What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-04 compared with 2020-08-05 · 266 added, 210 removed, 539 unchanged (47% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheet

September 26,

2020 December 28,

(In thousands, except share and per share amounts)

3 unchanged sentences

Accounts receivable, net of allowances of $ 3,113 and $ 2,698

94,145 95,740

Inventories 108,715 102,715

Unbilled revenue 9,095 13,162

2 unchanged sentences

Property, Plant, and Equipment, net of accumulated depreciation of $ 103,664 and $ 95,309

82,427 86,032

Other Assets 40,565 45,851

Intangible Assets, Net (Note 1) 164,359 173,896

Goodwill (Note 1) 342,999 336,032

Total Assets $ 913,891 $ 939,387

Liabilities and Stockholders' Equity

Current Liabilities:

Short-term obligations and current maturities of long-term obligations (Note 6)

Current maturities of long-term obligations (Note 6) $ 1,538 $ 2,851

Accounts payable 32,588 45,852

14 unchanged sentences

Treasury stock at cost, 3,114,599 and 3,214,888 shares

( 76,320 ) ( 78,778 )

Accumulated other comprehensive items (Note 9) ( 37,232 ) ( 37,620 )

5 unchanged sentences

Condensed Consolidated Statement of Income

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

(In thousands, except per share amounts)

5 unchanged sentences

Restructuring costs (Note 3) 470 — 926 —

133,275 148,951 407,486 455,715

Operating Income 21,335 24,553 59,111 66,270

4 unchanged sentences

Provision for Income Taxes (Note 5) 4,705 5,219 13,738 12,310

Net Income 14,980 16,213 39,358 43,679

Net Income Attributable to Noncontrolling Interest ( 129 ) ( 98 ) ( 369 ) ( 360 )

1 unchanged sentence

Earnings per Share Attributable to Kadant (Note 4)

Basic $ 1.29 $ 1.43 $ 3.40 $ 3.87

Diluted $ 1.28 $ 1.41 $ 3.38 $ 3.79

Weighted Average Shares (Note 4)

Basic 11,504 11,267 11,472 11,198

Diluted 11,589 11,469 11,550 11,434

The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Comprehensive Income

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

(In thousands)

Net Income $ 14,980 $ 16,213 $ 39,358 $ 43,679

Other Comprehensive Items:

Foreign currency translation adjustment 8,656 ( 9,091 ) 824 ( 7,603 )

Pension and other post-retirement liability adjustments, net (net of tax provision of $–, $2, $20 and $10)

Pension and other post-retirement liability adjustments, net (net of tax (benefit) provision of $( 6 ), $ 12 , $ 14 and $ 22 )

( 14 ) 31 34 59

Effect of other post-retirement plan settlement — — ( 119 ) —

Deferred loss on cash flow hedges (net of tax benefit of $3, $39, $122 and $143)

Deferred gain (loss) on cash flow hedges (net of tax provision (benefit) of $ 19 , $( 47 ), $( 103 ) and $( 190 ))

51 ( 123 ) ( 275 ) ( 524 )

Total other comprehensive items 8,693 ( 9,183 ) 464 ( 8,068 )

1 unchanged sentence

Comprehensive Income Attributable to Noncontrolling Interest

( 191 ) ( 24 ) ( 445 ) ( 276 )

Comprehensive Income Attributable to Kadant $ 23,482 $ 7,006 $ 39,377 $ 35,335

1 unchanged sentence

Condensed Consolidated Statement of Cash Flows

Six Months Ended

Nine Months Ended

September 26,

2020 September 28,

(In thousands)

2 unchanged sentences

Net income attributable to noncontrolling interest 369 360

Net income 39,358 43,679

Adjustments to reconcile net income to net cash provided by operating activities:

7 unchanged sentences

Unbilled revenue 4,332 1,957

Inventories ( 6,229 ) ( 10,294 )

Other current assets 2,840 ( 4,093 )

9 unchanged sentences

Repayment of short- and long-term obligations ( 69,034 ) ( 108,272 )

Proceeds from issuance of long-term obligations

Proceeds from issuance of short- and long-term obligations 26,000 247,090

Dividends paid ( 8,141 ) ( 7,604 )

