What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-28 compared with 2022-03-01 · 298 added, 394 removed, 1137 unchanged (38% of the section changed)

11 unchanged sentences

Based on our assessment, management believes that at year-end 2022 our internal control over financial reporting was effective based on the criteria issued by COSO.

In the third quarter of 2021, we acquired Clouth and Balemaster.

Our audited consolidated financial statements include the results of Clouth and Balemaster since their dates of acquisition, including total assets of $174.5 million and total revenue of $32.3 million as of and for the fiscal year ended January 1, 2022, but management's assessment does not include an assessment of the internal control over financial reporting of the Clouth and Balemaster businesses.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

2 unchanged sentences

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended January 1, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

24 unchanged sentences

Total 85,477 (a) $ — (b) 395,636 (c)

(a) Consists of shares of our common stock issuable upon the vesting of restricted stock units and performance-based restricted stock units under the 2006 Plan.

(b) Shares of restricted stock units and performance-based restricted stock units outstanding on January 1, 2022 had a weighted average grant date fair value of $127.70.

(a) Consists of shares of our common stock issuable upon the vesting of restricted stock units and performance-based restricted stock units under the Amended and Restated 2006 Equity Incentive Plan.

(b) Shares of restricted stock units and performance-based restricted stock units outstanding on December 31, 2022 had a weighted average grant date fair value of $153.98.

(c) Includes an aggregate of 82,532 shares of common stock issuable under our employees' stock purchase plan in connection with current and future offering periods under the plan.

17 unchanged sentences

This list of exhibits identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.

Exhibit Index

Number Description of Exhibit

2.1 Equity Purchase Agreement by and among the Registrant, LLCP PCS Alternative Syntron, LLC, Syntron Material Handling Group, LLC, PCS Alternative Corp Seller 1, LLC, PCS Alternative Corp Seller 2, LLC, and SMH Equity, LLC and Levine Leichtman Capital Partners Private Capital Solutions, L.P., dated as of December 9, 2018 (filed as Exhibit 2.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 [File No.

001-11406] and incorporated in this document by reference).

3.1 Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 [File No.

10 unchanged sentences

001-11406] and incorporated in this document by reference).

10.4* Employment Contract Statutory Director between The Johnson Corporation Holland B.V.

and Fredrik H.

Westerhout dated November 29, 2004.

10.5* Amended and Restated 2006 Equity Incentive Plan of the Registrant effective as of May 17, 2017 (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 2017 [File No.

10.4* Employment Agreement between Kadant Johnson Europe B.V.

and Fredrik Westerhout dated May 16, 2022 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 2022 [File No.

011-11406] and incorporated in this document by reference).

10.6* Cash Incentive Plan of the Registrant (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 2017 [File No.

011-11406] and incorporated in this document by reference).

10.6* Cash Incentive Plan of the Registrant, Amended and Restated as of March 9, 2022 (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K [File No.

001-11406] filed with the Commission on March 15, 2022 and incorporated in this document by reference).

10.7* Summary of non-employee director compensation of the Registrant (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2022 [File No.

001-11406] and incorporated in this document by reference).

10.8* Executive Transition Agreement between the Registrant and Eric T.

Langevin dated October 27, 2021 (filed as Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter end ed O ctober 2 , 2021 [File No.

001-11406] and incorporated in this document by reference).

10.8* Form of Performance-Based Restricted Stock Unit Award Agreement between the Registrant and its executive officers used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 2014 [File No.

001-11406] and incorporated in this document by reference).

Exhibit Index

Number Description of Exhibit

10.9* Form of Time-Based Restricted Stock Unit Award Agreement between the Registrant and its executive officers used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 2014 [File No.

001-11406] and incorporated in this document by reference).

Number Description of Exhibit

10.10* Form of Performance-Based Restricted Stock Unit Award Agreement between the Registrant and its executive officers used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 [File No.

14 unchanged sentences

001-11406] and incorporated in this document by reference).

Exhibit Index

Description of Exhibit

10.18 Fourth Amendment, dated as of May 4, 2021, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 2021 [File No.

001-11406] and incorporated in this document by reference).

Number Description of Exhibit

10.19 Joinder Agreement, dated as of May 4, 2021, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 2021 [File No.

1 unchanged sentence

10.20 Fifth Amendment, dated as of December 9, 2021, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent.

(filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended January 1, 2022 [File No.

001-11406] and incorporated in this document by reference).

10.21 Sixth Amendment, dated as of November 30, 2022, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent.

10.22 Amended and Restated Guarantee Agreement dated as of March 1, 2017, among the Registrant, as Borrower, and each of the Subsidiary Guarantors, in favor of Citizens Bank, N.A., as Administrative Agent and as Multicurrency Administrative Agent for the bank and other financial institutions or entities from time to time parties to the Amended and Restated Credit Facility (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K [File No.

14 unchanged sentences

24 Power of Attorney (included on the signatures page to the Annual Report on Form 10-K).

Number Description of Exhibit

31.1 Certification of the Principal Executive Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

Exhibit Index

Description of Exhibit

31.2 Certification of the Principal Financial Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

10 unchanged sentences

* Management contract or compensatory plan or arrangement.

(1) The schedules to this document have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K.

The Company will furnish copies of any of the schedules to the U.S.

Securities and Exchange Commission upon request.

Form 10-K Summary

1 unchanged sentence

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 1, 2022

February 28, 2023

/s/ Jeffrey L.

5 unchanged sentences

Selwood, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on March 1, 2022.

Signature Title

13 unchanged sentences

Leonard Director

/s/ Rebecca Martinez O'Mara Director

Rebecca Martinez O'Mara

/s/ Erin L Russell Director

/s/ William P.

Tully Director

Annual Report on Form 10-K

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheet as of January 1, 2022 and January 2, 2021

Consolidated Statement of Income for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019

Consolidated Statement of Comprehensive Income for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019

Consolidated Statement of Cash Flows for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019

Consolidated Statement of Stockholders' Equity for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019

Consolidated Balance Sheet as of December 31, 2022 and January 1, 2022

Consolidated Statement of Income for the fiscal years ended December 31, 2022, January 1, 2022 , and January 2, 2021

Consolidated Statement of Comprehensive Income for the fiscal years ended Decemb er 31, 2022, January 1, 2022, and January 2, 2021

Consolidated Statement of Cash Flows for the fiscal years ended Decembe r 31, 2022, January 1, 2022, and January 2, 2021

Consolidated Statement of Stockholders' Equity for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021

Notes to Consolidated Financial Statements

3 unchanged sentences

We have audited the accompanying consolidated balance sheets of Kadant Inc.

and subsidiaries (the Company) as of January 1, 2022 and January 2, 2021, the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for each of the fiscal years in the three-year period ended January 1, 2022, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 1, 2022, in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2022 and January 1, 2022, the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity for each of the fiscal years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 1, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired The Clouth Group of Companies (Clouth) and East Chicago Machine Tool Corporation (Balemaster) during the fiscal year ended January 1, 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of January 1, 2022, Clouth’s and Balemaster’s internal control over financial reporting associated with total assets of $174.5 million and total revenues of $32.3 million included in the consolidated financial statements of the Company as of and for the fiscal year ended January 1, 2022.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Clouth and Balemaster.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

14 unchanged sentences

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

Report of Independent Registered Public Accounting Firm (continued)

expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Report of Independent Registered Public Accounting Firm (continued)

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

6 unchanged sentences

As discussed in Note 1 to the consolidated financial statements, it is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

As disclosed in Note 5 to the consolidated financial statements, the Company has recognized uncertain tax positions amounting to $9,731,000 as of January 1, 2022.

As disclosed in Note 5 to the consolidated financial statements, the Company has recognized uncertain tax positions amounting to $10,354,000 as of December 31, 2022.

The Company’s tax positions are subject to audit by local taxing authorities across multiple global jurisdictions.

Tax law can be complex and tax audits can take an extended period of time to resolve, and accordingly, the ultimate outcome with respect to taxes the Company may owe may differ from the amounts recognized.

We identified the assessment of uncertain tax positions as a critical audit matter.

We identified the assessment of specific uncertain tax positions as a critical audit matter.

Complex auditor judgment, including specialized skills and knowledge, was required in evaluating the Company’s interpretation of, and compliance with, tax law globally and the estimate of the amount of tax benefits expected to be realized.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process to assess uncertain tax positions.

This included controls related to the identification of uncertain tax positions, interpretation of tax law and its application in the liability estimation process.

We involved domestic and international tax professionals with specialized skills and knowledge, who assisted in:

• assessing tax positions for compliance with applicable laws and regulations

• evaluating the Company’s uncertain tax positions by developing independent expectations of the uncertain tax positions using independent assumptions and comparing them to the Company’s estimates

• assessing the expiration of statutes of limitations with applicable laws and regulations.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process to assess specific uncertain tax positions.

This included controls related to the identification of those uncertain tax positions, interpretation of tax law and its application in the liability estimation process.

We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company's intercompany transfer pricing studies for compliance with applicable tax laws and regulations, evaluating the impact of intercompany transfer pricing policies on its uncertain tax positions, and assessing the expiration of statutes of limitations with applicable laws and regulations.

