What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 155 added, 227 removed, 417 unchanged (48% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheet

2022 January 1,

2023 December 31,

(In thousands, except share and per share amounts)

1 unchanged sentence

Cash and cash equivalents $ 81,183 $ 76,371

Restricted cash (Note 1) 2,178 2,975

Restricted cash 4,324 3,354

Accounts receivable, net of allowances of $ 3,587 and $ 3,595

38 unchanged sentences

Condensed Consolidated Statement of Income

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

2023 April 2,

(In thousands, except per share amounts)

23 unchanged sentences

Condensed Consolidated Statement of Comprehensive Income

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

2023 April 2,

(In thousands)

2 unchanged sentences

Foreign currency translation adjustment 5,573 ( 2,284 )

Post-retirement liability adjustments, net (net of tax provision of $ 8 , $ 9 , $ 21 and $ 21 )

Deferred gain on cash flow hedges (net of tax provision of $ 27 , $ 20 , $ 141 and $ 60 )

83 66 506 244

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

Deferred (loss) gain on cash flow hedges (net of tax of $( 14 ) and $ 68 )

Other comprehensive items 5,528 ( 1,998 )

1 unchanged sentence

Comprehensive Income Attributable to Noncontrolling Interest ( 219 ) ( 203 )

( 73 ) ( 201 ) ( 405 ) ( 546 )

Comprehensive Income Attributable to Kadant $ 33,568 $ 39,240

1 unchanged sentence

Condensed Consolidated Statement of Cash Flows

Nine Months Ended

2022 October 2,

Three Months Ended

2023 April 2,

(In thousands)

6 unchanged sentences

Stock-based compensation expense 2,238 2,260

Provision for losses on accounts receivable 685 116

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

Noncash impairment costs (Note 2) 182 —

Non-cash impairment costs (Note 2) — 182

Other items, net 842 6,325

1 unchanged sentence

Accounts receivable 517 ( 9,127 )

Unbilled revenue ( 8,528 ) ( 487 )

Contract assets 2,637 ( 409 )

Inventories ( 13,997 ) ( 9,359 )

5 unchanged sentences

Investing Activities

Acquisitions, net of cash acquired 138 ( 141,538 )

Acquisition, net of cash acquired — ( 62 )

Purchases of property, plant, and equipment ( 4,469 ) ( 2,868 )

Proceeds from sale of property, plant, and equipment 32 1,595

Other investing activities ( 30 ) 44

Net cash used in investing activities ( 4,467 ) ( 1,291 )

Financing Activities

Repayment of short- and long-term obligations ( 69,460 ) ( 72,723 )

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

Repayment of short- and long-term obligations ( 20,761 ) ( 35,064 )

Tax withholding payments related to stock-based compensation ( 3,897 ) ( 4,550 )

Dividends paid ( 3,036 ) ( 2,905 )

Dividend paid to noncontrolling interest ( 630 ) ( 560 )

Net cash (used in) provided by financing activities ( 62,112 ) 66,714

Other financing activities ( 63 ) —

Net cash used in financing activities ( 27,757 ) ( 27,003 )

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash 1,140 ( 664 )

(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash ( 19,047 ) 17,024

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash 5,782 ( 5,190 )

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 79,725 94,161

4 unchanged sentences

Condensed Consolidated Statement of Stockholders' Equity

Three Months Ended October 1, 2022

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

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

Balance at July 2, 2022 14,624,159 $ 146 $ 114,825 $ 613,146 2,962,186 $ ( 72,586 ) $ ( 51,379 ) $ 2,012 $ 606,164

Net income — — — 27,487 — — — 184 27,671

Dividend declared – Common Stock, $ 0.26 per share

— — — ( 3,032 ) — — — — ( 3,032 )

Activity under stock plans — — 1,982 — ( 1,628 ) 40 — — 2,022

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

Other comprehensive items — — — — — — ( 22,580 ) ( 111 ) ( 22,691 )