1 unchanged sentence

Proceeds from issuance of Company common stock 1,614 2,006

Payment of debt issuance costs

Dividend paid to noncontrolling interest ( 525 ) —

Other financing activities ( 189 ) ( 52 )

Net cash (used in) provided by financing activities ( 52,871 ) 130,498

6 unchanged sentences

Condensed Consolidated Statement of Stockholders' Equity

Three Months Ended June 27, 2020

(In thousands, except share and per share amounts)

Excess of Par Value

Retained Earnings

Comprehensive Items

Noncontrolling Interest

Three Months Ended September 26, 2020

(In thousands, except share and per share amounts) Common

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Balance at March 28, 2020

Shares Amount Shares Amount

Balance at June 27, 2020 14,624,159 $ 146 $ 107,202 $ 453,874 3,127,565 $ ( 76,638 ) $ ( 45,863 ) $ 1,638 $ 440,359

Net income — — — 14,851 — — — 129 14,980

Dividend declared – Common Stock, $ 0.24 per share

— — — ( 2,762 ) — — — — ( 2,762 )

Dividend paid to noncontrolling interest — — — — — — — ( 525 ) ( 525 )

Activity under stock plans — — 1,182 — ( 12,966 ) 318 — — 1,500

Other comprehensive items — — — — — — 8,631 62 8,693

Balance at June 27, 2020

Six Months Ended June 27, 2020

(In thousands, except share and per share amounts)

Excess of Par Value

Retained Earnings

Comprehensive Items

Noncontrolling Interest

Balance at September 26, 2020 14,624,159 $ 146 $ 108,384 $ 465,963 3,114,599 $ ( 76,320 ) $ ( 37,232 ) $ 1,304 $ 462,245

Nine Months Ended September 26, 2020

(In thousands, except share and per share amounts) Common

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

Balance at December 28, 2019 14,624,159 $ 146 $ 106,698 $ 435,249 3,214,888 $ ( 78,778 ) $ ( 37,620 ) $ 1,384 $ 427,079

Net income — — — 38,989 — — — 369 39,358

Dividends declared – Common Stock, $ 0.72 per share

— — — ( 8,275 ) — — — — ( 8,275 )

Dividend paid to noncontrolling interest — — — — — — — ( 525 ) ( 525 )

Activity under stock plans — — 1,686 — ( 100,289 ) 2,458 — — 4,144

Other comprehensive items — — — — — — 388 76 464

Balance at June 27, 2020

Three Months Ended June 29, 2019

(In thousands, except share and per share amounts)

Excess of Par Value

Retained Earnings

Comprehensive Items

Noncontrolling Interest

Balance at September 26, 2020 14,624,159 $ 146 $ 108,384 $ 465,963 3,114,599 $ ( 76,320 ) $ ( 37,232 ) $ 1,304 $ 462,245

Three Months Ended September 28, 2019

(In thousands, except share and per share amounts) Common

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Balance at March 30, 2019

Shares Amount Shares Amount

Balance at June 29, 2019 14,624,159 $ 146 $ 103,767 $ 415,605 3,369,304 $ ( 82,562 ) $ ( 38,251 ) $ 1,855 $ 400,560

Net income — — — 16,115 — — — 98 16,213

Dividend declared – Common Stock, $ 0.23 per share

— — — ( 2,593 ) — — — — ( 2,593 )

Activity under stock plans — — 1,452 — ( 17,270 ) 424 — — 1,876

Other comprehensive items — — — — — — ( 9,109 ) ( 74 ) ( 9,183 )

Balance at June 29, 2019

Six Months Ended June 29, 2019

(In thousands, except share and per share amounts)

Excess of Par Value

Retained Earnings

Comprehensive Items

Noncontrolling Interest

Balance at September 28, 2019 14,624,159 $ 146 $ 105,219 $ 429,127 3,352,034 $ ( 82,138 ) $ ( 47,360 ) $ 1,879 $ 406,873

Nine Months Ended September 28, 2019

(In thousands, except share and per share amounts) Common

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

Balance at December 29, 2018 14,624,159 $ 146 $ 104,731 $ 393,578 3,514,163 $ ( 86,111 ) $ ( 39,376 ) $ 1,603 $ 374,571

Net income — — — 43,319 — — — 360 43,679

Adoption of ASU No.

