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Acquisition | 6 Months Ended
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Jun. 29, 2019
Business Combinations [Abstract] |
Acquisition | Acquisition The Company’s acquisitions have been accounted for using the purchase method of accounting and the results of the acquired businesses are included in its condensed consolidated financial statements from the date of acquisition. Historically, the Company’s acquisitions have been made at prices above the fair value of identifiable net assets, resulting in goodwill. Acquisition transaction costs are included in selling, general, and administrative expenses (SG&A) in the accompanying condensed consolidated statement of income as incurred. The Company recorded acquisition transaction costs of $843,000 in the first six months of 2019 relating to its recent acquisition described below. On January 2, 2019, the Company acquired, directly and indirectly, all the outstanding equity interests of Syntron Material Handling Group, LLC and certain of its affiliates (SMH) pursuant to an equity purchase agreement, dated December 9, 2018, for approximately $176,855,000, net of cash acquired. The Company funded the acquisition through borrowings under its revolving credit facility. SMH, which comprises the Company's new Material Handling Systems segment, has manufacturing operations in Mississippi, United States, and China. SMH is a leading provider of material handling equipment and systems to various process industries, including mining, aggregates, food processing, packaging, and pulp and paper. The Company expects several synergies in connection with this acquisition, including expansion of product sales into new markets by leveraging SMH's existing presence, strengthening of SMH's relationships in the pulp and paper industry, and sourcing efficiencies. Goodwill from the SMH acquisition was $80,991,000, of which $58,000,000 is expected to be deductible for tax purposes over 15 years. In addition, intangible assets acquired were $83,120,000, of which $70,971,000 is expected to be deductible for tax purposes over 15 years. For the six months ended June 29, 2019, the Company recorded revenues of $40,781,000 and an operating loss of $865,000 for SMH from the date of acquisition, including amortization expense of $4,831,000 associated with acquired profit in inventory and backlog, and $843,000 of acquisition transaction costs. The following table summarizes the estimated fair values of assets acquired and liabilities assumed and the purchase price for SMH. In the quarter ended June 29, 2019, the Company made certain adjustments to the purchase price allocation based on revised valuation assumptions, including an adjustment of $5,980,000 to increase intangible assets and an adjustment of $443,000 to increase long-term deferred income taxes principally due to the tax impact of the increase in intangible assets, resulting in a $5,511,000 decrease in goodwill initially recorded. The effect of these measurement period adjustments would have resulted in an additional $540,000 in selling, general and administrative expenses and $147,000 in cost of revenues in the accompanying condensed consolidated statement of income in the first three months of 2019 if the adjustments to the provisional amounts were recognized as of the acquisition date. The final purchase accounting and purchase price allocation is substantially complete but remains subject to change as the Company continues to refine its valuation of certain acquired assets and the valuation of acquired intangibles.
(In thousands) |  | Total
Net Assets Acquired: |  |
Cash, Cash Equivalents, and Restricted Cash |  | $ | 2,431 |
Accounts Receivable |  | 10,268 |
Inventory |  | 13,061 |
Other Current Assets |  | 900 |
Property, Plant, and Equipment |  | 7,522 |
Other Assets |  | 11,057 |
Definite-Lived Intangible Assets |  |
Customer relationships |  | 58,300 |
Product technology |  | 11,000 |
Other |  | 4,320 |
Indefinite-Lived Intangible Assets |  |
Tradenames |  | 9,500 |
Goodwill |  | 80,991 |
Total assets acquired |  | 209,350 |
Accounts Payable |  | 3,380 |
Customer Deposits |  | 2,908 |
Other Current Liabilities |  | 4,975 |
Long-Term Lease Liabilities |  | 15,244 |
Long-Term Deferred Income Taxes |  | 3,557 |
Total liabilities assumed |  | 30,064 |
Net assets acquired |  | $ | 179,286 |
Purchase Price: |  |
Cash Paid to Seller Borrowed Under Revolving Credit Facility |  | $ | 179,286 |
The weighted-average amortization period for definite-lived intangible assets is 14 years, including weighted-average amortization periods of 15 years for customer relationships, 14 years for product technology, and 8 years for other intangible assets. Unaudited Supplemental Pro Forma Information Had the acquisition of SMH been completed as of the beginning of 2018, the Company’s pro forma results of operations for the three- and six-month periods ended June 29, 2019 and June 28, 2018 would have been as follows:
|  | Three Months Ended |  | Six Months Ended
(In thousands, except per share amounts) |  | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Revenues |  | $ | 177,165 |  |  | $ | 176,252 |  |  | $ | 348,481 |  |  | $ | 346,784 |
Net Income Attributable to Kadant |  | $ | 17,236 |  |  | $ | 11,119 |  |  | $ | 31,348 |  |  | $ | 19,594 |
Earnings per Share Attributable to Kadant: |  |  |  |  |  |  |  |
Basic |  | $ | 1.54 |  |  | $ | 1.00 |  |  | $ | 2.81 |  |  | $ | 1.77 |
Diluted |  | $ | 1.51 |  |  | $ | 0.98 |  |  | $ | 2.75 |  |  | $ | 1.73 |
The historical consolidated financial information of the Company and SMH has been adjusted in the pro forma information to give effect to pro forma events that are directly attributable to the acquisition and related financing arrangements, are expected to have a continuing impact on the Company, and are factually supportable. Pro forma results include the following non-recurring pro forma adjustments that were directly attributable to the business combination:
• | Pre-tax charge to SG&A expenses of $843,000 in the six months ended June 30, 2018 and reversal of $843,000 in the six months ended June 29, 2019, for acquisition transaction costs.
• | Estimated pre-tax charge to cost of revenues of $1,239,000 in the three months ended June 30, 2018 and $3,549,000 in the six months ended June 30, 2018 and reversal of $1,239,000 in the three months ended June 29, 2019 and $3,549,000 in the six months ended June 29, 2019, for the sale of inventory revalued at the date of acquisition.
• | Estimated pre-tax charge to SG&A expenses of $284,000 in the three months ended June 30, 2018 and $1,282,000 in the six months ended June 30, 2018 and reversal of $284,000 in the three months ended June 29, 2019 and $1,282,000 in the six months ended June 29, 2019, for intangible asset amortization related to acquired backlog.
• | Estimated tax effects related to the pro forma adjustments.
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 would have resulted had the acquisition of SMH occurred as of the beginning of 2018, or that may result in the future.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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