Balance at October 1, 2022 14,624,159 $ 146 $ 116,807 $ 637,601 2,960,558 $ ( 72,546 ) $ ( 73,959 ) $ 1,455 $ 609,504

Nine Months Ended October 1, 2022

Three Months Ended April 1, 2023

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

5 unchanged sentences

Shares Amount Shares Amount

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

Net income — — — 28,075 — — — 184 28,259

2 unchanged sentences

Activity under stock plans — — ( 2,377 ) — ( 29,319 ) 718 — — ( 1,659 )

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

Other comprehensive items — — — — — — 5,493 35 5,528

Balance at October 1, 2022 14,624,159 $ 146 $ 116,807 $ 637,601 2,960,558 $ ( 72,546 ) $ ( 73,959 ) $ 1,455 $ 609,504

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

Condensed Consolidated Statement of Stockholders' Equity (continued)

Three Months Ended October 2, 2021

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

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

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

Net income — — — 20,461 — — — 237 20,698

Dividend declared – Common Stock, $ 0.25 per share

— — — ( 2,901 ) — — — — ( 2,901 )

Activity under stock plans — — 2,164 — ( 5,225 ) 128 — — 2,292

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

Noncontrolling interest acquired — — — — — — — 653 653

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

Other comprehensive items — — — — — — ( 7,200 ) ( 36 ) ( 7,236 )

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

Nine Months Ended October 2, 2021

Balance at April 1, 2023 14,624,159 $ 146 $ 117,547 $ 685,325 2,920,678 $ ( 71,569 ) $ ( 49,085 ) $ 1,941 $ 684,305

Three Months Ended April 2, 2022

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

10 unchanged sentences

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

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

Noncontrolling interest acquired — — — — — — — 653 653

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

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

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

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

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

8 unchanged sentences

Interim Financial Statements

The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at October 1, 2022, its results of operations, comprehensive income, and stockholders' equity for the three- and nine-month periods ended October 1, 2022 and October 2, 2021 and its cash flows for the nine-month periods ended October 1, 2022 and October 2, 2021.

The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at April 1, 2023, its results of operations, comprehensive income, cash flows and stockholders' equity for the three-month periods ended April 1, 2023 and April 2, 2022.

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

The condensed consolidated balance sheet presented as of January 1, 2022 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the Annual Report).

The condensed consolidated balance sheet presented as of December 31, 2022 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the Annual Report).

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

The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report.

Financial Statement Presentation

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

Specifically, the Company reclassified the change in customer deposits within operating activities from other 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, in the Condensed Consolidated Statement of Cash Flows.

Use of Estimates and Critical Accounting Policies

3 unchanged sentences

Note 1 to the consolidated financial statements in the Annual Report describes the significant accounting estimates and policies used in preparation of the consolidated financial statements.

There have been no material changes in the Company’s significant accounting policies during the nine months ended October 1, 2022.

There have been no material changes in the Company’s significant accounting policies during the three months ended April 1, 2023.

Supplemental Cash Flow Information

Nine Months Ended

(In thousands) October 1,

2022 October 2,

Three Months Ended

(In thousands) April 1,

2023 April 2,

Cash Paid for Interest $ 2,161 $ 1,017

Cash Paid for Income Taxes, Net of Refunds $ 9,558 $ 8,013

Notes to Condensed Consolidated Financial Statements

Nine Months Ended

(In thousands) October 1,

2022 October 2,

Non-Cash Investing Activities:

Fair value of assets (adjusted) acquired $ ( 1,768 ) $ 185,424

Cash received (paid) for acquired businesses 138 ( 149,961 )

Liabilities (adjusted) assumed of acquired businesses $ ( 1,630 ) $ 35,463

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

Reduction in fair value of assets acquired $ — $ ( 983 )

Cash paid for acquired businesses — ( 62 )

Reduction in liabilities assumed $ — $ ( 1,045 )

Purchases of property, plant, and equipment in accounts payable $ 299 $ 264

Notes to Condensed Consolidated Financial Statements

Three Months Ended

(In thousands) April 1,

2023 April 2,

Non-Cash Financing Activities:

2 unchanged sentences

Restricted Cash

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

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

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

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

(In thousands) October 1,

2022 October 2,

2021 January 1,

(In thousands) April 1,

2023 April 2,

2022 December 31,

2022 January 1,

3 unchanged sentences

The components of inventories are as follows:

2022 January 1,

2023 December 31,

(In thousands)

4 unchanged sentences

Intangible Assets, Net

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

Gross intangible assets were $ 342,732,000 at April 1, 2023 and $ 343,130,000 at December 31, 2022.

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

2 unchanged sentences

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

Accumulated amortization was $ 151,001,000 at October 1, 2022 and $ 135,327,000 at January 1, 2022.

Accumulated amortization was $ 160,694,000 at April 1, 2023 and $ 155,834,000 at December 31, 2022.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

(In thousands) Flow Control Industrial Processing Material Handling Total

Balance at January 1, 2022

Balance at December 31, 2022

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

2 unchanged sentences

2023 Activity

Acquisitions (a) ( 33 ) — ( 502 ) ( 535 )

Acquisition adjustments — — ( 13 ) ( 13 )

Currency translation 1,181 581 686 2,448

Total 2023 activity 1,181 581 673 2,435

Balance at October 1, 2022

Balance at April 1, 2023

Gross balance 119,490 210,500 143,438 473,428

1 unchanged sentence

Net balance $ 119,490 $ 124,962 $ 143,438 $ 387,890

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

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

Warranty Obligations

4 unchanged sentences

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

Nine Months Ended

(In thousands) October 1,

2022 October 2,

Three Months Ended

(In thousands) April 1,

2023 April 2,

Balance at Beginning of Year $ 7,283 $ 7,298

1 unchanged sentence

Usage ( 1,068 ) ( 1,538 )

Acquisitions — 429

Currency translation 87 ( 74 )

8 unchanged sentences

The following table presents revenue by revenue recognition method:

Three Months Ended Nine Months Ended

October 1, October 2, October 1, October 2,

Three Months Ended

April 1, April 2,

(In thousands) 2023 2022

4 unchanged sentences

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

Three Months Ended Nine Months Ended

October 1, October 2, October 1, October 2,

Three Months Ended

April 1, April 2,

(In thousands) 2023 2022

11 unchanged sentences

The following table presents contract balances from contracts with customers:

2022 January 1,

2023 December 31,

(In thousands)

7 unchanged sentences

These advance payments will be recognized as revenue when the Company's performance obligations have been satisfied, which typically occurs when the product has shipped and control of the asset has transferred to the customer.

The Company recognized revenue of $ 11,912,000 in the third quarter of 2022 and $ 3,973,000 in the third quarter of 2021, $ 59,813,000 in the first nine months of 2022 and $ 31,183,000 in the first nine months of 2021 that was included in the contract liabilities balance at the beginning of 2022 and 2021, respectively.

The Company recognized revenue of $ 27,016,000 in the first quarter of 2023 and $ 34,477,000 in the first quarter of 2022 that was included in the contract liabilities balance at the beginning of 2023 and 2022, respectively.

The majority of the Company's contracts for capital equipment have an original expected duration of one year or less.

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

For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations as of October 1, 2022 was $ 48,976,000 .

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 64 % of which is expected to occur within the next twelve months and the remaining 36 % after the third quarter of 2023.

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 74 % of which is expected to occur within the next twelve months and the remaining 26 % after the first quarter of 2024.

Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date.

These drafts, which totaled $ 6,755,000 at October 1, 2022 and $ 8,049,000 at January 1, 2022, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.

Recent Accounting Pronouncements Not Yet Adopted

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

In March 2020, the 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 does not expect that the adoption of this ASU will have an impact on its 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 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 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.

These drafts, which totaled $ 5,325,000 at April 1, 2023 and $ 5,729,000 at December 31, 2022, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.