2016-02 , Leases

— — — ( 17 ) — — — — ( 17 )

Dividends declared – Common Stock, $ 0.69 per share

— — — ( 7,753 ) — — — — ( 7,753 )

Activity under stock plans — — 488 — ( 162,129 ) 3,973 — — 4,461

Other comprehensive items — — — — — — ( 7,984 ) ( 84 ) ( 8,068 )

Balance at June 29, 2019

Balance at September 28, 2019 14,624,159 $ 146 $ 105,219 $ 429,127 3,352,034 $ ( 82,138 ) $ ( 47,360 ) $ 1,879 $ 406,873

The accompanying notes are an integral part of these condensed consolidated financial statements.

5 unchanged sentences

Its products, technologies, and services play an integral role in enhancing process efficiency, optimizing energy utilization, and maximizing productivity in resource-intensive industries.

On March 11, 2020, the World Health Organization designated the novel coronavirus a global pandemic (COVID-19), and a national emergency was subsequently declared by the U.S.

On March 11, 2020, the World Health Organization designated the novel coronavirus (COVID-19) a global pandemic, and a national emergency was subsequently declared by the U.S.

The pandemic has negatively affected the global economy, disrupted global supply chains, and resulted in significant travel and transport restrictions, which have adversely affected the Company’s bookings and financial results.

1 unchanged sentence

Interim Financial Statements

The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at June 27, 2020 , its results of operations, comprehensive income, and stockholders' equity for the three- and six -month periods ended June 27, 2020 and June 29, 2019 , and its cash flows for the six -month periods ended June 27, 2020 and June 29, 2019 .

The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at September 26, 2020, its results of operations, comprehensive income, and stockholders' equity for the three- and nine-month periods ended September 26, 2020 and September 28, 2019, and its cash flows for the nine-month periods ended September 26, 2020 and September 28, 2019.

Interim results are not necessarily indicative of results for a full year or for any other interim period.

14 unchanged sentences

Notes to Condensed Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies (continued)

Notes 1 and 3 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019 describe the significant accounting estimates and policies used in preparation of the consolidated financial statements.

There have been no material changes in the Company’s significant accounting policies during the six months ended June 27, 2020 , except that the Company no longer considers its policy with respect to accounting for pension benefits to be a critical accounting policy due to the settlement of its U.S.

There have been no material changes in the Company’s significant accounting policies during the nine months ended September 26, 2020, except that the Company no longer considers its policy with respect to accounting for pension benefits to be a critical accounting policy due to the settlement of its U.S.

pension plan in December 2019.

Supplemental Cash Flow Information

Six Months Ended

(In thousands)

Nine Months Ended

(In thousands) September 26,

2020 September 28,

Cash Paid for Interest $ 5,518 $ 9,711

9 unchanged sentences

Restricted Cash

The Company's restricted cash serves as collateral for potential claims in China and bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business.

The Company's restricted cash serves as collateral for certain banker's acceptance drafts issued to vendors and for bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business.

The majority of the bank guarantees will expire over the next twelve months .

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's condensed consolidated balance sheet that are shown in aggregate in the accompanying condensed consolidated statement of cash flows:

(In thousands)

(In thousands) September 26,

2020 September 28,

2019 December 28,

2019 December 29,

Cash and cash equivalents $ 53,554 $ 48,650 $ 66,786 $ 45,830

2 unchanged sentences

The components of inventories are as follows:

September 26,

2020 December 28,

(In thousands)

2 unchanged sentences

Finished Goods 43,708 38,039

$ 108,715 $ 102,715

Notes to Condensed Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies (continued)

Intangible Assets, Net

Acquired intangible assets by major asset class are as follows:

(In thousands)

