What changed in this filing

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Item 1. Financial Statements

2021-05-12 compared with 2020-11-04 · 180 added, 387 removed, 418 unchanged (58% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheet

September 26,

2020 December 28,

2021 January 2,

(In thousands, except share and per share amounts)

11 unchanged sentences

Other Assets 39,669 40,391

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

Goodwill (Note 1) 342,999 336,032

Intangible Assets, Net 155,534 160,965

Goodwill 348,504 351,753

Total Assets $ 935,665 $ 927,571

26 unchanged sentences

Condensed Consolidated Statement of Income

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

(In thousands, except per share amounts)

4 unchanged sentences

Research and development expenses 2,857 3,076

Restructuring costs (Note 3) 470 — 926 —

149,036 139,472

15 unchanged sentences

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

Condensed Consolidated Statement of Comprehensive Income

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Condensed Consolidated Statement of Comprehensive Income (Loss)

Three Months Ended

2021 March 28,

(In thousands)

2 unchanged sentences

Foreign currency translation adjustment ( 4,750 ) ( 12,574 )

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 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 )

Comprehensive Income 23,673 7,030 39,822 35,611

Post-retirement liability adjustments, net (net of tax of $ 10 and $ 20 )

Effect of post-retirement plan settlement — ( 119 )

Deferred gain (loss) on cash flow hedges (net of tax of $ 19 and $( 119 ))

Other comprehensive items ( 4,609 ) ( 12,945 )

Comprehensive Income (Loss) 12,187 ( 289 )

Comprehensive Income Attributable to Noncontrolling Interest

( 174 ) ( 114 )

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

Comprehensive Income (Loss) Attributable to Kadant $ 12,013 $ ( 403 )

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

Condensed Consolidated Statement of Cash Flows

Nine Months Ended

September 26,

2020 September 28,

Three Months Ended

2021 March 28,

(In thousands)

6 unchanged sentences

Stock-based compensation expense 1,499 1,639

Provision for losses on accounts receivable 505 170

Gain on sale of property, plant, and equipment ( 4 ) ( 139 )

(Benefit) provision for losses on accounts receivable ( 129 ) 103

Loss (gain) on sale of property, plant, and equipment 48 ( 10 )

Other items, net ( 430 ) ( 877 )

Changes in current assets and liabilities, net of effects of acquisitions:

Changes in current assets and liabilities, net of effects of an acquisition:

Accounts receivable ( 13,955 ) 1,929

6 unchanged sentences

Investing Activities

Acquisitions, net of cash acquired (Note 2) ( 7,095 ) ( 177,058 )

Acquisition ( 125 ) —

Purchases of property, plant, and equipment ( 2,259 ) ( 2,686 )

2 unchanged sentences

Financing Activities

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

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

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

Repayment of long-term obligations ( 19,563 ) ( 2,969 )

Proceeds from issuance of long-term obligations 10,139 —

Tax withholding payments related to stock-based compensation ( 3,388 ) ( 2,318 )

Dividends paid ( 2,770 ) ( 2,628 )

Proceeds from issuance of Company common stock — 913

Dividend paid to noncontrolling interest ( 525 ) —

Other financing activities ( 189 ) ( 52 )

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

Net cash used in financing activities ( 15,582 ) ( 7,002 )

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash ( 1,090 ) ( 2,693 )

(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash ( 12,069 ) 3,854

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash 68 ( 6,198 )

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 66,640 68,273

Cash, Cash Equivalents, and Restricted Cash at End of Period $ 66,708 $ 62,075

See Note 1 , under the heading Supplemental Cash Flow Information for further details.

See Note 1 , Nature of Operations and Summary of Significant Accounting Policies,

under the heading Supplemental Cash Flow Information for further details.

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

Condensed Consolidated Statement of Stockholders' Equity

Three Months Ended September 26, 2020

Three Months Ended April 3, 2021

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

5 unchanged sentences

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

Balance at January 2, 2021 14,624,159 $ 146 $ 110,824 $ 479,400 3,081,919 $ ( 75,519 ) $ ( 19,492 ) $ 1,546 $ 496,905

Net income — — — 16,561 — — — 235 16,796

1 unchanged sentence

— — — ( 2,894 ) — — — — ( 2,894 )

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

Activity under stock plans — — ( 2,760 ) — ( 35,540 ) 870 — — ( 1,890 )

Other comprehensive items — — — — — — ( 4,548 ) ( 61 ) ( 4,609 )

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

Balance at April 3, 2021 14,624,159 $ 146 $ 108,064 $ 493,067 3,046,379 $ ( 74,649 ) $ ( 24,040 ) $ 1,720 $ 504,308

Three Months Ended March 28, 2020

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

7 unchanged sentences

Net income — — — 12,531 — — — 125 12,656

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 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

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, $ 0.24 per share

2 unchanged sentences

Other comprehensive items — — — — — — ( 12,934 ) ( 11 ) ( 12,945 )

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

Balance at March 28, 2020 14,624,159 $ 146 $ 105,457 $ 445,027 3,154,644 $ ( 77,302 ) $ ( 50,554 ) $ 1,498 $ 424,272

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 (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.

The impact of the COVID-19 pandemic, including the resulting economic impact, continues to evolve and the Company is closely monitoring its impact on all aspects of its business.

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 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.

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 April 3, 2021, its results of operations, comprehensive income (loss), cash flows, and stockholders' equity for the three-month periods ended April 3, 2021 and March 28, 2020.

