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Item 2. Management’s Discussion and Analysis

2021-05-12 compared with 2020-11-04 · 132 added, 252 removed, 72 unchanged (84% of the section changed)

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We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

For a discussion of important factors that may cause our actual results to differ materially from those suggested by the forward-looking statements, you should read carefully Risk Factors included in Part II, Item 1A , within this report and the section captioned Risk Factors, in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as filed with the Securities and Exchange Commission (SEC) and as may be further amended and/or restated in subsequent filings with the SEC.

For a discussion of important factors that may cause our actual results to differ materially from those suggested by the forward-looking statements, you should read carefully Risk Factors included in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, as filed with the Securities and Exchange Commission (SEC) and as may be further amended and/or restated in subsequent filings with the SEC.

Company Background

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

We previously reported our financial results by combining 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, we changed our reportable operating segments to better align with our strategic initiatives to grow both organically and through acquisitions.

See Note 12 , Business Segment Information, in the accompanying condensed consolidated financial statements for further detail regarding our segments.

Accordingly, our financial results are reported in three new reportable operating segments:

Our financial results are reported in three reportable operating segments:

Flow Control, Industrial Processing, and Material Handling.

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

the Industrial Processing

segment consists of our wood processing and stock-preparation product lines (excluding our baling products);

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

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

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

A description of each segment is as 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.

Our products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.

Overview (continued)

Our 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.

Our products include stock-preparation systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers, and logging machinery.

Our primary products include stock-preparation systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers, and logging machinery.

In addition, we provide industrial automation and digitization solutions to process industries.

• Material Handling – Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others.

Our products include conveying and vibratory equipment and balers.

Our primary products include conveying and vibratory equipment and balers.

In addition, we manufacture and sell biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption.

Business Outlook and COVID-19 Update

In March 2020, the World Health Organization designated the novel coronavirus as a global pandemic (COVID-19).

In response to the ongoing COVID-19 pandemic, we continue to focus our efforts on:

• protecting the health and safety of our employees though precautionary measures, including working remotely when employees are not required to be physically present, social distancing, wearing face coverings, adding safety and hygiene protocols within our facilities, restricting travel and other safeguards;

• as a critical infrastructure company, serving the needs and expectations of our customers;

• working closely with our supply chain to minimize potential disruptions;

• preserving our liquidity position.

The COVID-19 pandemic has resulted in significant worldwide economic disruption and adversely affected our bookings and results of operations primarily due to delayed or reduced spending by our customers, as well as customer-requested delays on certain capital projects and service work.

While our businesses continue to be impacted by COVID-19, we experienced an 8% sequential increase in bookings in the third quarter of 2020 compared to the second quarter of 2020, mainly attributable to improved capital equipment bookings at our Industrial Processing segment's wood processing business.

For the fourth quarter of 2020, we expect a sequential increase in capital equipment bookings, and our parts and consumables bookings to remain stable as our customers perform year-end maintenance on their equipment.

Consolidated bookings decreased 16% to $143.3 million in the third quarter of 2020 compared to $170.9 million in the third quarter of 2019, offset by a 1% increase from the favorable effect of foreign currency translation and an acquisition.

Our business outlook by segment, including an update on the impact of COVID-19, is as follows:

• Flow Control – Bookings decreased 16% in the third quarter of 2020 compared with the third quarter of 2019.

Bookings for capital equipment at our North American and European operations continue to be negatively impacted by delayed or reduced capital spending by our customers.

Bookings for parts and consumables products at our North American and European operations declined slightly as a result of decreased demand from industrial customers due to production downtime, shutdowns and visitation restrictions at customer facilities related to COVID-19, while demand from our packaging, food processing, and tissue customers remained relatively stable.

• Industrial Processing – Bookings decreased 20% in the third quarter of 2020 compared with the third quarter of 2019.

Bookings at our stock-preparation business declined primarily due to delays or reductions in capital equipment spending by our customers as a result of COVID-19 and uncertainty in the Asian market surrounding the response to China's recovered paper import restrictions.

The decline at our stock-preparation business was partially offset by increased capital equipment bookings at our wood processing business due to a robust U.S.

housing market and a rebound in lumber, oriented strand board and plywood prices, which has driven increased capital investment by our customers.

Our wood processing business continues to experience steady bookings for parts and consumables products due to an improved U.S.

housing market and higher demand for wood-based products, which have increased mill run rates resulting in higher parts consumption by our customers.

• Material Handling – Bookings decreased 9% in the third quarter of 2020 compared with the third quarter of 2019.

Demand for our conveying and vibratory equipment continues to be negatively impacted by reduced customer spending primarily as a result of COVID-19 shutdowns and visitation restrictions.

Despite a slight decline in bookings in the third quarter of 2020 compared to a strong third quarter of 2019, orders at our baler business improved significantly from the first two quarters of 2020 as a result of increased economic activity and eased COVID-19 restrictions in Europe in the third quarter, in addition to orders from new markets.

Overview (continued)

To mitigate the adverse effects of the pandemic on our business, we continue to manage discretionary spending in such areas as capital expenditures and travel-related costs, utilize government employee retention assistance programs, and execute restructuring actions to reduce payroll-related costs at certain of our operations.

During the third quarter of 2020, we received benefits from government employee retention assistance programs of $2.8 million.

We expect the benefits received from these programs to decrease in the fourth quarter of 2020.

Our liquidity position as of September 26, 2020 consisted of over $53 million of cash and cash equivalents, $155 million of available borrowing capacity, and $265 million of uncommitted borrowing capacity.

