Goodwill And Other Intangible Assets

12 Months Ended

Dec. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Goodwill

Goodwill arises from the purchase price for acquired businesses exceeding the fair value of tangible and intangible assets acquired less assumed liabilities. The Company has two reporting units, Graphite Electrodes and Needle Coke. The acquisition of the Company by Brookfield in 2015 generated a goodwill amount of $171.1 million, which was allocated entirely to the Graphite Electrode reporting unit.

Goodwill is tested for impairment annually as of December 31 and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit may exceed its fair value.

For the 2023 annual impairment testing, the Company performed a quantitative assessment of the fair value of the reporting unit, using a combination of the income approach and the market approach (Level 3 in the fair value hierarchy) from a market participant’s perspective. The valuation of the Graphite Electrode reporting unit is performed with cash flows that are adjusted to present this reporting unit as purchasing petroleum needle coke entirely from third parties at anticipated market prices.

The income approach was based on discounted projected debt-free cash flows for the graphite electrode reporting unit. The forecast of cash flows included several assumptions regarding future sales growth, revenues, earnings before interest, taxes, depreciation and amortization (“EBITDA”), capital expenditures and working capital changes. In addition to the estimates of future cash flows, the income approach involves the determination of the discount rate based upon market participant’s assumptions.

The market approach fair value was based on valuation multiples that were applied to the graphite electrode reporting unit’s actual and projected EBITDA. The multiples were derived under the guideline public company method from analyzing market multiples of EBITDA for a group of comparable public companies. The techniques used in the Company’s assessment incorporate a number of assumptions that the Company believes to be reasonable and to reflect known market conditions at the measurement date.

Key assumptions relate to customer demand and sales growth, graphite electrode and needle coke pricing trends, operating costs and capital expenditures. Assumptions in estimating future cash flows are subject to a degree of judgment.

The testing determined that the fair value of the Graphite Electrode reporting unit was less than its carrying amount by more than the amount of goodwill. As a result, we recorded a full impairment charge of $171.1 million, which was recorded in Goodwill impairment charges in the Consolidated Statements of Income. The goodwill impairment was caused primarily by reduced sales of graphite electrodes due to softening demand and the deterioration of the electrode spot pricing.

For the 2022 and 2021 annual goodwill impairment testing, the Company performed a qualitative assessment first to determine whether it was more likely than not that the fair value of the Graphite Electrode reporting unit was less than its carrying amount. We assessed relevant events and circumstances, including industry, market and macroeconomic conditions, as well as Company and reporting unit-specific factors. Based on this review, we determined that it was not more likely than not that the fair value of the Graphite Electrode reporting unit was less than its carrying amount and concluded that the quantitative goodwill impairment test was not required. No impairment of goodwill resulted from our annual impairment tests in 2022 and 2021.

Intangible Assets

The following table summarizes acquired intangible assets with determinable useful lives by major category which are included in "Other assets" on our Consolidated Balance Sheets:


	December 31, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(Dollars in thousands)
Trade names	$	22,500	$	(17,379)	$	5,121	$	22,500	$	(15,869)	$	6,631
Technology and know-how	55,300		(45,746)		9,554		55,300		(42,371)		12,929
Customer-related intangibles	64,500		(36,802)		27,698		64,500		(32,513)		31,987
Total finite-lived intangible assets	$	142,300	$	(99,927)	$	42,373	$	142,300	$	(90,753)	$	51,547

Amortization expense of intangible assets was $9.2 million, $10.1 million and $10.7 million in 2023, 2022 and 2021, respectively. Estimated annual amortization expense for the next five years will approximate $8.0 million in 2024, $7.3 million in 2025, $6.7 million in 2026, $6.1 million in 2027 and $5.5 million in 2028.