We have served as the Company's auditor since 2012.

Boston, Massachusetts

March 1, 2022

February 28, 2023

2022 Financial Statements

Consolidated Balance Sheet

(In thousands, except share and per share amounts) January 1, 2022 January 2, 2021

(In thousands, except share and per share amounts) December 31, 2022 January 1, 2022

Current Assets:

41 unchanged sentences

Consolidated Statement of Income

(In thousands, except per share amounts) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands, except per share amounts) December 31, 2022 January 1, 2022 January 2, 2021

Revenue (Notes 1 and 12) $ 904,739 $ 786,579 $ 635,028

3 unchanged sentences

Research and development expenses 12,724 11,403 11,298

Impairments and other costs, net (Notes 1 and 8) 465 2,979 2,528

Gain on sale and other costs, net (Note 8) ( 18,856 ) 465 2,979

733,457 669,869 553,904

2 unchanged sentences

Interest Expense ( 6,478 ) ( 4,821 ) ( 7,423 )

Other Expense, Net (Note 3) ( 104 ) ( 195 ) ( 6,359 )

Other Expense, Net ( 72 ) ( 104 ) ( 195 )

Income Before Provision for Income Taxes 165,636 112,052 73,687

12 unchanged sentences

Consolidated Statement of Comprehensive Income

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Net Income $ 121,730 $ 84,881 $ 55,739

3 unchanged sentences

644 ( 22 ) 180

Effect of pension plan settlement (net of tax of $ 0 , $ 0 , and $( 653 ))

— ( 119 ) 3,826

Effect of pension plan settlement — — ( 119 )

Deferred gain (loss) on cash flow hedges (net of tax of $ 147 , $ 118 , and $( 57 ))

7 unchanged sentences

Consolidated Statement of Cash Flows

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Operating Activities

6 unchanged sentences

Provision for losses on accounts receivable 1,165 5 356

Gain on sale of property, plant, and equipment ( 375 ) ( 8 ) ( 79 )

pension benefit plan settlement loss — — 5,887

Impairment charges (Notes 1 and 8) 804 1,861 2,336

Deferred income tax (benefit) provision ( 1,384 ) 142 ( 2,491 )

Gain on sale of assets (Note 8) ( 20,190 ) ( 515 ) —

Non-cash impairment costs (Note 8) 731 804 1,861

Deferred income tax provision (benefit) 7,159 ( 1,384 ) 142

Other items, net 6,658 6,473 4,712

15 unchanged sentences

Financing Activities

Proceeds from issuance of long-term obligations 151,944 26,000 247,196

Proceeds from issuance of short-and long-term obligations 22,057 151,944 26,000

Repayment of short- and long-term obligations ( 85,510 ) ( 115,576 ) ( 99,547 )

4 unchanged sentences

Other financing activities ( 1,254 ) — ( 189 )

Net cash provided by (used in) financing activities 22,808 ( 84,556 ) 112,450

Net cash (used in) provided by financing activities ( 80,569 ) 22,808 ( 84,556 )

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash ( 6,972 ) ( 3,232 ) 4,584

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash 27,521 ( 1,633 ) 22,156

(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash ( 14,436 ) 27,521 ( 1,633 )

Cash, Cash Equivalents, and Restricted Cash at Beginning of Year 94,161 66,640 68,273

10 unchanged sentences

Net income — — — 55,196 — — — 543 55,739

Adoption of ASU No.

2016-02, Leases (Topic 842)

— — — ( 17 ) — — — — ( 17 )

Dividends declared – Common Stock, $ 0.96 per share

3 unchanged sentences

Other comprehensive items — — — — — — 18,128 144 18,272

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

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 — — — 84,043 — — — 838 84,881

2 unchanged sentences

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

Noncontrolling interest acquired (Note 2) — — — — — — — 367 367

Purchase of shares of noncontrolling interest (Note 2) — — — — — — — ( 389 ) ( 389 )

Activity under stock plans — — 5,064 — ( 78,500 ) 1,923 — — 6,987

5 unchanged sentences

Dividend paid to noncontrolling interest — — — — — — — ( 630 ) ( 630 )

Noncontrolling interest acquired (Note 2) — — — — — — — 367 367

Purchase of shares of noncontrolling interest (Note 2) — — — — — — — ( 389 ) ( 389 )

Activity under stock plans — — 4,036 — ( 53,422 ) 1,309 — — 5,345

Other comprehensive items — — — — — — ( 24,228 ) ( 130 ) ( 24,358 )

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

Balance at December 31, 2022 14,624,159 $ 146 $ 119,924 $ 660,644 2,949,997 $ ( 72,287 ) $ ( 54,578 ) $ 1,722 $ 655,571

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

17 unchanged sentences

In a 53-week fiscal year, the Company's fourth fiscal quarter contains 14 weeks.

The Company's fiscal year ended January 1, 2022 (fiscal 2021 or 2021) contained 52 weeks, its fiscal year ended January 2, 2021 (fiscal 2020 or 2020) contained 53 weeks, and its fiscal year ended December 28, 2019 (fiscal 2019 or 2019) contained 52 weeks.

The Company's fiscal years ended December 31, 2022 (fiscal 2022 or 2022) and January 1, 2022 (fiscal 2021 or 2021) contained 52 weeks and its fiscal year ended January 2, 2021 (fiscal 2020 or 2020) contained 53 weeks.

Each quarter of fiscal 2022, 2021 and 2020 contained 13 weeks, except the fourth quarter of 2020, which contained 14 weeks.

The impact of the additional week in 2020 was not material to the Company's financial results.

Financial Statement Presentation

Certain reclassifications have been made to prior periods to conform with the current period presentation.

On the consolidated statement of cash flows, the Company reclassified the change in customer deposits within operating activities from other current liabilities to a separate line item and the changes in long-term assets and liabilities from other items, net to other assets and other liabilities, respectively.

Use of Estimates and Critical Accounting Policies

5 unchanged sentences

A discussion of the application of these and other accounting policies is included within this note.

2021 Financial Statements

Notes to Consolidated Financial Statements

Revenue Recognition

2 unchanged sentences

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

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

The Company has made a policy election to not treat the obligation to ship as a separate performance

2022 Financial Statements

Notes to Consolidated Financial Statements

obligation under the contract and, as a result, the associated shipping costs are reflected in the cost of revenue when revenue is recognized.

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

3 unchanged sentences

The following table presents revenue by revenue recognition method:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Point in Time $ 807,966 $ 705,709 $ 557,702

7 unchanged sentences

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

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Revenue by Product Type:

10 unchanged sentences

The following table presents contract balances from contracts with customers:

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

Contract Assets $ 14,898 $ 8,626

2 unchanged sentences

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

2021 Financial Statements

Notes to Consolidated Financial Statements

long-term liabilities in the accompanying consolidated balance sheet.

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

Contract liabilities increased at year end 2021 principally due to capital equipment orders in the Industrial Processing segment's wood processing business, which the Company expects to recognize as revenue through 2023.

2022 Financial Statements

Notes to Consolidated Financial Statements

The Company recognized revenue of $ 61,804,000 in 2022 and $ 33,128,000 in 2021 that was included in the contract liabilities balance at the beginning of 2022 and 2021, respectively.

18 unchanged sentences

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

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Balance at Beginning of Year $ 2,735 $ 2,977 $ 2,698

8 unchanged sentences

These drafts, which totaled $ 5,729,000 at year-end 2022 and $ 8,049,000 at year-end 2021, are included in accounts receivable in the accompanying 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.

2021 Financial Statements

Notes to Consolidated Financial Statements

Warranty Obligations

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

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

2022 Financial Statements

Notes to Consolidated Financial Statements

historical patterns.

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

3 unchanged sentences

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

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

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

23 unchanged sentences

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes.

At January 1, 2022, the Company believes that it has appropriately accounted for any liability for

At December 31, 2022, the Company believes that it has appropriately accounted for any liability for unrecognized tax benefits.

To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established, the statute of limitations expires for a tax jurisdiction year, or the Company is required to pay amounts in excess of the liability, its effective tax rate in a given financial statement period may be affected.

2022 Financial Statements

Notes to Consolidated Financial Statements

unrecognized tax benefits.

Earnings per Share

2 unchanged sentences

Cash, Cash Equivalents, and Restricted Cash

At year-end 2021 and year-end 2020, cash equivalents included investments in money market funds and highly liquid short-term investments, which had maturities of three months or less at the date of purchase.

At year-end 2022 and 2021, cash equivalents included investments in money market funds and highly liquid short-term investments, which had maturities of three months or less at the date of purchase.

The carrying amounts of cash equivalents approximate their fair values due to the short-term nature of these instruments.