June 27, 2020

(In thousands) Gross Accumulated

Amortization Currency

Translation Net

September 26, 2020

Definite-Lived

1 unchanged sentence

Product technology 56,568 ( 30,674 ) ( 1,520 ) 24,374

Tradenames 6,753 ( 2,811 ) ( 362 ) 3,580

Other 18,248 ( 14,036 ) ( 565 ) 3,647

255,992 ( 109,539 ) ( 6,188 ) 140,265

Indefinite-Lived

Tradenames 24,100 — ( 6 ) 24,094

Acquired Intangible Assets $ 280,092 $ ( 109,539 ) $ ( 6,194 ) $ 164,359

3 unchanged sentences

Product technology 56,011 ( 27,819 ) ( 1,709 ) 26,483

Tradenames 6,527 ( 2,421 ) ( 427 ) 3,679

Other 17,964 ( 13,295 ) ( 593 ) 4,076

252,085 ( 95,333 ) ( 6,870 ) 149,882

Indefinite-Lived

Tradenames 24,100 — ( 86 ) 24,014

Acquired Intangible Assets $ 276,185 $ ( 95,333 ) $ ( 6,956 ) $ 173,896

6 unchanged sentences

The changes in the carrying amount of goodwill by segment are as follows:

(In thousands)

Industrial Processing

Material Handling

(In thousands) Flow Control Industrial Processing Material Handling Total

Balance at December 28, 2019 (a)

1 unchanged sentence

Accumulated impairment losses — ( 85,509 ) — ( 85,509 )

Net balance 97,680 122,027 116,325 336,032

2020 Adjustments

Acquisition (Note 2)

— 3,985 — 3,985

Currency translation 804 493 1,685 2,982

Total 2020 adjustments 804 4,478 1,685 6,967

Balance at June 27, 2020

Balance at September 26, 2020

Gross balance 98,484 212,014 118,010 428,508

Accumulated impairment losses — ( 85,509 ) — ( 85,509 )

Net balance $ 98,484 $ 126,505 $ 118,010 $ 342,999

(a) Goodwill balances as of December 28, 2019 have been recast to conform to the current period presentation.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies (continued)

Impairment of Indefinite-Lived Assets

3 unchanged sentences

During that time, the overall U.S.

stock market also declined significantly amid market volatility driven by the uncertainty surrounding the outbreak of COVID-19.

stock market also declined significantly amid market volatility driven by the uncertainty surrounding the COVID-19 pandemic.

Based on these occurrences, the Company concluded that a triggering event had occurred related to the indefinite-lived assets within its material handling reporting unit.

As a result, the Company prepared a quantitative impairment analysis (Step 1) for its material handling reporting unit, which indicated that its fair value exceeded its carrying value and the indefinite-lived assets were not impaired.

In the second quarter of 2020, the Company’s market capitalization and the overall stock market, which are potential impairment indicators, recovered from their decreased levels that existed at the end of the first quarter of 2020.

No other events that would trigger an impairment analysis were identified during the second quarter of 2020.

The Company will continue to monitor for impairment indicators throughout the remainder of 2020 and will conduct an interim period impairment analysis as required.

In the second and third quarters of 2020, the Company’s market capitalization and the overall stock market, which are potential impairment indicators, recovered from their decreased levels that existed at the end of the first quarter of 2020.

No other events that would trigger an impairment analysis were identified during the second and third quarters of 2020.

The Company will continue to monitor for impairment indicators and will conduct its annual period impairment analysis as of the end of the fiscal year.

Warranty Obligations

3 unchanged sentences

The changes in the carrying amount of product warranty obligations are as follows:

Six Months Ended

(In thousands)

Nine Months Ended

(In thousands) September 26,

2020 September 28,

Balance at Beginning of Year $ 6,467 $ 5,726

Provision charged to expense 3,960 3,332

Usage ( 3,809 ) ( 2,778 )

Acquisition — 303

Currency translation 114 ( 175 )

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies (continued)

The following table presents revenue by revenue recognition method:

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

September 26, September 28, September 26, September 28,

(In thousands) 2020 2019 2020 2019

Point in Time $ 137,679 $ 151,101 $ 403,568 $ 457,093

Over Time 16,931 22,403 63,029 64,892

$ 154,610 $ 173,504 $ 466,597 $ 521,985

The transaction price includes estimated variable consideration where applicable.