Gain on Sale and Other Costs, Net

Gain on sale and other costs, net recognized during the first quarter of 2022 was $ 20,008,000 , and was comprised of a gain on the sale of a building of $ 20,190,000 , net of an impairment charge of $ 182,000 .

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 of one of its subsidiaries in China for approximately $ 25,159,000 .

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

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

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

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 October 1, 2022 was $ 14,646,000 .

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

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

During the third quarter of 2022, the Company recorded restructuring costs within its Flow Control segment of $ 72,000 , which consisted of severance costs related to the termination of two employees.

This restructuring plan was initiated in the fourth quarter of 2021 to eliminate a redundant ceramic blade manufacturing operation that resulted from the Company's acquisition of The Clouth Group of Companies (Clouth) in the third quarter of 2021.

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 during the second half of 2023.

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

(In thousands) April 1, 2023

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 December 31, 2022 (included in other assets)

Accretion of interest income 141

Currency translation 125

Balance at April 1, 2023 (included in other current assets)

Impairment Costs

During the first quarter of 2022, the Company recognized an impairment charge of $ 182,000 within its Industrial Processing segment associated with the write-down of certain fixed assets that will not be moved to the new manufacturing facility in China in connection with the China Transaction.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

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

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

2023 April 2,

(In thousands, except per share amounts)

5 unchanged sentences

Diluted Earnings per Share $ 2.40 $ 3.53

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 4,000 shares in the third quarter of 2022 and 3,000 shares in the third quarter of 2021, 10,000 shares in the first nine months of 2022 and 19,000 in the first nine months of 2021 were not included in the computation of diluted EPS for the respective periods as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods.

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 38,000 shares in the first quarter of 2023 and 17,000 shares in the first quarter of 2022 were not included in the computation of diluted EPS for the respective periods as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods.

Provision for Income Taxes

The provision for income taxes was $ 33,075,000 in the first nine months of 2022 and $ 21,252,000 in the first nine months of 2021.

The effective tax rate of 26 % in the first nine months of 2022 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, nondeductible expenses, and state taxes.

The effective tax rate of 26 % in the first nine months of 2021 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, nondeductible expenses, state taxes, and tax expense associated with the Global Intangible Low-Taxed Income provisions.

These increases in tax expenses in the first nine months of 2021 were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements.

The provision for income taxes was $ 9,763,000 in the first quarter of 2023 and $ 13,378,000 in the first quarter of 2022.

The effective tax rate of 26 % in the first quarter of 2023 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, nondeductible expenses, and state taxes.

These increases in tax expense in the first quarter of 2023 were offset in part by a decrease in tax expense related to the net excess income tax benefits from stock-based compensation arrangements.

The effective tax rate of 24 % in the first quarter of 2022 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, nondeductible expenses, state taxes, and tax expense associated with the Global Intangible Low-Taxed Income provisions.

These increases in tax expense in the first quarter of 2022 were offset in part by a decrease in tax expense related to the net excess income tax benefits from stock-based compensation arrangements and the reversal of tax reserves associated with uncertain tax positions.

Short- and Long-Term Obligations

Short- and long-term obligations are as follows:

2022 January 1,

2023 December 31,

(In thousands)

8 unchanged sentences

Revolving Credit Facility

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

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

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

Notes to Condensed Consolidated Financial Statements

$ 150,000,000 .

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

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

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

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

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 an applicable 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 an applicable 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.

In addition, the Credit Agreement contains negative covenants applicable to the Company and its subsidiaries, including financial covenants requiring the Company to maintain a maximum consolidated leverage ratio of 3.75 to 1.00, or, if the Company elects, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, 4.25 to 1.00, and limitations on making certain restricted payments (including dividends and stock repurchases).

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

As of October 1, 2022, the outstanding balance under the Credit Agreement was $ 195,036,000 , which included $ 71,036,000 of euro-denominated borrowings.

As of October 1, 2022, the Company had $ 206,284,000 of borrowing capacity available under its Credit Agreement, which was calculated by translating its foreign-denominated borrowings using the administrative agent's borrowing date foreign exchange rates.