2 unchanged sentences

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

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Cash and cash equivalents $ 76,371 $ 91,186 $ 65,682

2 unchanged sentences

Supplemental Cash Flow Information

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Cash Paid for Interest $ 6,053 $ 4,441 $ 6,899

3 unchanged sentences

Cash paid for acquired businesses ( 3,597 ) ( 152,661 ) ( 7,565 )

Liabilities Assumed of Acquired Businesses $ 38,316 $ 1,730 $ 27,530

Non-cash additions to property, plant, and equipment $ 363 $ 1,060 $ 626

Liabilities (adjusted) assumed of acquired businesses $ ( 812 ) $ 38,316 $ 1,730

Purchase of property with outstanding loan receivable $ 1,397 $ — $ —

Purchases of property, plant and equipment in accounts payable $ 1,040 $ 363 $ 1,060

Non-Cash Financing Activities:

8 unchanged sentences

The components of inventories are as follows:

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

Raw Materials $ 71,040 $ 59,177

13 unchanged sentences

Property, plant, and equipment consist of the following:

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

Land $ 10,729 $ 11,011

12 unchanged sentences

Translation Net

January 1, 2022

December 31, 2022

Definite-Lived

22 unchanged sentences

Acquired Intangible Assets $ 340,947 $ ( 135,327 ) $ ( 6,277 ) $ 199,343

Gross intangible assets include $ 63,228,000 for acquired intangible assets from acquisitions that occurred in 2021.

See Note 2 , Acquisitions, for further details.

In connection with its impairment analysis, the Company reduced its definite-lived intangible assets by $ 499,000 in 2021 and definite and indefinite-lived intangible assets by $ 1,861,000 in 2020.

Additionally, the Company reclassified $ 1,300,000 of an indefinite-lived tradename to definite-lived in 2020.

In connection with its impairment analysis, the Company reduced its definite-lived intangible assets by $ 499,000 in 2021.

See Impairment of Long-Lived Assets under the heading Intangible Assets within this note for further details.

3 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.

Intangible assets acquired related to the Company's acquisition in 2022 were $ 2,183,000 , which primarily consisted of customer relationships, and have a weighted-average amortization period of 14 years (see Note 2 , Acquisitions).

Definite-lived intangible assets as of year-end 2022 have a weighted average amortization period of 13 years.

8 unchanged sentences

The Company’s acquisitions have historically been made at prices above the fair value of the acquired net assets, resulting in goodwill, due to the expectation of synergies from combining the businesses.

2021 Financial Statements

Notes to Consolidated Financial Statements

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

(In thousands) Flow Control Industrial Processing Material Handling Total

Balance as of December 28, 2019

Balance as of January 2, 2021

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

2 unchanged sentences

2021 Activity

Acquisition (Note 2) — 3,953 — 3,953

Acquisitions (Note 2) 25,805 1,116 26,836 53,757

Currency translation ( 3,653 ) ( 2,015 ) ( 2,955 ) ( 8,623 )

4 unchanged sentences

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

2022 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) Flow Control Industrial Processing Material Handling Total

2022 Activity

Acquisitions (Note 2) 25,805 1,116 26,836 53,757

Acquisition (a) (Note 2) ( 33 ) — 1,231 1,198

Impairment loss — ( 29 ) — ( 29 )

Currency translation ( 5,247 ) ( 5,063 ) ( 2,291 ) ( 12,601 )

Total 2022 activity ( 5,280 ) ( 5,092 ) ( 1,060 ) ( 11,432 )

Balance at January 1, 2022

Balance at December 31, 2022

Gross balance 118,309 209,919 142,765 470,993

1 unchanged sentence

Net balance $ 118,309 $ 124,381 $ 142,765 $ 385,455

(a) Includes $ 1,733,000 for an acquisition completed in 2022 and adjustments to the purchase price allocations for acquisitions completed in 2021, principally related to inventory, machinery and equipment, and deferred taxes.

Impairment of Long-Lived Assets

5 unchanged sentences

The impairment loss would be measured based upon the difference between the carrying amounts of the assets and their fair values calculated using projected discounted cash flows.

At year-end 2021 and 2020, in connection with its annual impairment analysis, the Company performed a qualitative goodwill impairment assessment (Step 0) for each of its reporting units, except the material handling reporting unit in 2020 discussed below, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the assets were not impaired.

At year-end 2022 and 2021, in connection with its annual impairment analysis, the Company performed a qualitative goodwill impairment assessment (Step 0) for each of its reporting units, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the assets were not impaired.

The impairment analysis included an assessment of certain qualitative factors including, but not limited to, the results of prior fair value calculations, the movement of the Company's share price and market capitalization, the reporting units' and the Company's overall financial performance, and macroeconomic and industry conditions.

1 unchanged sentence

Although the Company believes the factors considered in the impairment analysis are reasonable, significant changes in any one of the assumptions used could have produced a different result.

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

During that time, the U.S.

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

Based on these occurrences, the Company concluded that a

2021 Financial Statements

Notes to Consolidated Financial Statements

triggering event had occurred related to the indefinite-lived assets within its material handling reporting unit.

As a result, for each reporting period in 2020, the Company prepared a quantitative impairment analysis (Step 1) for its material handling reporting unit, which indicated that its fair value exceeded its carrying value and the indefinite-lived assets were not impaired.

Goodwill by reporting unit is as follows:

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

Fluid-Handling $ 62,426 $ 64,003

6 unchanged sentences

At year-end 2022 and 2021, the Company performed a qualitative impairment analysis on its indefinite-lived intangible assets and determined that the assets were not impaired.

No triggering events or indicators of impairment were identified in 2021 or 2020 related to the Company's definite-lived intangible assets, except for the definite-lived intangible assets associated with its existing ceramic blade product line in France in 2021 and its timber-harvesting product line in 2020 both discussed below.

In the fourth quarter of 2021, the Company decided to exit its ceramic blade business in France, which became a redundant manufacturing operation as a result of its acquisition of The Clouth Group of Companies in the third quarter of 2021.

The Company expects to cease production in June 2022 and exit the facility by the end of 2022.

As a result of this decision, the Company recorded an impairment charge of $ 499,000 in the fourth quarter of 2021 related to its product technology intangible asset.

In the fourth quarter of 2020, due to the continued and anticipated decline in demand for the Company's timber-harvesting business' products, and following impairment charges totaling $ 2,336,000 in 2019 related to this business, the Company performed a quantitative analysis of the recoverability of the related intangible assets in which the income approach discounted cash flow methodology was used.

As a result of this analysis, the Company determined that the fair values of the timber-harvesting product line's definite-lived intangible assets related to customer relationships, product technology and tradename were less than their carrying values, and therefore recorded additional impairment charges totaling $ 1,861,000 in the fourth quarter of 2020.

The remaining intangible asset as of year-end 2021 for the timber-harvesting product line is $ 443,000 .

Impairment charges for 2021, 2020 and 2019 are included in impairment and other costs, net in the accompanying consolidated statement of income.

2022 Financial Statements

Notes to Consolidated Financial Statements

No triggering events or indicators of impairment were identified in 2022 or 2021 related to the Company's definite-lived intangible assets, except for the definite-lived intangible assets associated with its existing ceramic blade product line in France in 2021.

As a result of this decision, the Company recorded an impairment charge of $ 499,000 in the fourth quarter of 2021 related to its product technology intangible asset, which is included in gain on sale and other costs, net in the accompanying consolidated statement of income.

The Company ceased production at this business during the last quarter of 2022.

Business Combinations

7 unchanged sentences

Acquisition transaction costs are recorded as incurred in SG&A expenses in the accompanying consolidated statement of income and were $ 668,000 in 2022, $ 3,655,000 in 2021, and $ 485,000 in 2020.

2021 Financial Statements

Notes to Consolidated Financial Statements

Foreign Currency Translation and Transactions

11 unchanged sentences

If a contract is deemed a hedge, the Company formally documents the relationship between the derivative instrument and the risk being hedged.

In this documentation, the Company specifically identifies the asset, liability, forecasted transaction, cash flow, or net investment that has been designated as the hedged item, and evaluates whether the derivative instrument is expected to reduce the risks associated with the hedged item.

2022 Financial Statements

Notes to Consolidated Financial Statements

with the hedged item.

To the extent these criteria are not met, the Company does not use hedge accounting for the derivative.

7 unchanged sentences

The ineffective portion of a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge, are recorded in the accompanying consolidated statement of income.

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 consolidated financial statements.

2021 Financial Statements

Notes to Consolidated Financial Statements

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.

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

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

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

The guidance in this ASU is applicable to the Company's existing contracts and hedging relationships that reference LIBOR .

The Company adopted this ASU during the fourth quarter of 2022 and its adoption did not have a material impact on the consolidated financial statements.

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) .

In October 2021, the FASB issued ASU No.

2021-08 which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU No.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.

In the third quarter of 2021, the Company acquired all partnership interests and shares in The Clouth Group of Companies (Clouth), for $ 92,864,000 , net of cash acquired plus debt assumed.

The impact of the adoption of this ASU on the Company's consolidated financial statements will be dependent on the contract assets and liabilities acquired in future business combinations.

On November 14, 2022, the Company acquired a business in Canada, which is included in the Company's Material Handling segment, for approximately $ 3,612,000 , net of cash acquired.

In the third quarter of 2021, the Company acquired all partnership interests and shares in Clouth, for $ 92,864,000 , 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.

4 unchanged sentences

Goodwill from the Clouth acquisition was $ 25,773,000 , of which $ 7,367,000 is expected to be deductible for tax purposes over 15 years.