4 unchanged sentences

The following table presents the disaggregation of revenue by product type and geography:

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

September 26, September 28, September 26, September 28,

(In thousands) 2020 2019 2020 2019

1 unchanged sentence

Parts and Consumables $ 102,729 $ 105,513 $ 305,087 $ 330,280

Revenue by Geography:

Capital 51,881 67,991 161,510 191,705

$ 154,610 $ 173,504 $ 466,597 $ 521,985

Revenue by Geography (based on customer location):

North America $ 87,366 $ 92,041 269,907 291,584

Europe 38,951 49,146 112,881 131,944

Asia 18,847 20,971 50,992 61,745

Rest of World 9,446 11,346 32,817 36,712

$ 154,610 $ 173,504 $ 466,597 $ 521,985

See Note 12 , Business Segment Information, for information on the disaggregation of revenue by reportable operating segment.

The following table presents contract balances from contracts with customers:

September 26,

2020 December 28,

(In thousands)

8 unchanged sentences

These advance payments will be recognized as revenue when the Company's performance obligations have been satisfied, which typically occurs when the product has shipped and control of the asset has transferred to the customer.

The Company recognized revenue of $ 7,158,000 in the second quarter of 2020 and $ 4,427,000 in the second quarter of 2019 , $ 26,866,000 in the first six months of 2020 , and $ 23,522,000 in the first six months of 2019 that was included in the contract liabilities balance at the beginning of 2020 and 2019 , respectively.

The Company recognized revenue of $ 1,656,000 in the third quarter of 2020, $ 4,780,000 in the third quarter of 2019, $ 28,522,000 in the first nine months of 2020, and $ 28,302,000 in the first nine months of 2019 that was included in the contract liabilities balance at the beginning of 2020 and 2019, respectively.

The majority of the Company's contracts for capital equipment have an original expected duration of one year or less.

For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining partially unsatisfied performance obligations as of

For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining partially unsatisfied performance obligations as of September 26,

Notes to Condensed Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies (continued)

June 27, 2020 was $ 9,798,000 .

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 98 % of which is expected to be recognized within the next twelve months .

2020 was $ 5,295,000 .

The Company will recognize revenue for these performance obligations as they are satisfied, all of which is expected to be recognized within the next twelve months .

Customers in China will often settle their accounts receivable with banker's acceptance drafts, in which case cash settlement will be delayed until the drafts mature or are settled prior to maturity.

13 unchanged sentences

The changes in the allowance for credit losses are as follows:

Six Months Ended

(In thousands)

June 27, 2020

June 29, 2019

Nine Months Ended

(In thousands) September 26,

2020 September 28,

Balance at Beginning of Period $ 2,698 $ 2,897

7 unchanged sentences

The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date.

These drafts, which totaled $ 3,224,000 at June 27, 2020 and $ 5,230,000 at December 28, 2019 , are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.

These drafts, which totaled $ 4,423,000 at September 26, 2020 and $ 5,230,000 at December 28, 2019, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.

Recently Adopted Accounting Pronouncements

6 unchanged sentences

Notes to Condensed Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements Not Yet Adopted

3 unchanged sentences

Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date.

The guidance in this ASU is applicable to the Company's existing contracts and hedging relationships that reference LIBOR and may be adopted prospectively beginning March 12, 2020 through December 31, 2022.

The guidance in this ASU is applicable to the Company's existing contracts and hedging relationships that reference LIBOR and may be adopted prospectively through December 31, 2022.

The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements.

7 unchanged sentences

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 $ 407,000 in the first six months of 2020 and $ 843,000 in the first six months of 2019.

The Company recorded acquisition costs of $ 485,000 in the first nine months of 2020 and $ 843,000 in the first nine months of 2019.

On June 1, 2020, the Company’s Industrial Processing segment acquired Cogent Industrial Technologies Ltd.

(Cogent) for approximately $ 6,837,000 , net of cash acquired, subject to a post-closing adjustment.

(Cogent) for approximately $ 6,866,000 , net of cash acquired.

The Company funded the acquisition through borrowings under its revolving credit facility.

Intangible assets acquired totaled $ 3,350,000 and primarily related to customer relationships.

Intangible assets acquired totaled $ 3,350,000 and are primarily related to customer relationships.

Cogent, based in British Columbia, Canada, is an industrial automation and controls solution provider that offers expertise in process technology integration, industrial automation and controls, industrial safety, project management, and operational performance management systems.

