What changed in this filing

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Item 1. Financial Statements

2022-05-11 compared with 2021-11-10 · 147 added, 305 removed, 432 unchanged (51% of the section changed)

9 unchanged sentences

Inventories 143,583 134,356

Unbilled revenue 7,915 7,576

Contract assets 8,978 8,626

Other current assets 24,825 29,530

3 unchanged sentences

Other Assets 59,299 44,111

Intangible Assets, Net (Note 2) 205,328 160,965

Goodwill (Note 2) 398,907 351,753

Intangible Assets, Net 192,426 199,343

Goodwill 394,414 396,887

Total Assets $ 1,144,266 $ 1,132,212

27 unchanged sentences

Condensed Consolidated Statement of Income

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

(In thousands, except per share amounts)

4 unchanged sentences

Research and development expenses 3,078 2,857

Restructuring costs — 470 — 926

Gain on sale and other expense, net (Note 2) ( 20,008 ) —

170,507 149,036

16 unchanged sentences

Condensed Consolidated Statement of Comprehensive Income

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

(In thousands)

2 unchanged sentences

Foreign currency translation adjustment ( 2,284 ) ( 4,750 )

Post-retirement liability adjustments, net (net of tax provision (benefit) of $ 9 , $( 6 ), $ 21 and $ 14 )

24 ( 14 ) 57 34

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

Deferred gain (loss) on cash flow hedges (net of tax provision (benefit) of $ 20 , $ 19 , $ 60 and $( 103 ))

66 51 244 ( 275 )

Post-retirement liability adjustments, net (net of tax provision of $ 2 and $ 10 )

Deferred gain on cash flow hedges (net of tax provision of $ 68 and $ 19 )

Other comprehensive items ( 1,998 ) ( 4,609 )

5 unchanged sentences

Condensed Consolidated Statement of Cash Flows

Nine Months Ended

2021 September 26,

Three Months Ended

2022 April 3,

(In thousands)

6 unchanged sentences

Stock-based compensation expense 2,260 1,499

Provision for losses on accounts receivable 116 505

Loss (gain) on sale of property, plant, and equipment 99 ( 4 )

Provision for losses (benefit) on accounts receivable 208 ( 129 )

Gain on the sale of assets (Note 2) ( 20,190 ) —

Noncash impairment costs (Note 2) 182 —

Other items, net 6,117 809

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

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

Accounts receivable ( 9,127 ) ( 13,955 )

Unbilled revenue ( 487 ) 4,332

Contract assets ( 409 ) 1,231

Inventories ( 9,359 ) ( 6,612 )

Other current assets ( 8,110 ) 2,840

Other assets 1,113 ( 3,182 )

Accounts payable 8,864 8,031

Other current liabilities 33,332 ( 4,460 )

Customer deposits 3,329 8,464

Other liabilities ( 10,106 ) ( 1,546 )

Net cash provided by operating activities 23,768 19,092

Investing Activities

Acquisitions, net of cash acquired (Note 2) ( 141,538 ) ( 7,095 )

Acquisitions, net of cash acquired ( 62 ) ( 125 )

Purchases of property, plant, and equipment ( 2,868 ) ( 2,259 )

3 unchanged sentences

Repayment of short- and long-term obligations ( 35,064 ) ( 19,563 )

Proceeds from issuance of long-term obligations (Note 5) 151,944 26,000

Proceeds from issuance of short- and long-term obligations 15,516 10,139

Tax withholding payments related to stock-based compensation ( 4,550 ) ( 3,388 )

Dividends paid ( 2,905 ) ( 2,770 )

Dividend paid to noncontrolling interest ( 560 ) ( 525 )

Proceeds from issuance of Company common stock — 1,614

Other — ( 189 )

Net cash provided by (used in) financing activities 66,714 ( 52,871 )

Net cash used in financing activities ( 27,003 ) ( 15,582 )

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash ( 664 ) ( 1,090 )

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash 17,024 ( 12,069 )