The weighted average interest rate for the outstanding balance under the Credit Agreement was 3.50 % as of October 1, 2022.

As of April 1, 2023, the outstanding balance under the Credit Agreement was $ 167,514,000 , which included $ 74,514,000 of euro-denominated borrowings.

The Company had $ 232,760,000 of borrowing capacity available as of April 1, 2023, 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 4.81 % as of April 1, 2023 and 4.33 % as of year-end 2022.

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

7 unchanged sentences

Debt Compliance

As of October 1, 2022, the Company was in compliance with the covenants related to its debt obligations.

Finance Leases

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

Other Borrowings

Prior to August 2022, the Company's 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.

Other borrowings also include $ 637,000 of short-term obligations and $ 2,212,000 of debt obligations outstanding at October 1, 2022 assumed in the acquisition of Clouth, which mature on various dates ranging from 2022 through 2028.

Notes to Condensed Consolidated Financial Statements

As of April 1, 2023, the Company was in compliance with the covenants related to its debt obligations.

Stock-Based Compensation

The Company recognized stock-based compensation expense of $ 2,040,000 in the third quarter of 2022 and $ 2,204,000 in the third quarter of 2021, $ 6,576,000 in the first nine months of 2022, and $ 6,230,000 in the first nine months of 2021 within selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income.

The Company recognized stock-based compensation expense of $ 2,238,000 in the first quarter of 2023 and $ 2,260,000 in the first quarter of 2022 within selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income.

The Company recognizes compensation expense for all stock-based awards granted to employees and directors based on the grant date estimate of fair value for those awards.

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

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 8,366,000 at October 1, 2022, which will be recognized over a weighted average period of 1.7 years.

In May 2022, the Company granted an aggregate of 5,175 RSUs to its non-employee directors with a grant date fair value of $ 935,000 .

Of these 5,175 RSUs, 4,705 were granted to its incumbent non-employee directors with the remaining 470 RSUs granted to the Company's new non-employee director who became a director effective as of May 1, 2022.

For the incumbent non-employee directors, 50 % of these RSUs vested on June 1, 2022, 25 % of these RSUs vested on the last day of the third fiscal quarter of 2022 and the remaining 25 % are to vest on the last day of the fourth fiscal quarter of 2022.

For the new non-employee director, 50 % of the RSUs vested on the last day of the third fiscal quarter of 2022 and the other half are to vest on the last day of the fourth fiscal quarter of 2022.

Unrecognized compensation expense related to stock-based compensation totaled approximately 12,796,000 at April 1, 2023, which will be recognized over a weighted average period of 2.0 years.

Notes to Condensed Consolidated Financial Statements

Performance-based RSUs

On March 7, 2023, the Company granted performance-based RSUs to certain of its officers, which represented, in aggregate, the right to receive 21,009 shares (target RSU amount), with an aggregate grant date fair value of $ 4,528,000 .

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

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

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

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

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

If actual adjusted EBITDA is below 50 % of the target adjusted EBITDA for the 2023 fiscal year, these performance-based RSUs will be forfeited.

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

Following the adjustment, the performance-based RSUs will be subject to additional time-based vesting, and will vest in three equal annual installments on March 10 of 2024, 2025, and 2026, provided that the officer is employed by the Company on the applicable vesting dates.

Time-based RSUs

On March 7, 2023, the Company granted time-based RSUs representing 16,528 shares to certain of its officers and employees with an aggregate grant date fair value of $ 3,562,000 .

These time-based RSUs vest in three equal annual installments on March 10 of 2024, 2025, and 2026, provided that a recipient is employed by the Company on the applicable vesting dates.

