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Acquisitions | 9 Months Ended
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Oct. 02, 2021
Business Combination and Asset Acquisition [Abstract] |
Acquisitions | Acquisitions 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, acquisitions have been made at prices above the fair value of identifiable net assets, resulting in goodwill. Acquisition costs are included in selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income as incurred. The Company recorded acquisition costs of $2,619,000 in the first nine months of 2021 and $485,000 in the first nine months of 2020. In the third quarter of 2021, the Company acquired all partnership interests and shares in The Clouth Group of Companies (Clouth), for $93,127,000, net of cash acquired plus debt assumed. The majority of the Clouth companies were acquired on July 19, 2021 and the acquisition of the last legal entity occurred on August 10, 2021, which the Company accounted for as a noncontrolling interest during the period from July 19, 2021 to August 10, 2021. The Company funded the purchase price with euro-denominated borrowings under its revolving credit facility and existing cash. Clouth, which is included within the Company's Flow Control segment, is a leading manufacturer of doctor blades and related equipment used in the production of paper, packaging, and tissue. The Company expects several synergies in connection with this acquisition, including deepening its presence in the growing ceramic blade market and expansion of sales at its existing businesses by leveraging Clouth's complementary global geographic footprint. Clouth has two manufacturing facilities in Germany and one in Poland and generated revenue of approximately 40,495,000 euros for the trailing twelve months ended June 30, 2021. Goodwill from the Clouth acquisition was $25,349,000, of which $6,240,000 is expected to be deductible for tax purposes over 15 years. In addition, intangible assets acquired were $34,113,000, of which $4,827,000 is expected to be deductible for tax purposes over 15 years. For the quarter ended October 2, 2021, the Company recorded revenue of $9,913,000 and an operating loss of $1,025,000 for Clouth from the date of acquisition, including amortization expense of $2,199,000 associated with acquired profit in inventory and backlog. The final purchase accounting and purchase price allocations remain subject to change as the Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed and the valuation of acquired intangibles. On August 23, 2021, the Company acquired all the outstanding equity securities in East Chicago Machine Tool Corporation (Balemaster) and certain assets of affiliated companies for $53,747,000, net of cash acquired. Balemaster, which is included within the Company's Material Handling segment, is a leading U.S. manufacturer of horizontal balers and related equipment used primarily for recycling packaging waste at corrugated box plants and large retail and distribution centers. The Company funded the purchase price with borrowings under its revolving credit facility. The Company expects several synergies in connection with the acquisition, including expansion of its presence in the secondary material processing market and creation of new opportunities for leveraging its high-performance balers produced in Europe. Balemaster's revenue for the trailing twelve months ended June 30, 2021 was approximately $22,166,000. Goodwill from the Balemaster acquisition was $27,699,000, none of which is deductible for tax purposes. In addition, intangible assets acquired were $27,260,000, none of which is deductible for tax purposes. For the quarter ended October 2, 2021, the Company recorded revenue of $2,845,000 and operating income of $221,000 for Balemaster from the date of acquisition, including amortization expense of $621,000 associated with acquired profit in inventory and backlog. The final purchase accounting and purchase price allocations remain subject to change as the Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed and the valuation of acquired intangibles. The following table summarizes the estimated fair values of assets acquired and liabilities assumed and the purchase price for Clouth and Balemaster.
