Business Combination

12 Months Ended

Dec. 31, 2016

Business Combination [Abstract]

Business Combination

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 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 May 9, 2015, the Company has completed its assessment of property, certain reserves (including environmental, legal, and tax matters), obligations and deferred taxes, as well as our review of AMCOL’s existing accounting policies.  The purchase price allocation has been finalized.

The following table summarizes the final amounts recognized for assets acquired and liabilities assumed as of the acquisition date, as well as adjustments made in 2015 to the amounts initially recorded in 2014 (measurement period adjustments).  The measurement period adjustments did not have a significant impact on our consolidated statements of income, balance sheets or cash flows in any period and therefore, we have not retrospectively adjusted our financial statements.

	Preliminary Allocation Previously Reported on Form 10-K as of December 2014		Increase		Final Allocation
	(millions of dollars)		(millions of dollars)		(millions of dollars)
Accounts receivable	$	235.7	$	-	$	235.7
Inventories		157.3		-		157.3
Other current assets		65.0		-		65.0
Mineral rights		535.5		-		535.5
Plant, property and equipment		371.2		-		371.2
Goodwill		708.1		12.8		720.9
Intangible assets		214.3		8.8		223.1
Other non-current assets		51.4		9.2		60.6
Total assets acquired	$	2,338.5	$	30.8	$	2,369.3
Accounts payable		66.4		-		66.4
Accrued expenses		61.6		-		61.6
Non-current deferred tax liability		322.3		1.5		323.8
Other non-current liabilities		85.9		29.3		115.2
Total liabilities assumed	$	536.2	$	30.8	$	567.0
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 allocated to the Performance Materials and Construction Technologies segments. Goodwill recognized as a result of this acquisition is not deductible for tax purposes.

In connection with the acquisition, the Company recorded an additional deferred tax liability of $323.8 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 $8.0, $11.8 million and $19.1 million of acquisition and integration related cost during the years ended December 31, 2016, 2015 2014, respectively, which is reflected within the acquisition related transaction and integration costs line of the Consolidated Statements of Income.