We do not have any mandatory principal payments on our long-term debt obligations until 2023.

We continue to evaluate the impact of COVID-19 on our business and will take actions that are in the best interests of our employees, customers, and stakeholders or as mandated by governmental authorities.

While our global presence and the diversity of our products have provided some stability during the COVID-19 pandemic, there is continued uncertainty surrounding the trajectory of the pandemic which has been impacted by a recent resurgence of infections in many regions of the world, the timing of recovery in the markets in which we operate, and the resulting impact on our results of operations, financial condition and cash flows.

Accordingly, we cannot predict the extent of the impact that COVID-19 may have on our business for the remainder of fiscal 2020.

For more information on risks related to health epidemics to our business, including COVID-19, please see Part I, Item 1A.

Risk Factors , included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as further amended in subsequent filings with the SEC.

In 2018, the United States began imposing tariffs on certain imports from China, which has and will continue to increase the cost of some of the equipment that we import.

Although we are working to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure how our customers and competitors will react to certain actions we take.

For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A.

Risk Factors , included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as further amended in subsequent filings with the SEC.

International Sales and Foreign Currency

Industry and Business Overview

We had record bookings of $204 million in the first quarter of 2021 due to strong demand for our parts and consumables products, as well as a high level of capital project activity.

This follows the previous bookings record set in the fourth quarter of 2020 as our businesses rebounded from the impact of the COVID-19 pandemic, which began to affect our Chinese operations in February 2020 and our other major operations late in the first quarter of 2020.

As a result, our bookings and revenue were adversely impacted for a substantial part of 2020 due to reduced or delayed spending by our customers.

However, many of the markets in which we operate began to normalize in the latter part of 2020.

We ended the first quarter of 2021 with a record backlog of $223 million.

An overview of our business by segment is as follows:

• Flow Control – Orders for our parts and consumables products at all our Flow Control businesses began to recover in the latter part of 2020 and this trend continued through the first quarter of 2021.

This was partially due to pent-up demand resulting from the adverse effect of COVID-19 pandemic-related downtimes and shutdowns, as well as visitation restrictions at many customer facilities earlier in 2020.

Capital equipment bookings increased from depressed levels encountered during most of 2020, with capital equipment revenue anticipated to increase in the second quarter of 2021.

• Industrial Processing – Our wood processing business continues to experience strong demand for its products, fueled by a robust U.S.

housing market and high demand for lumber, oriented strand board and plywood, which increased mill run rates resulting in higher parts consumption and capital equipment investment by our customers at our North American operations.

Additionally, our European wood processing operation is experiencing a similar impact.

While bookings for both parts and consumables products and capital equipment have been strong, revenue related to capital equipment orders will not accelerate until the second quarter of 2021.

Conversely, despite several large project orders at our U.S.

and Chinese operations in the fourth quarter of 2020, our stock-preparation business continues to be negatively impacted by delays on large capital projects and reductions in capital equipment spending due to the COVID-19 pandemic, as well as uncertainty in Asia surrounding our customers' response to China's recovered paper import restriction.

The continued strength for our stock-preparation parts and consumables products, due in part to the ongoing recovery from a significant downturn in mid-2020 as a result of the COVID-19 pandemic, partially mitigated the effects of depressed capital equipment orders.

• Material Handling – Bookings for parts and consumables products rebounded in the first quarter of 2021 primarily due to increased customer spending as a result of the relaxation of COVID-19 pandemic-related shutdowns and visitation restrictions, which we expect to continue.

Demand for our capital equipment has increased in the last few quarters driven by our baling business, which has experienced improved business conditions, including the recovery of recycled commodity prices.

While we have seen improved market conditions and increased demand for our products over the last two quarters, there is uncertainty surrounding the continued recovery in certain regions of the world due to variability around vaccine availability and COVID-19 infection rates.

Travel and visitation restrictions continue to have an impact on our ability to interact with our customers, which affects the timing of orders.

For more information on risks related to health epidemics to our business, including COVID-19, please see Part I, Item 1A, Risk Factors , included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

International Sales

Slightly more than half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada.

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dollar and foreign currencies.

To mitigate the impact of currency rate fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred.

To mitigate the impact of foreign currency fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred.

Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies.

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dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S.

In 2018, the United States began imposing tariffs on certain imports from China, which has and will continue to increase the cost of some of the equipment that we import.

Although we have worked to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs.

For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A, Risk Factors, included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

We expect that a significant driver of our growth over the next several years will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry.

We continue to pursue acquisition opportunities.

In 2020, we made an acquisition in our Industrial Processing segment for approximately $6.9 million, net of cash acquired.

See Note 2 , Acquisitions, for further details.

Our significant acquisition in 2019 is described below.

O n January 2, 2019, we acquired Syntron Material Handling Group, LLC and certain of its affiliates (SMH) for $176.9 million, net of cash acquired.

SMH, which is included in our Material Handling segment, is a leading provider of conveying and vibratory equipment and systems to various process industries, including mining, aggregates, food processing, packaging, and pulp and paper.

Application of Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

The preparation of these consolidated financial statements requires us to make estimates and

Overview (continued)

assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent liabilities.

Our critical accounting policies are defined as those that entail significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions.

Management evaluates its estimates on an ongoing basis based on historical experience, current economic and market conditions, and other assumptions management believes are reasonable.

Our actual results may differ from these estimates under different assumptions or conditions.

We believe that our most critical accounting policies which are significant to our consolidated financial statements, and which involve the most complex or subjective decisions or assessments, are those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the section captioned "Application of Critical Accounting Policies and Estimates" in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

There have been no material changes to these critical accounting policies since the end of fiscal 2019 that warrant disclosure, except that management no longer considers our policy with respect to accounting for pension benefits to be a critical accounting policy due to the settlement of our U.S.

pension plan in December 2019.

