Impairments of Goodwill and Other Long-Lived Assets

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Impairments of Goodwill and Other Long-Lived Assets

During the fourth quarter of 2019, in accordance with ASC 350 Intangibles - Goodwill and Other, the Company performed its annual impairment test of its goodwill held by the Performance Materials and Technical Nonwovens reporting units. In addition, in accordance with ASC 360 Property, Plant & Equipment, the Company performed an impairment test on certain of its long-lived assets (principally machinery and equipment, and buildings and improvements) due to events and changes in circumstances during the fourth quarter of 2019 that indicated an impairment might have occurred. As a result of these impairment tests, the Company recorded the following impairment charges during the fourth quarter of 2019:



In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Totals
Impairment of goodwill	$	63,000	$	—	$	—	$	63,000
Impairment of other long-lived assets	1,206		—		—		1,206
Total impairments	64,206		—		—		64,206

Goodwill

As a result of the Interface acquisition in August 2018 and recording the acquired assets and liabilities at fair value, there was a significant increase to the Performance Materials segment goodwill and intangible assets. Any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the segment, and therefore could result in an impairment.

During the fourth quarter of 2019 the Company recorded a goodwill impairment charge of $63.0 million in the Performance Materials segment. Lower than expected 2019 financial results from slowed demand in the sealing products' markets, combined with revised future financial projections, resulted in a reduction in the long-term forecasts of sales and cash generation as compared to prior projections for the Performance Materials reporting unit. As a result, the carrying value of the Performance Materials reporting unit exceeded its fair value by $63.0 million, resulting in the impairment charge.

Those factors, along with other factors, caused the Company to perform a quantitative goodwill impairment assessment. The Company weighted equally both an income approach (discounted cash flow model) and a market approach, both level 3 unobservable inputs, to determine the Performance Materials reporting unit's fair value. The Company’s significant assumptions in the discounted cash flow model included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. Calculation of future cash flows includes management estimates and assumptions that are based on the best available information as of the date of the assessment. Future cash flows can be affected by numerous factors including changes in economic, industry or market conditions, changes in the underlying business or products of the reporting unit, changes in competition and changes in technology. There are inherent uncertainties and management judgment required in an analysis of goodwill impairment. The Company believes the income approach was appropriate because it provided a fair value estimate based upon the reporting unit's expected long-term operations and cash flow performance.

The Company also used a form of the market approach, which was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration to risk profiles, size, geography, and diversity of products and services. Other assumptions included adding an implied control premium to the valuation based on estimating the fair value on a controlling basis, which was derived from research on control premiums observed in recent mergers and acquisitions in the industries in which Lydall operates. The Company believes the market approach was appropriate because it provided a fair value using multiples from companies with operations and economic characteristics similar to the Performance Materials reporting unit.

The Company also performed an overall reconciliation to corroborate the fair value derived from the income and market approaches to Lydall's overall market capitalization.

Other Long-Lived Assets

The Company performed an impairment assessment on the long-lived assets for its two Thermal Acoustical Solutions European plants during the fourth quarter of 2019 due to negative 2019 financial performance compared to budget, changes in financial projections and general weakening in the European automotive sector. The Company considered each operating plant's asset group, primarily consisting of machinery and equipment, and buildings and improvements. Step one of the impairment tests required by ASC 350 failed as the undiscounted cash flows over the useful life of each operating plant's primary assets did not exceed the separate plant's asset groups carrying values of $28.5 million and $12.5 million. As part of step two of the impairment assessment, the Company used the market approach to determine fair value based on independent appraisals of the long-lived assets. The Company determined that impairment did not exist as the fair value of the long-lived asset groups for each operating plant exceeded their carrying amounts. Small changes in future operating results could result in a future non-cash impairment charge.

During the fourth quarter of 2019, as a result of negative cash flows in 2019 and an expected reduction in demand from certain customers further impacting net sales and cash flows in 2020, the Company tested for impairment a discrete long-lived asset group (primarily consisting of machinery and equipment and patents) in the Performance Materials segment with a carrying value of approximately $3.0 million. To determine the recoverability of this asset group, the Company completed an undiscounted cash flow analysis (income approach) and compared it to the asset group carrying value in accordance with ASC 350. This analysis was primarily dependent on the expectations for net sales over the estimated remaining useful life of the underlying asset group. The impairment test concluded that the asset group was not recoverable as the resulting undiscounted cash flows were less than their carrying amount. The Company then determined that fair value of the asset group exceeded its carrying value and recorded a long-lived asset impairment charge of $1.2 million.