(In thousands) |  | Clouth |  | Balemaster |  | Total
Net Assets Acquired: |  |  |  |  |  |
Cash and Cash Equivalents |  | $ | 4,666 |  |  | $ | 3,757 |  |  | $ | 8,423 |
Accounts Receivable |  | 6,863 |  |  | 1,593 |  |  | 8,456 |
Inventories |  | 15,770 |  |  | 3,993 |  |  | 19,763 |
Other Current Assets |  | 1,467 |  |  | 36 |  |  | 1,503 |
Property, Plant, and Equipment |  | 24,508 |  |  | 4,232 |  |  | 28,740 |
Other Assets |  | 3,923 |  |  | 195 |  |  | 4,118 |
Definite-Lived Intangible Assets |  |  |  |  |  |
Customer relationships |  | 19,838 |  |  | 21,800 |  |  | 41,638 |
Product technology |  | 8,914 |  |  | 2,600 |  |  | 11,514 |
Tradenames |  | — |  |  | 1,400 |  |  | 1,400 |
Other |  | 402 |  |  | 1,460 |  |  | 1,862 |
Indefinite-Lived Intangible Assets |  |  |  |  |  |
Tradenames |  | 4,959 |  |  | — |  |  | 4,959 |
Goodwill |  | 25,349 |  |  | 27,699 |  |  | 53,048 |
Total assets acquired |  | 116,659 |  |  | 68,765 |  |  | 185,424 |
Short-term Obligations and Current Maturities of Long-term Obligations |  | 1,320 |  |  | — |  |  | 1,320 |
Accounts Payable |  | 1,452 |  |  | 743 |  |  | 2,195 |
Other Current Liabilities |  | 4,557 |  |  | 3,900 |  |  | 8,457 |
Long-Term Deferred Income Taxes |  | 10,060 |  |  | 6,423 |  |  | 16,483 |
Long-Term Obligations |  | 4,141 |  |  | — |  |  | 4,141 |
Other Long-term Liabilities |  | 2,797 |  |  | 195 |  |  | 2,992 |
Total liabilities assumed |  | 24,327 |  |  | 11,261 |  |  | 35,588 |
Net assets acquired |  | $ | 92,332 |  |  | $ | 57,504 |  |  | $ | 149,836 |
Purchase Price: |  |  |  |  |  |
Cash Paid |  | $ | 92,332 |  |  | $ | 57,504 |  |  | $ | 149,836 |
The weighted-average amortization period for Clouth's definite-lived intangible assets is 19 years, including weighted-average amortization periods of 24 years for customer relationships and 10 years for product technology. The weighted-average amortization period for Balemaster's definite-lived intangible assets is 17 years, including weighted-average amortization periods of 18 years for customer relationships, 13 years for product technology, and 17 years for tradenames. Unaudited Supplemental Pro Forma Information Had the acquisition of Clouth been completed as of the beginning of 2020, the Company’s pro forma results of operations for the three- and nine-month periods ended October 2, 2021 and September 26, 2020 would have been as follows:
|  | Three Months Ended |  | Nine Months Ended
|  | October 2, 2021 |  | September 26, 2020 |  | October 2, 2021 |  | September 26, 2020
(In thousands, except per share amounts) |  |  |  |
Revenue |  | $ | 201,372 |  |  | $ | 166,687 |  |  | $ | 593,500 |  |  | $ | 501,484 |
Net Income Attributable to Kadant |  | $ | 22,125 |  |  | $ | 17,013 |  |  | $ | 64,102 |  |  | $ | 37,106 |
Earnings per Share Attributable to Kadant |  |  |  |  |  |  |  |
Basic |  | $ | 1.91 |  |  | $ | 1.48 |  |  | $ | 5.54 |  |  | $ | 3.23 |
Diluted |  | $ | 1.90 |  |  | $ | 1.47 |  |  | $ | 5.51 |  |  | $ | 3.21 |
The historical consolidated financial information of the Company and Clouth has been adjusted in the pro forma information above to give effect to pro forma events that are (i) directly attributable to the acquisition and related financing arrangements, (ii) expected to have a continuing impact on the Company, and (iii) factually supportable. Pro forma results include the following non-recurring pro forma adjustments: •Pre-tax charge to cost of revenue of $3,098,000 in the nine months ended September 26, 2020 and reversal of $1,846,000 in the three and nine months ended October 2, 2021, for the sale of inventory revalued at the date of acquisition. •Pre-tax charge to SG&A expenses of $2,143,000 in the nine months ended September 26, 2020 and reversal of $860,000 in the three months ended October 2, 2021 and $2,096,000 in the nine months ended October 2, 2021, for acquisition costs and 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 Clouth occurred as of the beginning of 2020, or that may result in the future. The Company's pro forma results exclude the Balemaster acquisition as the inclusion of its results would not have been materially different from the pro forma results presented above had the acquisition occurred at the beginning of 2020

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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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