Business Combination, Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2019

Business Combination, Goodwill and Intangible Assets

Business Combination

On October 31, 2018, the acquisition for 100% of shares of the acetylene carbon black manufacturer Société du Noir d'Acétylène de l'Aubette, SAS (“SN2A”) from LyondellBasell Industries Holdings B.V. was completed. The acquisition was accounted for as a business combination. The acquisition had an aggregate purchase price of $36.8 million.

This acquisition is expected to strengthen the Company's position in the specialty carbon black market by adding acetylene carbon black to its product portfolio. In finalizing the purchase price accounting during the third quarter of 2019, the previously disclosed purchase price allocation as of the closing date was updated to reflect adjustments existing at the acquisition date and identified during the measurement period under ASC 805 - Business Combinations.

The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of acquisition:


	(in thousands)
Assets
Cash	$	213
Other current assets	176
Accounts receivables	1,578
Inventories	924
Property, plant and equipment	5,317
Intangible assets	12,766
Total assets acquired	$	20,974

Liabilities
Current liabilities	$	2,488
Deferred tax liabilities	4,716
Total liabilities assumed	$	7,204
Net assets acquired	$	13,770

Consideration:
Cash consideration paid	$	36,784
Goodwill	$	23,014

The acquisition was accounted for using the acquisition method. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date.

During the quarter ended September 30, 2019, we completed the purchase accounting for the acquisition of SN2A and we reduced the total fair value of intangible assets acquired from $44.3 million to $12.8 million based on an improved understanding of the allocation of future expected cash flows since the date of acquisition including an adjustment to the applied discount rate aligned to target specific considerations. In addition, we reduced the fair value of acquired property, plant and equipment from $5.8 million to $5.3 million due to third party appraisals and we reduced the related deferred tax liabilities from $13.7 million by $9.0 million to $4.7 million accordingly to reflect the impact of changes in fair values of the tangible and intangible assets. These changes resulted in $23.0 million of goodwill being recorded and allocated to our Specialty Carbon Black Segment. We also recorded a reduction in depreciation and amortization expense of $1.0 million and an increase in net income of $0.7 million respectively, in the third quarter of fiscal 2019 related to prior periods as a result of the changes in fair values of tangible and intangible assets and the associated deferred tax liabilities.

The fair values of identifiable assets and liabilities acquired were developed with the assistance of a third-party valuation firm. The fair value of acquired property, plant and equipment is valued at its "value-in-use" as there are no known plans to dispose of any assets. The fair value of acquired identifiable intangible assets was determined using the "income approach" on an individual asset basis. The key assumptions used in the calculation of the discounted cash flows include projected revenues, gross margin, operating expenses, and discount rate. The valuations and the underlying assumptions have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations.

Goodwill

Orion had goodwill balances of $77.3 million and $55.5 million at December 31, 2019 and December 31, 2018, respectively. The carrying amount of goodwill attributable to each reportable segment for period ended December 31, 2019 is as follows:


Goodwill	Rubber		Specialty		Total
	(In thousands)
Balance at January 1, 2018	$	33,037	$	25,143	$	58,180
Foreign currency impact	(1,487)		(1,147)		(2,634)
Balance at December 31, 2018	$	31,550	$	23,996	$	55,546
Addition Goodwill recorded in SN2A acquisition	—		23,014		23,014
Foreign currency impact	(595)		(624)		(1,220)
Balance at December 31, 2019	$	30,955	$	46,385	$	77,341

Qualitative impairment testing performed during the fiscal year for the Rubber and Specialty reporting units did not indicate a goodwill impairment.

Intangible Assets

The following table provides information regarding Orion's intangible assets:


	December 31,
			2019															2018
			Gross Carrying Value			Accumulated Amortization			Net Intangible Assets			Gross Carrying Value			Accumulated Amortization			Net Intangible Assets
	(In thousands)
Developed technology and patents	$	62,870		$	37,402		$	25,468		$	82,007		$	34,348		$	47,660
Customer relationships	76,531			69,514			7,017			78,263			66,262			12,001
Trademarks	19,322			10,764			8,558			19,694			9,782			9,912
Long-term contracts	7,430			630			6,800			22,396			113			22,283
Other intangible assets	52,708			49,955			2,753			50,621			47,232			3,389
Total intangible assets	$	218,862		$	168,266		$	50,596		$	252,982		$	157,737		$	95,245

Intangible assets are amortized over their estimated useful lives, which range from 3 to 15 years. The weighted average amortization period for all intangible assets at December 31, 2019 and 2018 was 8.4 years and 10.8 years, respectively. Amortization expense for the years ended December 31, 2019, 2018 and 2017 was $12.9 million, $20.0 million and $21.4 million, respectively, and is included in Cost of sales and Selling, general and administrative expenses in the Consolidated Statements of Operations.

Intangible assets include remeasurements due to the purchase price adjustment in the third quarter of 2019 of SN2A acquisition (see Note H. Business Combination, Goodwill and Intangible Assets).

The estimated aggregate amortization expense for intangible assets for the fiscal years ending December 31, 2020 to 2024 and thereafter are as follows:


Year	(In thousands)
2020	$	8,161
2021	7,041
2022	6,588
2023	6,252
2024	6,204
Thereafter	16,351
Total aggregated amortization	$	50,596