Note 4 - Purchased Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

4. Purchased Intangible Assets and Goodwill

Purchased Intangibles

Changes in purchased intangibles balances are as follows:

(dollars in thousands)	2019			2018
Beginning balance	$	13,385		$	14,565
Amortization		(560	)		(1,049	)
Impairment (see below)		(900	)		—
Foreign currency impact		(50	)		(131	)
Ending balance	$	11,875		$	13,385

Purchased intangible assets are composed of the following:

December 31,
(dollars in thousands)	2019		2018
Indefinite life intangible assets	$	11,104	$	12,035
Definite life intangible assets, net of accumulated amortization of $20,507 and $20,006		771		1,350
Total	$	11,875	$	13,385

Indefinite life intangible assets are composed of trade names and trademarks that have an indefinite life and are therefore individually tested for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise, in accordance with FASB ASC

350.

Our on-going assessment of goodwill as of

June 30, 2019

resulted in the need to test Libbey Holland’s indefinite life intangible asset (Royal Leerdam

® 

trade name) for impairment. We used a relief from royalty method to determine the fair market value that was compared to the carrying value of the indefinite life intangible asset. The sales forecast for Royal Leerdam

® 

branded product was lowered due to declining performance of mid-tier retailers as consumers in EMEA move to discount and on-line retailers. As a result, the estimated fair value was determined to be lower than the carrying value, and we recorded a non-cash impairment charge of

$0.9

million during the

second

quarter of

2019

in our EMEA reporting segment. The inputs used for this analysis are considered Level

3

inputs in the fair value hierarchy. See note 14 for further discussion of the fair value hierarchy. Our annual impairment testing on

October 1, 2019 

and

2018

 did

not

indicate impairment of our indefinite life intangible assets.

The remaining definite life intangible asset at

December 

31,

2019

 consists of customer relationships that is amortized over

20

years with a remaining life of

5.0

 years. Amortization expense for definite life intangible assets was

$0.6

million and

$1.0

million for years

2019

and

2018,

respectively.

Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):

2020	2021	2022	2023	2024
$154	$154	$154	$154	$154

Goodwill

Changes in goodwill balances are as follows:

	2019									2018
(dollars in thousands)	U.S. & Canada			Latin America			Total			U.S. & Canada			Latin America			Total
Beginning balance:
Goodwill	$	43,872		$	125,681		$	169,553		$	43,872		$	125,681		$	169,553
Accumulated impairment losses		(5,441	)		(79,700	)		(85,141	)		(5,441	)		(79,700	)		(85,141	)
Net beginning balance		38,431			45,981			84,412			38,431			45,981			84,412
Impairment		—			(45,981	)		(45,981	)		—			—			—
Ending balance:
Goodwill		43,872			125,681			169,553			43,872			125,681			169,553
Accumulated impairment losses		(5,441	)		(125,681	)		(131,122	)		(5,441	)		(79,700	)		(85,141	)
Net ending balance	$	38,431		$	—		$	38,431		$	38,431		$	45,981		$	84,412

Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. The inputs used for this analysis are considered Level

2

and Level

3

inputs in the fair value hierarchy. See note 14 for further discussion of the fair value hierarchy.

As part of our on-going assessment of goodwill at

June 30, 2019,

we determined that a triggering event occurred due to the Company’s market capitalization being less than the carrying value, resulting from the significant decline in the Company’s share price during the quarter. Thus, an interim impairment test was performed as of

June 30, 2019.

Additionally, during the

second

quarter, management updated its long-range plan; the updated plan contemplated lower sales and profitability within the Mexico reporting unit (within the Latin America reporting segment) as compared to the projections used in the goodwill impairment testing performed as of

October 1, 2018.

As the impairment testing indicated that the carrying value of the Mexico reporting unit exceeded its fair value, we recorded a non-cash impairment charge of

$46.0

million during the

second

quarter of

2019.

After recording the impairment charge, there is

no

longer any goodwill on the balance sheet related to the Mexico acquisition.

When performing our test for impairment, we measure each reporting unit’s fair value using a combination of “ income” and “market” approaches on a shipping point basis. The income approach calculates the fair value of the reporting unit based on a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical

third

-party buyer. Significant estimates in the income approach include the following: discount rate; expected financial outlook and profitability of the reporting unit’s business; and foreign currency impacts (Level

3

inputs). Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors. The market approach uses the “Guideline Company” method, which calculates the fair value of the reporting unit based on a comparison of the reporting unit to comparable publicly traded companies. Significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, assessing comparable multiples, as well as consideration of control premiums (Level

2

inputs). The blended approach assigns a

70

percent weighting to the income approach and

30

percent to the market approach (Level

3

input). The higher weighting is given to the income approach due to some limitations of publicly available peer information used in the market approach. The blended fair value of both approaches is then compared to the carrying value, and to the extent that fair value exceeds the carrying value,

no

impairment exists. However, to the extent the carrying value exceeds the fair value, an impairment is recorded.

The results of our

October 1, 2019

and

2018

annual impairment reviews did

not

indicate an impairment of goodwill. There were

no

indicators of impairment in our remaining reporting unit with goodwill at

December 31, 2019.

For the year ended

December 31, 2019,

asset impairments on the Consolidated Statement of Operations includes the following (dollars in thousands):

Balance sheet location	Notes	Segment	Impairment
Goodwill	Note 4	Latin America	$	45,981
Purchased intangible assets - net	Note 4	EMEA		900
Property, plant and equipment - net	Note 5	EMEA		12,956
Operating lease right-of-use assets	Notes 5 & 15	EMEA		5,315
Total asset impairments			$	65,152