Accumulated Other Comprehensive Items

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(In thousands) Foreign

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

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

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

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

Other comprehensive items before reclassifications 5,538 ( 8 ) 7 5,537

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5,538 ( 6 ) ( 39 ) 5,493

Balance at October 1, 2022 $ ( 73,275 ) $ ( 728 ) $ 44 $ ( 73,959 )

Balance at April 1, 2023 $ ( 48,950 ) $ ( 154 ) $ 19 $ ( 49,085 )

Notes to Condensed Consolidated Financial Statements

Amounts reclassified from AOCI are as follows:

Three Months Ended Nine Months Ended

(In thousands) October 1,

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

(In thousands) April 1,

2023 April 2,

2022 Statement of Income Line Item

Post-retirement Benefit Plans

Retirement Benefit Plans

Recognized net actuarial loss

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Total expense before income taxes

( 8 ) ( 14 ) ( 26 ) ( 42 )

Income tax benefit 1 3 Provision for income taxes

( 6 ) ( 10 ) ( 19 ) ( 30 )

Cash Flow Hedges (a)

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60 ( 111 ) Interest expense

Income tax benefit 8 27 55 80 Provision for income taxes

( 25 ) ( 87 ) ( 172 ) ( 256 )

Income tax (provision) benefit ( 14 ) 27 Provision for income taxes

Total Reclassifications $ 44 $ ( 91 )

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

Notes to Condensed Consolidated Financial Statements

Interest Rate Swap Agreement

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

Gains and losses reported within SG&A expenses in the accompanying condensed consolidated statement of income associated with the Company's forward currency-exchange contracts that were not designated as hedges were not material for the three- and nine-month periods ended October 1, 2022 and October 2, 2021.

Gains and losses reported within SG&A expenses in the accompanying condensed consolidated statement of income associated with the Company's forward currency-exchange contracts that were not designated as hedges were not material for the three-month periods ended April 1, 2023 and April 2, 2022.

Notes to Condensed Consolidated Financial Statements

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

October 1, 2022 January 1, 2022

April 1, 2023 December 31, 2022

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

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Derivatives in a Liability Position:

2018 Swap Agreement Other Long-Term Liabilities $ — $ — $ ( 550 ) $ 15,000

Forward currency-exchange contracts Other Current Liabilities $ ( 51 ) $ 430 $ ( 54 ) $ 430

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Forward currency-exchange contracts Other Current Assets $ 2 $ 189 $ 15 $ 647

Derivative in a Liability Position:

Forward currency-exchange contract Other Current Liabilities $ ( 14 ) $ 189 $ — $ —

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

(b) The 2023 notional amounts are indicative of the level of the Company's recurring derivative activity.

Notes to Condensed Consolidated Financial Statements

The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the nine months ended October 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 three months ended April 1, 2023:

(In thousands) Interest Rate Swap

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Contract Total

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

Loss reclassified to earnings (a) 172 — 172

Gain (loss) recognized in AOCI 363 ( 29 ) 334

Unrealized Gain (Loss), Net of Tax, at October 1, 2022 $ 106 $ ( 62 ) $ 44

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

Gain reclassified to earnings (a) ( 46 ) — ( 46 )

Gain recognized in AOCI 4 3 7

Unrealized Gain (Loss), Net of Tax, at April 1, 2023 $ 57 $ ( 38 ) $ 19

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

As of October 1, 2022, the Company expects to reclassify gains of $ 44,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the 2018 Swap Agreement and the maturity date of the forward currency-exchange contract.

As of April 1, 2023, the Company expects to reclassify gains of $ 19,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the 2018 Swap Agreement and the maturity date of the forward currency-exchange contract.

Fair Value Measurements and Fair Value of Financial Instruments

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

Notes to Condensed 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 October 1, 2022

Fair Value as of April 1, 2023

(In thousands) Level 1 Level 2 Level 3 Total

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2018 Swap Agreement $ — $ 75 $ — $ 75

Forward currency-exchange contracts (b) $ — $ 96 $ — $ 96

Fair Value as of January 1, 2022

Forward currency-exchange contracts $ — $ 2 $ — $ 2

Forward currency-exchange contracts $ — $ 51 $ — $ 51

Fair Value as of December 31, 2022

(In thousands) Level 1 Level 2 Level 3 Total

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

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

2018 Swap Agreement $ — $ 131 $ — $ 131

Forward currency-exchange contracts $ — $ 15 $ — $ 15

Forward currency-exchange contract $ — $ 54 $ — $ 54

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

(b) Includes derivatives designated as hedging instruments of $ 82,000 and derivatives not designated as hedging instruments of $ 14,000 .