(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash ( 5,190 ) 68

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 94,161 66,640

4 unchanged sentences

Condensed Consolidated Statement of Stockholders' Equity

Three Months Ended October 2, 2021

Three Months Ended April 2, 2022

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

5 unchanged sentences

Shares Amount Shares Amount

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

Balance at January 1, 2022 14,624,159 $ 146 $ 115,888 $ 551,848 3,003,419 $ ( 73,596 ) $ ( 30,350 ) $ 1,680 $ 565,616

Net income — — — 41,192 — — — 249 41,441

2 unchanged sentences

Activity under stock plans — — ( 3,237 ) — ( 38,633 ) 947 — — ( 2,290 )

Dividend paid to noncontrolling interest — — — — — — — ( 560 ) ( 560 )

Noncontrolling interest acquired (Note 2) — — — — — — — 653 653

Purchase of shares of noncontrolling interest (Note 2) — — — — — — — ( 686 ) ( 686 )

Other comprehensive items — — — — — — ( 1,952 ) ( 46 ) ( 1,998 )

Balance at October 2, 2021 14,624,159 $ 146 $ 112,693 $ 530,596 3,038,629 $ ( 74,459 ) $ ( 27,089 ) $ 1,499 $ 543,386

Nine Months Ended October 2, 2021

Balance at April 2, 2022 14,624,159 $ 146 $ 112,651 $ 590,009 2,964,786 $ ( 72,649 ) $ ( 32,302 ) $ 1,883 $ 599,738

Three Months Ended April 3, 2021

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

7 unchanged sentences

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

Dividends declared – Common Stock, $ 0.75 per share

— — — ( 8,690 ) — — — — ( 8,690 )

Activity under stock plans — — 1,869 — ( 43,290 ) 1,060 — — 2,929

Dividend paid to noncontrolling interest — — — — — — — ( 560 ) ( 560 )

Noncontrolling interest acquired (Note 2) — — — — — — — 653 653

Purchase of shares of noncontrolling interest (Note 2) — — — — — — — ( 686 ) ( 686 )

Other comprehensive items — — — — — — ( 7,597 ) ( 89 ) ( 7,686 )

Balance at October 2, 2021 14,624,159 $ 146 $ 112,693 $ 530,596 3,038,629 $ ( 74,459 ) $ ( 27,089 ) $ 1,499 $ 543,386

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

Condensed Consolidated Statement of Stockholders' Equity (continued)

Three Months Ended September 26, 2020

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

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

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

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

Dividend declared – Common Stock, $ 0.25 per share

— — — ( 2,894 ) — — — — ( 2,894 )

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

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

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

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

Nine Months Ended September 26, 2020

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

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

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

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

Dividends declared – Common Stock, $ 0.72 per share

— — — ( 8,275 ) — — — — ( 8,275 )

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

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

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

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

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

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

3 unchanged sentences

was incorporated in Delaware in November 1991 and trades on the New York Stock Exchange under the ticker symbol "KAI."

(together with its subsidiaries, the Company) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.

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

(together with its subsidiaries, the Company) is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing.

Its products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water.

Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of the Company's three reportable operating segments:

Flow Control, Industrial Processing, and Material Handling.

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 October 2, 2021, its results of operations, comprehensive income, and stockholders' equity for the three- and nine-month periods ended October 2, 2021 and September 26, 2020 and its cash flows for the nine-month periods ended October 2, 2021 and September 26, 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 April 2, 2022, its results of operations, comprehensive income, cash flows and stockholders' equity for the three-month periods ended April 2, 2022 and April 3, 2021.

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 1, 2022 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 nine months ended October 2, 2021.

There have been no material changes in the Company’s significant accounting policies during the three months ended April 2, 2022.

Notes to Condensed Consolidated Financial Statements

Supplemental Cash Flow Information

Nine Months Ended

(In thousands) October 2,

2021 September 26,

Three Months Ended

(In thousands) April 2,

2022 April 3,

Cash Paid for Interest $ 1,017 $ 892

8 unchanged sentences

Dividends declared but unpaid $ 3,031 $ 2,894

Notes to Condensed Consolidated Financial Statements

Restricted Cash

2 unchanged sentences

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

(In thousands) October 2,

2021 September 26,

(In thousands) April 2,

2022 April 3,

2021 January 1,

2021 December 28,

2022 January 2,

Cash and cash equivalents $ 86,192 $ 65,982 $ 91,186 $ 65,682

9 unchanged sentences

Intangible Assets, Net

Acquired intangible assets by major asset class are as follows:

(In thousands) Gross Accumulated

Amortization Currency

Translation Net

October 2, 2021

Definite-Lived

Customer relationships $ 215,366 $ ( 75,978 ) $ ( 2,613 ) $ 136,775

Product technology 67,625 ( 34,615 ) ( 1,468 ) 31,542

Tradenames 7,427 ( 3,278 ) ( 346 ) 3,803

Other 20,110 ( 15,463 ) ( 552 ) 4,095

310,528 ( 129,334 ) ( 4,979 ) 176,215

Indefinite-Lived

Tradenames 29,059 — 54 29,113

Acquired Intangible Assets $ 339,587 $ ( 129,334 ) $ ( 4,925 ) $ 205,328

January 2, 2021

Definite-Lived

Customer relationships $ 173,728 $ ( 65,488 ) $ ( 1,316 ) $ 106,924

Product technology 56,111 ( 31,655 ) ( 1,005 ) 23,451

Tradenames 6,027 ( 2,946 ) ( 282 ) 2,799

Other 18,248 ( 14,369 ) ( 515 ) 3,364

254,114 ( 114,458 ) ( 3,118 ) 136,538

Indefinite-Lived

Tradenames 24,100 — 327 24,427

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

Notes to Condensed Consolidated Financial Statements

Gross intangible assets were $ 340,947,000 at April 2, 2022 and January 1, 2022.

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.

Accumulated amortization was $ 141,122,000 at April 2, 2022 and $ 135,327,000 at January 1, 2022.

Notes to Condensed Consolidated Financial Statements

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

4 unchanged sentences

Net balance 123,589 129,473 143,825 396,887

2021 Adjustments

Acquisitions (Note 2) 25,349 — 27,699 53,048

2022 Activity

Acquisitions (a) 625 — ( 482 ) 143

Currency translation ( 1,632 ) ( 6 ) ( 978 ) ( 2,616 )

Total 2021 adjustments 22,932 ( 1,351 ) 25,573 47,154

Balance at October 2, 2021

Total 2022 activity ( 1,007 ) ( 6 ) ( 1,460 ) ( 2,473 )

Balance at April 2, 2022

Gross balance 122,582 214,976 142,365 479,923

1 unchanged sentence

Net balance $ 122,582 $ 129,467 $ 142,365 $ 394,414

(a) Relates to adjustments to the purchase price allocation for acquisitions completed in 2021, principally for inventory, machinery and equipment, and deferred taxes.

Measurement period adjustments in 2022 were not material to the Company's results of operations.

The final purchase accounting and purchase price allocations remain subject to change as the Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed and the valuation of acquired intangibles, which may result in adjustments to the assets and liabilities, including goodwill.

Warranty Obligations

4 unchanged sentences

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

Nine Months Ended

(In thousands) October 2,

2021 September 26,

Three Months Ended

(In thousands) April 2,

2022 April 3,

Balance at Beginning of Year $ 7,298 $ 7,064

1 unchanged sentence

Usage ( 1,538 ) ( 1,361 )

Acquisitions 429 —

Currency translation ( 74 ) ( 133 )

8 unchanged sentences

The following table presents revenue by revenue recognition method:

Three Months Ended Nine Months Ended

October 2, September 26, October 2, September 26,

Three Months Ended

April 2, April 3,

(In thousands) 2022 2021

4 unchanged sentences

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

Three Months Ended Nine Months Ended

October 2, September 26, October 2, September 26,

Three Months Ended

April 2, April 3,

(In thousands) 2022 2021

13 unchanged sentences

(In thousands)

Accounts Receivable $ 120,496 $ 91,540

Contract Assets $ 8,978 $ 8,626

1 unchanged sentence

Contract assets represent unbilled revenue associated with revenue recognized on contracts accounted for on an over time basis, which will be billed in future periods based on the contract terms.

Contract liabilities consist of customer deposits, advanced billings, and deferred revenue.

Deferred revenue is included in other current liabilities in the accompanying condensed consolidated balance sheet.

Contract liabilities consist of short- and long-term customer deposits, advanced billings, and deferred revenue.