In June 2020, we made an acquisition in our Industrial Processing segment for approximately $6.9 million, net of cash acquired.

Results of Operations

Third Quarter 2020 Compared With Third Quarter 2019

The following table presents the change in revenue by segment between the third quarters of 2020 and 2019, and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue.

First Quarter 2021 Compared With First Quarter 2020

The following table presents the change in revenue by segment between the first quarters of 2021 and 2020, and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue.

The presentation of the change in organic revenue is a non-GAAP measure.

We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods.

This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure.

Revenue by segment in the third quarters of 2020 and 2019 was as follows:

This non-GAAP measure should not be considered superior to or a substitute for the corresponding U.S.

generally accepted accounting principles (GAAP) measure.

Revenue by segment in the first quarters of 2021 and 2020 was as follows:

Three Months Ended Currency Translation Acquisition Change in Organic Revenue

(In thousands, except percentages) September 26,

2020 September 28,

2019 Total Decrease % Change Decrease % Change

(In thousands, except percentages) April 3,

2021 March 28,

2020 Total Increase % Change Increase % Change

Flow Control $ 63,754 $ 57,149 $ 6,605 12 % $ 1,630 $ — $ 4,975 9 %

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Consolidated Revenue $ 172,463 $ 159,127 $ 13,336 8 % $ 6,012 $ 509 $ 6,815 4 %

Consolidated revenue in the third quarter of 2020 decreased 11%, while consolidated organic revenue declined 12%, principally due to lower capital equipment revenue at our Industrial Processing and Flow Control segments as described below.

Revenue at our Flow Control segment decreased 9% in the third quarter of 2020, while organic revenue declined 8%.

Organic revenue declined primarily due to decreased demand for capital equipment at our North American operations, which was negatively impacted by reduced customer spending and customer-requested delays as a result of COVID-19.

Revenue at our Industrial Processing segment decreased 16% in the third quarter of 2020, while organic revenue declined 18%.

Organic revenue at our stock-preparation business was adversely affected by decreased demand for capital equipment at our Chinese and European operations due to reduced or delayed customer spending as a result of COVID-19, and at our Chinese operations due to uncertainty in the Asian market surrounding the response to China's recovered paper import restrictions.

Additionally, organic revenue for parts and consumables products declined at our European operations as a result of unusually high demand in the 2019 period and at our North American operations due to reduced customer spending as a result of COVID-19.

Organic revenue at our wood processing business also decreased due to lower capital equipment revenue at our North American operations related to changes in certain end markets and, to a lesser extent, reduced spending as a result of COVID-19.

These decreases were offset in part by higher parts and consumables revenue at our North American operations driven by increased mill run rates resulting in higher parts consumption by our customers.

Results of Operations (continued)

Revenue at our Material Handling segment decreased 3% in the third quarter of 2020, while organic revenue declined 5%.

Organic revenue declined due to a decrease in demand for our parts and consumables products primarily at our conveying and vibratory equipment business related to a reduction in customer spending as a result of shutdowns and visitation restrictions related to COVID-19.

A decrease in organic revenue from capital equipment at our baler business due to a weak European economy, compounded by the effect of COVID-19, was more than offset by an increase in organic revenue from capital equipment at our conveying and vibratory equipment business primarily due to revenue from a large order received in late 2019.

Consolidated revenue in the first quarter of 2021 increased 8%, while consolidated organic revenue increased 4%, driven by higher demand for parts and consumables products at our Flow Control and Industrial Processing segments as described below.

Revenue at our Flow Control segment increased 12% in the first quarter of 2021, while organic revenue increased 9%.

These increases resulted from higher demand for parts and consumables products across all our operations, which was due in part to maintenance requirements at many of our customer locations and pent-up demand resulting from the adverse effect of the COVID-19 pandemic during most of 2020.

Organic revenue for capital equipment declined slightly in the first quarter of 2021 compared to the first quarter of 2020.

The continued impact of curtailed capital equipment orders by our customers during 2020 primarily at our North American operations was mostly offset by an increase in capital equipment revenue at our Chinese business due to lower revenues in the first quarter of 2020 from customer-requested deferrals of equipment installations and a rebound in the Chinese economy in the first quarter of 2021.

Revenue at our Industrial Processing segment increased 7% in the first quarter of 2021, while organic revenue increased 1%.

Increased demand for parts and consumables products at our wood processing business was driven by continued near-capacity mill run rates resulting in higher parts consumption.

Revenue for parts and consumables at most of our stock-preparation operations also increased, due in part to pent-up demand related to the impact of the COVID-19 pandemic and lower revenue from the adverse effects of COVID-19 in the 2020 quarter.

These increases were largely offset by a decline in demand for capital equipment at our stock-preparation business due to the continued impact of curtailed capital equipment spending by our customers as a result of the COVID-19 pandemic.

Revenue at our Material Handling segment increased 6% in the first quarter of 2021, while organic revenue increased 2%.

Organic revenue increased at our conveying and screening business primarily due to incremental capital equipment revenue related to a large order which began in the fourth quarter of 2019 that will be essentially complete in the second quarter of 2021, a nd at our baling business due to improved business conditions, including the recovery of recycled commodity prices.

These increases were partially offset by a decline in demand for parts and consumables at our conveying and screening business due to a reduction in customer spending as a result of the continued impact of shutdowns and visitation restrictions related to the COVID-19 pandemic.

