Goodwill and Asset Impairments

12 Months Ended

Dec. 31, 2022

GOODWILL AND ASSET IMPAIRMENTS

During the fourth quarter of 2022, we recognized a goodwill and asset impairment charge for our Composite Fibers segment of $30.7 million. This charge includes a $20.3 million goodwill impairment for the Composite Fibers segment, primarily driven by higher valuation discount rates despite our expectation of improvements in future financial results compared to our forecast included in our valuation performed in Q1 2022. In addition, we recognized an $10.4 million non-cash asset impairment charge related to our OberSchmitten, Germany facility based on our expectations of future cash flows for this site. We are currently evaluating strategic alternatives for this facility.

During the third quarter of 2022, we recognized a non-cash goodwill impairment charge for our Spunlace segment of $42.5 million. The Spunlace segment has faced continued inflationary challenges which had escalated since our acquisition of this business in late 2021. Our selling price increases have been insufficient to offset the impact of inflation. Furthermore, the Spunlace segment has been impacted by unexpected supply chain and other operational issues which, in combination with the commercial issues, have resulted in an unexpected increase in operating losses. Although, management expects it will address the commercial, as well as, operational challenges that have impacted the profitability of this segment, the timing to effectuate the necessary changes to improve performance of this segment will be longer than previously expected.

In the first quarter of 2022, in connection with an assessment of potential impairment of long-lived and indefinite-lived intangible assets stemming from the compounding impacts resulting from the Russia/Ukraine military conflict and related sanctions, we recorded a $117.3 million non-cash asset impairment charge related to Composite Fibers' Dresden facility and an impairment of Composite Fibers' goodwill. Dresden is a single-line facility that produces wallcover base paper, the majority of which is sold into the Russian and Ukrainian markets. As a direct result of the economic impacts from the conflict, and the disruptions in the underlying financial systems and prohibition of the export of sanctioned wallcover base paper to Russia, management expects a significant reduction in wallcover revenues and associated cash flows for the foreseeable future. In addition, the conflict is expected to significantly impact energy prices and also impact other Composite Fibers products that are also subject to export sanctions into Russia. Accordingly, a charge was recorded to reduce the carrying value of the Dresden fixed assets and intangible assets (technological know-how, customer relationships, and an indefinite-lived trade name), along with Composite Fibers’ goodwill to fair value.

During the second quarter of 2020, in connection with an assessment of potential impairment of indefinite-lived intangible assets, we recorded a $0.9 million non-cash asset impairment charge related to a trade name intangible asset acquired in connection with our Composite Fibers segment’s 2013 Dresden acquisition. The charge was due to a change in the estimated fair value of the trade name, primarily driven by lower forecasted wallcover net sales associated with economic instability in Russia and Ukraine together with the impact of the COVID-19 pandemic on this business. The fair value of the asset was estimated using a discounted cash flow model (Level 3 fair value classification).

The following table summarizes the impairment charges recorded in the accompanying consolidated statements of income (loss) under the caption “Goodwill and other asset impairment charges:”


In thousands	2022		2021		2020
Plant, property and equipment	$	37,936	$	—	$	—
Technological know-how	18,443		—		—
Customer relationships	11,695		—		—
Tradename	3,530		—		900
Goodwill	118,952		—		—
Total	$	190,556	$	—	$	900

The fair value of the underlying assets was estimated using discounted cash flow models, independent appraisals and similar methods, all of which are Level 3 fair value classification.

As a result of economic sanctions and disruptions to the financial markets, certain Russian and Ukrainian customers are not able to satisfy outstanding accounts receivables. As such, during 2022, we recognized bad debt expense of approximately $2.9 million directly related to Russian and Ukrainian customers. Furthermore, during 2022, we increased inventory reserves by approximately $0.3 million, primarily related to wallcover products.