In addition, intangible assets acquired were $ 34,467,000 , of which $ 5,326,000 is expected to be deductible for tax purposes over 15 years.

The Company recorded revenue of $ 23,221,000 and an operating loss of $ 4,068,000 for Clouth from the date of acquisition, including amortization expense of $ 3,481,000 associated with acquired profit in inventory and backlog and $ 2,710,000 of acquisition transaction costs.

In addition, intangible assets acquired were $ 34,467,000 , of which $ 6,444,000 is expected to be deductible for tax purposes over the respective useful lives.

For 2021, the Company recorded revenue of $ 23,221,000 and an operating loss of $ 4,068,000 for Clouth from the date of acquisition, including amortization expense of $ 3,481,000 associated with acquired profit in inventory and backlog and $ 2,710,000 of acquisition transaction costs.

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 $ 53,547,000 , net of cash acquired.

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

2022 Financial Statements

Notes to Consolidated Financial Statements

which is included in 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.

3 unchanged sentences

In addition, intangible assets acquired were $ 28,060,000 , none of which is deductible for tax purposes.

The Company recorded revenue of $ 9,038,000 and operating loss of $ 641,000 for Balemaster from the date of acquisition, including amortization expense of $ 2,042,000 associated with acquired profit in inventory and backlog and $ 782,000 of acquisition transaction costs.

For 2021, the Company recorded revenue of $ 9,038,000 and operating loss of $ 641,000 for Balemaster from the date of acquisition, including amortization expense of $ 2,042,000 associated with acquired profit in inventory and backlog and $ 782,000 of acquisition transaction costs.

In the fourth quarter of 2021, the Company acquired the assets of a business in India, which is included in its Industrial Processing segment, for approximately $ 2,882,000 .

The following table summarizes the estimated fair values of assets acquired and liabilities assumed and the purchase price for Clouth and the Company's other acquisitions in 2021.

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

2021 Financial Statements

Notes to Consolidated Financial Statements

and liabilities assumed and the valuation of acquired intangibles, which may result in adjustments to the assets and liabilities, including goodwill.

Measurement period adjustments in 2021 did not have a material effect on the Company's consolidated balance sheet or statement of income.

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

(In thousands) Clouth Other Total

25 unchanged sentences

The weighted-average amortization period for the Company's other 2021 acquisitions' definite-lived intangible assets is 16 years, including weighted-average amortization periods of 17 years for customer relationships, 13 years for product technology, and 16 years for tradenames.

2022 Financial Statements

Notes to Consolidated Financial Statements

Unaudited Supplemental Pro Forma Information

8 unchanged sentences

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.

2021 Financial Statements

Notes to Consolidated Financial Statements

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

10 unchanged sentences

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

On May 28, 2020, the Company also acquired certain intellectual property from a company in Austria, which is included in its Industrial Processing segment, for $ 416,000 , of which $ 229,000 was paid in the second quarter of 2020 and $ 125,000 in the first quarter of 2021.

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

Intangible assets acquired represent product technology with a fair value of $ 557,000 at acquisition date.

On September 3, 2019, the Company acquired certain assets of a business in Brazil, which is included in its Flow Control segment, for approximately $ 407,000 in cash.

On January 2, 2019, the Company acquired, directly and indirectly, all the outstanding equity interests of Syntron Material Handling Group, LLC and certain of its affiliates (SMH) pursuant to an equity purchase agreement, dated December 9, 2018, for $ 176,855,000 , net of cash acquired.

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

SMH, which is included in the Company's Material Handling segment, has manufacturing operations in Mississippi, United States, and China, and is a leading provider of material handling equipment and systems to various process industries, including mining, aggregates, food processing, packaging, and pulp and paper.

Goodwill from the SMH acquisition was $ 78,592,000 , of which $ 59,195,000 is expected to be deductible for tax purposes over 15 years.

In addition, intangible assets acquired were $ 83,020,000 , of which $ 69,969,000 is expected to be deductible for tax purposes over 15 years.

For 2019, the Company recorded revenue of $ 83,364,000 and operating income of $ 3,132,000 for SMH from the date of acquisition, including amortization expense of $ 4,872,000 associated with acquired profit in inventory and backlog and $ 843,000 of acquisition transaction costs.

2021 Financial Statements

Notes to Consolidated Financial Statements

The following table summarizes the estimated fair values of assets acquired and liabilities assumed and the purchase price for SMH.

(In thousands) January 2, 2019

Net Assets Acquired:

Cash, Cash Equivalents, and Restricted Cash $ 2,431

Accounts Receivable 10,275

Inventories 13,061

Property, Plant, and Equipment 7,383

Other Assets 12,054

Definite-Lived Intangible Assets

Customer relationships

Product technology

Indefinite-Lived Intangible Assets

Goodwill 78,592

Total assets acquired 206,816

Accounts Payable 3,380

Other Current Liabilities 7,954

Long-Term Lease Liabilities 15,244

Long-Term Deferred Income Taxes 952

Total liabilities assumed

Net assets acquired

Purchase Price:

Cash Paid $ 179,286

The weighted average amortization period for the definite-lived intangible assets above is 14 years, including weighted average amortization periods of 15 years for customer relationships, 14 years for product technology, and 8 years for other intangible assets.

Unaudited Supplemental Pro Forma Information

The following unaudited pro forma information provides the effect of the Company's 2019 acquisition of SMH as if it had occurred at the beginning of 2018:

(In thousands, except per share amounts) December 28,

Revenue $ 704,644

Net Income Attributable to Kadant $ 56,409

Earnings per Share Attributable to Kadant

Diluted $ 4.92

The historical consolidated financial information of the Company and SMH has been adjusted in the pro forma information 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, which have been included in the determination of pro forma net income for the year ended December 29, 2018 (not presented), as follows:

• Pre-tax reversal of $ 843,000 to SG&A expenses in 2019 for acquisition transaction costs.

• Pre-tax reversal of $ 3,549,000 to cost of revenue in 2019 for the sale of inventory revalued at the date of acquisition.

2021 Financial Statements

Notes to Consolidated Financial Statements

• Pre-tax reversal of $ 1,323,000 to SG&A expenses in 2019 for intangible asset amortization related to acquired backlog.

• Tax effects related to 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 SMH occurred as of the beginning of 2018, or that may result in the future.

Employee Benefit Plans

3 unchanged sentences

The award recipients and the terms of awards granted under these plans are determined by the board committee.

Upon a change of control, as defined in the plans, all options or other awards become fully vested and all restrictions lapse.

Upon a change of control, as defined in the plans, all options or other awards become

2022 Financial Statements

Notes to Consolidated Financial Statements

fully vested and all restrictions lapse.

The Company had 313,104 shares available for grant under these stock-based compensation plans at year-end 2022.

3 unchanged sentences

The components of pre-tax stock-based compensation expense included in SG&A expenses in the accompanying consolidated statement of income are as follows:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

RSU Awards $ 8,222 $ 8,224 $ 6,453

6 unchanged sentences

Half of the RSUs vested on June 1 of each year and the remaining RSUs vested ratably on the last day of the third and fourth fiscal quarters of each year.

In addition, the Company granted RSU awards consisting of 1,042 RSUs in July 2020 to its then new non-employee director (former executive director), which vested ratably on the last day of the third and fourth fiscal quarters of 2020.

In addition, the Company granted RSU awards consisting of 470 RSUs in May 2022, which vested ratably on the last day of the third and fourth fiscal quarters of 2022 and 1,042 RSUs in July 2020, which vested ratably on the last day of the third and fourth fiscal quarters of 2020 to its then new non-employee director.

Each RSU issued to the directors represents the right to receive one share of the Company's common stock upon vesting.

4 unchanged sentences

Following the adjustment, the RSUs are subject to additional time-based vesting, and vest in three equal annual installments, provided that the officer is employed by the Company on the applicable vesting dates.

The Company recognizes compensation expense associated with performance-based RSUs 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

2021 Financial Statements

Notes to Consolidated Financial Statements

Unrecognized compensation expense related to the unvested performance-based RSUs totaled $ 2,563,000 at year-end 2022, and will be recognized over a weighted average period of 1.3 years.

8 unchanged sentences

Unrecognized compensation expense related to the time-based RSUs totaled $ 3,841,000 at year-end 2022, and will be recognized over a weighted average period of 1.8 years.

2022 Financial Statements

Notes to Consolidated Financial Statements

Vesting of Restricted Stock Units

7 unchanged sentences

Forfeited ( 5 ) $ 168.18

Unvested RSUs at January 1, 2022 107 $ 127.70

Unvested RSUs at December 31, 2022 85 $ 153.98

The weighted average grant date fair value of RSUs granted was $ 170.76 in 2022, $ 174.52 in 2021, and $ 88.22 in 2020.

4 unchanged sentences

All options awarded in prior periods were granted at an exercise price equal to the fair market value of the Company's common stock on the date of grant.

There were no stock options outstanding at year-end 2021 as all remaining stock options were exercised during the year.

