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Acquisitions | 9 Months Ended
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Sep. 28, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
Acquisitions | Acquisitions The Company’s acquisitions have been accounted for using the acquisition 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 were $469,000 in the third quarter of 2024 and $2,533,000 in the nine months ended September 28, 2024 and are included in selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income. The Company expects several synergies in connection with the acquisitions described below, including expansion of product sales into new markets by leveraging its global sales network and relationships, broadening its product portfolio, and strengthening its position in each segment's markets. The Company funded the acquisitions primarily through borrowings under its revolving credit facility. Key Knife, Inc. On January 1, 2024, the Company acquired Key Knife Inc. and certain of its affiliates (collectively, Key Knife) pursuant to a securities purchase agreement dated December 22, 2023, for $153,386,000, net of cash acquired. Key Knife is a global supplier of engineered knife systems for custom chipping, planing, and flaking solutions for wood products industries, with revenue of approximately $65,000,000 for the twelve months ended September 30, 2023, and is part of the Company's Industrial Processing segment. Goodwill from the Key Knife acquisition was $36,203,000, of which $29,479,000 is expected to be deductible for tax purposes over 15 years. In addition, separately identifiable intangible assets acquired were $91,620,000, of which $77,400,000 is expected to be deductible for tax purposes over 15 years. As part of the acquisition, the Company acquired a 45% interest in two of Key Knife's subsidiaries, increasing its noncontrolling interest liability by $9,319,000 based on the income valuation approach. Under a put and purchase option as outlined in the securities purchase agreement, the seller can demand the Company purchase, or the Company can demand that the seller sell to the Company, the remaining interest in these subsidiaries at any time after December 31, 2027. The purchase price would be based on a total enterprise value as defined in the original purchase agreement. See Other Acquisitions below for additional information. KWS Manufacturing Company, Ltd. On January 24, 2024, the Company acquired all of the outstanding equity securities of KWS Manufacturing Company, Ltd. (KWS) for $81,247,000, subject to a post-closing adjustment. The Company paid $81,009,000 at closing and assumed a $238,000 bank overdraft. KWS is a leading manufacturer of conveying equipment for the bulk material handling industry, with revenue of approximately $45,000,000 for the twelve months ended September 30, 2023, and is part of the Company's Material Handling segment. Goodwill from the KWS acquisition was $38,207,000 and separately identifiable intangibles assets were $28,500,000, both of which are expected to be fully deductible for tax purposes over 15 years. Dynamic Sealing Technologies LLC On May 31, 2024, the Company acquired all of the outstanding equity securities of Dynamic Sealing Technologies LLC and affiliates (collectively, DSTI) for $53,661,000, net of cash acquired and subject to a post-closing adjustment. DSTI is a leading manufacturer of engineered fluid sealing and transfer solutions for rotating applications, with revenue of approximately $25,000,000 for the twelve months ended March 31, 2024, and is part of the Company's Flow Control segment. Goodwill from the DSTI acquisition was $15,580,000, of which $15,251,000 is expected to be deductible for tax purposes over 15 years. In addition, separately identifiable intangible assets acquired were $24,290,000, all of which are expected to be fully deductible for tax purposes over 15 years. Other Acquisitions On May 2, 2024, the Company acquired a service business in Germany, which is included in the Company's Material Handling segment, for $3,352,000, net of cash acquired and subject to a post-closing adjustment. On May 6, 2024, the Company acquired the remaining outstanding shares of a Key Knife subsidiary in which the Company previously held a noncontrolling interest for $523,000 in cash. On August 21, 2024, the Company acquired a technology company as part of its Material Handling segment. The total purchase price was approximately $11,829,000, which included cash paid at closing of $8,623,000 net of cash acquired, an estimated post-closing adjustment of $1,421,000 to be paid within 18 months of closing, and contingent consideration with a fair value of $1,785,000. The contingent consideration is payable upon the achievement of certain revenue performance targets earned between June 30, 2025 and June 30, 2027. The maximum future value of the contingent consideration subject to payment is approximately $12,068,000, calculated using the foreign currency spot rate at September 28, 2024. The valuation of the contingent consideration is dependent on the following assumptions: the probability of successful achievement of certain revenue targets, forecasted revenue, revenue volatility, and discount rate. These assumptions were estimated based on a review of historical and projected results. See Note 10, Fair Value Measurements and Fair Value of Financial Instruments, for additional information related to the fair value of the contingent consideration assumed in the acquisition. In August 2024, the Company acquired certain other assets for a total of $1,755,000 in cash. Purchase Price Allocation The following table summarizes the aggregate purchase price and estimated fair values of the net assets and noncontrolling interests acquired related to the 2024 acquisitions:
