Note 2. Business Combination

On May 9, 2014, pursuant to the Merger Agreement dated March 10, 2014, the Company acquired AMCOL, based in Hoffman Estates, Illinois, a leading international producer of specialty materials and related products and services for industrial and consumer markets. The Company and AMCOL are both world-renowned innovators in mineralogy, fine particle technology and polymer chemistry. This transaction brings together the global leaders in precipitated calcium carbonate and bentonite, creating an even more robust US-based international minerals supplier. The Company’s management believes that the acquisition of AMCOL will provide substantial synergies through enhanced operational cost efficiencies.

The Company acquired AMCOL by completing a tender offer to purchase AMCOL’s outstanding shares of common stock and the subsequent merger of AMCOL with and into a wholly-owned subsidiary of MTI. At the expiration of the Company’s tender offer, each tendered share of AMCOL common stock was purchased for consideration equal to $45.75 in cash, and at the effective time of the back-end merger, each share of AMCOL common stock not tendered (other than shares owned by the Company or held by AMCOL in treasury) was converted into the right to receive consideration equal to $45.75 in cash. Upon completion of the merger, AMCOL became a wholly owned direct subsidiary of MTI. Through the tender offer and the merger, the Company paid $1,519.4 million in cash to acquire all of the outstanding shares of AMCOL.

In connection with the acquisition of AMCOL, the Company entered into a $1,560.0 million senior secured term loan facility (the “Term Facility”), the net proceeds of which, together with the Company’s cash on hand, were used as cash consideration for the acquisition of AMCOL and to refinance certain existing indebtedness of the Company and AMCOL and to pay fees and expenses in connection with the foregoing. See Note 14.

The fair value of the total consideration transferred, net of cash acquired, was $1,802.3 million and comprised of the following:

	(millions of dollars)
Cash consideration transferred to AMCOL shareholders	$	1,519.4
AMCOL notes repaid at close		325.6
Total consideration transferred to debt and equity holders		1,845.0
Cash acquired		42.7
Total consideration transferred to debt and equity holders, net of cash acquired	$	1,802.3

The acquisition of AMCOL has been accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. As of December 31, 2014, the purchase price allocation remains preliminary as the Company completes its assessment of property, certain reserves including, environmental, legal, and tax matters, obligations and deferred taxes, as well as complete our review of AMCOL’s existing accounting policies.

The following table summarizes Company’s updated preliminary purchase price allocation for the AMCOL acquisition as of December 31, 2014, and the adjustments made to it since the Company previously reported on Form 10-Q as of September 28, 2014:

	Preliminary Allocation Previously Reported		Increase/ (Decrease)			Preliminary Allocation As Updated
	(millions of dollars)
Accounts receivable	$	235.7	$	-		$	235.7
Inventories		156.6		0.7			157.3
Other current assets		63.7		1.3			65.0
Mineral rights		528.8		6.7			535.5
Plant, property and equipment		378.8		(7.6	)		371.2
Goodwill		704.7		3.4			708.1
Intangible assets		217.9		(3.6	)		214.3
Other non-current assets		48.4		3.0			51.4
Total assets acquired	$	2,334.6	$	3.9		$	2,338.5
Accounts payable		66.4		-			66.4
Accrued expenses		60.9		0.7			61.6
Non-current deferred tax liability		319.1		3.2			322.3
Other non-current liabilities		85.9		-			85.9
Total liabilities assumed	$	532.3	$	3.9		$	536.2
Net assets acquired	$	1,802.3	$	-		$	1,802.3

The Company used the income, market, or cost approach (or a combination thereof) for the preliminary valuation, and used valuation inputs and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. For certain items, the carrying value was determined to be a reasonable approximation of fair value based on the information available. The Company’s estimates related to this valuation are considered to be critical accounting estimates because they are susceptible to change from period to period based on our judgments about a variety of factors and due to the uncontrollable variability of market factors underlying them. For example, in performing assessments of the fair value of these assets, the Company makes judgments about the future performance business of the acquired business, economic, regulatory, and political conditions affecting the net assets acquired, appropriate risk-related rates for discounting estimated future cash flows, reasonable estimates of disposal values, and market royalty rate.

Goodwill was calculated as the excess of the consideration transferred over the assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is primarily attributable to fair value of expected synergies from combining the MTI and AMCOL businesses and will be mainly assigned to Performance Materials and Construction Technologies segments. The allocation is expected to be completed during the second quarter of 2015. Goodwill recognized as a result of this acquisition is not deductible for tax purpose.

In connection with the acquisition, the Company recorded an additional deferred tax liability of $322.3 million with a corresponding increase to goodwill. The increase in deferred tax liability represents the tax effect of the difference between the estimated assigned fair value of the tangible and intangible assets and the tax basis of such assets.

Mineral rights were valued using discounted cash flow method, a Level 3 fair value input. Plant, property and equipment were valued using the replacement cost method adjusted for age and deterioration, also a Level 3 fair value input.

Intangible assets acquired mainly included technology and tradenames. Technology was valued using relief-from royalty method, a Level 3 fair value input, with a weighted average amortization period of 12 years. Tradenames were valued using multi-period excess earnings, also a Level 3 fair value input, with a weighted average amortization period of 34 years.

The Company incurred $19.1 million of acquisition-related cost during the year ended December 31, 2014, which is reflected within the Acquisition related transaction and integration costs line of the Consolidated Statements of Income.

The accompanying Consolidated Statements of Income include the results of operations of the acquired AMCOL businesses from May 9, 2014, through December 31, 2014. The year ended December 31, 2014 includes net sales of $715.2 million and operating income of $56.4 million generated by the acquired AMCOL businesses during the 237 days of post-acquisition period.

The following table presents the unaudited pro forma summary of the Company’s Consolidated Statements of Income, which includes AMCOL’s Statement of Operations, as if the acquisition and related financing occurred on January 1, 2013. The following unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction occurred on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma information, potential synergies, and cost savings from operating efficiencies.

	Year Ended December 31,
Pro Forma Results	2014			2013
	(millions of dollars)
Net sales		$	2,098.6	$	2,045.1

Income (loss) from continuing operations before provision for taxes and equity in earnings		$	180.1	$	93.7

Income (loss) from continuing operations, net of tax		$	124.7	$	74.1

The income from continuing operations before provision for taxes and equity earnings for the year ended December 31, 2013, in the table above includes a $52.3 million impairment charge related to AMCOL’s South African chromite operations, a $6.6 million impairment charge related to AMCOL’s Health and Beauty operations, and a $12.6 million gain related to sale of investment in Ashapura Minechem Limited. The after-tax impact of these items was a $42.0 million charge related to the South African chromite operations impairment, a $4.2 million charge related to the Health and Beauty operations, and $11.6 million benefit related to sale of investment during the year ended December 31, 2013.

The unaudited pro forma financial information presented in the table includes certain adjustments that are factually supportable, directly related to business combination, and expected to have a continuing impact. These adjustments include, but are not limited to, depreciation, depletion, and amortization expense based upon the preliminary fair value step-up of depreciable fixed assets and amortizable intangibles assets, interest expense on acquisition related debt, acquisition related transaction and integration costs, and restructuring charges.