A summary of the Company's stock option activity in 2021 is as follows:

(In thousands, except per share amounts) Number

Shares Weighted

Options Outstanding at January 2, 2021 27 $ 24.44

Exercised ( 27 ) $ 24.44

Options Outstanding at January 1, 2022 — $ —

There were no stock options outstanding at year-end 2022 and 2021 as all remaining stock options were exercised prior to the end of 2021.

A summary of the Company's stock option exercises are as follows:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Total Intrinsic Value of Options Exercised $ — $ 4,986 $ 4,071

Cash Received from Options Exercised $ — $ 665 $ 1,123

2021 Financial Statements

Notes to Consolidated Financial Statements

Employee Stock Purchase Plan

3 unchanged sentences

Shares purchased under the plan are subject to a one-year resale restriction and are purchased through payroll deductions of up to 10 % of each participating employee's gross wages.

The Company issued 10,230 shares in 2021, 13,062 shares in 2020, and 13,195 shares for 2019 (issued in 2020) of its common stock under this plan.

The Company issued 9,111 shares in 2022, 10,230 shares in 2021, and 13,062 shares in 2020 of its common stock under this plan.

The Company had 82,532 shares available for grant under the employee stock purchase plan at year-end 2022.

11 unchanged sentences

and foreign subsidiaries.

In accordance with ASC 715, Compensation-Retirement Benefits (ASC 715), the Company recognizes the funded status of its plans as an asset or liability and changes in the funded status through AOCI, net of tax, in the accompanying consolidated balance sheet.

In accordance with ASC 715, Compensation-Retirement Benefits , the Company recognizes the funded status of its plans as an asset or liability and changes in the funded status through AOCI, net of tax, in the accompanying consolidated balance sheet.

The amounts in AOCI are recognized as net periodic benefit cost pursuant to the Company's accounting policy for amortizing such amounts.

Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit cost will be recognized as a component of AOCI, net of tax.

2022 Financial Statements

Notes to Consolidated Financial Statements

The Company records the non-service component of net periodic pension cost in other expense, net in the accompanying consolidated statement of income .

Other expense, net in 2019 included a loss of $ 5,887,000 related to the settlement of the Company’s noncontributory defined benefit pension plan for eligible employees at one of its U.S.

divisions and its corporate office (Retirement Plan).

The Retirement Plan was terminated in December 2018.

Other expense, net in 2019 also included activity related to the Retirement Plan prior to its settlement, including interest costs of $ 1,334,000 , net of an expected return on plan assets of $ 995,000 .

The weighted average assumptions used to determine net periodic benefit costs in 2019 for the Retirement Plan was 4.10 % for both the discount rate and expected return on plan assets, which were valued using the FTSE Pension Discount Curve.

In 2020, the Company made a settlement payment of $ 2,427,000 related to a restoration plan, also terminated in 2018, which fully supplemented benefits lost for certain executive officers under the Retirement Plan.

The remaining disclosure requirements related to the Company’s defined benefit plans are not material for the fiscal years presented.

The disclosure requirements related to the Company’s defined benefit plans are not material for the fiscal years presented.

Stockholders' Equity

2 unchanged sentences

At year-end 2022, the Company had reserved 481,113 unissued shares of its common stock for possible issuance under its stock-based compensation plans.

2021 Financial Statements

Notes to Consolidated Financial Statements

The components of income before provision for income taxes are as follows:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Domestic $ 46,558 $ 26,599 $ 14,132

2 unchanged sentences

The components of the provision for income taxes are as follows:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

Current Provision (Benefit):

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Current Provision:

Federal $ 8,738 $ 2,173 $ 339

11 unchanged sentences

The Company recognized an income tax benefit of $ 501,000 in 2022, $ 1,808,000 in 2021 and $ 758,000 in 2020 in the accompanying consolidated statement of income.

The provision for income taxes in the accompanying consolidated statement of income differs from the provision calculated by applying the statutory federal income tax rate to income before provision for income taxes due to the following:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

2022 Financial Statements

Notes to Consolidated Financial Statements

The provision for income taxes in the accompanying consolidated statement of income differs from the provision calculated by applying the statutory federal income tax rate of 21% to income before provision for income taxes due to the following:

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Provision for Income Taxes at Statutory Rate $ 34,784 $ 23,531 $ 15,474

2 unchanged sentences

Nondeductible expenses 2,683 1,673 2,117

Excess tax benefit related to stock-based compensation ( 1,525 ) ( 661 ) ( 3,305 )

State income taxes, net of federal income tax 2,316 863 807

tax cost of foreign earnings 481 599 146

Reversal of tax benefit reserves, net ( 1,368 ) ( 444 ) ( 730 )

tax cost of foreign earnings 932 481 599

Research and development tax credits ( 425 ) ( 454 ) ( 465 )

Excess tax benefit related to stock-based compensation ( 377 ) ( 1,525 ) ( 661 )

Change in valuation allowance 318 ( 31 ) ( 469 )

1 unchanged sentence

$ 43,906 $ 27,171 $ 17,948

2021 Financial Statements

Notes to Consolidated Financial Statements

The Company's net deferred tax liability consists of the following:

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

Deferred Tax Asset:

3 unchanged sentences

Employee compensation 3,697 4,368

Reserves and accruals 3,167 3,565

Capitalized research expenses 3,398 2,349

Foreign, state, and alternative minimum tax credit carryforwards 508 472

Reserves and accruals 1,949 3,167

Allowance for credit losses 673 420

Foreign, state, and alternative minimum tax credit carryforwards 490 508

Deferred tax asset, gross 33,535 36,015

12 unchanged sentences

The valuation allowance at year-end 2022 was $ 8,983,000 , consisting of $ 160,000 in the United States and $ 8,823,000 in foreign jurisdictions.

The decrease in the valuation allowance in 2021 of $ 397,000 is related primarily to fluctuations in foreign currency exchange rates and utilization of foreign net operating losses, partially offset by an increase in valuation allowance associated with acquired net operating losses.

The decrease in the valuation allowance in 2022 of $ 229,000 is related primarily to fluctuations in foreign currency exchange rates and utilization of net operating losses, partially offset by an increase in valuation allowance associated with restructuring losses.

Compliance with ASC 740 requires the Company to periodically evaluate the necessity of establishing or adjusting a valuation allowance for deferred tax assets depending on whether it is more likely than not that a related tax benefit will be realized in future periods.

When assessing the need for a valuation allowance in a tax jurisdiction, the Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

As part of this evaluation, the Company considers its cumulative three-year history of earnings before income taxes, taxable income in prior carryback years, future reversals of existing taxable temporary differences, prudent and feasible tax planning strategies, and expected future results of operations.

As part of this evaluation,

2022 Financial Statements

Notes to Consolidated Financial Statements

the Company considers its cumulative three-year history of earnings before income taxes, taxable income in prior carryback years, future reversals of existing taxable temporary differences, prudent and feasible tax planning strategies, and expected future results of operations.

As of year-end 2022, the Company continued to maintain a valuation allowance in the United States against a portion of its state net operating loss carryforwards due to the uncertainty of future profitability in certain state jurisdictions.

5 unchanged sentences

Of the foreign net operating loss carryforwards, $ 1,451,000 will expire in the years 2025 through 2042, and the remainder do not expire.

As of year-end 2021, the Company also had state disallowed business interest expense carryforwards of $ 67,000 and foreign tax credits of $ 368,000 , of which $ 120,000 came from the acquisition of SMH.

As of year-end 2022, the Company also had state disallowed business interest expense carryforwards of $ 71,000 and foreign tax credits of $ 368,000 , of which $ 120,000 came from the acquisition of Syntron Material Handling Group, LLC and certain of its affiliates (SMH) in 2019.

The disallowed business interest expense carryforward does not expire, and the foreign tax credit carryforward begins to expire in 2024.

1 unchanged sentence

At year-end 2022, the Company had approximately $ 248,103,000 of unremitted foreign earnings.

During 2021, the Company repatriated $ 116,853,000 of previously taxed foreign earnings to the United States and recognized a foreign exchange

2021 Financial Statements

Notes to Consolidated Financial Statements

gain of $ 517,000 associated with these earnings.

Of the earnings repatriated in 2021, $ 100,765,000 related to a distribution of shares of a foreign subsidiary.

During 2022, the Company repatriated $ 39,081,000 of previously taxed foreign earnings to the United States and recognized a foreign exchange loss of $ 2,673,000 associated with these earnings.

The Company intends to repatriate the distributable reserves of select foreign subsidiaries back to the United States and has recognized $ 764,000 of net tax expense on the estimated repatriation amount during 2022.

Except for these select foreign subsidiaries, the Company intends to indefinitely reinvest $ 223,035,000 of these earnings of its foreign subsidiaries in order to support the current and future capital needs of their operations, including the repayment of the Company’s foreign debt.

Except for these select foreign subsidiaries, the Company intends to indefinitely reinvest $ 228,972,000 of earnings of its foreign subsidiaries in order to support the current and future capital needs of their operations, including the repayment of the Company’s foreign debt.

The related foreign withholding taxes, which would be required if the Company were to remit these foreign earnings to the United States, would be approximately $ 4,095,000 .

