Acquisitions and Divestitures

Acquisitions

On December 31, 2016, the Company completed an acquisition of the nonwoven needle punch materials businesses, which include MGF Gutsche & Co GmbH KG, FRG and Gutsche Environmental Technology (Yixing) Co. Ltd., China, operating under Gutsche (“Gutsche”), a German based corporation. The Gutsche operations manufacture nonwoven needle punch materials and predominantly serve the industrial filtration and high performance nonwoven markets. The Company acquired one hundred percent of Gutsche for $57.6 million, net of a receivable of $3.0 million related to an estimated post-closing purchase price adjustment. The purchase price was financed with a combination of cash on hand and $31.6 million of borrowings through the Company's amended $175 million credit facility. The assets and liabilities of Gutsche have been included in the Consolidated Balance Sheet at December 31, 2016. The acquired businesses are included in the Company's Technical Nonwovens reporting segment.

On July 7, 2016, the Company completed an acquisition of the nonwoven and coating materials businesses primarily operating under Texel from ADS, a Canadian based corporation. The Texel operations manufacture nonwoven needle punch materials and predominantly serve the geosynthetic, liquid filtration, and other industrial markets. The Company acquired one hundred percent of Texel for $102.7 million in cash, including a post-closing working capital adjustment. The purchase price was financed with a combination of cash on hand and $85.0 million of borrowings through the Company’s amended $175 million credit facility. As part of the acquisition, the Company acquired a fifty percent interest in a joint venture, Afitex Texel Geosynthetiques, Inc., with a fair value of $0.6 million. The joint venture is accounted for under the equity method of accounting. The operating results of the Texel business have been included in the Consolidated Statements of Operations since July 7, 2016, the date of the acquisition and are reported within the Technical Nonwovens segment.

During the year ended December 31, 2016 the Company incurred $3.7 million of acquisition related costs, related to the acquisitions of Texel and Gutsche. These transaction costs include legal fees and other professional services fees to complete the transaction. These corporate office expenses have been recognized in the Company’s Condensed Consolidated Statements of Operations as selling, product development and administrative expenses.

From the date of the acquisition through December 31, 2016, Texel reported net sales and operating income of $40.9 million and $2.5 million, respectively. Operating income from the date of the acquisition through the year ended December 31, 2016 included $2.0 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory. The total purchase accounting inventory fair value step-up adjustment included in the balance sheet at the acquisition date was $2.4 million. The Company did not report net sales or operating income for Gutsche as the acquisition took place on December 31, 2016.

On February 20, 2014, the Company completed the acquisition of certain industrial filtration businesses of Andrew Industries Limited, an Altham, United Kingdom based corporation. The Industrial Filtration business serves a global customer base in the manufacture of non-woven felt filtration media and filter bags used primarily in industrial air filtration applications including power, cement, asphalt, incineration, food and pharmaceutical. The Company acquired the Industrial Filtration business for $86.9 million in cash (including cash acquired of $7.5 million and a post-closing adjustment payment of $0.2 million to Andrew Industries Limited) and with no debt being acquired. The purchase price was financed with a combination of cash on hand and $60.0 million of borrowings through the Company’s amended $100 million credit facility.

Divestiture

On January 30, 2015, the Company sold all of the outstanding shares of common stock of its Life Sciences Vital Fluids business, reported as Other Products and Services, for a cash purchase price of $30.1 million. The disposition was completed pursuant to a Stock Purchase and Sale Agreement, dated January 30, 2015, by and among the Company, and the buyer. The Company recognized a pre-tax gain on the sale of $18.6 million, reported as non-operating income in the first quarter of 2015. Net of income taxes, the Company reported a gain on sale of $11.8 million.

In accordance with the revised accounting guidance for reporting discontinued operations, the Company did not report Life Sciences Vital Fluids as a discontinued operation as it would not be considered a strategic shift in Lydall's business. Accordingly, the operating results of Life Sciences Vital Fluids are included in the operating results of the Company through the sale date and in all periods presented in 2014.

The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the date of the 2016 acquisitions:



In thousands	Texel			Gutsche
Cash and cash equivalents	$	1,610		$	9,400
Accounts Receivable	13,355			7,736
Inventories	17,525			6,417
Prepaid expenses and other current assets	2,469			1,125
Non-current environmental indemnification receivable (Note 12)	925			—
Property, plant and equipment, net	31,525			7,969
Investment in joint venture	616			—
Goodwill (Note 5)	28,655			19,331
Other intangible assets, net (Note 5)	22,887			15,622
Other long-term assets	—			1,545
Total assets acquired	119,567			69,145

Current liabilities	(8,520		)	(8,376		)
Long-term environmental remediation liability (Note 12)	(925		)	—
Other long-term liabilities	—			(2,742		)
Deferred tax liabilities	(7,413		)	(470		)
Total liabilities assumed	(16,858		)	(11,588		)
Net assets acquired	$	102,709		$	57,557

The final purchase price allocation related to Texel reflects post-closing adjustments pursuant to the terms of the Stock Purchase Agreement. The final purchase price allocation for Gutsche remains subject to post-closing adjustments pursuant to the terms of the Share Purchase Agreement.

The following table reflects the unaudited pro forma operating results of the Company for years ended December 31, 2016 and December 31, 2015, which give effect to the acquisitions of Texel and Gutsche as if they had occurred on January 1, 2015. The pro forma information includes the historical financial results of the Company and the acquired businesses. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective January 1, 2015, nor are they intended to be indicative of results that may occur in the future. The pro forma information does not include the effects of any synergies related to the acquisitions.



	(Unaudited Pro Forma)
	For The Years Ended December 31,
In thousands	2016		2015
Net Sales	$	654,877	$	651,252
Net Income	$	43,559	$	47,956

Earnings per share:
Basic	$	2.58	$	2.86
Diluted	$	2.53	$	2.81

Pro forma earnings during the year ended December 31, 2016 were adjusted to exclude non-recurring items such as acquisition-related costs of $4.3 million and expense related to the fair value adjustment to inventory of $2.0 million. No amount was included in the pro forma earnings during the year ended December 31, 2016 related to inventory fair value adjustments which would have been recognized in cost of sales as the corresponding inventory would have been completely sold during 2015. Pro forma earnings during the year ended December 31, 2016 were adjusted to include additional expense of $3.9 million related to the amortization of the acquired intangible assets recognized at fair value in purchase accounting, additional depreciation expense of $1.2 million resulting from increased basis of property, plant and equipment, and additional interest expense of $0.8 million associated with borrowings under the Company’s Amended Credit Facility. Customer freight billings of $0.9 million were reclassed from costs of sales to net sales for the year ended December 31, 2016.

Pro forma earnings during the year ended December 31, 2015 were adjusted to include acquisition-related costs of $0.8 million, expense of $3.2 million related to the amortization of the fair value adjustments to inventory, $3.5 million of additional amortization of the acquired intangible assets recognized at fair value in purchase accounting, additional depreciation expense of $2.1 million resulting from increased basis of property, plant and equipment, as well as $1.2 million of interest expense associated with borrowings under the Company’s Amended Credit Facility. Customer freight billings of $1.6 million were reclassed from costs of sales to net sales for the year ended December 31, 2015.