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

The condensed consolidated balance sheet presented as of December 28, 2019 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

The condensed consolidated balance sheet presented as of January 2, 2021 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

The condensed consolidated financial statements and related notes are presented as permitted by the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-Q and do not contain certain information included in the annual consolidated financial statements and related notes of the Company.

The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019, filed with the SEC.

Financial Statement Presentation

In the first quarter of 2020, the Company realigned its business segments into three new reportable operating segments:

Flow Control, Industrial Processing, and Material Handling.

The Company previously reported its financial results by combining its operating entities into three reportable operating segments:

Papermaking Systems, Wood Processing Systems, and Material Handling Systems, and a separate product line, Fiber-based Products.

Financial information for 2019 has been recast to conform to the new segment presentation.

See Note 12 , Business Segment Information, for further detail regarding the Company's segments.

Use of Estimates and Critical Accounting Policies

2 unchanged sentences

Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its condensed consolidated financial statements or in the application of accounting policies, if business conditions were different, or if the Company were to use different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

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 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.

Note 1 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021 describes 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 three months ended April 3, 2021.

Supplemental Cash Flow Information

Nine Months Ended

(In thousands) September 26,

2020 September 28,

Three Months Ended

(In thousands) April 3,

2021 March 28,

Cash Paid for Interest $ 892 $ 2,212

1 unchanged sentence

Non-Cash Investing Activities:

Fair value of assets acquired $ 9,295 $ 208,558

Cash paid for acquired businesses ( 7,565 ) ( 179,489 )

Liabilities Assumed of Acquired Businesses $ 1,730 $ 29,069

Non-cash additions to property, plant, and equipment $ 169 $ 128

2 unchanged sentences

Dividends declared but unpaid $ 2,894 $ 2,753

Notes to Condensed Consolidated Financial Statements

Restricted Cash

2 unchanged sentences

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) September 26,

2020 September 28,

2019 December 28,

(In thousands) April 3,

2021 March 28,

2020 January 2,

2021 December 28,

3 unchanged sentences

The components of inventories are as follows:

September 26,

2020 December 28,

2021 January 2,

(In thousands)

3 unchanged sentences

$ 112,590 $ 106,814

Notes to Condensed Consolidated Financial Statements

Intangible Assets, Net

3 unchanged sentences

Translation Net

September 26, 2020

April 3, 2021

Definite-Lived

7 unchanged sentences

Acquired Intangible Assets $ 278,214 $ ( 119,090 ) $ ( 3,590 ) $ 155,534

December 28, 2019

January 2, 2021

Definite-Lived

7 unchanged sentences

Acquired Intangible Assets $ 278,214 $ ( 114,458 ) $ ( 2,791 ) $ 160,965

Gross intangible assets include $ 3,907,000 for acquired intangible assets from acquisitions that occurred in the second quarter of 2020.

See Note 2 , Acquisitions, for further details.

Intangible assets are initially recorded at fair value at the date of acquisition.

Intangible assets are recorded at fair value at the date of acquisition.

Subsequent impairment charges are reflected as a reduction in the gross balance, as applicable.

1 unchanged sentence

The Company amortizes definite-lived intangible assets over lives that have been determined based on the anticipated cash flow benefits of the intangible asset.

Notes to Condensed Consolidated Financial Statements

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

(In thousands) Flow Control Industrial Processing Material Handling Total

Balance at December 28, 2019 (a)

Balance at January 2, 2021

Gross balance $ 101,437 $ 215,881 $ 119,944 $ 437,262

1 unchanged sentence

Net balance 101,437 130,372 119,944 351,753

2020 Adjustments

Acquisition (Note 2)

— 3,985 — 3,985

2021 Adjustment

Currency translation ( 1,273 ) ( 466 ) ( 1,510 ) ( 3,249 )

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

Balance at September 26, 2020

Total 2021 adjustment ( 1,273 ) ( 466 ) ( 1,510 ) ( 3,249 )

Balance at April 3, 2021

Gross balance 100,164 215,415 118,434 434,013

1 unchanged sentence

Net balance $ 100,164 $ 129,906 $ 118,434 $ 348,504

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

See Note 12 , Business Segment Information, for further details regarding the Company's change in reportable operating segments.

Notes to Condensed Consolidated Financial Statements

Impairment of Indefinite-Lived Assets

The Company evaluates the recoverability of goodwill and indefinite-lived intangible assets as of the end of each fiscal year or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset might be impaired.

Potential impairment indicators include a significant decline in sales, earnings, or cash flows, material adverse changes in the business climate, and a significant decline in the Company's market capitalization due to a sustained decrease in its stock price.

In March 2020, the Company experienced a significant decrease in market capitalization due to a decline in the Company’s stock price.

During that time, the overall U.S.

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 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

The Company's contracts covering the sale of its products include warranty provisions that provide assurance to its customers that the products will comply with agreed-upon specifications during a defined period of time.

The Company provides for the estimated cost of product warranties at the time of sale based on historical occurrence rates and repair costs, as well as knowledge of any specific warranty problems that indicate projected warranty costs may vary from historical patterns.

The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications.

1 unchanged sentence

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

Nine Months Ended

(In thousands) September 26,

2020 September 28,

Three Months Ended

(In thousands) April 3,

2021 March 28,

Balance at Beginning of Year $ 7,064 $ 6,467

1 unchanged sentence

Usage ( 1,361 ) ( 1,365 )

Acquisition — 303

Currency translation ( 133 ) ( 162 )

1 unchanged sentence

Revenue Recognition

The Company recognizes revenue under Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers .

Most of the Company’s revenue is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service.

Most of the Company’s parts and consumables products and its capital products with minimal customization are accounted for at a point in time.

