Business Combination

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

On August 31, 2023, the Company acquired all of the outstanding shares of Heimbach, a privately-held manufacturer of paper machine clothing with headquarters in Düren, Germany. Heimbach is a global supplier of paper machine clothing for the production of all grades of paper and cardboard on all machine types as well as high-tech textile products used in a variety of sectors, such as the food processing, chemicals, construction materials and automotive industries. Heimbach is now a division under the MC segment. The Paper Machine Clothing ("PMC") industry has attractive dynamics and the acquisition of Heimbach provides increased scale and complementary technology that further drives the MC segment's differentiated manufacturing, sales and service network. The acquisition was accounted for under the acquisition method in accordance with ASC 805, Business Combinations.

The acquisition was funded using cash on-hand. The following table summarizes the total consideration paid, excluding debt assumed, for the acquisition of Heimbach:


(in thousands)	August 31, 2023
Cash consideration	$	145,816
Indemnity release	(1,750)
Total consideration paid	$	144,066

The assets acquired and the liabilities assumed were recorded based on their preliminary fair values at the date of acquisition as follows:


(in thousands)	August 31, 2023
Assets acquired:
Cash and cash equivalents	$	12,347
Accounts receivable	51,569
Inventories	41,864
Property, plant and equipment	125,117
Other intangible assets	14,901
Other current assets	7,745
Other noncurrent assets	$	6,703


Total assets acquired	$	260,246

Liabilities assumed:
Assumed debt	$	32,700
Accounts payable	8,243
Accrued liabilities	27,674
Other noncurrent liabilities	35,910
Income taxes payable	288
Deferred tax liabilities	10,856
Total liabilities assumed	$	115,671

Net assets acquired	$	144,575
Noncontrolling interest	$	(509)
Total consideration	$	144,066

For the period ended December 31, 2023, the Company incurred acquisition related costs of $4.1 million. These costs are included in Selling, general and administrative expenses in the Consolidated Statements of Income.

The purchase price allocation for the acquisition was based upon a preliminary valuation and the Company’s estimates and assumptions are subject to change as the Company obtains additional information during the measurement period. During the fourth quarter of 2023, the Company identified immaterial measurement period adjustments primarily related to fair value estimates. The measurement period adjustments resulted from the refinement of inputs used to calculate the fair value of trade receivables, inventory, equipment, developed technologies, and accrued expenses based on facts and circumstances that existed as of the Acquisition Date. The Company is still completing the valuations of certain pension liabilities, which is expected to be completed during the first six months of 2024.

The fair values of property, plant and equipment of $125.1 million were determined using the cost-approach because the cost-approach was considered appropriate for the valuation analysis, and because sufficient information was available for this use. Since August 31, 2023, the Company recorded $4.0 million of depreciation expense.

The fair values of the identifiable intangible assets totaling $14.9 million, consisting of the Heimbach trade name and developed technology, was determined using the income approach, specifically, a relief from royalty method. The fair value of the trade name was $6.0 million and is considered an indefinite-lived asset because of Heimbach's rich brand heritage and customer service to the paper machine clothing industry dating back to 1811. The fair value of the developed technology was $8.9 million and includes intellectual property-related technologies as well as know-how developed by Heimbach and is being amortized over its economic period of benefit, which is 9 years. This

amortization period represents the estimated useful life of the asset. Since August 31, 2023, the Company recorded $0.3 million of intangible amortization expense.

The fair values of assets acquired included $3.4 million of operating lease right-of-use assets, as well as $3.4 million of operating lease liabilities assumed, of which $1.2 million was considered current and recorded to Accrued liabilities in our Consolidated Balance Sheets.

Debt assumed included $32.7 million aggregate outstanding amount of bank debt with several European financial institutions with interest rates ranging from 0.98 percent to 5.52 percent and maturity dates ranging from September 25, 2023 to June 30, 2031. Bank agreements allowed for the repayment of the debt upon demand by certain financial institutions in the event of a change in control. Some of the assumed bank debt may become due upon notification by those financial institutions before the maturity date of the bank agreements. During the fourth quarter of 2023, we repaid $18.6 million of the debt assumed. At December 31, 2023, the balance of the foreign debt was $10.9 million, of which $4.2 million was classified as Current maturities on long-term debt.

The preliminary fair value of the liabilities assumed include $35.3 million of pension liabilities for various defined benefit plans.

Heimbach's results of operations have been included in the Company's financial statements for the period subsequent to the completion of the acquisition on August 31, 2023. Heimbach contributed $51.2 million of revenue and a $6.3 million operating loss for the period ended December 31, 2023.

Pro Forma Information (Unaudited)

The following table reflects the unaudited pro forma operating results of the Company for the years ended December 31, 2023 and 2022 which assumes the acquisition of Heimbach occurred on January 1, 2022. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition of Heimbach been effective January 1, 2022, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical results of the Company and Heimbach adjusted for certain items discussed below. The pro forma information does not include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisition.


	Years ended December 31,
(in thousands)	2023		2022
Net revenues	$	1,265,379	$	1,206,420
Net income attributable to the Company	$	109,710	$	91,583

These pro forma results include adjustments such as inventory step-up, amortization of acquired intangible assets, depreciation of acquired property, plant and equipment and the adoption of U.S. accounting standards. Material pro forma adjustments directly attributable to the acquisition of Heimbach for the year ended December 31, 2022 primarily include an increase in cost of goods sold of $5.5 million related to the step-up of acquired inventory. The pro forma information for the year ended December 31, 2023 includes an increase in selling, general and administrative costs of $4.1 million for acquisition-related costs.