Smurfit Westrock plcSW
Smurfit Westrock plc Goodwill & Intangibles Disclosure
1.12. Goodwill and Non-current Assets
The amount of goodwill acquired in a business combination that is assigned to one or more reporting units as of the acquisition date is
the excess of the purchase price of the acquired businesses (or portion thereof) included in the reporting unit, over the fair value
assigned to the individual assets acquired or liabilities assumed from a market participant perspective. Goodwill is assigned to the
reporting unit(s) expected to benefit from the synergies of the combination even though other assets or liabilities of the acquired entity
may not be assigned to that reporting unit. We determine recoverability by comparing the estimated fair value of the reporting unit to
which the goodwill applies to the carrying value, including goodwill, of that reporting unit.
In accordance with ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”), we review the carrying value of our goodwill
annually in the fourth quarter or more often if events or changes in circumstances indicate that the carrying amount may exceed fair
value. We test goodwill for impairment at the reporting unit level, which is an operating segment or one level below an operating
segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business
for which discrete financial information is available and segment management regularly reviews the operating results of that
component. However, two or more components of an operating segment are aggregated and deemed a single reporting unit if the
components have similar economic characteristics. We determine the fair value of each reporting unit using the discounted cash flow
method or, as appropriate, a combination of the discounted cash flow method and the guideline public company method.
ASC 350 allows an optional qualitative assessment, prior to a quantitative assessment test, to determine whether it is “more likely than
not” that the fair value of a reporting unit exceeds its carrying amount. We evaluate goodwill for impairment by first performing a
qualitative assessment to determine whether a quantitative goodwill test is necessary. If the Company determines, based on qualitative
factors, that the fair value of each reporting unit more likely than not exceeds its carrying value, no further assessment is necessary. If
based on qualitative factors, the fair value of the reporting unit may more likely than not be less than its carrying amount, a
quantitative goodwill impairment test would be required. For reporting units where the Company performs the quantitative goodwill
impairment test, an impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair
value. As part of the quantitative test, we utilize the present value of expected cash flows or, as appropriate, a combination of the
present value of expected cash flows and the guideline public company method to determine the estimated fair value of our reporting
units. This present value model requires management to estimate future cash flows, the timing of these cash flows, and a discount rate
(based on a weighted average cost of capital), which represents the time value of money and the inherent risk and uncertainty of the
future cash flows. Factors that management must estimate when performing this step in the process include, among other items, sales
volume, sales prices, inflation, discount rates, exchange rates, tax rates, anticipated synergies and productivity improvements resulting
from past acquisitions, capital expenditures and continuous improvement projects. The assumptions we use to estimate future cash
flows are consistent with the assumptions that the reporting units use for internal planning purposes, which we believe would be
generally consistent with that of a market participant. If we determine that the estimated fair value of the reporting unit exceeds its
carrying amount, goodwill of the reporting unit is not impaired. If we determine that the carrying amount of the reporting unit exceeds
its estimated fair value, we measure the goodwill impairment charge based on the excess of a reporting unit’s carrying amount over its
fair value, but not in excess of the total amount of goodwill allocated to the respective reporting unit, as required under ASU 2017-04
“Simplifying the Test for Goodwill Impairment.”
1. Description of Business and Summary of Significant Accounting Policies - continued
1.12. Goodwill and Non-current Assets - continued
The Company has capitalized certain contractual or separable intangible assets, primarily customer relationships, trade names and
trademarks, developed technology, software assets and land use rights. These intangible assets are amortized based on the expected
pattern in which the economic benefits are consumed or straight-line if the pattern was not reliably determinable. The useful lives of
intangible assets other than goodwill are finite and range from to twenty-two years. Amortization is recognized as an expense
within “Selling, general and administrative expenses” and “Cost of goods sold” in the Consolidated Statements of Operations.
We follow the provisions included in ASC 360, “Property, Plant, and Equipment” in determining whether the carrying value of any of
our non-current assets, including ROU assets and amortizable intangibles other than goodwill, is impaired. We determine whether
indicators of impairment are present. We review non-current assets for impairment when events or changes in circumstances indicate
that the carrying amount of the non-current asset might not be recoverable. If we determine that indicators of impairment are present,
we determine whether the estimated undiscounted cash flows for the potentially impaired assets are less than the carrying value.
This requires management to estimate future cash flows through operations over the remaining useful life of the asset and its ultimate
disposition. The assumptions we use to estimate future cash flows are consistent with the assumptions we use for internal planning
purposes, updated to reflect current expectations. If our estimated undiscounted cash flows do not exceed the carrying value, we
estimate the fair value of the asset and record an impairment charge if the carrying value is greater than the fair value of the asset. We
estimate fair value using discounted cash flows, observable prices for similar assets, or other valuation techniques.
Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational
performance. Future events could cause us to conclude that impairment indicators exist and that assets associated with a particular
operation are impaired. Evaluating impairment also requires us to estimate future operating results and cash flows, which also require
judgment by management. Any resulting impairment loss could have a material adverse impact on our financial condition and results
of operations.
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.