows (dollars in millions):
|  |  |  |  |  |  |  |  |  | Total |
|  | Packaging |  |  | Paper |  |  | Goodwill |
Balance at January 1, 2019 |  | $ | 862.1 |  |  | $ | 55.2 |  |  | $ | 917.3 |
Acquisitions (a) |  |  | 1.4 |  |  |  | — |  |  |  | 1.4 |
Balance at December 31, 2019 |  |  | 863.5 |  |  |  | 55.2 |  |  |  | 918.7 |
Impairment of Paper segment |  |  | — |  |  |  | (55.2 | ) |  |  | (55.2 | )
Balance at December 31, 2020 |  | $ | 863.5 |  |  | $ | — |  |  | $ | 863.5 |
(a) | During 2019, the Company recorded a $1.4 million adjustment to increase the goodwill balance for the Company’s October 2018 acquisition of Englander.
Intangible Assets Intangible assets are comprised of customer relationships and trademarks and trade names. As a result of the triggering event described above, we also performed a recoverability test on our long-lived assets within the Paper segment, including long lived intangible assets, as of May 31, 2020. The recoverability test was based on forecasts of undiscounted cash flows. The results of the recoverability test indicated that the long lived assets within our Paper segment, inclusive of the long lived intangible assets, were 100% recoverable. The weighted average useful life, gross carrying amount, and accumulated amortization of our intangible assets were as follows (dollars in millions):
|  | As of December 31, 2020 |  |  | As of December 31, 2019 |
|  | Weighted Average Remaining Useful Life (in Years) |  |  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Weighted Average Remaining Useful Life (in Years) |  |  | Gross Carrying Amount |  |  | Accumulated Amortization |
Customer relationships (b)(c) |  |  | 9.1 |  |  | $ | 503.8 |  |  | $ | 220.2 |  |  |  | 10.0 |  |  | $ | 503.8 |  |  | $ | 180.2 |
Trademarks and trade names |  |  | 9.3 |  |  |  | 34.8 |  |  |  | 23.0 |  |  |  | 9.5 |  |  |  | 34.8 |  |  |  | 20.6 |
Other |  |  | 1.2 |  |  |  | 4.3 |  |  |  | 3.8 |  |  |  | 2.1 |  |  |  | 4.3 |  |  |  | 3.3 |
Total intangible assets (excluding goodwill) |  |  | 9.1 |  |  | $ | 542.9 |  |  | $ | 247.0 |  |  |  | 9.9 |  |  | $ | 542.9 |  |  | $ | 204.1 |
(b) | During the second quarter of 2020, the Company recorded a $4.5 million adjustment to decrease the remaining book value of the customer relationships intangible asset as a result of the closure of the San Lorenzo, California corrugated products facility.
(c) | During 2019, a corrugated products facility sold part of its operations which included existing inventory, certain production equipment, and customer relationships corresponding to the operations sold. As a result, the gross carrying amount for the customer relationships intangible asset was decreased by $0.7 million.
Amortization expense was $42.9 million (including the $4.5 million adjustment to the customer relationships intangible asset related to the San Lorenzo, California facility closure, which was written off to amortization expense), $38.6 million, and $40.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. Estimated amortization expense of intangible assets over the next five years is expected to approximate $37.3 million (2021), $34.9 million (2022), $33.9 million (2023), $33.4 million (2024), and $33.2 million (2025). Impairment Testing We test goodwill for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, when we experience changes to our business or operating environment, we evaluate the remaining useful lives and recoverability of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives or impairment are necessary. As discussed above, as a result of the COVID-19 pandemic, we performed an interim quantitative impairment analysis of the goodwill and long-lived assets, including intangible assets, within our Paper reporting unit as of May 31, 2020 and recorded a goodwill impairment charge of $55.2 million. We also completed our annual test in the fourth quarter, and there was no further indication of goodwill or intangible asset impairment.

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