4 unchanged sentences

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

Unrecognized Tax Benefits, Beginning of Year $ 9,731 $ 8,337

9 unchanged sentences

The interest and penalties included in the accompanying consolidated statement of income was a benefit of $ 333,000 in 2022 and $ 129,000 in 2021.

The Company is currently under audit in one of its foreign tax jurisdictions.

The Company is currently under audit in four of its foreign tax jurisdictions.

During 2021, the Company finalized its examination with the Internal Revenue Service for the tax years 2017 and 2018 with no material adjustments.

4 unchanged sentences

In addition, the Company remains subject to state and local income tax examinations in the United States for the tax years 2003 through 2022.

2022 Financial Statements

Notes to Consolidated Financial Statements

Short- and Long-Term Obligations

Short- and long-term obligations are as follows:

(In thousands) January 1, 2022 January 2, 2021

(In thousands) December 31, 2022 January 1, 2022

Revolving Credit Facility, due 2027 $ 186,131 $ 250,267

5 unchanged sentences

Long-Term Obligations $ 197,340 $ 264,158

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

2021 Financial Statements

Notes to Consolidated Financial Statements

See Note 11 for the fair value information related to the Company's long-term obligations.

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.

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

On November 30, 2022, the Company entered into a sixth amendment to its unsecured multi-currency revolving credit facility, originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement).

Among other things, this amendment extended the maturity date to November 30, 2027, and increased the uncommitted, unsecured incremental borrowing facility from $ 150,000,000 to $ 200,000,000 .

Pursuant to the Credit Agreement, the Company has a borrowing capacity of $ 400,000,000 and 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, as defined, plus a margin of 0 % to 1.25 %, or (ii) Eurocurrency Rate, Term SOFR (plus a 10 basis point credit spread adjustment), CDOR Rate, and RFR, as applicable and defined, plus a margin of 1.0 % to 2.25 %.

The margin is determined based upon the ratio of the Company's total debt, net of unrestricted cash up to $ 50,000,000 , to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement.

Additionally, the Credit Agreement requires the payment of a commitment fee payable in arrears on the available borrowing capacity under the Credit Agreement, which ranges from 0.125 % to 0.350 %.

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.

The Company borrowed an aggregate $ 151,944,000 under the Credit Agreement in fiscal 2021, including $ 89,944,000 of euro-denominated borrowings, which were primarily used to fund the Company's acquisitions during the year.

At year-end 2021, the outstanding balance under the Credit Agreement included $ 78,267,000 of euro-denominated borrowings.

The Company had $ 149,920,000 of borrowing capacity available at year-end 2021, which was calculated by translating its foreign-denominated borrowings using the borrowing date foreign exchange rate.

The weighted average interest rate for the outstanding balance under the Credit Agreement was 1.50 % as of year-end 2021.

See Note 10 , Derivatives, under the heading Interest Rate Swap Agreements , for information relating to the Company's swap agreement.

At year-end 2022, the outstanding balance under the Credit Agreement was $ 186,131,000 , which included $ 73,131,000 of euro-denominated borrowin gs primarily used to fund the Company's acquisitions in 2021.

Th e Company had $ 214,061,000 of borrowing capacity available at year-end 2022, which was calculated by translating its foreign-denominated borrowings using the administrative agent's borrowing date foreign exchange rates, in addition to the $ 200,000,000 uncommitted, unsecured incremental borrowing facility.

The weighted average interest rate for the outstanding balance under the Credit Agreement was 4.33 % as of year-end 2022 and 1.50 % as of year-end 2021.

See Note 10 , Derivatives, under the heading Interest Rate Swap Agreement , for information relating to the Company's swap agreement.

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 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.

At year-end 2022, $ 1,670,000 was included in current maturities of long-term obligations in the accompanying consolidated balance sheet related to this obligation.

The obligations of the Initial Notes may be accelerated

2022 Financial Statements

Notes to Consolidated Financial Statements

upon an event of default as defined in the Note Purchase Agreement, which includes customary events of default under such financing arrangements.

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

6 unchanged sentences

Other Borrowings

Other borrowings include a sale-leaseback financing arrangement for a manufacturing facility in Germany.

Under this arrangement, the quarterly lease payment includes principal, interest, and a payment to the landlord toward a loan receivable.

The interest rate on the outstanding obligation is 1.79 %.

The secured loan receivable, which was included in other current assets in the accompanying consolidated balance sheet, was $ 1,408,000 at year-end 2021.

The lease arrangement provides for a fixed price purchase option, net of the projected loan receivable, of $ 1,508,000 at the end of the lease term in August 2022.

2021 Financial Statements

Notes to Consolidated Financial Statements

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

As of year-end 2021, $ 3,297,000 was outstanding under this obligation.

Other borrowings also include $ 4,331,000 of debt obligations outstanding at year-end 2021 assumed in the acquisition of Clouth, which has maturity dates ranging from 2022 to 2028 and interest rates up to 1.95 %.

Prior to August 2022, other borrowings included a sale-leaseback financing arrangement for a manufacturing facility in Germany.

This arrangement provided for a fixed price purchase option of the facility from the landlord at the end of the lease term in August 2022.

The Company exercised this option and acquired the facility from the landlord for 2,722,000 euros, or approximately $ 2,730,000 .

The Company applied its outstanding loan receivable due from the landlord of 1,393,000 euros, or approximately $ 1,397,000 , towards the purchase of the facility.

At year-end 2022, other borrowings included $ 665,000 of short-term obligations and $ 1,920,000 of long-term debt obligations outstanding assumed in the acquisition of Clouth, which have maturity dates ranging from 2023 to 2028 and interest rates up to 1.70 %.

Annual Repayment Requirements

The following schedule presents the annual repayment requirements for the Company’s short-and long-term obligations, excluding finance leases and the sale-leaseback financing arrangement, as of year-end 2021.

The following schedule presents the annual repayment requirements for the Company’s short-and long-term obligations, excluding finance leases, as of year-end 2022.

(In thousands)

2027 and Thereafter 3,764

Commitments and Contingencies

7 unchanged sentences

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.

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

2022 Financial Statements

Notes to Consolidated Financial Statements

scheduled maturity dates.

The Company had $ 11,238,000 at year-end 2022 and $ 9,593,000 at year-end 2021 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates.

8 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.

Gain on Sale and Other Costs, Net

A summary of the items included in gain on sale and other costs, net is as follows:

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Gain on Sale of Assets $ ( 20,190 ) $ ( 515 ) $ —

Impairment Costs 731 804 1,861

Restructuring Costs 603 176 1,118

$ ( 18,856 ) $ 465 $ 2,979

Gain on Sale of Assets

The Company entered into several agreements with the local government in China to sell the existing manufacturing building and land use rights at one of its subsidiaries in China for $ 25,159,000 and relocate to a new facility (China Transaction).

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 China Transaction of $ 20,190,000 , or $ 15,143,000 , net of deferred taxes of $ 5,047,000 , in the first quarter of 2022.

A receivable of $ 16,082,000 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.

The receivable outstanding at December 31, 2022 was $ 15,181,000 and is included in other long-term assets in the consolidated balance sheet.

The subsidiary, which is part of the Industrial Processing segment, will continue to occupy its current facility until construction of its new facility is complete, which is expected in 2023.

A summary of the change in the outstanding receivable on the China Transaction is as follows:

(In thousands) December 31, 2022

Balance at Inception $ 17,294

Present value discount ( 1,212 )

Receivable recorded, net 16,082

Accretion of interest income 422

Currency translation ( 1,323 )

Balance at End of Year $ 15,181

2022 Financial Statements

Notes to Consolidated Financial Statements

Other Costs, Net

Restructuring Costs

During 2021, the Company recorded restructuring costs totaling $ 481,000 within its Flow Control segment, including charges for the write-down of certain machinery and equipment of $ 226,000 and an ROU asset of $ 79,000 , and severance costs of $ 176,000 related to the reduction of three employees.

These actions were taken to eliminate a redundant ceramic blade manufacturing operation in France that resulted from the Company's acquisition of Clouth in the third quarter of 2021.

In 2021, gain on sale of assets included $ 515,000 related to a gain on the sale of a building in Theodore, Alabama, within the Company's Industrial Processing segment for net cash proceeds of $ 1,634,000 .

The building was vacated as part of the Company's 2017 restructuring plan to consolidate three of its stock-preparation operations into a single new facility, which was completed in 2018.

Impairment and Restructuring Costs

During 2022, the Company recorded impairment costs of $ 731,000 and restructuring costs of $ 35,000 within its Industrial Processing segment.

The impairment costs included $ 549,000 primarily related to the write-down of inventory at the Company's business in Russia and $ 182,000 related to the write-down of certain fixed assets that will not be moved to the new manufacturing facility in China.

During the fourth quarter of 2021, the Company initiated a restructuring plan within its Flow Control segment to eliminate a redundant ceramic blade manufacturing operation that resulted from its acquisition of Clouth.

The plan consisted of severance costs related to the termination of five employees, and facility and other closure costs.

Severance costs totaled $ 381,000 , of which $ 205,000 were recorded in 2022 and $ 176,000 in 2021, and facility and other closure costs totaled $ 363,000 , all of which were recorded in 2022.