The Company has made a policy election to not treat the obligation to ship as a separate performance obligation under the contract and, as a result, the associated shipping costs are reflected in cost of revenue when revenue is recognized.

Most of the Company’s revenue relates to products and services that require minimal customization and is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service.

The remaining portion of the Company’s revenue is recognized on an over time basis based on an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation.

2 unchanged sentences

These projects are highly customized for the customer and, as a result, would include a significant cost to rework in the event of cancellation.

Notes to Condensed Consolidated Financial Statements

The following table presents revenue by revenue recognition method:

Three Months Ended Nine Months Ended

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

Three Months Ended

April 3, March 28,

(In thousands) 2021 2020

2 unchanged sentences

$ 172,463 $ 159,127

The transaction price includes estimated variable consideration where applicable.

Such variable consideration relates to certain performance guarantees and rights to return the product.

The Company estimates variable consideration as the most likely amount to which it expects to be entitled based on the terms of the contracts with customers and historical experience, where relevant.

For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation based on the relative stand-alone selling price.

Notes to Condensed Consolidated Financial Statements

The Company disaggregates its revenue from contracts with customers by reportable operating segment, product type and geography as this best depicts how its revenue is affected by economic factors.

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

Three Months Ended Nine Months Ended

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

Three Months Ended

April 3, March 28,

(In thousands) 2021 2020

11 unchanged sentences

The following table presents contract balances from contracts with customers:

September 26,

2020 December 28,

2021 January 2,

(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 $ 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 Company recognized revenue of $ 17,140,000 in the first three months of 2021 and $ 19,708,000 in the first three months of 2020 that was included in the contract liabilities balance at the beginning of 2021 and 2020.

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 September 26,

Notes to Condensed Consolidated Financial Statements

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.

For customers outside of China, final payment for the majority of the Company's products is received in the quarter following the product shipment.

Certain of the Company's contracts include a longer period before final payment is due, which is typically within one year of final shipment or transfer of control to the customer.

The Company includes in revenue amounts invoiced for shipping and handling with the corresponding costs reflected in cost of revenue.

Provisions for discounts, warranties, returns and other adjustments are provided for in the period in which the related sale was recorded.

Sales taxes, value-added taxes, and certain excise taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue.

Accounts Receivable and Allowance for Credit Losses

The Company's accounts receivable arise from sales on credit to customers, are recorded at the invoiced amount, and do not bear interest.

The Company establishes an allowance for credit losses to reduce accounts receivable to the net amount expected to be collected.

The Company exercises judgment in determining its allowance for credit losses, which is based on its historical collection and write-off experience, adjusted for current macroeconomic trends and conditions, credit policies, specific customer collection issues, and accounts receivable aging.

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and each customer's current creditworthiness.

The Company continuously monitors collections and payments from its customers.

Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

In some instances, the Company utilizes letters of credit to mitigate its credit exposure.

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

Nine Months Ended

(In thousands) September 26,

2020 September 28,

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

Provision charged to expense 505 170

Accounts written off ( 133 ) ( 138 )

Currency translation 43 ( 103 )

Balance at End of Period $ 3,113 $ 2,826

Certain capital contracts require long lead times and could take up to 24 months to complete.

For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations as of April 3, 2021 was $ 16,990,000 .

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 48 % of which is expected to occur within the next twelve months and the remaining 52 % within the following twelve months .

Banker's Acceptance Drafts Included in Accounts Receivable

2 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 $ 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

Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, which changes the way entities recognize impairment of financial assets, such as accounts receivable, by requiring immediate recognition of estimated credit losses expected to occur over their remaining lives.

During 2018 and 2019, the FASB issued additional guidance and clarification.

The Company adopted this ASU using a modified retrospective method at the beginning of fiscal 2020 and its adoption did not have a material impact on the condensed consolidated financial statements.

See Accounts Receivable and Allowance for Credit Losses in this section for information on the Company's allowance for credit losses.

These drafts, which totaled $ 10,347,000 at April 3, 2021 and $ 9,445,000 at January 2, 2021, 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.

Notes to Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance, including the recognition of franchise tax, the treatment of a step up in the tax basis of goodwill, and the timing for recognition of enacted changes in tax laws or rates in the interim period annual effective tax rate computation.

This new guidance is effective in fiscal 2021, and the transition requirements are primarily prospective.

The Company adopted this ASU prospectively at the beginning of fiscal 2021 and its adoption did not have an impact on the condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

5 unchanged sentences

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

Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.

In December 2019, the FASB issued ASU No.

This new guidance is effective in fiscal 2021, with early adoption permitted.

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

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 $ 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 $ 6,866,000 , net of cash acquired.

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

Intangible assets acquired totaled $ 3,350,000 and 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.

In the second quarter of 2020, the Company’s Industrial Processing segment also acquired certain intellectual property from a company in Austria for $ 416,000 , of which $ 229,000 was paid in the second quarter of 2020.

The Company expects to pay the remaining amount no later than the first quarter of 2022.

Restructuring Costs

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.

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) Severance

Provision $ 926

Usage ( 430 )

Currency translation ( 11 )

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

Earnings per Share

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

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

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

Three Months Ended

2021 March 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 11,612 11,508

1 unchanged sentence

Diluted Earnings per Share $ 1.43 $ 1.09

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.

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 44,000 shares in the first quarter of 2021 and 43,000 shares in the first quarter of 2020 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 $ 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.

The provision for income taxes was $ 5,561,000 in the first three months of 2021 and $ 4,559,000 in the first three months of 2020.

