What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-12 · 178 added, 116 removed, 482 unchanged (38% of the section changed)

5 unchanged sentences

Cash and cash equivalents $ 73,436 $ 65,682

Restricted cash 726 958

Restricted cash (Notes 1 and 11) 84,708 958

Accounts receivable, net of allowances of $ 2,654 and $ 2,977

37 unchanged sentences

Condensed Consolidated Statement of Income

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

(In thousands, except per share amounts)

4 unchanged sentences

Research and development expenses 3,041 2,798 5,898 5,874

Restructuring costs — 456 — 456

162,801 134,739 311,837 274,211

15 unchanged sentences

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

Condensed Consolidated Statement of Comprehensive Income (Loss)

Three Months Ended

2021 March 28,

Condensed Consolidated Statement of Comprehensive Income

Three Months Ended Six Months Ended

2021 June 27,

(In thousands)

2 unchanged sentences

Foreign currency translation adjustment 4,089 4,742 ( 661 ) ( 7,832 )

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

Post-retirement liability adjustments, net (net of tax provision of $ 2 , $ 0 , $ 12 and $ 20 )

5 ( 2 ) 33 48

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

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

Deferred gain (loss) on cash flow hedges (net of tax provision (benefit) of $ 21 , $( 3 ), $ 40 and $( 122 ))

65 ( 24 ) 178 ( 326 )

Other comprehensive items 4,159 4,716 ( 450 ) ( 8,229 )

Comprehensive Income (Loss) 12,187 ( 289 )

Comprehensive Income 27,186 16,438 39,373 16,149

Comprehensive Income Attributable to Noncontrolling Interest

( 171 ) ( 140 ) ( 345 ) ( 254 )

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

Comprehensive Income Attributable to Kadant $ 27,015 $ 16,298 $ 39,028 $ 15,895

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

Condensed Consolidated Statement of Cash Flows

Three Months Ended

2021 March 28,

Six Months Ended

2021 June 27,

(In thousands)

7 unchanged sentences

(Benefit) provision for losses on accounts receivable ( 241 ) 303

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

Loss on sale of property, plant, and equipment 91 —

Other items, net ( 1,054 ) ( 565 )

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

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

Accounts receivable ( 15,321 ) 4,761

6 unchanged sentences

Investing Activities

Acquisition ( 125 ) —

Acquisitions, net of cash acquired ( 159 ) ( 7,066 )

Purchases of property, plant, and equipment ( 4,318 ) ( 3,597 )

3 unchanged sentences

Repayment of long-term obligations ( 47,138 ) ( 24,160 )

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

Proceeds from issuance of long-term obligations (Note 4) 88,888 7,000

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

1 unchanged sentence

Proceeds from issuance of Company common stock — 1,445

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

Net cash provided by (used in) financing activities 32,698 ( 23,414 )

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash ( 803 ) ( 1,466 )

6 unchanged sentences

Condensed Consolidated Statement of Stockholders' Equity

Three Months Ended April 3, 2021

Three Months Ended July 3, 2021

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

5 unchanged sentences

Shares Amount Shares Amount

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

Net income — — — 22,864 — — — 163 23,027

Dividend declared – Common Stock, $ 0.25 per share

— — — ( 2,895 ) — — — — ( 2,895 )

Activity under stock plans — — 2,465 — ( 2,525 ) 62 — — 2,527

Other comprehensive items — — — — — — 4,151 8 4,159

Balance at July 3, 2021 14,624,159 $ 146 $ 110,529 $ 513,036 3,043,854 $ ( 74,587 ) $ ( 19,889 ) $ 1,891 $ 531,126

Six Months Ended July 3, 2021

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

Net income — — — 39,425 — — — 398 39,823

Dividends declared – Common Stock, $ 0.50 per share

— — — ( 5,789 ) — — — — ( 5,789 )