During 2021, the Company also recorded asset impairment charges related this restructuring plan of $ 499,000 for the write-down of an intangible asset, $ 226,000 for the write-down of certain machinery and equipment, and $ 79,000 for the write-down of a ROU asset.

The Company does not expect to incur additional restructuring charges related to this restructuring plan.

During 2020, the Company recorded restructuring costs totaling $ 1,118,000 , representing severance costs of $ 659,000 for 34 employees within its Flow Control segment, $ 277,000 for 26 employees in its Industrial Processing segment, and $ 182,000 for four employees in its Material Handling segment.

1 unchanged sentence

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

During 2019, the Company experienced a significant decrease in revenue and operating results in its timber-harvesting product line included within its Industrial Processing segment.

Given the decline in this business, the Company undertook a restructuring plan in the fourth quarter of 2019 and incurred $ 192,000 of severance costs associated with the reduction of six employees in Canada.

The Company expects to incur additional restructuring charges in 2022 primarily for severance and facility closure costs related to its 2021 restructuring plan, which are not expected to be significant.

The Company does not expect to incur additional charges related to the 2020 and 2019 restructuring plans.

Restructuring costs are included in impairment and other costs, net in the accompanying consolidated statement of income.

A summary of the changes in accrued restructuring costs included in other accrued expenses in the accompanying consolidated balance sheet, which are expected to be paid in 2022, are as follows:

(In thousands) Severance

A summary of the changes in accrued restructuring costs included in other current liabilities in the accompanying consolidated balance sheet, which are expected to be paid in 2023, are as follows:

(In thousands) Severance Costs Facility and Other Closure Costs Total

2021 Restructuring Plan

Provision $ 176 $ — $ 176

Usage ( 19 ) — ( 19 )

Currency translation ( 1 ) — ( 1 )

Balance at January 1, 2022 156 — 156

2020 Restructuring Plan

Provision 205 398 603

1 unchanged sentence

Currency translation ( 13 ) 33 20

Balance at January 2, 2021 61

Balance at January 1, 2022 $ —

Balance at December 31, 2022 $ 189 $ 200 $ 389

2020 Restructuring Plan

2 unchanged sentences

Currency translation ( 5 ) — ( 5 )

Balance at December 28, 2019 84

Currency translation 6

Balance at January 2, 2021 61 — 61

Other income consisted of a gain of $ 515,000 in 2021 related to the sale of a building in Theodore, Alabama, within the Company's Industrial Processing segment for net cash proceeds of $ 1,634,000 .

The building was vacated as part of the Company's 2017 restructuring plan to consolidate three of its stock-preparation operations into a single new facility, which was completed in 2018.

Usage ( 61 ) — ( 61 )

Balance at January 1, 2022 $ — $ — $ —

During the fourth quarter of 2020, due to the continued and anticipated decline in demand for the Company's timber-harvesting business' products, the Company performed a quantitative analysis of the recoverability of the related intangible assets in which the income approach discounted cash flow methodology was used.

2022 Financial Statements

Notes to Consolidated Financial Statements

The Company enters into operating and finance lease commitments primarily for its manufacturing and office space, vehicles, and equipment leases that expire on various dates over the next 13 years, some of which include one or more options to extend the lease for up to 5 years.

In addition, the Company leases land associated with certain of its buildings in Canada and China under long-term leases expiring on various dates ranging from 2032 to 2071, one of which includes an assumed option to extend the lease for up to 10 years.

The Company enters into operating and finance lease commitments primarily for its manufacturing and office space, vehicles, and equipment that expire on various dates over the next 12 years, some of which include one or more options to extend the lease for up to 5 years.

In addition, the Company leases land associated with certain of its buildings in Canada and China under long-term leases expiring in 2032 to 2071.

The lease in Canada also includes an assumed option to extend the term for up to 10 years.

The components of lease expense are as follows:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Operating Lease Cost $ 5,870 $ 5,895 $ 5,602

6 unchanged sentences

Supplemental cash flow information related to leases is as follows:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Cash Paid for Amounts Included in the Measurement of Lease Liabilities:

2 unchanged sentences

Financing cash flows from finance leases $ 1,002 $ 1,044 $ 1,139

ROU Assets Obtained in Exchange for Lease Obligations (a):

ROU Assets Obtained in Exchange for Lease Obligations:

Operating leases $ 4,002 $ 7,247 $ 2,560

Finance leases $ 1,468 $ 1,147 $ 622

(a) Included in 2019 were additions related to the transition adjustment for the adoption of ASC 842.

The post-adoption additions of operating leases were $ 13,167,000 , of which $ 10,994,000 related to ROU assets obtained as part of the acquisition of SMH in 2019.

The post-adoption additions of finance leases were $ 2,496,000 , of which $ 528,000 related to ROU assets obtained as part of the acquisition of SMH.

Supplemental balance sheet information related to leases is as follows:

(In thousands) Balance Sheet Line Item January 1, 2022 January 2, 2021

(In thousands) Balance Sheet Line Item December 31, 2022 January 1, 2022

Operating Leases:

ROU assets (a) Other current assets $ 2,341 $ —

ROU assets Other current assets $ — $ 2,341

ROU assets Other assets 22,642 24,998

3 unchanged sentences

Total operating lease liabilities $ 22,275 $ 24,555

2021 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) Balance Sheet Line Item January 1, 2022 January 2, 2021

Finance Leases:

5 unchanged sentences

Total finance lease liabilities $ 1,940 $ 1,610

(a) See Note 15 , Subsequent Event, for further details.

January 1, 2022 January 2, 2021

2022 Financial Statements

Notes to Consolidated Financial Statements

December 31, 2022 January 1, 2022

Weighted Average Remaining Lease Term (in years):

4 unchanged sentences

Finance leases 3.79 % 2.55 %

As of January 1, 2022, future lease payments for lease liabilities are as follows:

As of December 31, 2022, future lease payments for lease liabilities are as follows:

Operating Finance

3 unchanged sentences

2025 3,086 301

2025 2,727 17

2028 and Thereafter 9,338 —

2 unchanged sentences

Present Value of Lease Payments $ 22,275 $ 1,940

As of January 1, 2022, the Company had no significant operating and finance leases that had not yet commenced.

Interest Rate Swap Agreements

As of December 31, 2022, the Company had no significant operating and finance leases that had not yet commenced.

Interest Rate Swap Agreement

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

5 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.

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

2021 Financial Statements

Notes to Consolidated Financial Statements

counterparty is a member, and if it were to be unable to cure the default.

See Note 6 , Short- and Long-Term Obligations, for further details.

5 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.

2022 Financial Statements

Notes to Consolidated Financial Statements

Gains and losses reported within SG&A expenses in the accompanying consolidated statement of income associated with the Company's forward currency-exchange contracts that were not designated as hedges were not material in 2022, 2021, and 2020.

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

January 1, 2022 January 2, 2021

December 31, 2022 January 1, 2022

(In thousands) Balance Sheet

5 unchanged sentences

Derivatives in an Asset Position:

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

2018 Swap Agreement Other Current Assets $ 131 $ 15,000 $ — $ —

Derivatives in a Liability Position:

Forward currency-exchange contract Other Current

Liabilities $ ( 44 ) $ 842 $ — $ —

2018 Swap Agreement Other Long-Term

Liabilities $ — $ — $ ( 550 ) $ 15,000

Forward currency-exchange contract Other Current

Liabilities $ ( 54 ) $ 430 $ ( 44 ) $ 842

Derivatives Not Designated as Hedging Instruments:

1 unchanged sentence

Forward currency-exchange contracts Other Current Assets $ 15 $ 647 $ 14 $ 1,200

Derivatives in a Liability Position:

Forward currency-exchange contracts Other Current

Liabilities $ — $ — $ ( 7 ) $ 825

(a) See Note 11 , Fair Value Measurements and Fair Value of Financial Instruments, for the fair value measurements relating to these financial instruments.

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

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 year ended January 1, 2022:

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 year ended December 31, 2022:

(In thousands) Interest Rate Swap

1 unchanged sentence

Exchange Contracts Total

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

Loss (gain) reclassified to earnings (a) 343 ( 119 ) 224

Gain recognized in AOCI 74 68 142

Unrealized Loss, Net of Tax, at January 1, 2022 $ ( 429 ) $ ( 33 ) $ ( 462 )

Loss reclassified to earnings (a) 158 — 158

Gain (loss) recognized in AOCI 370 ( 8 ) 362

Unrealized Gain (Loss), Net of Tax, at December 31, 2022 $ 99 $ ( 41 ) $ 58

(a) See Note 14 , Accumulated Other Comprehensive Items, for the income statement classification.

At year-end 2021, the Company expects to reclassify losses of $ 337,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the interest rate swap agreement and the maturity date of the forward currency-exchange contract.

2021 Financial Statements

Notes to Consolidated Financial Statements

At year-end 2022, the Company expects to reclassify gains of $ 58,000 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

4 unchanged sentences

• Level 3—Unobservable inputs based on the Company's own assumptions.

