Acquisitions

The Company’s acquisitions have been accounted for using the purchase method of accounting and the acquired companies’ results have been included in the accompanying consolidated financial statements from the dates of the acquisitions. The Company incurred acquisition transaction costs of approximately $1,832,000 and $326,000 in 2016 and 2014, respectively, which are included in selling, general, and administrative (SG&A) expenses in the accompanying consolidated statement of income. The Company's acquisitions have historically been made at prices above the fair value of the acquired net assets, resulting in goodwill, due to expectations of synergies from combining the businesses. The Company realizes synergies in connection with these acquisitions, including the use of the Company's existing distribution channels to expand sales of the products of the acquired businesses.

2016

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. Additional post-closing consideration of $165,000 was paid to the sellers in the first quarter of 2017. 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.

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 consolidated financial statements from its date of acquisition. For 2016, PAAL had revenue of $40,783,000 and a loss of $0.01 per diluted share, which included acquisition costs of $0.15 and fair value step-up 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 $38,552,000, which is not deductible for tax purposes.

The following table summarizes the purchase method of accounting for the acquisition made in 2016 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	2,882
Intangible Assets	24,691
Goodwill	38,552
Total assets acquired	84,969

Accounts Payable	5,536
Customer Deposits	2,471
Obligations Under Capital Lease	4,842
Long-Term Deferred Income Taxes	6,148
Other Liabilities	6,913
Total liabilities assumed	25,910
Net assets acquired	$	59,059

Purchase Price:
Cash	$	29,028
Cash Paid to Seller Borrowed Under the Revolving Credit Facility	29,866
Cash Due to Seller	165
Total purchase price	$	59,059

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.

Unaudited Supplemental Pro Forma Information

Had the acquisition of PAAL been completed as of the beginning of 2015, the Company’s pro forma results of operations for 2016 and 2015 would have been as follows:



(In thousands, except per share amounts)	2016		2015
Revenues	$	427,273	$	444,350

Net Income Attributable to Kadant	$	35,321	$	33,881

Earnings per Share Attributable to Kadant:
Basic	$	3.25	$	3.12
Diluted	$	3.17	$	3.05

Pro forma results include non-recurring pro forma adjustments that were directly attributable to the business combination to reflect amounts as if the acquisition of PAAL had been completed as of the beginning of 2015, as follows:


•	Pre-tax charge to SG&A expenses of $1,832,000 in 2015 and reversal in 2016, for acquisition-related transaction costs.


•	Pre-tax charge to cost of revenues of $458,000 in 2015 and reversal in 2016, for the sale of PAAL inventory revalued at the date of acquisition.


•	Pre-tax charge to SG&A expenses of $1,468,000 in 2015 and reversal in 2016, for intangible amortization related to acquired backlog.


•	Reversal of $1,636,000 of interest expense in 2015 and $454,000 in 2016 related to pre-acquisition debt, which was settled in the business combination.

These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition of PAAL occurred as of the beginning of 2015, or that may result in the future.

2014

On October 31, 2014, the Company acquired certain assets of the screen cylinder business of a U.S.-based company for approximately $9,174,000 in cash. This technology-based acquisition enhanced the Company’s stock-preparation equipment product offerings to pulp and paper mills worldwide.

On December 30, 2013, the Company acquired all the outstanding shares of a European producer of creping and coating blades for approximately $2,666,000 in cash, including $674,000 of cash acquired. An additional 1,000,000 euros, or approximately $1,091,000 of contingent consideration was paid to the sellers on January 4, 2016.

The following table summarizes the purchase method of accounting for the acquisitions made in 2014 and the estimated fair values of assets acquired and liabilities assumed:



2014 Acquisitions (In thousands)	Total

Net Assets Acquired:
Cash and Cash Equivalents	$	674
Inventories	1,064
Other Current Assets	324
Property, Plant, and Equipment	847
Intangibles
Customer relationships	4,700
Intellectual property	2,600
Other	360
Goodwill	3,463
Total assets acquired	14,032

Total Liabilities Assumed	1,001
Net assets acquired	$	13,031

Purchase Price:
Cash	$	11,840
Contingent Consideration	1,191
Total purchase price	$	13,031

The excess of the purchase price for the acquisitions made in 2014 over the tangible and identifiable intangible assets was recorded as goodwill and amounted to approximately $3,463,000, of which $2,004,000 is deductible for tax purposes. The weighted-average amortization period for intangibles acquired in 2014 is 9 years, which includes weighted-average amortization periods of 8 years for customer relationships and 11 years for intellectual property.

During 2014, the Company made post-closing adjustment payments of $818,000 related to acquisitions completed prior to 2014.

Pro forma disclosures of the results of operations are not required, as the acquisitions are not considered material business combinations.