The effective tax rate of 25 % in the first three months of 2021 was higher than the Company's statutory rate of 21% primarily due to nondeductible expenses, the distribution of the Company's worldwide earnings, state taxes, and tax expense associated with the Global Intangible Low-Taxed Income (GILTI) provisions.

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.

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

This incremental tax expense was offset in part by the reversal of tax reserves associated with uncertain tax positions.

Notes to Condensed Consolidated Financial Statements

Long-Term Obligations

Long-term obligations are as follows:

September 26,

2020 December 28,

2021 January 2,

(In thousands)

Revolving Credit Facility, due 2023 $ 207,257 $ 217,963

Commercial Real Estate Loan — 19,425

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

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Other Borrowings, due 2021 to 2023 3,657 3,880

Unamortized Debt Issuance Costs — ( 127 )

Total 222,484 233,474

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Long-Term Obligations $ 221,067 $ 232,000

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

Notes to Condensed Consolidated Financial Statements

See Note 8 , Fair Value Measurements and Fair Value of Financial Instruments, for the fair value information related to the Company's long-term obligations.

Revolving Credit Facility

The Company entered into a five-year , unsecured multi-currency revolving credit facility, dated as of March 1, 2017 (as amended and restated to date, the Credit Agreement).

Pursuant to the Credit Agreement, the Company has a borrowing capacity of $ 400,000,000 , with an uncommitted, unsecured incremental borrowing facility of $ 150,000,000 , and a maturity date of December 14, 2023.

The Company entered into an unsecured multi-currency revolving credit facility, dated as of March 1, 2017 (as amended and restated to date, the Credit Agreement).

Pursuant to the Credit Agreement, the Company has a borrowing capacity of $ 400,000,000 , with an uncommitted, unsecured incremental borrowing facility of $ 150,000,000 , with a maturity date of December 14, 2023.

Interest on borrowings outstanding accrues and is payable in arrears calculated at one of the following rates selected by the Company:

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The Base Rate is calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the prime rate as published by Citizens Bank, N.A.

(Citizens) and (c) thirty-day U.S.

(Citizens Bank) and (c) thirty-day U.S.

dollar LIBOR (USD LIBOR), as defined, plus 0.50 %.

The applicable margin is determined based upon the ratio of the Company's total debt, net of unrestricted cash up to $ 30,000,000 and certain debt obligations, to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement.

Obligations under the Credit Agreement may be accelerated upon the occurrence of an event of default, which includes customary events of default under such financing arrangements.

In addition, the Credit Agreement contains negative covenants applicable to the Company and its subsidiaries, including financial covenants requiring the Company to maintain a maximum consolidated leverage ratio of 3.75 to 1.00, or for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, 4.00 to 1.00, and limitations on making certain restricted payments (including dividends and stock repurchases).

The obligations under the Credit Agreement may be accelerated upon the occurrence of an event of default, which includes customary events of default under such financing arrangements.

In addition, the Credit Agreement contains negative covenants applicable to the Company and its subsidiaries, including financial covenants requiring the Company to maintain a maximum consolidated leverage ratio of 3.75 to 1.00, or, if the Company elects, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, 4.00 to 1.00, and limitations on making certain restricted payments (including dividends and stock repurchases).

Loans under the Credit Agreement are guaranteed by certain domestic subsidiaries of the Company.

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 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.

As of April 3, 2021, the outstanding balance under the Credit Agreement was $ 207,257,000 , which included $ 48,257,000 of euro-denominated borrowings.

As of April 3, 2021, the Company had $ 192,819,000 of borrowing capacity available under its Credit Agreement, which was calculated by translating its foreign-denominated borrowings using borrowing date foreign exchange rates.

See Note 7 , Derivatives, under the heading Interest Rate Swap Agreement, for information relating to the swap agreement 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 1.82 % as of September 26, 2020.

Commercial Real Estate Loan

In 2018, the Company and certain domestic subsidiaries borrowed $ 21,000,000 under a ten-year promissory note (Real Estate Loan), which was repayable in quarterly principal installments of $ 262,500 with the remaining principal balance of $ 10,500,000 due July 6, 2028.

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

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.

The weighted average interest rate for the outstanding balance under the Credit Agreement was 1.56 % as of April 3, 2021.

Senior Promissory Notes

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The Company is required to prepay a portion of the principal of the Initial Notes beginning on December 14, 2023 and each year thereafter, and may optionally prepay the principal on the Initial Notes, together with any prepayment premium, at any time (in a minimum amount of $ 1,000,000 , or the foreign currency equivalent thereof, if applicable) in accordance with the Note Purchase Agreement.

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.

The obligations of the Initial Notes

Notes to Condensed Consolidated Financial Statements

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.

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.

The Senior Promissory Notes are pari passu with the Company’s indebtedness under the Credit Agreement, and any other senior debt, subject to certain specified exceptions, and participate in a sharing agreement with respect to the obligations of the Company and its subsidiaries under the Credit Agreement.

The Senior Promissory Notes are pari passu with the Company’s indebtedness under the Credit Agreement, and any other senior debt of the Company, subject to certain specified exceptions, and participate in a sharing agreement with respect to the obligations of the Company and its subsidiaries under the Credit Agreement.

The Senior Promissory Notes are guaranteed by certain of the Company’s domestic subsidiaries.

Debt Compliance

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

As of April 3, 2021, the Company was in compliance with the covenants related to its debt obligations.

Finance Leases

The Company's finance leases primarily relate to contracts for its vehicles.

The Company's finance leases primarily relate to contracts for vehicles.

