Acquisition

On April 4, 2016, the Company acquired all the outstanding shares of RT Holding GmbH, the parent corporation of a group of companies known as the PAALGROUP (PAAL) for approximately 49,713,000 euros, net of cash acquired, or approximately $56,617,000. The Company entered into a $29,866,000 euro-denominated borrowing under its unsecured revolving credit facility in the first quarter of 2016 to partially fund the acquisition. The remainder of the purchase price was funded from the Company's internal overseas cash. The Company incurred acquisition transaction costs of approximately $1,832,000 in the first nine months of 2016, which were recorded in selling, general, and administrative expenses (SG&A) in the accompanying condensed consolidated statement of income.

PAAL, which is part of the Company's Papermaking Systems segment's Stock-Preparation product line, manufactures balers and related equipment used in the processing of recyclable and waste materials. This acquisition broadened the Company's product portfolio and extended its presence deeper into recycling and waste management. PAAL, headquartered in Germany, also has operations in the United Kingdom, France, and Spain. The Company anticipates several synergies in connection with this acquisition, including expanding sales of the products of the acquired business by leveraging Kadant's geographic presence to enter or further penetrate existing markets, as well as sourcing and manufacturing efficiencies.

This acquisition has been accounted for by using the purchase method of accounting and PAAL’s results have been included in the accompanying condensed consolidated financial statements from its date of acquisition. PAAL had revenue of $13,607,000 and earnings of $0.10 per diluted share, including acquisition costs of $0.01, in the third quarter of 2016.

For the first nine months of 2016, PAAL had revenue of $28,760,000 and a loss of $0.05 per diluted share, which included acquisition costs of $0.15 and one-time charges associated with acquired inventory and backlog of $0.12. The excess of the purchase price for the acquisition of PAAL over the tangible and identifiable intangible assets was recorded as goodwill and amounted to approximately $38,561,000, which is not deductible for tax purposes. The fair values are subject to adjustment upon finalization of the valuation, and therefore the current measurements of intangible assets, acquired goodwill, and assumed assets and liabilities are subject to change.

The following table summarizes the purchase method of accounting for the acquisition of PAAL and the estimated fair values of assets acquired and liabilities assumed:



2016 Acquisition (In thousands)	Total

Net Assets Acquired:
Cash and Cash Equivalents	$	2,277
Accounts Receivable	5,441
Inventories	3,947
Property, Plant, and Equipment	7,179
Other Assets	4,964
Intangible Assets	24,691
Goodwill	38,561
Total assets acquired	87,060

Accounts Payable	5,536
Customer Deposits	2,471
Capital Lease Obligations	4,360
Long-Term Deferred Tax Liability	8,485
Other Liabilities	7,314
Total liabilities assumed	28,166
Net assets acquired	$	58,894

Purchase Price:
Cash	$	29,028
Cash Paid to Seller Borrowed Under the Revolving Credit Facility	29,866
Total purchase price	$	58,894

Definite-lived intangible assets acquired related to the PAAL acquisition included $15,831,000 for customer relationships, $4,203,000 for product technology, $2,278,000 for tradenames, and $2,379,000 for other intangibles. The weighted-average amortization period for definite-lived intangible assets acquired is 12 years, which includes weighted-average amortization periods of 13 years for customer relationships, 9 years for product technology, and 14 years for tradenames.