Gross Profit Margin

Gross profit margin by segment in the third quarters of 2020 and 2019 was as follows:

Three Months Ended

September 26,

2020 September 28,

Flow Control 52.9 % 52.9 %

Industrial Processing 43.7 % 38.7 %

Material Handling 31.1 % 34.0 %

Consolidated Gross Profit Margin 44.2 % 42.8 %

Consolidated gross profit margin increased in the third quarter of 2020 primarily due to benefits received from government employee retention assistance programs of $1.6 million, which increased consolidated gross profit margin in the third quarter of 2020 by 1.1 percentage points.

Gross profit margin at our Flow Control segment was unchanged in the third quarter of 2020 compared to the third quarter of 2019.

An improved margin due to an increased proportion of higher-margin parts and consumables revenue was offset by a lower margin on capital equipment revenue.

Gross profit margin at our Industrial Processing segment increased in the third quarter of 2020 due to benefits received from government employee retention assistance programs of $1.4 million, which improved gross profit margin by 2.3 percentage points.

Gross profit margin also improved in the third quarter of 2020 due to an increased proportion of higher-margin parts and consumables revenue at our wood processing business and a favorable change in product mix for capital equipment revenue at our stock-preparation business.

Gross profit margin at our Material Handling segment decreased in the third quarter of 2020 primarily due to lower margins on our capital equipment revenue and decreased manufacturing efficiency related to lower production volumes at our baler business, as well as an increased proportion of lower-margin capital equipment revenue at our conveying and vibratory equipment business.

Gross profit margin by segment in the first quarters of 2021 and 2020 was as follows:

Three Months Ended Basis Point Change

2021 March 28,

Flow Control 53.3% 52.9% 40 bps

Industrial Processing 40.5% 38.4% 210 bps

Material Handling 34.7% 35.5% (80) bps

Consolidated Gross Profit Margin 43.9% 42.9% 100 bps

Consolidated gross profit margin increased in the first quarter of 2021 compared with the first quarter of 2020 primarily due to a greater proportion of higher-margin parts and consumables revenue and improved margins on our capital equipment products.

Gross profit margin at our Flow Control segment was relatively unchanged in the first quarter of 2021.

Gross profit margin at our Industrial Processing segment increased in the first quarter of 2021 driven by improved margins at our wood processing business resulting from a greater proportion of higher-margin parts and consumables revenue, manufacturing efficiencies related to higher production volumes, and benefits received from government employee retention assistance programs.

Gross profit margin at our Material Handling segment decreased in the first quarter of 2021 primarily due to a greater proportion of lower-margin capital equipment revenue at our conveying and screening business, offset in part by improved margins on our capital equipment at our baling business.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses by segment in the third quarters of 2020 and 2019 were as follows:

Selling, general, and administrative (SG&A) expenses by segment in the first quarters of 2021 and 2020 were as follows:

Three Months Ended

(In thousands, except percentages) September 26,

2020 % of Revenue September 28,

2019 % of Revenue Decrease % Change

Flow Control $ 15,136 27 % $ 16,942 27 % $ (1,806) (11)%

Industrial Processing 13,759 22 % 14,538 20 % (779) (5)%

Material Handling 7,955 22 % 8,564 23 % (609) (7)%

Corporate 7,003 N/A 7,053 N/A (50) (1)%

Consolidated SG&A Expenses $ 43,853 28 % $ 47,097 27 % $ (3,244) (7)%

Consolidated SG&A expenses as a percentage of revenue increased to 28% in the third quarter of 2020 compared with 27% in the third quarter of 2019 due to lower revenues in the 2020 period.

Consolidated SG&A expenses decreased $3.2 million in the third quarter of 2020 compared with the third quarter of 2019 primarily due to reduced travel-related costs of $2.0 million and benefits received from government employee retention assistance programs of $1.0 million.

Results of Operations (continued)

SG&A expenses as a percentage of revenue at our Flow Control segment was 27% in both the third quarters of 2020 and 2019.

SG&A expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 principally due to reduced travel-related costs of $0.6 million, as well as lower payroll-related costs as a result of restructuring actions taken in the first half of 2020 and benefits received from government employee retention assistance programs.

SG&A expenses as a percentage of revenue at our Industrial Processing segment increased to 22% in the third quarter of 2020 compared with 20% in the third quarter of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 principally due to reduced travel-related costs of $0.7 million and benefits received from government employee retention assistance programs.

SG&A expenses as a percentage of revenue at our Material Handling segment decreased slightly to 22% in the third quarter of 2020 compared with 23% in the third quarter of 2019.

SG&A expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 principally due to reduced travel-related costs.

SG&A expenses at Corporate were relatively unchanged in the third quarter of 2020 compared with the third quarter of 2019.

Restructuring Costs

Restructuring costs of $0.5 million, consisting of $0.3 million in our Flow Control segment and $0.2 million in our Industrial Processing segment, in the third quarter of 2020 represent severance costs for an additional 24 employees.

See R es tructuring Costs in Results of Operations, "First Nine Months 2020 Compared With First Nine Months 2019" for further discussion related to this restructuring plan.

Interest Expense

Interest expense decreased to $1.7 million in the third quarter of 2020 from $3.1 million in the third quarter of 2019 due to a lower weighted-average interest rate and lower outstanding debt.

At the end of the third quarter of 2020, our leverage ratio on our credit facility decreased to 1.88, which will have the effect of reducing the applicable margin on the outstanding debt under our revolving credit facility by 25 basis points in future quarters.