Activity under stock plans — — ( 295 ) — ( 38,065 ) 932 — — 637

Other comprehensive items — — — — — — ( 397 ) ( 53 ) ( 450 )

Balance at July 3, 2021 14,624,159 $ 146 $ 110,529 $ 513,036 3,043,854 $ ( 74,587 ) $ ( 19,889 ) $ 1,891 $ 531,126

Three Months Ended June 27, 2020

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

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

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

Net income — — — 11,607 — — — 115 11,722

Dividend declared – Common Stock, $ 0.24 per share

2 unchanged sentences

Other comprehensive items — — — — — — 4,691 25 4,716

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

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

Six Months Ended June 27, 2020

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

7 unchanged sentences

Net income — — — 24,138 — — — 240 24,378

Dividend declared – Common Stock, $ 0.24 per share

Dividends declared – Common Stock, $ 0.48 per share

— — — ( 5,513 ) — — — — ( 5,513 )

1 unchanged sentence

Other comprehensive items — — — — — — ( 8,243 ) 14 ( 8,229 )

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

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

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

6 unchanged sentences

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 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.

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 July 3, 2021, its results of operations, comprehensive income, and stockholders' equity for the three- and six-month periods ended July 3, 2021 and June 27, 2020 and its cash flows for the six-month periods ended July 3, 2021 and June 27, 2020.

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

7 unchanged sentences

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.

There have been no material changes in the Company’s significant accounting policies during the six months ended July 3, 2021.

Supplemental Cash Flow Information

Three Months Ended

(In thousands) April 3,

2021 March 28,

Six Months Ended

(In thousands) July 3,

2021 June 27,

Cash Paid for Interest $ 1,968 $ 4,186

1 unchanged sentence

Non-Cash Investing Activities:

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

Fair value of assets acquired $ 197 $ 9,164

Cash paid for acquired businesses ( 159 ) ( 7,537 )

Liabilities Assumed of Acquired Businesses $ 38 $ 1,627

Purchases of property, plant, and equipment in accounts payable $ 169 $ 150

Non-Cash Financing Activities:

3 unchanged sentences

Restricted Cash

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

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

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

Restricted cash at July 3, 2021 also included $ 84,249,000 related to funds held in escrow for an acquisition that occurred in the third quarter of 2021.

See Not e 11 , Subsequent Event, for further details.

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) April 3,

2021 March 28,

(In thousands) July 3,

2021 June 27,

2020 January 2,

15 unchanged sentences

Translation Net

April 3, 2021

Definite-Lived

17 unchanged sentences

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

Notes to Condensed Consolidated Financial Statements

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

2 unchanged sentences

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:

4 unchanged sentences

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

2021 Adjustment

2021 Adjustments

Currency translation ( 858 ) 432 ( 1,253 ) ( 1,679 )

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

Balance at April 3, 2021

Acquisition 197 — — 197

Total 2021 adjustments ( 661 ) 432 ( 1,253 ) ( 1,482 )

Balance at July 3, 2021

Gross balance 100,776 216,313 118,691 435,780

7 unchanged sentences

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

Three Months Ended

(In thousands) April 3,

2021 March 28,

Six Months Ended

(In thousands) July 3,

2021 June 27,

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

9 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

April 3, March 28,

Three Months Ended Six Months Ended

July 3, June 27, July 3, June 27,

(In thousands) 2021 2020 2021 2020

2 unchanged sentences

$ 195,811 $ 152,860 $ 368,274 $ 311,987

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

April 3, March 28,

Three Months Ended Six Months Ended

July 3, June 27, July 3, June 27,

(In thousands) 2021 2020 2021 2020

22 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 $ 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 Company recognized revenue of $ 10,070,000 in the second quarter of 2021, $ 7,158,000 in the second quarter of 2020, $ 27,210,000 in the first six months of 2021 and $ 26,866,000 in the first six 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.

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 39 % of which is expected to occur within the next twelve months and the remaining 61 % within the following twelve months .