Other Borrowings

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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 $ 1,127,000 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 September 26, 2020, $ 3,704,000 was outstanding under this obligation.

The secured loan receivable, which is included in other assets in the accompanying condensed consolidated balance sheet, was $ 1,266,000 at April 3, 2021.

The lease arrangement provides for a fixed price purchase option, net of the projected loan receivable, of $ 1,566,000 at the end of the lease term in August 2022.

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

As of April 3, 2021, $ 3,615,000 was outstanding under this obligation.

Stock-Based Compensation

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 recognized stock-based compensation expense of $ 1,499,000 in the first quarter of 2021 and $ 1,639,000 in the first quarter of 2020 within selling, general, and administrative (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.

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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 $ 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

Retirement Benefit Plans

The Company includes the service cost component of net periodic benefit cost in operating income and all other components are included in other expense, net in the accompanying condensed consolidated statement of income.

In 2018, the Company's board of directors and its compensation committee approved amendments to freeze and terminate its U.S.

pension plan (Retirement Plan) and its restoration plan (Restoration Plan).

In the fourth quarter of 2019, the Company settled its Retirement Plan obligation.

In the first quarter of 2020, the Company settled its Restoration Plan obligation of $ 2,427,000 by paying a lump sum to its plan participants.

No benefit costs were incurred related to these plans in 2020.

The components of net periodic benefit cost are as follows:

Three Months Ended

September 26, 2020 Three Months Ended

September 28, 2019

(In thousands, except percentages) Non-U.S.

Pension Other Post-Retirement U.S.

Pension Non-U.S.

Pension Other Post-Retirement

Service Cost $ 45 $ 2 $ — $ 43 $ 1

Interest Cost 22 9 283 27 37

Expected Return on Plan Assets ( 14 ) ( 1 ) ( 248 ) ( 16 ) ( 1 )

Recognized Net Actuarial Loss 10 4 8 5 3

Amortization of Prior Service Cost 2 — — — —

$ 65 $ 14 $ 43 $ 59 $ 40

The weighted average assumptions used to determine net periodic benefit cost are as follows:

Discount Rate 2.05 % 3.80 % 4.10 % 2.82 % 4.44 %

Expected Long-Term Return on Plan Assets 7.21 % 7.21 % 4.10 % 9.22 % 9.22 %

Rate of Compensation Increase 3.14 % 5.57 % — % 2.99 % 5.57 %

Nine Months Ended

September 26, 2020 Nine Months Ended

September 28, 2019

(In thousands, except percentages) Non-U.S.

Pension Other Post-Retirement U.S.

Pension Non-U.S.

Pension Other Post-Retirement

Service Cost $ 131 $ 5 $ — $ 129 $ 3

Interest Cost 66 29 850 84 112

Expected Return on Plan Assets ( 45 ) ( 3 ) ( 745 ) ( 50 ) ( 3 )

Recognized Net Actuarial Loss 31 12 24 15 9

Amortization of Prior Service Cost 5 — — — —

$ 188 $ 43 $ 129 $ 178 $ 121

The weighted average assumptions used to determine net periodic benefit cost are as follows:

Discount Rate 2.12 % 3.83 % 4.10 % 2.81 % 4.44 %

Expected Long-Term Return on Plan Assets 7.21 % 7.21 % 4.10 % 9.22 % 9.22 %

Rate of Compensation Increase 3.17 % 5.57 % — % 2.99 % 5.57 %

Other than the payment made for the settlement of the Restoration Plan obligation in January 2020, the Company does not plan to make any material cash contributions to its other pension and post-retirement plans in 2020.

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 11,500,000 at April 3, 2021 and will be recognized over a weighted average period of 2.1 years.

Performance-based RSUs

On March 9, 2021, the Company granted performance-based RSUs to certain of its officers, which represented, in aggregate, the right to receive 22,613 shares (the target RSU amount), with an aggregate grant date fair value of $ 3,962,000 .

The RSUs are subject to adjustment based on the achievement of the performance measure selected for the 2021 fiscal year, which is a specified target for adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) generated from operations for the 2021 fiscal year.

The RSUs are adjusted by comparing the actual adjusted EBITDA for the performance period to the target adjusted EBITDA.

Actual adjusted EBITDA between 50% and 100% of the target adjusted EBITDA results in an adjustment of 50 % to 100 % of the RSU amount.

Actual adjusted EBITDA between 100% and 115% of the target adjusted EBITDA results in an adjustment using a straight-line linear scale between 100 % and 150 % of the RSU amount.

Actual adjusted EBITDA in excess of 115% results in an adjustment capped at 150 % of the RSU amount.

Notes to Condensed Consolidated Financial Statements

adjusted EBITDA is below 50% of the target adjusted EBITDA for the 2021 fiscal year, these performance-based RSUs will be forfeited.

The Company recognizes compensation expense based on the probable number of performance-based RSUs expected to vest.

Following the adjustment, the performance-based RSUs will be subject to additional time-based vesting, and will vest in three equal annual installments on March 10 of 2022, 2023, and 2024, provided that the officer is employed by the Company on the applicable vesting dates.

Time-based RSUs

On March 9, 2021, the Company also granted time-based RSUs representing 21,559 shares to its officers and employees with an aggregate grant date fair value of $ 3,777,000 .

These time-based RSUs generally vest in three equal annual installments on March 10 of 2022, 2023, and 2024, provided that a recipient remains employed by the Company on the applicable vesting dates.

Accumulated Other Comprehensive Items

Comprehensive income combines net income and other comprehensive items, which represent certain amounts that are reported as components of stockholders' equity in the accompanying condensed consolidated balance sheet.