Deferred revenue is included in other current liabilities and long-term customer deposits are included in other long-term liabilities in the accompanying condensed consolidated balance sheet.

Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met.

1 unchanged sentence

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 $ 3,973,000 in the third quarter of 2021, $ 1,656,000 in the third quarter of 2020, $ 31,183,000 in the first nine months of 2021 and $ 28,522,000 in the first nine months of 2020 that was included in the contract liabilities balance at the beginning of 2021 and 2020.

The Company recognized revenue of $ 34,477,000 in the first quarter of 2022 and $ 17,140,000 in the first quarter of 2021 that was included in the contract liabilities balance at the beginning of 2022 and 2021, respectively.

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 October 2, 2021 was $ 38,135,000 .

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 70 % of which is expected to occur within the next twelve months and the remaining 30 % within the following twelve months .

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 56 % of which is expected to occur within the next twelve months and the remaining 44 % after the first quarter of 2023.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

The Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable.

The drafts are non-interest 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 generally 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 $ 7,428,000 at October 2, 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

Recently Adopted Accounting Pronouncements

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

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

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

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

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

These drafts, which totaled $ 8,147,000 at April 2, 2022 and $ 8,049,000 at January 1, 2022, 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 Not Yet Adopted

Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

In March 2020, the FASB issued ASU No.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-04, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of reference rates, such as the London Interbank Offered Rate (LIBOR), if certain criteria are met.

2 unchanged sentences

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

The Company’s acquisitions have been accounted for using the purchase method of accounting and the results of the acquired businesses are included in its condensed consolidated financial statements from the date of acquisition.

Historically, acquisitions have been made at prices above the fair value of identifiable net assets, resulting in goodwill.

Acquisition costs are included in selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income as incurred.

The Company recorded acquisition costs of $ 2,619,000 in the first nine months of 2021 and $ 485,000 in the first nine months of 2020.

In the third quarter of 2021, the Company acquired all partnership interests and shares in The Clouth Group of Companies (Clouth), for $ 93,127,000 , net of cash acquired plus 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, which the Company accounted for as a noncontrolling interest during the period from July 19, 2021 to August 10, 2021.

The Company funded the purchase price with euro-denominated borrowings under its revolving credit facility and existing cash.

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

The Company expects several synergies in connection with this acquisition, including deepening its 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 40,495,000 euros for the trailing twelve months ended June 30, 2021.

Goodwill from the Clouth acquisition was $ 25,349,000 , of which $ 6,240,000 is expected to be deductible for tax purposes over 15 years.

In addition, intangible assets acquired were $ 34,113,000 , of which $ 4,827,000 is expected to be deductible for tax purposes over 15 years.

For the quarter ended October 2, 2021, the Company recorded revenue of $ 9,913,000 and an operating loss of $ 1,025,000 for Clouth from the date of acquisition, including amortization expense of $ 2,199,000 associated with acquired profit in inventory and backlog.

The final purchase accounting and purchase price allocations remain subject to change as the

Notes to Condensed Consolidated Financial Statements

Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed and the valuation of acquired intangibles.

On August 23, 2021, the Company acquired all the outstanding equity securities in East Chicago Machine Tool Corporation (Balemaster) and certain assets of affiliated companies for $ 53,747,000 , net of cash acquired.

Balemaster, which is included within the Company's Material Handling segment, is a leading U.S.

manufacturer of horizontal balers and related equipment used primarily for recycling packaging waste at corrugated box plants and large retail and distribution centers.

The Company funded the purchase price with borrowings under its revolving credit facility.

The Company expects several synergies in connection with the acquisition, including expansion of its presence in the secondary material processing market and creation of new opportunities for leveraging its high-performance balers produced in Europe.

Balemaster's revenue for the trailing twelve months ended June 30, 2021 was approximately $ 22,166,000 .

Goodwill from the Balemaster acquisition was $ 27,699,000 , no ne of which is deductible for tax purposes.

In addition, intangible assets acquired were $ 27,260,000 , no ne of which is deductible for tax purposes.