Provision for Income Taxes

Our provision for income taxes decreased to $4.7 million in the third quarter of 2020 from $5.2 million in the third quarter of 2019 and represented 24% of pre-tax income in both periods.

The effective tax rate of 24% in the third quarter of 2020 was higher than our statutory rate of 21% primarily due to nondeductible expenses and the distribution of our worldwide earnings.

This incremental tax expense was offset in part by a tax benefit related to final Global Intangible Low-Taxed Income (GILTI) regulations issued by the U.S.

Treasury Department during the third quarter of 2020 on an election to provide a high-tax exception to the GILTI tax retroactive to 2018.

The effective tax rate of 24% in the third quarter of 2019 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, tax expense associated with GILTI, nondeductible expenses, 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 reversal of tax reserves associated with uncertain tax positions and the net excess income tax benefits from stock-based compensation arrangements.

Net income decreased $1.2 million to $15.0 million in the third quarter of 2020 from $16.2 million in the third quarter of 2019 due to a $3.2 million decrease in operating income, offset by a decrease in interest expense of $1.4 million and a decrease in provision for income taxes of $0.5 million (see discussions above for further details).

Results of Operations (continued)

First Nine Months 2020 Compared With First Nine Months 2019

The following table presents changes in revenue by segment between the first nine months of 2020 and 2019, and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue.

The presentation of the change in organic revenue is a non-GAAP measure.

This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure.

Revenue by segment in the first nine months of 2020 and 2019 was as follows:

Nine Months Ended Currency Translation Acquisition Change in Organic Revenue

(In thousands, except percentages) September 26,

2020 September 28,

2019 Total Decrease % Change Decrease % Change

Flow Control $ 165,329 $ 188,792 $ (23,463) (12) % $ (3,694) $ — $ (19,769) (10) %

Industrial Processing 192,468 222,899 (30,431) (14) % (2,013) 957 (29,375) (13) %

Material Handling

108,800 110,294 (1,494) (1) % (178) — (1,316) (1) %

Consolidated Revenue $ 466,597 $ 521,985 $ (55,388) (11) % $ (5,885) $ 957 $ (50,460) (10) %

Consolidated revenue in the first nine months of 2020 decreased by 11%, while consolidated organic revenue declined 10% due to lower capital equipment revenue at our Industrial Processing and Flow Control segments and lower parts and consumables revenue at all our segments as described below.

Revenue from our Flow Control segment decreased 12% in the first nine months of 2020, while organic revenue declined 10%.

Organic revenue declined due to decreased demand for capital equipment at our North American and, to a lesser extent, our European operations due to reduced customer spending and customer-requested delays as a result of COVID-19.

Additionally, the 2019 period included relatively high demand for capital equipment at our North American operations.

Organic revenue was also impacted by a decline in demand for parts and consumables at our North American operations and, to a lesser extent, our European operations due to downtimes and shutdowns, as well as visitation restrictions at many customer facilities related to COVID-19.

Revenue from our Industrial Processing segment decreased 14% in the first nine months of 2020, while organic revenue declined by 13%.

Organic revenue at our stock-preparation business was negatively impacted by decreased demand for capital equipment at our Chinese operations due to reduced or delayed customer spending as a result of COVID-19 and uncertainty in the Asian market surrounding the response to China's recovered paper import restrictions.

Additionally, organic revenue from parts and consumables at our North American operations and capital equipment at our European operations decreased due to reduced customer spending as a result of COVID-19.

Organic revenue from capital equipment at our North American wood processing operations decreased due to changes in certain end markets and, to a lesser extent, reduced spending as a result of COVID-19.

Revenue and organic revenue at our Material Handling segment decreased 1% in the first nine months of 2020.

Organic revenue from our parts and consumables products at our conveying and vibratory equipment business decreased due to a reduction in customer spending primarily as a result of shutdowns and visitation restrictions related to COVID-19.

Results of Operations (continued)

Gross Profit Margin

Gross profit margin by segment in the first nine months of 2020 and 2019 was as follows:

Nine Months Ended

September 26,

2020 September 28,

Flow Control 53.1 % 51.7 %

Industrial Processing 41.0 % 39.0 %

Material Handling 33.5 % 31.4 %

Consolidated Gross Profit Margin 43.5 % 42.0 %

Consolidated gross profit margin increased in the first nine months of 2020 largely due to the amortization of acquired profit in inventory of $3.5 million related to the SMH acquisition that lowered consolidated gross profit margin in the first nine months of 2019 by 0.7 percentage points, and benefits received in the second and third quarters of 2020 from government employee retention assistance programs of $2.9 million, which increased consolidated gross profit margin in the first nine months of 2020 by 0.6 percentage points.

Gross profit margin at our Flow Control segment increased in the first nine months of 2020 due to an increased proportion of higher-margin parts and consumables revenue and an improved margin on capital equipment revenue.

Gross profit margin at our Industrial Processing segment increased in the first nine months of 2020 primarily due to benefits received from government employee retention assistance programs of $2.4 million, which improved the gross profit margin by 1.2 percentage points, as well as an increased proportion of higher-margin parts and consumables revenue at our wood processing business.

Gross profit margin at our Material Handling Systems segment in the first nine months of 2019 was negatively affected by the amortization of acquired profit in inventory of $3.5 million, which lowered the gross profit margin in 2019 by 3.2 percentage points.

The remaining 1.1 percentage point difference was due to lower gross margins on our capital equipment as a result of an unfavorable change in product mix.