2 unchanged sentences

Restructuring Costs

In the second quarter of 2020, the Company recorded restructuring costs of $ 456,000 for severance associated with headcount reductions of 30 employees within its Flow Control segment.

The Company recorded restructuring costs of $ 470,000 , consisting of $ 276,000 in its Flow Control segment and $ 194,000 in its Industrial Processing segment, in the third quarter of 2020 for severance associated with headcount reductions of four employees within its Flow Control segment and 20 employees in its Industrial Processing segment.

The Company took these additional cost-containment actions to reduce future payroll-related overhead and operating costs in response to the slowdown in the global economy, largely driven by the COVID-19 pandemic.

The Company recorded total restructuring costs of $ 926,000 , consisting of $ 732,000 in its Flow Control segment and $ 194,000 in its Industrial Processing segment, in the first nine months of 2020 for severance associated with headcount reductions of 34 employees within its Flow Control segment and 20 employees in its Industrial Processing segment.

The Company also reduced its workforce by 21 employees within its Industrial Processing segment with no associated severance costs.

These cost-containment measures were taken to reduce future payroll-related overhead and operating costs in response to the slowdown in the global economy, largely driven by COVID-19.

These headcount reductions affected approximately 2 % of the Company's workforce.

A summary of the changes in accrued restructuring costs related to the 2020 restructuring plan included in other accrued expenses in the accompanying condensed consolidated balance sheet are as follows:

(In thousands)

(In thousands) Severance

Provision $ 926

Usage ( 430 )

Currency translation ( 11 )

Balance at June 27, 2020

The Company expects to pay the remaining accrued restructuring costs primarily in the third quarter of 2020.

Balance at September 26, 2020 $ 485

The Company expects to pay the remaining accrued restructuring costs primarily in the fourth quarter of 2020.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Basic and diluted earnings per share (EPS) are calculated as follows:

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

(In thousands, except per share amounts)

2 unchanged sentences

Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares

85 202 78 236

Diluted Weighted Average Shares 11,589 11,469 11,550 11,434

1 unchanged sentence

Diluted Earnings per Share $ 1.28 $ 1.41 $ 3.38 $ 3.79

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 36,000 shares in the second quarter of 2020 , 44,000 shares in the second quarter of 2019 , 39,000 shares in the first six months of 2020 , and 44,000 in the first six months of 2019 was not included in the computation of diluted EPS for the respective periods as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods.

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 11,000 shares in the third quarter of 2020, 8,000 shares in the third quarter of 2019, 30,000 shares in the first nine months of 2020, and 32,000 shares in the first nine months of 2019 was not included in the computation of diluted EPS for the respective periods as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods.

Provision for Income Taxes

The provision for income taxes was $ 9,033,000 in the first six months of 2020 and $ 7,091,000 in the first six months of 2019 .

The effective tax rate of 27 % in the first six months of 2020 was higher than the Company's statutory rate of 21% primarily due to nondeductible expenses, the distribution of worldwide earnings, state taxes, and tax expense associated with Global Intangible Low-Taxed Income (GILTI) provisions.

These increases in tax expense were offset in part by net excess income tax benefits from stock-based compensation arrangements.

The effective tax rate of 21 % in the first six months of 2019 was equal to the Company's statutory rate and included a net discrete tax benefit associated with foreign exchange losses and tax costs recognized upon the repatriation of certain previously taxed foreign earnings and a tax benefit related to the net excess income tax benefits from stock-based compensation arrangements.

These tax benefits were offset by tax expense primarily related to nondeductible expenses, the distribution of worldwide earnings, GILTI, and state taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law and provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief.

The enactment of the CARES Act did not have a material impact on the Company’s provision for income taxes in the first six months of 2020.

The Company continues to monitor any effects that may result from the CARES Act.

Short- and Long-Term Obligations

Short- and long-term obligations are as follows:

The provision for income taxes was $ 13,738,000 in the first nine months of 2020 and $ 12,310,000 in the first nine months of 2019.

The effective tax rate of 26 % in the first nine months of 2020 was higher than the Company's statutory rate of 21% primarily due to nondeductible expenses, the distribution of worldwide earnings, and state taxes.