For the quarter ended October 2, 2021, the Company recorded revenue of $ 2,845,000 and operating income of $ 221,000 for Balemaster from the date of acquisition, including amortization expense of $ 621,000 associated with acquired profit in inventory and backlog.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed and the purchase

price for Clouth and Balemaster.

(In thousands) Clouth Balemaster Total

Net Assets Acquired:

Cash and Cash Equivalents $ 4,666 $ 3,757 $ 8,423

Accounts Receivable 6,863 1,593 8,456

Inventories 15,770 3,993 19,763

Other Current Assets 1,467 36 1,503

Property, Plant, and Equipment 24,508 4,232 28,740

Other Assets 3,923 195 4,118

Definite-Lived Intangible Assets

Customer relationships 19,838 21,800 41,638

Product technology 8,914 2,600 11,514

Tradenames — 1,400 1,400

Other 402 1,460 1,862

Indefinite-Lived Intangible Assets

Tradenames 4,959 — 4,959

Goodwill 25,349 27,699 53,048

Total assets acquired 116,659 68,765 185,424

Short-term Obligations and Current Maturities of Long-term Obligations 1,320 — 1,320

Accounts Payable 1,452 743 2,195

Other Current Liabilities 4,557 3,900 8,457

Long-Term Deferred Income Taxes 10,060 6,423 16,483

Long-Term Obligations 4,141 — 4,141

Other Long-term Liabilities 2,797 195 2,992

Total liabilities assumed 24,327 11,261 35,588

Net assets acquired $ 92,332 $ 57,504 $ 149,836

Purchase Price:

Cash Paid $ 92,332 $ 57,504 $ 149,836

The weighted-average amortization period for Clouth's definite-lived intangible assets is 19 years, including weighted-average amortization periods of 24 years for customer relationships and 10 years for product technology.

The weighted-average amortization period for Balemaster's definite-lived intangible assets is 17 years, including weighted-average amortization periods of 18 years for customer relationships, 13 years for product technology, and 17 years for tradenames.

Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

In October 2021, the FASB issued ASU 2021-08, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) .

The guidance in this ASU will generally result in the Company recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value.

This new guidance is effective on a prospective basis in fiscal 2023, with early adoption permitted.

The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements, which will be dependent on the contract assets and liabilities acquired in future business combinations.

Gain on Sale and Other Expense, Net

The Company entered into several agreements with the local government in China to sell the existing manufacturing building and land use rights of one of its subsidiaries in China for approximately $ 25,159,000 .

This subsidiary, which is part of the stock preparation product line within the Company's Industrial Processing segment, will continue to occupy its current facility until construction of a new facility is complete.

The agreements became effective in the first quarter of 2022 after a 31 % down payment was received, including 25 % in 2021 and 6 % in the first quarter of 2022, and a land use right in a new location was secured.

As a result, the Company recognized a gain on the sale of these assets of $ 20,190,000 , or $ 15,143,000 , net of deferred taxes of $ 5,047,000 , in the first quarter of 2022.

A $ 16,082,000 receivable was recognized for the present value of the remaining amount of the sale proceeds, which is due the earlier of when the government sells the property or within two years from the effective date of the agreements.

This receivable is included in other assets in the accompanying condensed consolidated balance sheet.

In addition, the Company recognized an impairment charge of $ 182,000 in the first quarter of 2022 associated with the write-down of certain fixed assets that will not be moved to the new facility.

Notes to Condensed Consolidated Financial Statements

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 nine-month periods ended October 2, 2021 and September 26, 2020 would have been as follows:

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

(In thousands, except per share amounts)

Revenue $ 201,372 $ 166,687 $ 593,500 $ 501,484

Net Income Attributable to Kadant $ 22,125 $ 17,013 $ 64,102 $ 37,106

Earnings per Share Attributable to Kadant

Basic $ 1.91 $ 1.48 $ 5.54 $ 3.23

Diluted $ 1.90 $ 1.47 $ 5.51 $ 3.21

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 (i) directly attributable to the acquisition and related financing arrangements, (ii) expected to have a continuing impact on the Company, and (iii) factually supportable.

Pro forma results include the following non-recurring pro forma adjustments:

• Pre-tax charge to cost of revenue of $ 3,098,000 in the nine months ended September 26, 2020 and reversal of $ 1,846,000 in the three and nine months ended October 2, 2021, for the sale of inventory revalued at the date of acquisition.