Comprehensive income (loss) combines net income and other comprehensive items, which represent certain amounts that are reported as components of stockholders' equity in the accompanying condensed consolidated balance sheet.

Changes in each component of accumulated other comprehensive items (AOCI), net of tax, are as follows:

(In thousands) Foreign

Adjustment Pension and Other Post-Retirement Benefit Liability Adjustments Deferred Loss on Cash Flow Hedges Total

Balance at December 28, 2019 $ ( 36,145 ) $ ( 831 ) $ ( 644 ) $ ( 37,620 )

Other comprehensive income (loss) before reclassifications 748 ( 1 ) ( 420 ) 327

Adjustment Post-Retirement Benefit Liability Adjustments Deferred Loss on Cash Flow Hedges Total

Balance at January 2, 2021 $ ( 17,894 ) $ ( 770 ) $ ( 828 ) $ ( 19,492 )

Other comprehensive items before reclassifications ( 4,689 ) 18 30 ( 4,641 )

Reclassifications from AOCI — 10 83 93

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( 4,689 ) 28 113 ( 4,548 )

Balance at September 26, 2020 $ ( 35,397 ) $ ( 916 ) $ ( 919 ) $ ( 37,232 )

Balance at April 3, 2021 $ ( 22,583 ) $ ( 742 ) $ ( 715 ) $ ( 24,040 )

Amounts reclassified from AOCI are as follows:

Three Months Ended Nine Months Ended

(In thousands) September 26,

2020 September 28,

2019 September 26,

2020 September 28,

2019 Statement of Income

Retirement Benefit Plans (a)

Three Months Ended

(In thousands) April 3,

2021 March 28,

2020 Statement of Income Line Item

Post-retirement Benefit Plans

Recognized net actuarial loss

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Income tax benefit 4 124 Provision for income taxes

( 12 ) ( 12 ) 84 ( 36 )

Cash Flow Hedges (b)

Cash Flow Hedges (a)

Interest rate swap agreements

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Total Reclassifications $ ( 93 ) $ 64

(a) Included in the computation of net periodic benefit cost.

See Note 8 , Retirement Benefit Plans, for additional information.

(b) See Note 10 , Derivatives, for additional information.

Interest Rate Swap Agreements

The Company has entered into interest rate swap agreements to hedge its exposure to movements in USD LIBOR on its U.S.

(a) See Note 7 , Derivatives, for additional information.

Notes to Condensed Consolidated Financial Statements

Interest Rate Swap Agreement

In 2018, the Company entered into an interest rate swap agreement (2018 Swap Agreement) with Citizens Bank to hedge its exposure to movements in USD LIBOR on its U.S.

dollar-denominated debt.

In 2018, the Company entered into an interest rate swap agreement (2018 Swap Agreement) with Citizens, which has a $ 15,000,000 notional value and expires on June 30, 2023.

The 2018 Swap Agreement has a $ 15,000,000 notional value and expires on June 30, 2023.

On a quarterly basis, the Company receives three-month USD LIBOR, which is subject to a zero percent floor, and pays a fixed rate of interest of 3.15 % plus an applicable margin as defined in the Credit Agreement.

In 2015, the Company entered into an interest rate swap agreement (2015 Swap Agreement) with Citizens which had a $ 10,000,000 notional value and expired on March 27, 2020.

Under the 2015 Swap

Notes to Condensed Consolidated Financial Statements

Agreement, the Company received three-month USD LIBOR and paid a fixed rate of interest of 1.5 % plus an applicable margin as defined in the Credit Agreement.

The interest rate swap agreements have been designated as cash flow hedges and are structured to be 100% effective.

Unrealized gains and losses related to the fair values of the swap agreements are recorded to AOCI, net of tax.

In the event of early termination of the 2018 Swap Agreement, the Company will receive from or pay to the counterparty the fair value of the interest rate swap agreement, and the unrealized gain or loss outstanding will be recognized in earnings.

The Company designated its 2018 Swap Agreement as a cash flow hedge and structured it to be 100 % effective.

Unrealized gains and losses related to the fair value of the 2018 Swap Agreement are recorded to AOCI, net of tax.

In the event of early termination, the Company will receive from or pay to the counterparty the fair value of the 2018 Swap Agreement, and the unrealized gain or loss outstanding will be recognized in earnings.

The counterparty to the 2018 Swap Agreement could demand an early termination of that agreement if the Company were to be in default under the Credit Agreement, or any agreement that amends or replaces the Credit Agreement in which the counterparty is a member, and if it were to be unable to cure the default.

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Forward Currency-Exchange Contracts

The Company uses forward currency-exchange contracts that have maturities of twelve months or less to hedge exposures resulting from fluctuations in currency exchange rates.

The Company uses forward currency-exchange contracts that generally have maturities of twelve months or less to hedge exposures resulting from fluctuations in currency exchange rates.

Such exposures result from assets and liabilities that are denominated in currencies other than the functional currencies.

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The fair values of forward currency-exchange contracts that are designated as fair value hedges and forward currency-exchange contracts that are not designated as hedges are recognized currently in earnings.

The Company recognized within SG&A expenses in the accompanying condensed consolidated statement of income gains of $ 27,000 in the third quarter of 2020, losses of $ 14,000 in the third quarter of 2019, losses of $ 1,000 in the first nine months of 2020, and losses of $ 46,000 in the first nine months of 2019 associated with forward currency-exchange contracts that were not designated as hedges.