Selling, General, and Administrative Expenses

SG&A expenses in the first nine months of 2020 and 2019 were as follows:

Nine Months Ended

(In thousands, except percentages) September 26,

2020 % of Revenue September 28,

2019 % of Revenue Decrease % Change

(In thousands, except percentages) April 3,

2021 % of Revenue March 28,

2020 % of Revenue Increase % Change

Flow Control $ 16,508 26 % $ 15,942 28 % $ 566 4%

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Consolidated SG&A Expenses $ 49,431 29 % $ 45,592 29 % $ 3,839 8%

Consolidated SG&A expenses as a percentage of revenue increased to 29% in the first nine months of 2020 compared with 28% in the first nine months of 2019 due to lower revenues in the 2020 period.

Consolidated SG&A expenses decreased $10.4 million in the first nine months of 2020 compared with the first nine months of 2019 due to reduced travel-related costs of $5.7 million, benefits received from government employee retention assistance programs of $1.8 million, a favorable effect of foreign currency translation of $1.5 million, and lower acquisition-related costs of $1.3 million.

SG&A expenses as a percentage of revenue at our Flow Control segment increased to 28% in the first nine months of 2020 compared with 27% in the first nine months of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the first nine months of 2020 compared with the first nine months of 2019 due to reduced travel-related costs of $2.1 million and lower payroll-related costs as a result of restructuring actions taken in the first half of 2020 and benefits received from government employee retention assistance programs.

Results of Operations (continued)

SG&A expenses as a percentage of revenue at our Industrial Processing segment increased to 22% in the first nine months of 2020 compared with 20% in the first nine months of 2019 due to lower revenues in the 2020 period.

SG&A expenses decreased in the first nine months of 2020 compared with the first nine months of 2019 principally due to reduced travel-related costs of $2.2 million and benefits received from government employee retention assistance programs of $1.2 million.

These decreases were partially offset by higher professional service fees and acquisition-related costs of $0.6 million in the 2020 period.

SG&A expenses as a percentage of revenue at our Material Handling segment decreased to 23% in the first nine months of 2020 compared with 25% in the first nine months of 2019.

The 2020 period includes amortization of acquired backlog associated with the acquisition of SMH of $0.3 million, while the 2019 period includes amortization of acquired backlog of $1.3 million and other acquisition-related costs of $0.8 million for the acquisition of SMH.

Excluding these acquisition-related costs, SG&A expenses as a percentage of revenue decreased to 22% in the first nine months of 2020 compared to 23% in the first nine months of 2019 due to reduced travel-related costs.

SG&A expenses at Corporate decreased in the first nine months of 2020 compared with the first nine months of 2019 primarily due to lower professional service fees.

Restructuring Costs

Restructuring costs of $0.9 million, consisting of $0.7 million in our Flow Control segment and $0.2 million in our Industrial Processing segment, in the first nine months of 2020 represent severance costs for 54 employees to reduce future payroll-related overhead and operating costs in response to the slowdown in the global economy, largely driven by COVID-19.

In the first nine months of 2020, we also reduced our workforce by 21 employees within our Industrial Processing segment with no associated severance costs.

We expect annualized payroll-related savings as a result of these actions of approximately $4.1 million, including $2.7 million at our Flow Control segment and $1.4 million at our Industrial Processing segment, which consist of approximately $2.0 million related to cost of sales and $2.1 million related to operating expenses.

We may incur additional restructuring costs as we continue to evaluate the impact of COVID-19 and the resulting global economic downturn on our business.

Consolidated SG&A expenses as a percentage of revenue remained unchanged at 29% in the first quarters of 2021 and 2020.

Consolidated SG&A expenses were adversely impacted by the unfavorable effect of currency translation of $1.7 million, incremental professional services fees at Corporate, and the impact of foreign currency transactions of $1.3 million primarily related to gains in the 2020 period on U.S.

dollar-denominated cash at foreign operations.

These increases were offset in part by reduced travel-related costs in the first quarter of 2021.

SG&A expenses as a percentage of revenue at our Flow Control segment decreased to 26% in the first quarter of 2021 compared with 28% in the first quarter of 2020 due to higher revenues in the 2021 period.

SG&A expenses increased in the first quarter of 2021 compared with the first quarter of 2020 principally due to $0.5 million from the unfavorable effect of foreign currency translation and the impact of foreign currency transactions primarily related to gains in the 2020 period on U.S.

dollar-denominated cash at our Mexican business, offset in part by reduced travel-related costs.

SG&A expenses at our Industrial Processing segment increased to 23% of revenue in the first quarter of 2021 compared with 21% in the first quarter of 2020 principally due to $0.9 million from the unfavorable effect of foreign currency translation and $0.6 million from the impact of foreign currency transactions primarily related to gains in the 2020 period on U.S.

dollar-denominated cash at this segment's Canadian operations.

SG&A expenses as a percentage of revenue at our Material Handling segment decreased to 22% in the first quarter of 2021 compared with 23% in the first quarter of 2020 due to higher revenues in the 2021 period.

SG&A expenses at Corporate increased in the first quarter of 2021 compared with the first quarter of 2020 primarily due to incremental professional services fees.

Interest Expense

Interest expense decreased to $6.1 million in the first nine months of 2020 from $10.1 million in the first nine months of 2019 due to a lower weighted-average interest rate and lower outstanding debt.

Interest expense decreased to $1.1 million in the first quarter of 2021 from $2.5 million in the first quarter of 2020 due to lower outstanding debt and a lower weighted-average interest rate.

Provision for Income Taxes

Our provision for income taxes increased to $13.7 million in the first nine months of 2020 from $12.3 million in the first nine months of 2019.

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

These increases in tax expense were 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 our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, tax expense associated with GILTI, 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 our repatriation of certain previously taxed foreign earnings, and the reversal of tax reserves associated with uncertain tax positions.