• Pre-tax charge to SG&A expenses of $ 2,143,000 in the nine months ended September 26, 2020 and reversal of $ 860,000 in the three months ended October 2, 2021 and $ 2,096,000 in the nine months ended October 2, 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.

The Company's pro forma results exclude the Balemaster acquisition as the inclusion of its results would not have been materially different from the pro forma results presented above had the acquisition occurred at the beginning of 2020 .

Earnings per Share

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

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

(In thousands, except per share amounts)

5 unchanged sentences

Diluted Earnings per Share $ 3.53 $ 1.43

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 3,000 shares in the third quarter of 2021, 11,000 shares in the third quarter of 2020, 19,000 shares in the first nine months of 2021, and 30,000 shares in the first nine months of 2020 were 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

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 17,000 shares in the first quarter of 2022 and 44,000 shares in the first quarter of 2021 were 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 $ 21,252,000 in the first nine months of 2021 and $ 13,738,000 in the first nine months of 2020.

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

The provision for income taxes was $ 13,378,000 in the first three months of 2022 and $ 5,561,000 in the first three months of 2021.

The effective tax rate of 24 % in the first three months of 2022 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 and the reversal of tax reserves associated with uncertain tax positions.

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 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.

12 unchanged sentences

Revolving Credit Facility

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

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

The Company entered into an unsecured multi-currency revolving credit facility, dated as of March 1, 2017 (as amended and restated to date, the Credit Agreement), which matures on December 14, 2023.

Pursuant to the Credit Agreement, the Company has a borrowing capacity of $ 400,000,000 , with an uncommitted, unsecured incremental borrowing facility of

Notes to Condensed Consolidated Financial Statements

$ 150,000,000 .

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

(i) the Base Rate, plus an applicable margin of 0 % to 1.25 %, or (ii) LIBOR (with a zero percent floor), as defined, plus an applicable margin of 1 % to 2.25 %.

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

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

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

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

(i) the Base Rate, as defined, plus an applicable margin of 0 % to 1.25 %, or (ii) Eurocurrency Rate, CDOR Rate and RFR (with a zero percent floor), as applicable and as defined, plus an applicable margin of 1 % to 2.25 %.

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

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

1 unchanged sentence

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

In the first nine months of 2021, the Company borrowed an aggregate of $ 151,944,000 under the Credit Agreement, including $ 89,944,000 of euro-denominated borrowings, which were primarily used to fund the Company's acquisitions in the third quarter of 2021.

See Note 2 , Acquisitions, for further details.

As of October 2, 2021, the outstanding balance under the Credit Agreement was $ 294,610,000 , which included $ 106,610,000 of euro-denominated borrowings.

As of October 2, 2021, the Company had $ 104,912,000 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 1.46 % as of October 2, 2021.

Notes to Condensed Consolidated Financial Statements

See Note 8 , 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.

As of April 2, 2022, the outstanding balance under the Credit Agreement was $ 229,483,000 , which included $ 78,483,000 of euro-denominated borrowings.

As of April 2, 2022, the Company had $ 169,977,000 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 1.73 % as of April 2, 2022.

See Note 8 , Derivatives, under the heading Interest Rate Swap Agreement, for information relating to the swap agreement.

Senior Promissory Notes

1 unchanged sentence

Simultaneous with the execution of the Note Purchase Agreement, the Company issued senior promissory notes (Initial Notes) in an aggregate principal amount of $ 10,000,000 , with a per annum interest rate of 4.90 % payable semiannually, and a maturity date of December 14, 2028.

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

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

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

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

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

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

Debt Compliance

As of October 2, 2021, the Company was in compliance with the covenants related to its debt obligations.

As of April 2, 2022, 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 current assets in the accompanying condensed consolidated balance sheet, was $ 1,374,000 at October 2, 2021.

The secured loan receivable, which is included in other current assets in the accompanying condensed consolidated balance sheet, was $ 1,435,000 at April 2, 2022.

The lease arrangement provides for a fixed price purchase option, net of the projected loan receivable, of $ 1,469,000 at the end of the lease term in August 2022.