Notes to Condensed Consolidated Financial Statements

Banker's Acceptance Drafts Included in Accounts Receivable

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

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 $ 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

These drafts, which totaled $ 10,793,000 at July 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.

Recent Accounting Pronouncements

14 unchanged sentences

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

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

(In thousands, except per share amounts)

5 unchanged sentences

Diluted Earnings per Share $ 1.96 $ 1.00 $ 3.39 $ 2.09

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 $ 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 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.

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 9,000 shares in the second quarter of 2021, 36,000 shares in the second quarter of 2020, 27,000 in the first six months of 2021, and 39,000 in the first six months 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.

Notes to Condensed Consolidated Financial Statements

Provision for Income Taxes

The provision for income taxes was $ 14,510,000 in the first six months of 2021 and $ 9,033,000 in the first six months of 2020.

The effective tax rate of 27 % in the first six months of 2021 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, nondeductible expenses, state taxes, and tax expense associated with the Global Intangible Low-Taxed Income (GILTI) provisions.

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 27 % in the first six months of 2020 was higher than the Company's statutory rate of 21% primarily due to nondeductible expenses, the distribution of the Company's worldwide earnings, state taxes, and tax expense associated with GILTI provisions.

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.

Long-Term Obligations

22 unchanged sentences

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 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.

In the first six months of 2021, the Company borrowed an aggregate of $ 88,888,000 under the Credit Agreement, including $ 85,888,000 of euro-denominated borrowings, which was primarily used to fund an acquisition that closed in the third quarter of 2021.

See Note 11 , Subsequent Event, for further details.

As of July 3, 2021, the outstanding balance under the Credit Agreement was $ 258,722,000 , which included $ 113,722,000 of euro-denominated borrowings.

As of July 3, 2021, the Company had $ 140,546,000 of borrowing capacity available under its Credit Agreement, which was calculated by translating its foreign-denominated borrowings using borrowing date foreign exchange rates.

The weighted average interest rate for the outstanding balance under the Credit Agreement was 1.48 % as of July 3, 2021.

Notes to Condensed Consolidated Financial Statements

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 1.56 % as of April 3, 2021.

Senior Promissory Notes

2 unchanged sentences

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

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.

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.

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

2 unchanged sentences

Debt Compliance

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

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

Finance Leases

4 unchanged sentences

The interest rate on the outstanding obligation is 1.79 %.

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

The secured loan receivable, which is included in other assets in the accompanying condensed consolidated balance sheet, was $ 1,339,000 at July 3, 2021.

The lease arrangement provides for a fixed price purchase option, net of the projected loan receivable, of $ 1,576,000 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.

As of July 3, 2021, $ 3,573,000 was outstanding under this obligation.

Stock-Based Compensation

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 recognized stock-based compensation expense of $ 2,527,000 in the second quarter of 2021, $ 1,877,000 in the second quarter of 2020, $ 4,026,000 in the first six months of 2021, and $ 3,516,000 in the first six months 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.

2 unchanged sentences

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

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 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.

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 11,872,000 at July 3, 2021 and will be recognized over a weighted average period of 1.9 years.

On May 19, 2021, the Company granted an aggregate of 5,045 RSUs to its non-employee directors with a grant date fair value of $ 850,000 .

Half of these RSUs vested on June 1, 2021 and the remaining RSUs will vest ratably on the last day of the third and fourth fiscal quarters of 2021.

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 (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.

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.

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

6 unchanged sentences

( 608 ) 33 178 ( 397 )

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

Balance at July 3, 2021 $ ( 18,502 ) $ ( 737 ) $ ( 650 ) $ ( 19,889 )

Amounts reclassified from AOCI are as follows:

Three Months Ended

(In thousands) April 3,

2021 March 28,

Three Months Ended Six Months Ended

(In thousands) July 3,

2021 June 27,

2020 Statement of Income Line Item

7 unchanged sentences

Income tax benefit 4 4 8 128 Provision for income taxes

( 10 ) ( 11 ) ( 20 ) 96

Cash Flow Hedges (a)

10 unchanged sentences

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

Notes to Condensed Consolidated Financial Statements

Interest Rate Swap Agreement

8 unchanged sentences

See Note 4 , Long-Term Obligations, for further details.

Notes to Condensed Consolidated Financial Statements

Forward Currency-Exchange Contracts

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.

Such exposures result from assets and liabilities that are denominated in currencies other than the functional currencies of the Company's subsidiaries.

Forward currency-exchange contracts that hedge forecasted accounts receivable or accounts payable are designated as cash flow hedges and unrecognized gains and losses are recorded to AOCI, net of tax.

1 unchanged sentence

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 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.

Gains and losses reported within SG&A expenses in the accompanying condensed consolidated statement of income associated with the Company's forward currency-exchange contracts that were not designated as hedges were not material for the three-and six-month periods ended July 3, 2021 and June 27, 2020.

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

April 3, 2021 January 2, 2021

July 3, 2021 January 2, 2021

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

13 unchanged sentences

(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 the Company's derivative instruments designated as cash flow hedges as of and for the three months ended April 3, 2021:

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 six months ended July 3, 2021:

(In thousands) Interest Rate Swap

Agreement Forward Currency-

Contracts Total

Contract Total

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

1 unchanged sentence

Gain (loss) recognized in AOCI 32 ( 23 ) 9

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

Unrealized Loss, Net of Tax, at July 3, 2021 $ ( 645 ) $ ( 5 ) $ ( 650 )

(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.

As of July 3, 2021, the Company expects to reclassify losses of $ 348,000 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.

Notes to Condensed Consolidated Financial Statements

Fair Value Measurements and Fair Value of Financial Instruments

5 unchanged sentences

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 April 3, 2021

Fair Value as of July 3, 2021

(In thousands) Level 1 Level 2 Level 3 Total

2 unchanged sentences

2018 Swap Agreement $ — $ 850 $ — $ 850

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

Forward currency-exchange contract $ — $ 6 $ — $ 6

Fair Value as of January 2, 2021

6 unchanged sentences

(a) Included in accounts receivable in the accompanying condensed consolidated balance sheet.

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

3 unchanged sentences

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

April 3, 2021 January 2, 2021

July 3, 2021 January 2, 2021

Carrying Value Fair Value Carrying Value Fair Value

6 unchanged sentences

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.

Notes to Condensed Consolidated Financial Statements

Business Segment Information

13 unchanged sentences

In addition, the Company manufactures and sells biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption.

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended

April 3, March 28,

Three Months Ended Six Months Ended

July 3, June 27, July 3, June 27,

(In thousands) 2021 2020 2021 2020

4 unchanged sentences

Income Before Provision for Income Taxes

Flow Control $ 16,443 $ 13,330

Industrial Processing 11,133 9,436

Flow Control (a) $ 19,324 $ 10,260 $ 34,770 $ 23,590

Industrial Processing (b) 17,301 10,639 28,434 20,075

Material Handling 5,592 3,593 10,035 7,727

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

Corporate (c) ( 9,207 ) ( 6,371 ) ( 16,802 ) ( 13,616 )

Total operating income 33,010 18,121 56,437 37,776

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

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

Interest expense, net (d) ( 1,010 ) ( 1,894 ) ( 2,056 ) ( 4,302 )

Other expense, net (d) ( 24 ) ( 31 ) ( 48 ) ( 63 )

$ 31,976 $ 16,196 $ 54,333 $ 33,411

5 unchanged sentences

$ 2,059 $ 911 $ 4,318 $ 3,597

(a) Represents general and administrative expenses.

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

(a) Includes acquisition costs of $ 239,000 in the three months ended July 3, 2021 and $ 1,236,000 in the six months ended July 3, 2021 and restructuring costs of $ 456,000 in the three- and six-month periods ended June 27, 2020.

(b) Includes $ 435,000 of acquisition-related expense in the three- and six-month periods ended June 27, 2020.

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

Notes to Condensed Consolidated Financial Statements

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

Commitments and Contingencies

1 unchanged sentence

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

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 $ 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.

The Company had $ 9,723,000 at July 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.

3 unchanged sentences

If the Company were found to be liable for any of the claims or counterclaims against it, the Company would incur a charge against earnings for amounts in excess of legal accruals.

Subsequent Event

In the third quarter of 2021, Kadant Germany Holding GmbH, a subsidiary of the Company, acquired all partnership interests and shares in The Clouth Group of Companies (Clouth), for approximately 78,000,000 euros, or $ 92,000,000 , net of cash acquired and debt assumed.

The majority of the Clouth companies were acquired on July 19, 2021 and the acquisition of the last legal entity occurred on August 10, 2021.

The Company funded the purchase price with existing cash and borrowings of approximately $ 82,877,000 of euro-denominated funds under the Credit Agreement, of which $ 78,749,000 was borrowed in the second quarter of 2021.

At July 3, 2021, $ 84,249,000 of the purchase price was held in escrow and was classified as restricted cash in the accompanying condensed consolidated balance sheet.

Clouth is a leading manufacturer of doctor blades and related equipment used in the production of paper, packaging, and tissue and will be included within the Company's Flow Control segment.

The Company expects several synergies in connection with this acquisition, including deepening the Company's presence in the growing ceramic blade market and expansion of sales at its existing businesses by leveraging Clouth's complementary global geographic footprint.

Clouth has two manufacturing facilities in Germany and one in Poland and generated revenue of approximately 41,000,000 euros in 2020.

The excess of the purchase price for the acquisition of Clouth over the net assets acquired will be recorded as goodwill.

The purchase price allocation for this acquisition is not presented as the preliminary valuation of Clouth has not been completed.

Unaudited Supplemental Pro Forma Information

Had the acquisition of Clouth been completed as of the beginning of 2020, the Company’s pro forma results of operations for the three- and six-month periods ended July 3, 2021 and June 27, 2020 would have been as follows:

Three Months Ended Six Months Ended

2021 June 27,

(In thousands, except per share amounts)

Revenue $ 207,740 $ 164,248 $ 392,128 $ 334,796

Net Income Attributable to Kadant $ 23,663 $ 10,276 $ 41,522 $ 20,147

Earnings per Share Attributable to Kadant

Basic $ 2.04 $ 0.89 $ 3.59 $ 1.76

Diluted $ 2.03 $ 0.89 $ 3.57 $ 1.75

Notes to Condensed Consolidated Financial Statements

The historical consolidated financial information of the Company and Clouth has been adjusted in the pro forma information above to give effect to pro forma events that are directly attributable to the acquisition and related financing arrangements, are expected to have a continuing impact on the Company, and are factually supportable.

Pro forma results include the following non-recurring pro forma adjustments that were directly attributable to the acquisition:

• Estimated pre-tax charge to cost of revenue of $ 1,753,000 in the three months ended June 27, 2020 and $ 3,505,000 in the six months ended June 27, 2020, for the sale of inventory revalued at the date of acquisition.

• Estimated pre-tax charge to SG&A expenses of $ 239,000 in the three months ended June 27, 2020 and $ 1,673,000 in the six months ended June 27, 2020 and reversal of $ 239,000 in the three months ended July 3, 2021 and $ 1,236,000 in the six months ended July 3, 2021, for acquisition costs and intangible asset amortization related to acquired backlog.

• Estimated tax effects related to the pro forma adjustments.

These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have resulted had the acquisition of Clouth occurred as of the beginning of 2020, or that may result in the future.

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