Net income decreased $4.3 million to $39.4 million in the first nine months of 2020 from $43.7 million in the first nine months of 2019 primarily due to a $7.2 million decrease in operating income and a $1.4 million increase in provision for income taxes, offset in part by a decrease in interest expense of $4.1 million (see discussions above for further details).

Recent Accounting Pronouncements

See Note 1 , Nature of Operations and Summary of Significant Accounting Policies, under the headings Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted, in the accompanying condensed consolidated financial statements for further details.

Our provision for income taxes increased to $5.6 million in the first quarter of 2021 from $4.6 million in the first quarter of 2020.

The effective tax rate of 25% in the first quarter of 2021 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, state taxes, and tax expense associated with 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 26% in the first quarter of 2020 was higher than our statutory rate of 21% primarily due to nondeductible expenses, state taxes, the distribution of our 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.

Net income increased $4.1 million to $16.8 million in the first quarter of 2021 from $12.7 million in the first quarter of 2020 primarily due to a $3.8 million increase in operating income and a $1.3 million decrease in interest expense, offset in part by a $1.0 million increase in provision for income taxes (see discussions above for further details).

Liquidity and Capital Resources

Consolidated working capital was $155.7 million at September 26, 2020, compared with $151.4 million at December 28, 2019.

Included in working capital were cash and cash equivalents of $53.6 million at September 26, 2020, compared with $66.8 million at December 28, 2019.

Cash and cash equivalents held by our foreign subsidiaries was $52.6 million at September 26, 2020 and $58.9 million at December 28, 2019.

Cash flow information in the first nine months of 2020 and 2019 was as follows:

Nine Months Ended

(In thousands) September 26,

2020 September 28,

Consolidated working capital was $163.2 million at April 3, 2021, compared with $155.1 million at January 2, 2021.

Cash and cash equivalents were $66.0 million at April 3, 2021, compared with $65.7 million at January 2, 2021, which included cash and cash equivalents held by our foreign subsidiaries of $64.2 million at April 3, 2021 and $63.6 million at January 2, 2021.

Cash flow information in the first quarter of 2021 and 2020 was as follows:

Three Months Ended

(In thousands) April 3,

2021 March 28,

Net Cash Provided by Operating Activities $ 19,092 $ 6,169

Net Cash Used in Investing Activities (2,352) (2,672)

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)

Operating Activities

Cash provided by operating activities decreased to $52.6 million in the first nine months of 2020 from $58.2 million in the first nine months of 2019.

Cash provided by operating activities increased to $19.1 million in the first quarter of 2021 from $6.2 million in the first quarter of 2020.

Our operating cash flows are primarily from cash received from customers, offset by cash payments for items such as inventory, employee compensation, operating leases, income taxes and interest payments on outstanding debt obligations.

The decrease in cash provided by operating activities in the first nine months of 2020 compared with the first nine months of 2019 was primarily due to lower net income, offset in part by slightly less cash used for working capital.

Cash used for working capital was $15.4 million in the first nine months of 2020 and $15.9 million in the first nine months of 2019.

We used cash of $6.2 million for inventory in the first nine months of 2020 primarily relating to the buildup of inventory for capital equipment and spare parts that will be shipped in late fiscal 2020 and early fiscal 2021 compared to cash used of $10.3 million in the prior period due to increased inventory at our wood processing business.

We used cash of $13.2 million for accounts payable in the first nine months of 2020 primarily due to lower payables resulting from reduced spending levels during 2020 compared with cash received of $2.8 million in the 2019 period.

We received cash of $2.8 million from other current assets in the first nine months of 2020 compared with cash used of $4.1 million in the 2019 period primarily related to changes in refundable income taxes in both periods.

The increase in cash provided by operating activities in the 2021 period was driven by a reduction in cash used for working capital and improved net income.

Cash used for working capital was $6.4 million in the first quarter of 2021 and $14.9 million in the first quarter of 2020.

Cash used for working capital in the first quarter of 2021 included cash used of $14.0 million for accounts receivable due to revenue growth and the timing of revenue and $6.6 million for inventories relating to purchases for orders that will be shipped later in fiscal 2021.

These uses of cash were offset in part by $8.0 million of cash provided by accounts payable primarily for inventory purchases related to increased order activity and $7.6 million from other current liabilities primarily for customer deposits related to capital equipment orders anticipated to ship later in fiscal 2021.

Cash used for working capital in the first quarter of 2020 included cash used of $3.7 million related to the buildup of inventory for large capital orders, $3.4 million in accounts payable for payments related to inventory purchases made in 2019 for large capital orders, and $9.4 million for other current liabilities primarily related to incentive compensation payments and a final payment of $2.4 million to settle our post-retirement restoration plan.

Investing Activities

Our investing activities used cash of $12.5 million in the first nine months of 2020 compared with $182.8 million in the first nine months of 2019.

The 2020 period included a use of cash of $7.1 million for acquisitions and the 2019 period included a use of cash of $176.9 million for the acquisition of SMH.

Cash used in investing activities was $2.4 million in the first quarter of 2021 and $2.7 million in the first quarter of 2020 primarily related to capital expenditures in both periods.

Financing Activities

Our financing activities used cash of $52.9 million in the first nine months of 2020 compared with cash provided of $130.5 million in the first nine months of 2019.

Repayment of long-term obligations was $69.0 million in the first nine months of 2020 and $108.3 million in the first nine months of 2019.

Repayment in the 2020 period included an $18.9 million prepayment of the outstanding principal balance on our Real Estate Loan using U.S.

borrowings available under our revolving credit facility.

Repayment in the 2019 period included $71.1 million of cash repatriated from Europe that was used to repay U.S.

borrowings under our revolving credit facility.

Borrowings under our revolving credit facility were $26.0 million in the 2020 period, including amounts used to prepay our Real Estate Loan, and $247.1 million in the 2019 period, including $179.3 million of U.S.-denominated borrowings for the acquisition of SMH and $56.1 million of euro-denominated borrowings.

Liquidity and Capital Resources (continued)

Cash used in financing activities was $15.6 million in the first quarter of 2021 and $7.0 million in the first quarter of 2020.

Repayment of long-term obligations was $19.6 million in the first quarter of 2021 and $3.0 million in the first quarter of 2020.

Borrowings under our revolving credit facility were $10.1 million in the 2021 period.

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash

The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries.

The $2.0 million reduction in cash, cash equivalents, and restricted cash in the first nine months of 2019 related to the strengthening of the U.S.

dollar, particularly against the euro, Chinese renminbi, and Swedish krona.

Debt Obligations

Under our revolving credit facility, we have a borrowing capacity of $400 million, of which $154.8 million was available to borrow as of September 26, 2020, along with an additional uncommitted, unsecured incremental borrowing facility of $150 million.

In addition, under our uncommitted Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement), we may issue up to an additional $115 million of senior promissory notes.

Under these agreements, our leverage ratio, as defined, must be less than 3.75.

As of September 26, 2020, our leverage ratio was 1.88 and we were in compliance with our debt covenants.

The $1.1 million reduction in cash, cash equivalents, and restricted cash in the first quarter of 2021 is primarily attributable to the strengthening of the U.S.

dollar against the euro.

The $2.7 million reduction in cash, cash equivalents, and restricted cash in the first quarter of 2020 primarily related to the strengthening of the U.S.

dollar against the Mexican peso, Canadian dollar and Brazilian real.

Borrowing Capacity and Debt Obligations

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

As of April 3, 2021, we have a borrowing capacity of over $450 million, including $192.8 million available under the Credit Agreement, an additional $150 million in an uncommitted, unsecured incremental borrowing facility under the Credit Agreement, and $115 million of senior promissory notes available for issuance under our uncommitted Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement).

Under these agreements, our leverage ratio must be less than 3.75, or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than 4.00.

As of April 3, 2021, our leverage ratio was 1.50 and we were in compliance with our debt covenants.

We do not have any mandatory principal payments on our long-term debt obligations until 2023.

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On May 13, 2020, our board of directors approved the repurchase of up to $20 million of our equity securities during the period from May 13, 2020 to May 13, 2021.

We have not repurchased any shares of our common stock under this authorization or under the previous authorization, which expired on May 15, 2020.

We paid cash dividends of $8.1 million in the first nine months of 2020.

On September 17, 2020, we declared a quarterly cash dividend of $0.24 per share totaling $2.8 million that will be paid on November 12, 2020.

We have not repurchased any shares of our common stock under this authorization.

We paid cash dividends of $2.8 million in the first quarter of 2021.

On March 10, 2021, we declared a quarterly cash dividend of $0.25 per share totaling $2.9 million that was paid on May 12, 2021.

Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change.

The declaration of cash dividends is subject to our compliance with the covenant in our revolving credit facility related to our consolidated leverage ratio.

We plan to make expenditures of approximately $3 million during the remainder of 2020 for property, plant, and equipment.

As of September 26, 2020, we had approximately $274.0 million of total unremitted foreign earnings.

We plan to make expenditures of approximately $12 to $13 million during the remainder of 2021 for property, plant, and equipment.

As of April 3, 2021, we had approximately $275.1 million of total unremitted foreign earnings.

It is our intent to indefinitely reinvest $252.0 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any.

For the first nine months of 2020, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future.

In the first quarter of 2021, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future.

The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately $5.9 million.

In the future, our liquidity position will be affected by the level of cash flows from operations, cash paid to service our debt obligations, acquisitions, capital projects, dividends, and stock repurchases.

We believe that our existing resources, together with the borrowings available under our revolving credit facility and available through our Note Purchase Agreement, and the cash we expect to generate from operations, will be sufficient to meet the capital requirements of our operations for the foreseeable future.

We believe that our existing resources, together with the borrowings available under our Credit Agreement and available through our Note Purchase Agreement, and the cash we expect to generate from operations, will be sufficient to meet the capital requirements of our operations for the foreseeable future.

Contractual Obligations and Other Commercial Commitments

There have been no significant changes to our contractual obligations and other commercial commitments during the nine months ended September 26, 2020 compared with those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, except for the prepayment of the Real Estate Loan as disclosed in Note 6 , Long-Term Obligations, in the accompanying condensed consolidated financial statements.

There have been no significant changes to our contractual obligations and other commercial commitments during the first quarter of 2021 compared with those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

Application of Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenue and expenses during the reporting period.

Management evaluates its estimates on an ongoing basis based on historical experience, current economic and market conditions, and other assumptions management believes are reasonable.

There have been no material changes to these critical accounting policies since the end of fiscal 2020 that warrant disclosure.

Recent Accounting Pronouncements

See Note 1 , under the headings Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted , in the accompanying condensed consolidated financial statements for details.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk from changes in interest rates and foreign currency exchange rates has not changed materially from our exposure as disclosed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

Our exposure to market risk from changes in interest rates and foreign currency exchange rates has not changed materially from our exposure as disclosed in Part II, Item 7A, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

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 2. Management’s Discussion and Analysis