The Company recognized losses of $ 3,000 in the first quarter of 2021 and $ 34,000 in the first quarter of 2020 within SG&A expenses in the accompanying condensed consolidated statement of income associated with forward currency-exchange contracts that were not designated as hedges.

The following table summarizes the fair value of derivative instruments in the accompanying condensed consolidated balance sheet:

September 26, 2020 December 28, 2019

April 3, 2021 January 2, 2021

Balance Sheet Location Asset (Liability) (a) Notional Amount (b) Asset (Liability) (a) Notional Amount

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Forward currency-exchange contract Other Current Assets $ — $ — $ 25 $ 842

2015 Swap Agreement Other Current Assets $ — $ — $ 11 $ 10,000

Derivatives in a Liability Position:

Forward currency-exchange contracts Other Current Liabilities $ ( 14 ) $ 842 $ ( 75 ) $ 4,825

Forward currency-exchange contract Other Current Liabilities $ ( 9 ) $ 842 $ — $ —

2018 Swap Agreement Other Long-Term Liabilities $ ( 933 ) $ 15,000 $ ( 1,099 ) $ 15,000

5 unchanged sentences

(a) See Note 8 , Fair Value Measurements and Fair Value of Financial Instruments, for the fair value measurements relating to these financial instruments.

(b) The total 2020 notional amounts are indicative of the level of the Company's recurring derivative activity.

(b) The 2021 notional amounts are indicative of the level of the Company's recurring derivative activity.

Notes to Condensed Consolidated Financial Statements

The following table summarizes the activity in AOCI associated with derivative instruments designated as cash flow hedges as of and for the nine months ended September 26, 2020:

The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the three months ended April 3, 2021:

(In thousands) Interest Rate Swap

Agreements Forward Currency-

Agreement Forward Currency-

Contracts Total

Unrealized Loss, Net of Tax, at December 28, 2019 $ ( 589 ) $ ( 55 ) $ ( 644 )

Loss (gain) reclassified to earnings (a) 163 ( 18 ) 145

(Loss) gain recognized in AOCI ( 487 ) 67 ( 420 )

Unrealized Loss, Net of Tax, at September 26, 2020 $ ( 913 ) $ ( 6 ) $ ( 919 )

(a) See N ote 9 , Accumulated Other Comprehensive Items, for the income statement classification.

As of September 26, 2020, the Company expects to reclassify losses of $ 351,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the 2018 Swap Agreement and the maturity dates of the forward currency-exchange contracts.

Unrealized (Loss) Gain, Net of Tax, at January 2, 2021 $ ( 846 ) $ 18 $ ( 828 )

Loss reclassified to earnings (a) 83 — 83

Gain (loss) recognized in AOCI 55 ( 25 ) 30

Unrealized Loss, Net of Tax, at April 3, 2021 $ ( 708 ) $ ( 7 ) $ ( 715 )

(a) See Note 6 , Accumulated Other Comprehensive Items, for the income statement classification.

As of April 3, 2021, the Company expects to reclassify losses of $ 346,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the 2018 Swap Agreement and the maturity date of the forward currency-exchange contract.

Fair Value Measurements and Fair Value of Financial Instruments

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The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:

Fair Value as of September 26, 2020

Fair Value as of April 3, 2021

(In thousands) Level 1 Level 2 Level 3 Total

1 unchanged sentence

Banker's acceptance drafts (a) $ — $ 10,347 $ — $ 10,347

Forward currency-exchange contracts $ — $ 29 $ — $ 29

2018 Swap Agreement $ — $ 933 $ — $ 933

Forward currency-exchange contracts $ — $ 12 $ — $ 12

Fair Value as of December 28, 2019

Fair Value as of January 2, 2021

(In thousands) Level 1 Level 2 Level 3 Total

1 unchanged sentence

Banker's acceptance drafts (a) $ — $ 9,445 $ — $ 9,445

2015 Swap Agreement $ — $ 11 $ — $ 11

Forward currency-exchange contracts $ — $ 37 $ — $ 37

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

The Company uses the market approach technique to value its financial assets and liabilities, and there were no changes in valuation techniques during the first nine months of 2020.

Banker's acceptance drafts are carried at face value which approximates their fair value due to the short-term nature of the negotiable instrument.

The fair values of forward currency-exchange contracts are based on quoted forward foreign exchange rates at the reporting date.

The fair values of interest rate swap agreements are based on LIBOR yield curves at the reporting date.

The forward currency-exchange contracts and interest rate swap agreements are hedges of either recorded assets or liabilities or anticipated transactions and represent the estimated amount the Company would receive or pay upon liquidation of the contracts.

The Company uses the market approach technique to value its financial assets and liabilities, and there were no changes in valuation techniques during the first three months of 2021.

Banker's acceptance drafts are carried at face value.

which approximates their fair value due to the short-term nature of the negotiable instrument.

The fair values of the forward currency-exchange contracts are based on quoted forward foreign exchange rates at the reporting date.

The fair value of the 2018 Swap Agreement is based on USD LIBOR yield curves at the reporting date.

The forward currency-exchange contracts and the 2018 Swap Agreement are hedges of either recorded assets or liabilities or anticipated transactions and represent the estimated amount the Company would receive or pay upon liquidation of the contracts.

Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the table above.

The carrying value and fair value of debt obligations, excluding lease obligations and other borrowings, are as follows:

September 26, 2020 December 28, 2019

April 3, 2021 January 2, 2021

Carrying Value Fair Value Carrying Value Fair Value

2 unchanged sentences

Revolving credit facility $ 207,257 $ 207,257 $ 217,963 $ 217,963

Commercial real estate loan — — 19,425 20,541

Senior promissory notes 10,000 11,130 10,000 11,157

1 unchanged sentence

The carrying value of the Company's revolving credit facility approximates the fair value as the obligation bears variable rates of interest, which adjust frequently, based on prevailing market rates.