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

As of October 2, 2021, $ 3,432,000 was outstanding under this obligation.

Other borrowings also include $ 1,150,000 of short-term obligations and $ 3,629,000 of debt obligations outstanding at October 2, 2021 assumed in the acquisition of Clouth, which mature on various dates ranging from 2021 through 2028.

As of April 2, 2022, $ 3,152,000 was outstanding under this obligation.

Other borrowings also include $ 968,000 of short-term obligations and $ 2,925,000 of debt obligations outstanding at April 2, 2022 assumed in the acquisition of The Clouth Group of Companies (Clouth), which mature on various dates ranging from 2022 through 2028.

Notes to Condensed Consolidated Financial Statements

Stock-Based Compensation

The Company recognized stock-based compensation expense of $ 2,204,000 in the third quarter of 2021, $ 1,610,000 in the third quarter of 2020, $ 6,230,000 in the first nine months of 2021, and $ 5,126,000 in the first nine months 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 $ 2,260,000 in the first quarter of 2022 and $ 1,499,000 in the first quarter of 2021 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 $ 9,699,000 at October 2, 2021, which will be recognized over a weighted average period of 1.7 years.

Notes to Condensed Consolidated Financial Statements

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 11,628,000 at April 2, 2022, which will be recognized over a weighted average period of 2.0 years.

Accumulated Other Comprehensive Items

8 unchanged sentences

( 2,238 ) 9 277 ( 1,952 )

Balance at October 2, 2021 $ ( 25,792 ) $ ( 713 ) $ ( 584 ) $ ( 27,089 )

Balance at April 2, 2022 $ ( 31,334 ) $ ( 783 ) $ ( 185 ) $ ( 32,302 )

Amounts reclassified from AOCI are as follows:

Three Months Ended Nine Months Ended

(In thousands) October 2,

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

(In thousands) April 2,

2022 April 3,

2021 Statement of Income Line Item

7 unchanged sentences

Income tax benefit 3 4 Provision for income taxes

( 10 ) ( 12 ) ( 30 ) 84

Cash Flow Hedges (a)

1 unchanged sentence

( 111 ) ( 109 ) Interest expense

Forward currency-exchange contracts

— 47 — 24 Cost of revenue

Total expense before income taxes

5 unchanged sentences

(a) See Note 8 , Derivatives, for additional information.

Notes to Condensed Consolidated Financial Statements

Interest Rate Swap Agreement

6 unchanged sentences

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

Notes to Condensed Consolidated Financial Statements

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

6 unchanged sentences

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.

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 nine-month periods ended October 2, 2021 and September 26, 2020.

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-month periods ended April 2, 2022 and April 3, 2021.

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

October 2, 2021 January 2, 2021

April 2, 2022 January 1, 2022

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

1 unchanged sentence

Derivatives Designated as Hedging Instruments:

Derivatives in an Asset Position:

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

Derivatives in a Liability Position:

4 unchanged sentences

Forward currency-exchange contracts Other Current Assets $ — $ — $ 14 $ 1,200

Derivatives in a Liability Position:

Forward currency-exchange contracts Other Current Liabilities $ — $ — $ ( 7 ) $ 825

(a) See Note 9 , Fair Value Measurements and Fair Value of Financial Instruments, for the fair value measurements relating to these financial instruments.

(b) The 2022 notional amounts are indicative of the level of the Company's recurring derivative activity.

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 nine months ended October 2, 2021:

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 2, 2022:

(In thousands) Interest Rate Swap

4 unchanged sentences

Gain (loss) recognized in AOCI 209 ( 16 ) 193

Unrealized Loss, Net of Tax, at October 2, 2021 $ ( 565 ) $ ( 19 ) $ ( 584 )

Unrealized Loss, Net of Tax, at April 2, 2022 $ ( 136 ) $ ( 49 ) $ ( 185 )

(a) See Note 7 , Accumulated Other Comprehensive Items, for the income statement classification.

Notes to Condensed Consolidated Financial Statements

As of October 2, 2021, the Company expects to reclassify losses of $ 363,000 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 April 2, 2022, the Company expects to reclassify losses of $ 184,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the 2018 Swap Agreement and the maturity date of the forward currency-exchange contract.

Fair Value Measurements and Fair Value of Financial Instruments

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 October 2, 2021

Fair Value as of April 2, 2022

(In thousands) Level 1 Level 2 Level 3 Total

11 unchanged sentences

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

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

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 2022.

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

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

The fair values of the forward

Notes to Condensed Consolidated Financial Statements

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

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

1 unchanged sentence

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

Notes to Condensed Consolidated Financial Statements

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

October 2, 2021 January 2, 2021

April 2, 2022 January 1, 2022

Carrying Value Fair Value Carrying Value Fair Value

12 unchanged sentences

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

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

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

A description of each segment follows.

8 unchanged sentences

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

Three Months Ended Nine Months Ended

October 2, September 26, October 2, September 26,

Three Months Ended

April 2, April 3,

(In thousands) 2022 2021

Flow Control $ 76,253 $ 56,815 $ 210,769 $ 165,329

Flow Control (a) $ 85,826 $ 63,754

Industrial Processing 93,085 69,154

Material Handling 41,916 35,709 123,839 108,800

Material Handling (b) 47,569 39,555

$ 226,480 $ 172,463

Notes to Condensed Consolidated Financial Statements

Three Months Ended Nine Months Ended

October 2, September 26, October 2, September 26,

Three Months Ended

April 2, April 3,

(In thousands) 2022 2021

Income Before Provision for Income Taxes

Flow Control (a) $ 17,129 $ 13,770 $ 51,899 $ 37,360

Industrial Processing 16,095 12,072 44,449 32,147

Material Handling (b) 3,491 2,614 12,941 10,341

Corporate (c) ( 7,987 ) ( 7,121 ) ( 24,124 ) ( 20,737 )

Flow Control (a,c) $ 21,725 $ 15,446

Industrial Processing (d) 38,159 11,106

Material Handling (b,e) 5,844 4,169

Corporate (f) ( 9,755 ) ( 7,294 )

Total operating income 55,973 23,427

Interest expense, net (d) ( 1,265 ) ( 1,618 ) ( 3,321 ) ( 5,920 )

Other expense, net (d) ( 23 ) ( 32 ) ( 71 ) ( 95 )

Interest expense, net (g) ( 1,132 ) ( 1,046 )

Other expense, net (g) ( 22 ) ( 24 )

$ 54,819 $ 22,357

5 unchanged sentences

$ 2,868 $ 2,259

October 2, January 2,

(In thousands) 2021 2021

Flow Control $ 388,662 $ 263,141

Industrial Processing 399,651 379,965

Material Handling 333,535 273,909

Corporate 11,280 10,556

$ 1,133,128 $ 927,571

(a) Includes acquisition-related expenses of $ 2,706,000 in the three months ended October 2, 2021 and $ 3,942,000 in the nine months ended October 2, 2021 and restructuring costs of $ 265,000 in the three months ended September 26, 2020 and $ 721,000 in the nine months ended September 26, 2020.

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

(b) Includes acquisition-related expenses of $ 799,000 in the three months ended October 2, 2021 and $ 1,411,000 in the nine months ended October 2, 2021 and $ 248,000 in the three months ended September 26, 2020 and $ 256,000 in the nine months ended September 26, 2020.

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

(a) Includes Clouth's results in 2022, which was acquired between July 19, 2021 and August 10, 2021.

(b) Includes the East Chicago Machine Tool Corporation (Balemaster) results in 2022, which was acquired on August 23, 2021.

(d) Includes a gain on the sale of a facility of $ 20,190,000 and non-cash charges for the write-off of an indemnification asset of $ 575,000 and the write-down of machinery and equipment of $ 182,000 in the three months ended April 2, 2022.

(e) Includes acquisition-related expenses of $ 717,000 in the three months ended April 2, 2022 and $ 274,000 in the three months ended April 3, 2021.

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

(f) Represents general and administrative expenses.

(g) 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 non-interest 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 generally 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 $ 11,432,000 at October 2, 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 $ 8,419,000 at April 2, 2022 and $ 9,593,000 at January 1, 2022 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates.

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

Notes to Condensed Consolidated Financial Statements

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

2 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.

Notes to Condensed Consolidated Financial Statements

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