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Goodwill And Other Intangible Assets
 12 Months Ended
Dec. 31, 2014
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill And Other Intangible Assets
Goodwill and Other Intangible Assets

Goodwill represents, for the business that we have acquired, the excess of the purchase consideration over the fair value of acquired identifiable tangible and intangible assets, net of liabilities assumed. As of December 31, 2013, goodwill of $496.4 million was assigned to the Graphite Electrode and the Needle coke Reporting units within the Industrial Materials segment, while $0.4 million was assigned to the Advanced Graphite Materials Reporting unit within the Engineered Solutions segment.
As a result of the deteriorating market conditions impacting our AGM product group, as discussed in Note 2, goodwill assigned to our AGM reporting unit of $0.4 million was written off in the second quarter of 2014.
Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. During our annual testing of goodwill as of December 31, 2014, we determined that the needle coke reporting unit failed the first step of the goodwill impairment test. The second step of the goodwill impairment analysis resulted in an impairment charge of $75.7 million of the goodwill assigned to the Needle Coke reporting unit.
In the first step of the analysis, we compared the estimated fair value of each reporting unit to their carrying value, including goodwill. The fair value of the reporting units was determined based on an income approach, using discounted cash flow ("DCF") models from a market participant’s perspective, as required by the fair value guidance. These DCF models included twelve or more years of forecasted cash flows, plus an estimated terminal value. For the first several years in the models, the cash flows were based upon the current operating and capital plans as prepared by management and approved by executive management, adjusted to reflect the perspective of potential market participants. These adjustments include the use of observed and forecast market prices for needle coke when determining both the revenue for the Needle Coke reporting unit and the input costs for the Graphite Electrode reporting unit. Beyond the first several years, the DCF model reflects known trends of cycles in the industry and incorporates them in the terminal value. Actual results may differ from those assumed in the Company’s forecast. Discount rates applied to the forecasted cash-flows are based on appropriately weighted average cost of capital ("WACC"). Company specific beta and mix of debt to equity are inputs into the determination of the discount rate, which is then qualitatively assessed from the standpoint of potential market participants. A discount rate of 10.5% was used for both reporting units.
As a result of the first step described above, the fair value of the Graphite Electrode reporting unit exceeded its carrying value by over 10%. The DCF model for Graphite Electrode is based on existing operating performance, as adjusted for current trends, as well as known or expected near-term changes in product mix, operating costs, operating configuration and system-wide capacity. These plans also incorporated required or anticipated near-term capital projects and working capital changes. In a DCF model, the earlier years have a more pronounced impact on the calculated value as compared to later periods. As such, if economic conditions were to deteriorate or events were to occur resulting in the ultimate operating results for these initial years being significantly lower than what is reflected in the DCF, that would have an unfavorable effect on the estimated fair value of the Graphite Electrode reporting unit.
As a result of the first step of the analysis described earlier, the fair value of the Needle Coke reporting unit was less than its carrying value. Consequently, we performed the second step of the impairment analysis in order to determine the implied fair value of the goodwill associated with the reporting unit. The implied fair value of goodwill represents the excess of the fair value of the reporting unit over the sum of the fair value amounts assigned to all of the assets and liabilities of the reporting unit as if it were to be acquired in a business combination and the current fair value of the reporting unit (as calculated in the first step) was the purchase consideration. The implied fair value of goodwill was then compared to the carrying value of the goodwill to determine the impairment of $75.7 million.
The impairment of the Needle Coke reporting unit‘s goodwill was a result of our reassessment of the estimated future cash-flows, triggered by pricing declines in the needle coke market in the fourth quarter of 2014. Additionally the market capitalization of the Company has been below its book value since last quarter-end and led us to reconsider the previous long-term views of the cash-flows of the reporting units. Due to these factors, we decreased the long-term estimates of the cash-flows of the Needle Coke reporting unit that are utilized in assessing goodwill for impairment.
As an additional corroboration, the aggregate of the fair value of all reporting units, after deduction of the corporate debt, was compared to the Company’s market capitalization. The implied control premium resulting from this comparison was found to be within a reasonable range. As such it corroborated the estimated fair value of the reporting units utilized in the goodwill impairment test.

The changes in the Company’s carrying value of goodwill during the years ended December 31, 2013 and 2014 are as follows:
 
Total
 
(Dollars in Thousands)
Balance as of December 31, 2012
$
498,261

Translation effect
(1,451
)
Balance as of December 31, 2013
496,810

Impairment
(76,063
)
Translation effect
(618
)
Balance as of December 31, 2014
$
420,129


The following table summarizes acquired intangible assets with determinable useful lives by major category as of December 31, 2013 and 2014:
 
2013
 
2014
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization /
Impairment
 
Net
Carrying
Amount
(Dollars in Thousands)
 
(Dollars in Thousands)
Trade name
7,900

 
(3,944
)
 
3,956

 
7,900

 
(4,817
)
 
3,083

Technology and know-how
43,349

 
(18,582
)
 
24,767

 
43,349

 
(24,940
)
 
18,409

Customer related intangible
110,798

 
(44,664
)
 
66,134

 
110,798

 
(57,192
)
 
53,606

Total finite-lived intangible assets
$
162,047

 
$
(67,190
)
 
$
94,857

 
$
162,047

 
$
(86,949
)
 
$
75,098


Amortization expense of intangible assets in 2012, 2013 and 2014 was $22.3 million, $20.5 million and $19.0 million, respectively. Additionally, approximately $0.8 million of intangibles were written off in the second quarter of 2014 in connection with the Engineered Solutions rationalization program. Estimated annual amortization expense for the next five years will approximate $17.1 million in 2015, $13.1 million in 2016, $11.8 million in 2017, $10.7 million in 2018 and $9.2 million in 2019.