Notes to Condensed Consolidated Financial Statements

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

The Company uses the market approach technique to value its financial assets and liabilities, and there were no changes in valuation techniques during the first three months of 2023.

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

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

October 1, 2022 January 1, 2022

April 1, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

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

Notes to Condensed Consolidated Financial Statements

A description of each segment follows:

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

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended Nine Months Ended

October 1, October 2, October 1, October 2,

Three Months Ended

April 1, April 2,

(In thousands) 2023 2022

Flow Control (a) $ 86,880 $ 76,253 $ 257,926 $ 210,769

Flow Control $ 89,521 $ 85,826

Industrial Processing 83,542 93,085

Material Handling (b) 51,545 41,916 151,141 123,839

Material Handling 56,695 47,569

$ 229,758 $ 226,480

Income Before Provision for Income Taxes

Flow Control (a,c) $ 22,874 $ 17,129 $ 67,306 $ 51,899

Industrial Processing (d) 17,550 16,095 70,994 44,449

Material Handling (b,e) 6,945 3,491 21,490 12,941

Corporate (f) ( 8,483 ) ( 7,987 ) ( 27,463 ) ( 24,124 )

Flow Control $ 24,189 $ 21,725

Industrial Processing (a) 15,967 38,159

Material Handling (b) 9,287 5,844

Corporate (c) ( 9,329 ) ( 9,755 )

Total operating income 40,114 55,973

Interest expense, net (g) ( 1,450 ) ( 1,265 ) ( 3,671 ) ( 3,321 )

Other expense, net (g) ( 19 ) ( 23 ) ( 60 ) ( 71 )

Interest expense, net (d) ( 2,071 ) ( 1,132 )

Other expense, net (d) ( 21 ) ( 22 )

$ 38,022 $ 54,819

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Flow Control $ 1,404 $ 525

Industrial Processing (h) 4,654 1,725 11,679 4,720

Industrial Processing 2,579 1,952

Material Handling 462 384

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$ 4,469 $ 2,868

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

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

(c) Includes acquisition-related expenses of $ 410,000 and $ 254,000 in the three and nine months ended October 1, 2022, respectively, and $ 2,706,000 and $ 3,942,000 in the three and nine months ended October 2, 2021, respectively.

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

Includes restructuring costs of $ 72,000 in the three and nine months ended October 1, 2022, respectively.

(d) Includes a gain on the sale of a facility of $ 20,190,000 (see Note 2 , Gain on Sale and Other Costs, Net) and non-cash charges for the write-off of an indemnification asset of $ 575,000 and the write-down of machinery and equipment of $ 182,000 in the nine months ended October 1, 2022.

(e) Includes acquisition-related expenses of $ 717,000 in the nine months ended October 1, 2022 and $ 799,000 and $ 1,411,000 in the three and nine months ended October 2, 2021, respectively.

(f) Represents general and administrative expenses.

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

(h) Includes capital expenditures of $ 2,155,000 and $ 5,397,000 in the three and nine months ended October 1, 2022, respectively, associated with the construction of a manufacturing facility in China.

See Note 2 , Gain on Sale and Other Costs, Net.

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

(b) Includes acquisition-related expenses of $ 717,000 in the three months ended April 2, 2022.

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

Notes to Condensed Consolidated Financial Statements

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

The Company had $ 9,793,000 at October 1, 2022 and $ 9,593,000 at January 1, 2022 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates.

The Company had $ 5,981,000 at April 1, 2023 and $ 11,238,000 at December 31, 2022 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates.

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

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

What changed 10-Q

Item 1. Financial Statements