The fair values of the commercial real estate loan, which was repaid in July 2020, and senior promissory notes are primarily calculated based on quoted market rates plus an applicable margin available to the Company at the respective period ends, which represent Level 2 measurements.

The fair value of the senior promissory notes is primarily calculated based on quoted market rates plus an applicable margin available to the Company at the respective period ends, which represent Level 2 measurements.

Business Segment Information

The Company previously reported its financial results by combining its operating entities into three reportable operating segments:

Papermaking Systems, Wood Processing Systems, and Material Handling Systems, and a separate product line, Fiber-based Products.

During the first quarter of 2020, the Company changed its reportable operating segments to better align with its strategic initiatives to grow both organically and through acquisitions.

Such growth and diversification resulted in a change in the internal organization of the Company and how its chief operating decision maker makes operating decisions, assesses the performance of the business, and allocates resources.

Accordingly, the Company's financial results are reported in three new reportable operating segments:

The Company has combined its operating entities into three reportable operating segments:

Flow Control, Industrial Processing, and Material Handling.

The Flow Control segment consists of the Company’s fluid-handling and doctoring, cleaning, & filtration product lines;

the Industrial Processing segment consists of the Company’s wood processing and stock-preparation product lines (excluding baling products);

and the Material Handling segment consists of the Company’s conveying and screening, baling, and fiber-based product lines.

Financial information for 2019 has been recast to conform to the new segment presentation.

The Flow Control segment consists of the fluid-handling and doctoring, cleaning, & filtration product lines;

the Industrial Processing segment consists of the wood processing and stock-preparation product lines;

and the Material Handling segment consists of the conveying and screening, baling, and fiber-based product lines.

A description of each segment follows.

• Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors.

The Company's products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.

The Company's primary products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.

• Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products and alternative fuel industries, among others.

6 unchanged sentences

The following table presents financial information for the Company's reportable operating segments:

Three Months Ended Nine Months Ended

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

Three Months Ended

April 3, March 28,

(In thousands) 2021 2020

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Income Before Provision for Income Taxes

Flow Control (a) $ 13,770 $ 15,103 $ 37,360 $ 43,220

Industrial Processing (b) 12,072 13,107 32,147 38,830

Material Handling (c) 2,614 3,525 10,341 5,515

Corporate (d) ( 7,121 ) ( 7,182 ) ( 20,737 ) ( 21,295 )

Flow Control $ 16,443 $ 13,330

Industrial Processing 11,133 9,436

Material Handling 4,443 4,134

Corporate (a) ( 8,592 ) ( 7,245 )

Total operating income 23,427 19,655

Interest expense, net (e) ( 1,618 ) ( 3,023 ) ( 5,920 ) ( 9,985 )

Other expense, net (e) ( 32 ) ( 98 ) ( 95 ) ( 296 )

Interest expense, net (b) ( 1,046 ) ( 2,408 )

Other expense, net (b) ( 24 ) ( 32 )

$ 22,357 $ 17,215

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$ 2,259 $ 2,686

(a) Includes restructuring costs of $ 265,000 in the three-month period ended September 26, 2020 and $ 721,000 in the nine-month period ended September 26, 2020.

(b) Includes restructuring costs of $ 205,000 in the three- and nine-month periods ended September 26, 2020.

Includes acquisition-related expenses of $ 161,000 in the three-month period ended September 26, 2020 and $ 596,000 in the nine-month period ended September 26, 2020.

Acquisition-related expenses include amortization expense associated with backlog and acquisition costs.

(c) Includes acquisition-related expenses of $ 248,000 in the three-month period ended September 26, 2020 and $ 256,000 in the nine-month period ended September 26, 2020.

Includes acquisition-related expenses of $ 21,000 in the three-month period ended September 28, 2019 and $ 5,695,000 in the nine-month period ended September 28, 2019.

Acquisition-related expenses include amortization expense associated with acquired profit in inventory and backlog, and acquisition costs.

(d) Corporate primarily includes general and administrative expenses.

(e) The Company does not allocate interest and other expense, net to its segments.

(a) Represents general and administrative expenses.

(b) The Company does not allocate interest and other expense, net to its segments.

Commitments and Contingencies

Right of Recourse

In the ordinary course of business, the Company's subsidiaries in China may receive banker's acceptance drafts from customers as payment for their trade accounts receivable.

In the ordinary course of business, the Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable.

The drafts are noninterest-bearing obligations of the issuing bank and mature within six months of the origination date.

The Company's subsidiaries in China may use these banker's acceptance drafts prior to the scheduled maturity date to settle outstanding accounts payable with vendors.

The Company's Chinese subsidiaries may use these banker's acceptance drafts prior to the scheduled maturity date to settle outstanding accounts payable with vendors.

Banker's acceptance drafts transferred to vendors are subject to customary right of recourse provisions prior to their scheduled maturity dates.

The Company had $ 7,702,000 at September 26, 2020 and $ 7,003,000 at December 28, 2019 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates.

The Company had $ 6,476,000 at April 3, 2021 and $ 7,568,000 at January 2, 2021 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates.

Historically, the banker's acceptance drafts have settled upon maturity without any claim of recourse against the Company.

Notes to Condensed Consolidated Financial Statements

From time to time, the Company is subject to various claims and legal proceedings covering a range of matters that arise in the ordinary course of business.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements