Exhibit 99.1
KADANT INC.
Unaudited Pro Forma Combined Condensed Financial Information
On May 11, 2005, Kadant Inc. ("Kadant" or the "Company") acquired all of
the outstanding stock of The Johnson Corporation ("Johnson") for $101.5 million,
subject to a further post-closing adjustment, and $3.1 million of acquisition-
related costs. Included in the net assets acquired were $3.8 million of cash
and cash equivalents and $3.3 million of short and long-term debt. In addition
to the cash consideration, the Company issued a letter of credit to the sellers
for $4 million, subject to adjustment, related to certain tax assets of Johnson,
the value of which the Company expects to realize. The Purchase Agreement also
contains an earn-out provision, based on the achievement of certain revenue
targets between the closing date and July 1, 2006, which could increase
the purchase price by up to $8 million.
The following unaudited pro-forma condensed combined financial
statements illustrate Kadant's acquisition of Johnson using the purchase method
of accounting. These statements should be read in conjunction with the
historical consolidated financial statements and related notes of Kadant, which
are included in the Company's annual report on Form 10-K for the year ended
January 1, 2005, and the historical consolidated financial statements and
related notes of Johnson, which are included in this Current Report as Exhibit
99.4. The unaudited pro forma condensed combined statements of operations for
the years ended January 1, 2005 and January 3, 2004, give effect to the
acquisition of Johnson by Kadant as if it had taken place at the beginning of
those fiscal years, and are based on the historical statements of operations of
Kadant and Johnson for the corresponding periods. The unaudited pro forma
condensed combined balance sheet information as of January 1, 2005 and January
3, 2004 gives effect to the acquisition by Kadant of Johnson as if it had taken
place at the balance sheet date presented. The purchase accounting adjustments
made in connection with the development of the unaudited pro forma condensed
combined financial information are preliminary and have been made solely for
purposes of developing such unaudited pro forma condensed combined financial
information, and will be adjusted upon the final determination of the fair
values.
The following table represents the estimated allocation of the purchase
price for the Company's acquisition of Johnson over the estimated fair value of
the assets acquired and liabilities assumed at the date of acquisition. Kadant
is still in the process of assembling the information necessary to finalize the
allocation of the total purchase price and has obtained a supporting third party
valuation for criteria tangible and intangible assets. The allocation of the
purchase price may change upon completion of this assessment process.
Estimated Value
at May 11, 2005
---------------
Cash and Cash Equivalents $ 3,814
Short-term Investments 257
Accounts Receivable, net 17,733
Notes Receivable 5,577
Inventory 13,280
Other Current Assets 5,258
Property, Plant, and Equipment, net 18,551
Other Assets 9,346
Acquired Intangibles 34,480
Goodwill 48,371
---------
Total Assets Acquired $ 156,667
---------
Accounts Payable $ 6,578
Other Current Liabilities 15,242
Short and Long-Term Debt 3,286
Other Liabilities 21,875
Minority Interest 1,155
---------
Total Liabilities Assumed $ 48,136
---------
Net Assets $ 108,531
=========
<
>
KADANT INC.
An additional payment of up to $8 million may be required in the event
that certain revenue targets are realized. Any such amounts have been excluded
from the purchase price in the table above and will be recorded if and when the
revenue targets are met.
The estimated values of current assets, excluding inventory, and current
liabilities were based upon their historical costs in the hands of the seller on
the date of acquisition due to their short-term nature. Inventory and property,
plant and equipment were recorded at estimated fair value based primarily on
cost and market approaches. These amounts may be subsequently adjusted when the
Company completes its assessment of the property and equipment that will be
utilized in the combined operations.
The following are the identifiable intangible assets acquired and the
respective periods over which the assets will be amortized on a straight-line
basis:
(in thousands) Amount Life
- ----------------------------------------------------------------------------------------------------------------------
Existing technology $ 7,840 11 years*
Customer relationships 15,700 17 years*
Distribution network 2,400 17 years
Trade name 8,100 Indefinite
Licensing agreement 400 20 years
Non-compete agreement 40 3 years
--------
$ 34,480
========
*approximate weighted average lives
The amount assigned to identifiable intangible assets acquired was based
on their respective fair values determined as of the acquisition date by an
outside valuation consultant, using income and cost approaches. The excess of
the purchase price over the tangible and identifiable intangible assets was
recorded as goodwill and amounted to approximately $48.4 million. In accordance
with current accounting standards, the goodwill will not be amortized and
will be tested for impairment annually in the fourth quarter of our fiscal year,
as required by Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets."
