Business Acquisition

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Acquisition

2. Business Acquisition

On April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite aerostructures business for cash of $187 million, plus the assumption of certain liabilities. The Company funded the cash payable at closing by utilizing proceeds from a $550 million, unsecured credit facility agreement that was completed April 8, 2016 (see Note 14). The acquired entity has been renamed Albany Aerostructures Composites LLC (“AAC”), and is part of the Albany Engineered Composites (“AEC”) segment.

The following table summarizes the provisional allocation of the purchase price of AAC to the fair value of the assets and liabilities acquired:

(in thousands)	April 8, 2016
Assets acquired
Accounts receivable		$15,688
Inventories		17,715
Prepaid expenses and other current assets		402
Property, plant and equipment		81,701
Intangibles		59,360
Goodwill		67,034
Total assets acquired		$241,900
Liabilities assumed
Accounts payable		$8,745
Accrued liabilities		2,364
Capital lease obligation		16,927
Deferred income taxes		25,318
Other noncurrent liabilities		1,546
Total liabilities assumed		$54,900
Net assets acquired		$187,000

The Company is continuing to perform procedures to verify the value of assets and liabilities acquired, and the useful lives of amortizable assets. Accordingly, adjustments to the values in the above table may be required in future periods. Goodwill of $67.0 million reflects that the acquisition broadens and deepens AEC’s products, experience and manufacturing capabilities, and significantly increases opportunities for future growth. The goodwill is non-deductible for tax purposes.

The seller has provided representations, warranties and indemnities customary for acquisition transactions, including indemnities for certain customer claims identified before closing. As of September 30, 2016, Accounts receivable includes $3.2 million which is expected to be recovered from the seller under the terms of the indemnity arrangement.

In the course of performing its ongoing opening balance sheet procedures during the third quarter of 2016, management identified certain adjustments to the provisional value of assets and liabilities acquired reported in the Form 10-Q for the period ended June 30, 2016. The Consolidated Statement of Income for the third quarter of 2016 includes the cumulative effect of adjusting the provisional amounts, as illustrated in the table below:

(in thousands)	Increase / (decrease) to provisional amount		Additional expense / (income) in third quarter		Expense / (income) recognized in third quarter which relates to second quarter		Line item in the Statement of income affected
Assets:
Accounts receivable, net	($576	)	$         -		$         -
Inventories, net	(12,024	)	(2,291	)	(1,282	)	Cost of goods sold
Property, plant and equipment, net	(4,101	)	1,096		548		Cost of goods sold
Liabilities:
Obligation under capital lease	(6,888	)	(325	)	(115	)	Interest expense
Deferred income tax liabilities	25,318		-		-
Other noncurrent liabilities	577		18		8		Interest expense
Net increase to goodwill	$35,708
Net increase to income before income taxes			$(1,502	)	$(841	)

The following table presents operational results of AAC that are included in the Consolidated Statements of Income:

(in thousands, except per share amounts)	Three months ended September 30, 2016		April 8 to September 30, 2016
Net sales	$20,354		$45,990
Operating income/(loss)	(1,460	)	249
Income/(loss) before income taxes	(1,642	)	(377	)
Net loss attributable to the Company	(985	)	(226	)
Loss per share:
Basic	($0.03	)	($0.01	)
Diluted	($0.03	)	($0.01	)

The Consolidated Statements of Income reflect operational activity of AAC for only the period subsequent to the closing, which affects comparability of results. The following table shows total Company pro forma statements of operations for the three- and nine-month periods ended September 30, 2016 and 2015, as if the acquisition had occurred on January 1, 2015. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisitions had occurred as of the date indicated, or what such results would be for any future periods.

	Unaudited - Pro forma
	Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share amounts)	2016		2015		2016		2015
Combined Net sales	$191,272		$198,193		$588,978		$591,181
Combined Income before income taxes	$20,897		$23,552		$59,812		$42,909
Pro forma increase/(decrease) to income before income taxes:
Acquisition expenses	-		-		5,367		-
Interest expense related to purchase price	-		(1,283	)	(1,382	)	(3,850	)
Purchase accounting adjustments:
Depreciation and amortization on property, plant and equipment, and intangible assets	548		(1,821	)	(1,919	)	(4,367	)
Valuation of contract inventories	(1,282	)	970		1,109		2,939
Interest expense on asset retirement obligation	8		(8	)	(8	)	(25	)
Interest expense on capital lease obligation	(115	)	115		339		346
Pro forma Income before income taxes	20,056		21,525		63,318		37,952
Pro forma Net Income attributable to the Company	$12,461		$8,432		$40,506		$18,417