This incremental tax expense was offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements.

The effective tax rate of 22 % in the first nine months of 2019 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company’s worldwide earnings, nondeductible expenses, tax expense associated with the Global Intangible Low-Taxed Income (GILTI) provisions of the Tax Cuts and Jobs Act of 2017, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries.

This incremental tax expense was offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements, a net tax benefit associated with foreign exchange losses and tax costs recognized upon the Company’s repatriation of certain previously taxed foreign earnings, and the reversal of tax reserves associated with uncertain tax positions.

Long-Term Obligations

Long-term obligations are as follows:

September 26,

2020 December 28,

(In thousands)

Revolving Credit Facility, due 2023 $ 245,010 $ 265,419

Commercial Real Estate Loan, due 2020 (a)

Commercial Real Estate Loan — 19,425

Senior Promissory Notes, due 2023 to 2028 10,000 10,000

2 unchanged sentences

Unamortized Debt Issuance Costs — ( 127 )

Short-term Obligations and Current Maturities of Long-Term Obligations

Total 260,587 301,025

Current Maturities of Long-Term Obligations ( 1,538 ) ( 2,851 )

Long-Term Obligations $ 259,049 $ 298,174

See Note 10 , Derivatives, for the fair value information related to the Company's long-term obligations.

Notes to Condensed Consolidated Financial Statements

Short- and Long-Term Obligations (continued)

(a) See further details on the repayment of this loan under the header Commercial Real Estate Loan below and Note 14 , Subsequent Event.

See Note 10 , Derivatives, for the fair value information related to the Company's short- and long-term obligations.

Revolving Credit Facility

11 unchanged sentences

In addition, one of the Company’s foreign subsidiaries entered into a separate guarantee agreement limited to certain obligations of two foreign subsidiary borrowers.

As of June 27, 2020 , the outstanding balance under the Credit Agreement was $ 248,743,000 , and included $ 58,905,000 of euro-denominated borrowings and $ 22,838,000 of Canadian dollar-denominated borrowings.

As of June 27, 2020 , the Company had $ 150,830,000 of borrowing capacity available under the Credit Agreement, which was calculated by translating its foreign-denominated borrowings using borrowing date foreign exchange rates.

As of September 26, 2020, the outstanding balance under the Credit Agreement was $ 245,010,000 , and included $ 50,656,000 of euro-denominated borrowings and $ 14,354,000 of Canadian dollar-denominated borrowings.

As of September 26, 2020, the Company had $ 154,790,000 of borrowing capacity available under the Credit Agreement, which was calculated by translating its foreign-denominated borrowings using borrowing date foreign exchange rates.

See Note 10 , Derivatives, under the heading Interest Rate Swap Agreements , for information relating to the swap agreements used to hedge the Company’s exposure to movements in the three-month USD LIBOR on its U.S.

dollar-denominated debt borrowed under the Credit Agreement.

The weighted average interest rate for the outstanding balance under the Credit Agreement was 1.85 % as of June 27, 2020 .

The weighted average interest rate for the outstanding balance under the Credit Agreement was 1.82 % as of September 26, 2020.

Commercial Real Estate Loan

1 unchanged sentence

Interest accrued and was payable quarterly in arrears at a fixed rate of 4.45 % per annum.

The effective interest rate for the Real Estate Loan, including amortization of debt issuance costs, was 4.60 % as of June 27, 2020 .

The Real Estate Loan was secured by real estate and related personal property of the Company and certain of its domestic subsidiaries, pursuant to mortgage and security agreements (Mortgage and Security Agreements).

Obligations under the Real Estate Loan could have been accelerated upon the occurrence of an event of default under the Real Estate Loan and the Mortgage and Security Agreements, which included customary events of default for financings of this type.

In addition, a default under the Credit Agreement or any successor credit facility would have been an event of default under the Real Estate Loan.

On June 18, 2020, the Company delivered a prepayment notice to the lender bank of its intent to prepay the outstanding principal balance on the Real Estate Loan of $ 18,900,000 on July 20, 2020, together with accrued interest and a prepayment fee of 1.00 % of the outstanding principal balance.