The unaudited pro forma condensed combined financial statements are
presented for comparative purposes only and are not necessarily indicative of
what the actual combined financial position and results of operations of Kadant
and Johnson would have been as of and for the periods presented, nor does it
purport to represent the future combined financial position or results of
operations of Kadant and Johnson.
<
2
>
KADANT INC.
PRO-FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 1, 2005
(Unaudited)
Pro Forma
(A) (B) Combined
Historical Historical Pro Forma Kadant and
(In thousands) Kadant Johnson Adjustments Johnson
- --------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 82,089 $ 13,720 $(41,500) a $ 54,309
Accounts receivable, net 30,022 14,197 - 44,219
Inventories 27,316 10,056 3,956 b 41,328
Deferred tax asset 6,691 2,179 1,542 c 10,412
Other current assets 16,961 2,207 - 19,168
Assets of discontinued operation 15,650 - - 15,650
---------- ---------- -------- ---------
Total Current Assets 178,729 42,359 (36,002) 185,086
---------- ---------- -------- ---------
Property, Plant, and Equipment, net 17,064 14,495 5,059 b 36,618
---------- ---------- -------- ---------
3,400 a
(1,916) a
Other Assets 15,036 1,099 236 c 17,855
---------- ---------- -------- ---------
(5,127) e
45,425 d
Goodwill and Other Intangibles 74,408 5,127 34,480 d 154,313
---------- ---------- -------- ---------
Total Assets $ 285,237 $ 63,080 $ 45,555 $ 393,872
========== ========== ======== =========
Current Liabilities:
Short-term bank debt $ - $ 1,669 $ - $ 1,669
Current maturities of long-term debt - 1,777 9,000 a 10,777
Accounts payable 21,327 4,498 - 25,825
Accrued payroll and employee benefits 11,261 5,105 - 16,366
Accrued restructuring costs 10,026 - - 10,026
1,756 a
Other current liabilities 14,887 5,967 2,350 c 24,960
Liabilities of discontinued operation 7,578 - - 7,578
---------- ---------- -------- ---------
Total Current Liabilities 65,079 19,016 13,106 97,201
---------- ---------- -------- ---------
Deferred Income Taxes 4,370 - 15,638 c 20,008
---------- ---------- -------- ---------
3,400 a
Other Long-Term Liabilities 3,327 4,662 (127) f 11,262
---------- ---------- -------- ---------
Long-Term Debt - 919 51,000 a 51,919
---------- ---------- -------- ---------
Minority Interest - 1,021 - 1,021
---------- ---------- -------- ---------
Shareholders' Investment 212,461 37,462 (37,462) g 212,461
---------- ---------- -------- ---------
Total Liabilities and Shareholders' Investment $ 285,237 $ 63,080 $ 45,555 $ 393,872
========== ========== ======== =========
(A) As reported in Kadant's annual financial statements for the fiscal year ended January 1, 2005 and January 3, 2004
as filed on Form 10-K with the SEC.
(B) Johnson was a private company with a calendar year end.
<
3
>
KADANT INC.
PRO-FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 3, 2004
(Unaudited)
Pro Forma
(A) (B) Combined
Historical Historical Pro Forma Kadant and
(In thousands) Kadant Johnson Adjustments Johnson
- --------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 74,412 $ 7,779 $(41,500) a $ 40,691
Accounts receivable, net 31,320 17,012 - 48,332
Inventories 27,808 9,576 3,956 b 41,340
Deferred tax asset 6,789 2,780 1,542 c 11,111
Other current assets 13,920 1,621 - 15,541
Assets of discontinued operation 15,278 - - 15,278
---------- ---------- -------- ---------
Total Current Assets 169,527 38,768 (36,002) 172,293
---------- ---------- -------- ---------
Property, Plant, and Equipment, net 18,531 14,663 5,059 b 38,253
---------- ---------- -------- ---------
3,400 a
Other Assets 10,119 748 236 c 14,503
---------- ---------- -------- ---------
(4,907) e
49,132 d
Goodwill and Other Intangibles 73,536 4,907 34,480 d 157,148
---------- ---------- -------- ---------
Total Assets $ 271,713 $ 59,086 $ 51,398 $ 382,197
========== ========== ======== =========
Current Liabilities:
Current maturities of long-term debt $ 598 $ 1,004 $ 9,000 a $ 10,602
Accounts payable 23,008 5,500 - 28,508
Accrued payroll and employee benefits 11,036 5,053 - 16,089
Accrued restructuring costs 200 68 - 268
3,672 a
Other current liabilities 16,688 5,887 2,350 c 28,597
Liabilities of discontinued operation 3,062 - - 3,062
---------- ---------- -------- ---------
Total Current Liabilities 54,592 17,512 15,022 87,126
---------- ---------- -------- ---------
Deferred Income Taxes 1,834 - 15,638 c 17,472
---------- ---------- -------- ---------
3,400 a
Other Long-Term Liabilities 3,178 4,154 381 f 11,113
---------- ---------- -------- ---------
Long-Term Debt - 2,640 51,000 a 53,640
---------- ---------- -------- ---------
Minority Interest 351 737 - 1,088
---------- ---------- -------- ---------
Shareholder' Investment 211,758 34,043 (34,043) g 211,758
---------- ---------- -------- ---------
Total Liabilities and Shareholders' Investment $ 271,713 $ 59,086 $ 51,398 $ 382,197
========== ========== ======== =========
(A) As reported in Kadant's annual financial statements for the fiscal year ended January 1, 2005 and January 3, 2004
as filed on Form 10-K with the SEC.
