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. In the second quarter of 2017, the Company finalized the post closing adjustment resulting in an increase in the purchase price of $0.4 million resulting in a final purchase price of $58.0 million. 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.

For the quarter ended June 30, 2017, Gutsche reported net sales and operating income of $12.1 million and $0.6 million, respectively. Operating income for the quarter ended June 30, 2017 included $0.2 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory and $0.2 million of restructuring expenses. There were no sales or operating income for Gutsche during the quarter ended June 30, 2016 as the acquisition occurred on December 31, 2016.

For the six months ended June 30, 2017, Gutsche reported net sales and operating income of $23.3 million and $0.9 million, respectively. Operating income for the six months ended June 30, 2017 included $0.6 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory and $0.2 million of restructuring expenses. There were no sales or operating income for Gutsche during the six months ended June 30, 2016 as the acquisition occurred on December 31, 2016.

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 are reported within the Technical Nonwovens segment.

For the quarter ended June 30, 2017, Texel reported net sales and operating income of $20.8 million and $1.5 million, respectively. Operating income for the quarter ended June 30, 2017 included $0.3 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory. There were no sales or operating income for Texel during the quarter ended June 30, 2016 as the acquisition occurred on July 7, 2016.

For the six months ended June 30, 2017, Texel reported net sales and operating income of $35.9 million and $2.0 million, respectively. Operating income for the six months ended June 30, 2017 included $0.5 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory. There were no sales or operating income for Texel during the six months ended June 30, 2016 as the acquisition occurred on July 7, 2016.

The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the date of the 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 14)	925			—
Property, plant and equipment, net	31,525			7,969
Investment in joint venture	616			—
Goodwill (Note 4)	28,655			19,759
Other intangible assets, net (Note 4)	22,887			15,622
Other long term assets	—			1,545
Total assets acquired	$	119,567		$	69,573

Current liabilities	$	(8,520	)	$	(8,376	)
Long-term environmental remediation liability (Note 14)	(925		)	—
Deferred tax liabilities	(7,413		)	(470		)
Other long-term liabilities	—			(2,742		)
Total liabilities assumed	(16,858		)	(11,588		)
Net assets acquired	$	102,709		$	57,985

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

The following table reflects the actual operating results of the Company for the quarter and six months ended June 30, 2017 and the unaudited pro forma operating results of the Company for the quarter and six months ended June 30, 2016, 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 acquisitions 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.



	Quarter Ended June 30,				Six Months Ended June 30,
	(Actual)		(Unaudited Pro Forma)		(Actual)		(Unaudited Pro Forma)
In thousands	2017		2016		2017		2016
Net sales	$	174,879	$	173,834	$	340,366	$	329,982
Net income	$	13,125	$	13,537	$	24,794	$	23,239

Earnings per share:
Basic	$	0.77	$	0.80	$	1.46	$	1.38
Diluted	$	0.76	$	0.79	$	1.44	$	1.36

Included in earnings during the quarter ended June 30, 2017 was $0.9 million of amortization expense and $0.5 million of fair value step-up adjustments to inventory related to Texel and Gutsche.

Pro forma earnings during the quarter ended June 30, 2016 were adjusted to exclude non-recurring items such as acquisition related expenses of $1.5 million. Pro forma earnings during the quarter ended June 30, 2016 were adjusted to include $1.2 million of additional amortization expense of the acquired intangible assets recognized at fair value in purchase accounting, additional depreciation expense of $0.5 million resulting from increased basis of property, plant and equipment, as well as $0.5 million of interest expense associated with borrowings under the Company's Amended Credit Facility. Customer freight billings of $0.5 million were reclassed from costs of sales to net sales for the quarter ended June 30, 2016.

Included in earnings during the six months ended June 30, 2017 was $2.0 million of amortization expense, $1.0 million of fair value step-up adjustments to inventory and acquisition related expenses of $0.1 million related to Texel and Gutsche.

Pro forma earnings during the six months ended June 30, 2016 were adjusted to exclude non-recurring items such as acquisition related expenses of $2.1 million. Pro forma earnings during the six months ended June 30, 2016 were adjusted to include $2.3 million of additional amortization expense of the acquired intangible assets recognized at fair value in purchase accounting, additional depreciation expense of $1.0 million resulting from increased basis of property, plant and equipment, as well as $0.9 million of interest expense associated with borrowings under the Company's Amended Credit Facility. Customer freight billings of $0.8 million were reclassed from costs of sales to net sales for the six months ended June 30, 2016.