2022 Financial Statements

Notes to Consolidated Financial Statements

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 January 1, 2022

Fair Value as of December 31, 2022

(In thousands) Level 1 Level 2 Level 3 Total

1 unchanged sentence

Banker's acceptance drafts (a) $ — $ 5,729 $ — $ 5,729

Forward currency-exchange contracts $ — $ 14 $ — $ 14

2018 Swap Agreement $ — $ 131 $ — $ 131

Forward currency-exchange contract $ — $ 44 $ — $ 44

Forward currency-exchange contracts (b) $ — $ 15 $ — $ 15

Forward currency-exchange contract (c) $ — $ 54 $ — $ 54

Fair Value as of January 1, 2022

2 unchanged sentences

Banker's acceptance drafts (a) $ — $ 8,049 $ — $ 8,049

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

Forward currency-exchange contracts (b) $ — $ 14 $ — $ 14

2018 Swap Agreement $ — $ 550 $ — $ 550

Forward currency-exchange contracts $ — $ 7 $ — $ 7

Forward currency-exchange contracts (c) $ — $ 44 $ — $ 44

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

(b) Represents derivative instruments not designated as hedging instruments.

The Company uses the market approach technique to value its financial assets and liabilities, and there were no changes in valuation techniques during 2022.

5 unchanged sentences

The carrying value and fair value of the Company's debt obligations, excluding lease obligations, are as follows:

January 1, 2022 January 2, 2021

December 31, 2022 January 1, 2022

(In thousands) Carrying

5 unchanged sentences

$ 199,221 $ 198,994 $ 264,598 $ 265,545

2021 Financial Statements

Notes to Consolidated Financial Statements

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

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

2022 Financial Statements

Notes to Consolidated Financial Statements

Business Segment and Geographical Information

14 unchanged sentences

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

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Flow Control (a) $ 349,107 $ 288,788 $ 225,444

9 unchanged sentences

Interest expense, net (g) ( 5,574 ) ( 4,554 ) ( 7,242 )

Other expense, net (g,h) ( 104 ) ( 195 ) ( 6,359 )

Other expense, net (g) ( 72 ) ( 104 ) ( 195 )

$ 165,636 $ 112,052 $ 73,687

Total Assets (h)

Flow Control (a) $ 386,804 $ 382,379 $ 263,141

3 unchanged sentences

$ 1,149,881 $ 1,132,212 $ 927,571

2021 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019

Depreciation and Amortization

4 unchanged sentences

$ 34,936 $ 34,302 $ 31,334

2022 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021

Capital Expenditures

Flow Control (a) $ 4,425 $ 4,128 $ 2,808

Industrial Processing 6,412 3,123 5,113

Industrial Processing (j) 20,137 6,412 3,123

Material Handling (b) 3,575 2,211 1,539

3 unchanged sentences

United States (b) $ 404,835 $ 328,456 $ 286,015

China 82,121 51,003 66,480

Canada 87,951 79,426 62,059

China 85,500 82,121 51,003

Germany (a) 45,994 37,178 23,292

France 28,258 19,725 21,054

Other 280,459 259,398 212,659

$ 904,739 $ 786,579 $ 635,028

Long-lived Assets (k):

Long-lived Assets (l):

United States (b) $ 47,483 $ 43,418 $ 40,293

Germany (a) 25,188 6,051 5,925

Canada 8,344 8,460 7,221

Finland 7,347 8,013 6,960

China 6,613 9,844 10,319

China (j) 15,834 6,613 9,844

Germany (a) 22,437 25,188 6,051

Other 24,757 24,310 21,233

$ 118,855 $ 107,989 $ 84,642

(a) Includes the Clouth business in 2021, which was acquired between July 19, 2021 and August 10, 2021 (see Note 2 , Acquisitions).

(b) Includes the Balemaster business in 2021, which was acquired on August 23, 2021 (see Note 2 , Acquisitions).

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

(d) Includes $ 1,861,000 of impairment charges in 2020 and $ 2,336,000 in 2019.

(e) Includes acquisition-related expenses of $ 2,851,000 in 2021, $ 350,000 in 2020 and $ 5,715,000 in 2019.

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

(a) Includes results from Clouth, which was acquired between July 19, 2021 and August 10, 2021 (see Note 2 , Acquisitions).

(b) Includes results from Balemaster, which was acquired on August 23, 2021 (see Note 2 , Acquisitions).

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

Includes non-cash charges for the write-off of indemnification assets of $ 741,000 in 2022.

Includes impairment and restructuring costs of $ 568,000 , $ 980,000 and $ 659,000 in 2022, 2021 and 2020, respectively.

(d) Includes a gain on the sale of a facility of $ 20,190,000 (see Note 8 , Gain on Sale and Other Costs, Net), non-cash charges for the write-off of an indemnification asset of $ 575,000 and impairment and restructuring costs of $ 766,000 in 2022.

Includ es a gain on the sale of a building of $ 515,000 and acquisition-related expenses of $ 223,000 in 2021.

Includes acquisition-related expenses of $ 679,000 and impairment and restructuring costs of $ 2,138,000 in 2020.

(e) Includes acquisition-related expenses of $ 899,000 , $ 2,851,000 , and $ 350,000 in 2022, 2021 and 2020, respectively.

(f) Represents general and administrative expenses.

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

(h) Includes a pension plan settlement loss of $ 5,887,000 in 2019.

(h) Excludes all intercompany receivables or payables and investment in subsidiary balances.

(i) Primarily includes cash and cash equivalents, tax assets, ROU assets, and property, plant, and equipment, net.

(j) Revenue is attributed to countries based on customer location.

(k) Represents property, plant, and equipment, net.

(j) Includes capital expenditures of $ 10,379,000 in 2022 associated with the construction of a manufacturing facility in China.

See Note 8, Gain on Sale and Other Costs, Net.

(k) Revenue is attributed to countries based on customer location.

(l) Represents property, plant, and equipment, net.

2022 Financial Statements

2 unchanged sentences

Basic and diluted EPS were calculated as follows:

(In thousands, except per share amounts) January 1, 2022 January 2, 2021 December 28, 2019

(In thousands, except per share amounts) December 31, 2022 January 1, 2022 January 2, 2021

Net Income Attributable to Kadant $ 120,928 $ 84,043 $ 55,196

8 unchanged sentences

Changes in each component of AOCI, net of tax, are as follows:

(In thousands) Foreign Currency Translation Adjustment Pension and Other Post-Retirement Benefit Liability Adjustments Deferred Loss on Cash Flow Hedges Total

(In thousands) Foreign Currency Translation Adjustment Pension and Other Post-Retirement Benefit Liability Adjustments Deferred (Loss) Gain on Cash Flow Hedges Total

Balance at January 1, 2022 $ ( 29,096 ) $ ( 792 ) $ ( 462 ) $ ( 30,350 )

2 unchanged sentences

Net current period other comprehensive items ( 25,392 ) 644 520 ( 24,228 )

Balance at January 1, 2022 $ ( 29,096 ) $ ( 792 ) $ ( 462 ) $ ( 30,350 )

Balance at December 31, 2022 $ ( 54,488 ) $ ( 148 ) $ 58 $ ( 54,578 )

Amounts reclassified out of AOCI are as follows:

(In thousands) January 1, 2022 January 2, 2021 December 28, 2019 Statement of Income Line Item

(In thousands) December 31, 2022 January 1, 2022 January 2, 2021 Statement of Income Line Item

Retirement Benefit Plans

1 unchanged sentence

Amortization of prior service cost ( 10 ) ( 12 ) ( 55 ) Other expense, net

Pension plan settlement loss — — ( 5,887 ) Other expense, net

Total expense before income taxes ( 46 ) ( 62 ) ( 121 )

Income tax benefit (provision) 17 153 ( 641 ) Provision for income taxes

Income tax benefit 12 17 153 Provision for income taxes

( 34 ) ( 45 ) 32

8 unchanged sentences

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

2021 Financial Statements

Notes to Consolidated Financial Statements

Subsequent Event

The Company's largest subsidiary in China, which manufactures stock-preparation equipment, is located in an area that has become primarily residential.

As a result, the Company entered into several agreements with the local government to sell its existing manufacturing building and land use rights for approximately $ 25,140,000 and build a new facility in another location.

These agreements will become effective when the Company receives the required down payment and secures a land use right in a new location.

As of year-end 2021, the Company has received a 25 % down payment on the agreed upon sale price with an additional required down payment of 6 % expected in the first quarter of 2022.

Once the agreements are effective, which is expected in the first quarter of 2022, the Company will recognize a gain on sale and a receivable for the remaining amount of the sale proceeds.

The remaining amount of the sale proceeds is due the earlier of when the government sells the property or within two years from the effective date of the agreements.

The Company's subsidiary will continue to occupy its current facility until construction on its new facility is complete.

As of year-end 2021, the carrying value of the existing building and land use right totaling $ 5,264,000 is included in other current assets in the accompanying consolidated balance sheet.

In addition, in the fourth quarter of 2021, the Company entered into an agreement for a new land use right valued at $ 3,719,000 , which is included in other assets in the accompanying consolidated balance sheet.

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-K

Item 9A. Controls and Procedures