(B) Johnson was a private company with a calendar year end.
<
4
>
KADANT INC.
PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 1, 2005
(Unaudited)
Pro Forma
(A) (B) Combined
Historical Historical Pro Forma Kadant and
(In thousands) Kadant Johnson Adjustments Johnson
- --------------------------------------------------------------------------------------------------------------------------
Revenues $ 194,966 $ 76,092 $ - $ 271,058
Costs and Operating Expenses:
Cost of revenue 119,200 34,945 1,081 h 155,226
(1,572) i
Selling, general, and administrative expenses 56,334 34,677 n 2,381 j 91,820
Research and development expenses 3,077 - 1,572 i 4,649
Restructuring costs 9,515 - - 9,515
---------- ---------- -------- ---------
188,126 69,622 3,462 261,210
---------- ---------- -------- ---------
Operating Income 6,840 6,470 (3,462) 9,848
Interest Income 1,468 180 (768) k 880
Interest Expense (23) (183) (2,882) l (3,088)
---------- ---------- -------- ---------
Income from Continuing Operations Before Provision
for Taxes and Minority Interest 8,285 6,467 (7,112) 7,640
Provision for Income Taxes 2,524 2,868 (2,728) m 2,664
Minority Interest Expense 8 362 - 370
---------- ---------- -------- ---------
Income from Continuing Operations 5,753 3,237 (4,384) 4,606
Loss from Discontinued Operation, Net of Income
Tax Benefit (5,099) - - (5,099)
---------- ---------- -------- ---------
Net Income (Loss) $ 654 $ 3,237 $ (4,384) $ (493)
========== ========== ======== =========
Basic Earnings (Loss) per Share:
Continuing Operations $ .41 $ .32
Discontinued Operation (.36) (.36)
---------- ---------
Net Income (Loss) $ .05 $ (.04)
========== =========
Diluted Earnings (Loss) per Share:
Continuing Operations $ .40 $ .32
Discontinued Operation (.35) (.35)
---------- ---------
Net Income (Loss) $ .05 $ (.03)
========== =========
Weighted Average Shares:
Basic 14,071 14,071
========== =========
Diluted 14,398 14,398
========== =========
(A) As reported in Kadant's annual financial statements for the fiscal year ended January 1, 2005 and January 3, 2004
as filed on Form 10-K with the SEC.
(B) Johnson was a private company with a calendar year end.
<
5
>
KADANT INC.
PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 2004
(Unaudited)
Pro Forma
(A) (B) Combined
Historical Historical Pro Forma Kadant and
(In thousands) Kadant Johnson Adjustments Johnson
- --------------------------------------------------------------------------------------------------------------------------
Revenues $ 191,507 $ 78,047 $ - $ 269,554
Costs and Operating Expenses:
Cost of revenue 116,539 35,865 1,081 h 153,485
(1,565) i
Selling, general, and administrative expenses 50,402 35,047 n 2,226 j 86,110
Research and development expenses 4,268 - 1,565 i 5,833
Restructuring costs (23) - - (23)
---------- ---------- -------- ---------
171,186 70,912 3,307 245,405
---------- ---------- -------- ---------
Operating Income 20,321 7,135 (3,307) 24,149
Interest Income 965 51 (711) k 305
Interest Expense (49) (437) (2,882) l (3,368)
---------- ---------- -------- ---------
Income from Continuing Operations Before Provision
for Taxes and Minority Interest 21,237 6,749 (6,900) 21,086
Provision for Income Taxes 8,070 1,154 (2,644) m 6,580
Minority Interest Expense 44 33 - 77
---------- ---------- -------- ---------
Income from Continuing Operations 13,123 5,562 (4,256) 14,429
Loss from Discontinued Operation, Net of Income
Tax Benefit (1,306) - - (1,306)
---------- ---------- -------- ---------
Net Income $ 11,817 $ 5,562 $ (4,256) $ 13,123
========== ========== ======== =========
Basic Earnings (Loss) per Share:
Continuing Operations $ .96 $ 1.05
Discontinued Operation (.09) (.09)
---------- ---------
Net Income $ .87 $ .96
========== =========
Diluted Earnings (Loss) per Share:
Continuing Operations $ .94 $ 1.03
Discontinued Operation (.09) (.09)
---------- ---------
Net Income $ .85 $ .94
========== =========
Weighted Average Shares:
Basic 13,659 13,659
========== =========
Diluted 13,959 13,959
========== =========
(A) As reported in Kadant's annual financial statements for the fiscal year ended January 1, 2005 and January 3, 2004
as filed on Form 10-K with the SEC.
(B) Johnson was a private company with a calendar year end.
<
6
>
KADANT INC.
Notes To Unaudited Pro Forma Condensed Combined Consolidated
Financial Statements
Note 1 - Unaudited Pro Forma Condensed Combined Balance Sheets
The unaudited pro forma condensed combined balance sheet information as of
January 1, 2005 gives effect to the acquisition by Kadant of Johnson as if it
had taken place on January 1, 2005 and is based on the historical balance sheets
of Kadant as of January 1, 2005 and Johnson as of December 31, 2004. The
unaudited pro forma condensed combined balance sheet information as of
January 3, 2004 gives effect to the acquisition by Kadant of Johnson as if it
had taken place on January 3, 2004 and is based on the historical balance sheets
of Kadant as of January 3, 2004 and Johnson as of December 31, 2003.
(a) Adjustments to reflect the consideration paid for Johnson were as follows:
1. Cash paid to the sellers of $41.5 million and $3.1 million in
acquisition-related costs, of which $1.9 million was paid as of
January 1, 2005.
2. Additional borrowings of $60 million to fund a portion of the
consideration, of which $9 million is short-term. These borrowings
were financed under a new term loan and revolving credit facility
(the "Credit Agreement") effective as of May 9, 2005 in the
aggregate principal amount of up to $85 million, including a $25
million revolver, among Kadant, as Borrower, the Foreign
Subsidiary Borrowers from time to time parties thereto, the
several banks and other financial institutions or entities from
time to time parties thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent.
3. Issuance of a $4 million letter of credit associated with
anticipated tax benefits to be realized from Johnson. A payment
of 15% is due within 1 year.
(b) Fair market value adjustment to Johnson's inventory and property, plant
and equipment.
(c) The associated tax effect of the purchase accounting adjustments.
(d) The purchase price was allocated to Johnson's tangible and intangible
assets acquired and liabilities assumed based on their relative fair
values.
(e) To eliminate Johnson's historical goodwill and intangibles.
(f) Adjustment to properly reflect Johnson's post-retirement benefit
obligation.
(g) To eliminate Johnson's historical equity.
Note 2 - Unaudited Pro Forma Condensed Combined Statements of Operations
The unaudited pro forma condensed combined statements of operations for the
years ended January 1, 2005 and January 3, 2004, give effect to the acquisition
of Johnson by Kadant as if it had taken place on January 4, 2004 and December
29, 2002, respectively, and is based on the historical statements of operations
of Kadant and Johnson for the corresponding periods.
(h) Represents an adjustment to cost of sales associated with the fair value
adjustment to inventory based on an estimated level of sales of inventory
during the year.
(i) Represents a reclassification adjustment for research and development
expenses.
(j) Represents the additional depreciation and amortization expense associated
with the fair value adjustments.
(k) Represents a reduction to interest income assuming the cash consideration
was paid as of the beginning of the year.
(l) Represents an increase to interest expense to reflect the additional
borrowings of $60 million to fund the purchase of Johnson. Interest
expense has been calculated based on current interest rates available to
Kadant under the Credit Agreement.
(m) Represents the tax effect of the pro forma adjustments.
(n) Johnson's results included the following pre-tax costs for 2004: $3
million paid to its former shareholders, $1.1 million of acquisition-
related costs, and $0.2 million of stock option expense. Johnson's
results for 2003 included a $2.1 million pre-tax charge related to stock
options.
7