(In thousands) |  | Total
Cash and Cash Equivalents |  | $ | 11,509 |
Accounts Receivable |  | 12,143 |
Inventories |  | 27,461 |
Other Current Assets |  | 3,472 |
Property, Plant, and Equipment |  | 37,061 |
Other Assets |  | 14,249 |
Definite-Lived Intangible Assets |  |
Customer relationships |  | 114,995 |
Product technology |  | 24,959 |
Tradenames |  | 9,540 |
Other |  | 4,401 |
Goodwill |  | 100,231 |
Total assets acquired |  | 360,021 |
Accounts Payable |  | 3,316 |
Customer Deposits |  | 3,275 |
Other Current Liabilities |  | 9,895 |
Long-Term Deferred Income Taxes |  | 5,455 |
Other Long-Term Liabilities |  | 13,634 |
Total liabilities assumed |  | 35,575 |
Noncontrolling interests acquired |  | 9,319 |
Net assets and noncontrolling interests acquired |  | $ | 315,127 |
Purchase Price: |  |
Cash Paid |  | $ | 313,533 |
Fair Value of Contingent Consideration (Note 10) |  | 1,785 |
Estimated Remaining Post-closing Adjustments, Net |  | (191) |
|  | $ | 315,127 |
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, which may result in adjustments to the assets and liabilities, including goodwill. The Company expects purchase price allocation adjustments will relate to the valuation of acquired intangibles, inventory, and deferred income taxes primarily associated with its acquisitions made in the second and third quarters of 2024. Measurement period adjustments were not material to the Company's financial position or results of operations in the third quarter and first nine months of 2024. The weighted-average amortization period for the definite-lived intangible assets related to the 2024 acquisitions is 17 years, including weighted-average amortization periods of 18 years for customer relationships, 12 years for product technology, and 20 years for tradenames. Revenue and operating income for the three- and nine-month periods ended September 28, 2024 associated with the 2024 acquisitions from their respective acquisition dates, are as follows:
(In thousands) |  | Three Months Ended September 28, 2024 |  | Nine Months Ended September 28, 2024
Revenue |  | $ | 30,477 |  |  | $ | 82,075 |
Operating Income (a) |  | $ | 1,651 |  |  | $ | 4,258 |
(a) Includes amortization expense associated with acquired profit in inventory and backlog of $1,892,000 in the three months ended September 28, 2024 and $6,246,000 in the nine months ended September 28, 2024. Unaudited Supplemental Pro Forma Information Had the Key Knife, KWS, and DSTI acquisitions been completed as of the beginning of 2023, the Company’s pro forma results of operations for the three- and nine-month periods ended September 28, 2024 and September 30, 2023 would have been as follows:
|  | Three Months Ended |  | Nine Months Ended
(In thousands, except per share amounts) |  | September 28, 2024 |  | September 30, 2023 |  | September 28, 2024 |  | September 30, 2023
Revenue |  | $ | 271,614 |  |  | $ | 278,202 |  |  | $ | 806,946 |  |  | $ | 821,052 |
Net Income Attributable to Kadant |  | $ | 33,497 |  |  | $ | 28,973 |  |  | $ | 92,264 |  |  | $ | 80,131 |
Earnings per Share Attributable to Kadant |  |  |  |  |  |  |  |
Basic |  | $ | 2.85 |  |  | $ | 2.48 |  |  | $ | 7.86 |  |  | $ | 6.85 |
Diluted |  | $ | 2.84 |  |  | $ | 2.47 |  |  | $ | 7.84 |  |  | $ | 6.84 |
The historical consolidated pro forma financial information of the Company, Key Knife, KWS, and DSTI above has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisitions 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 $1,181,000 in the three months ended September 30, 2023 and $4,745,000 in the nine months ended September 30, 2023 and reversal of $1,181,000 in the three months ended September 28, 2024 and $4,041,000 in the nine months ended September 28, 2024 for the sale of inventory revalued at the date of acquisition. •Pre-tax charge to SG&A expenses of $412,000 in the three months ended September 30, 2023 and $2,535,000 in the nine months ended September 30, 2023 and reversal of $680,000 in the three months ended September 28, 2024 and $1,855,000 in the nine months ended September 28, 2024 for intangible asset amortization related to acquired backlog. •Pre-tax charge to SG&A expenses of $2,533,000 in the nine months ended September 30, 2023 and reversal of $469,000 in the three months ended September 28, 2024 and $2,533,000 in the nine months ended September 28, 2024 for acquisition costs. •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 acquisitions occurred as of the beginning of 2023, or that may result in the future. The Company's pro forma results of operations exclude its other acquisitions in 2024 as the inclusion of its results would not have been materially different from the pro forma results presented above.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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