In connection with the prepayment of the Real Estate Loan, the Mortgage and Security Agreements terminated.

Accordingly, the outstanding balance and the associated unamortized debt issuance costs are included in short-term obligations in the accompanying condensed consolidated balance sheet as of June 27, 2020.

See Note 14 , Subsequent Event, for further details.

Notes to Condensed Consolidated Financial Statements

Short- and Long-Term Obligations (continued)

In July 2020, the Company prepaid the outstanding principal balance on the Real Estate Loan of $ 18,900,000 , together with accrued interest and a prepayment fee of 1.00 % of the outstanding principal balance, resulting in a loss on the extinguishment of debt of $ 189,000 , which is included in selling, general, and administrative expenses in the accompanying condensed consolidated statement of income.

To prepay the Real Estate Loan, the Company used $ 19,000,000 of borrowings available under the Credit Agreement.

Senior Promissory Notes

3 unchanged sentences

The obligations of the Initial Notes may be accelerated upon an event of default as defined in the Note Purchase Agreement, which includes customary events of default under such financing arrangements.

Notes to Condensed Consolidated Financial Statements

In accordance with the Note Purchase Agreement, the Company may also issue additional senior promissory notes (together with the Initial Notes, the Senior Promissory Notes) up to an additional $ 115,000,000 until the earlier of December 14, 2021 or the thirtieth day after written notice to terminate the issuance and sale of additional notes pursuant to the Note Purchase Agreement.

2 unchanged sentences

Debt Compliance

As of June 27, 2020 , the Company was in compliance with the covenants related to its debt obligations.

As of September 26, 2020, the Company was in compliance with the covenants related to its debt obligations.

Finance Leases

4 unchanged sentences

The interest rate on the outstanding obligation is 1.79 %.

The secured loan receivable, which is included in other assets in the accompanying condensed consolidated balance sheet, was $ 1,026,000 at June 27, 2020 .

The secured loan receivable, which is included in other assets in the accompanying condensed consolidated balance sheet, was $ 1,127,000 at September 26, 2020.

The lease arrangement provides for a fixed price purchase option, net of the projected loan receivable, of $ 1,549,000 at the end of the lease term in 2022.

If the Company does not exercise the purchase option for the facility, it will receive cash from the landlord to settle the loan receivable.

As of June 27, 2020 , $ 3,630,000 was outstanding under this obligation.

As of September 26, 2020, $ 3,704,000 was outstanding under this obligation.

Stock-Based Compensation

The Company recognized stock-based compensation expense of $ 1,877,000 in the second quarter of 2020 , $ 1,914,000 in the second quarter of 2019 , $ 3,516,000 in the first six months of 2020 , and $ 3,467,000 in the first six months of 2019 within SG&A expenses in the accompanying condensed consolidated statement of income.

The Company recognized stock-based compensation expense of $ 1,610,000 in the third quarter of 2020, $ 1,658,000 in the third quarter of 2019, $ 5,126,000 in the first nine months of 2020, and $ 5,125,000 in the first nine months of 2019 within SG&A expenses in the accompanying condensed consolidated statement of income.

The Company recognizes compensation expense for all stock-based awards granted to employees and directors based on the grant date estimate of fair value for those awards.

2 unchanged sentences

For performance-based RSUs, compensation expense is recognized ratably over the requisite service period for each separately vesting portion of the award based on the grant date fair value, net of actual forfeitures recorded when they occur, and remeasured each reporting period until the total number of RSUs to be issued is known.

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 8,409,000 at June 27, 2020 and will be recognized over a weighted average period of 1.9 years.

On May 12, 2020, the Company granted 8,340 RSUs in the aggregate to its then non-employee directors with a grant date fair value of $ 676,000 .

Half of these RSUs vested on June 1, 2020 and the remaining RSUs will vest ratably on the last day of the third and fourth fiscal quarters of 2020.

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 6,913,000 at September 26, 2020 and will be recognized over a weighted average period of 1.7 years.

Notes to Condensed Consolidated Financial Statements

8 unchanged sentences

Three Months Ended

June 27, 2020

Three Months Ended

June 29, 2019

(In thousands, except percentages)

What changed 10-Q

Item 1. Financial Statements