What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-02-28 · 191 added, 172 removed, 172 unchanged (68% of the section changed)

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See Part I , "Forward-Looking Statements," for a discussion of the forward-looking statements contained below and Part I, Item 1A , "Risk Factors," for a discussion of certain risks that could cause our actual results to differ materially from the results anticipated in such forward-looking statements.

A detailed discussion of the year-over-year results for 2022 compared with 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC.

Company Background

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Industry and Business Overview

Our bookings increased 7% to a record $958.2 million in 2022 led by strong parts and consumables bookings, especially within our Flow Control segment.

Our 2022 bookings included $50.2 million attributable to acquisitions and a $39.8 million unfavorable effect from foreign currency translation.

See Acquisitions below for further details.

We ended the year with consolidated backlog of $345.3 million, increasing 11% from the end of 2021.

Bookings were $917.4 million in 2023, including record parts and consumables bookings, which represented 64% of consolidated bookings.

Bookings decreased 4% compared to record bookings in 2022, which included exceptionally strong demand for capital equipment at our Industrial Processing segment in the first half of the year.

The bookings decrease occurred across various regions.

In Europe, weak macroeconomic conditions impacted demand for our products, including in Germany, Europe’s largest economy, which experienced a more significant decline in industrial production than anticipated.

A decline in domestic and foreign confidence in China’s market, along with persistent debt pressures, particularly in the property market, have constrained growth, which has lengthened the timing of capital orders.

In North America, we experienced steady demand for our capital and aftermarket products following the exceptionally strong demand in the first two quarters of 2022.

In 2024, we expect steady demand in our key end markets to continue at current levels, along with healthy contributions from our recent acquisitions.

An overview of our business by segment is as follows:

• Flow Control – Our Flow Control segment ended a strong year with record bookings for both parts and consumables products and capital equipment.

Bookings increased 17% and organic bookings, which excludes an acquisition and an unfavorable foreign currency translation effect, increased 14% compared to 2021.

Orders for both parts and consumables products and capital equipment continue to be strong due to the strength in the end markets we serve and as customers seek to optimize energy utilization.

We expect to continue to see steady demand in 2023, but comparatively lower than 2022 due to the nearly $200 million of record orders we received in the first half of the year.

• Industrial Processing – Our Industrial Processing segment bookings decreased 6% and organic bookings, which excludes an acquisition and an unfavorable foreign currency translation effect, decreased 3% compared to 2021.

While our parts and consumables bookings experienced a record year, our capital bookings decreased 18% compared to a record 2021 as demand for capital equipment at our wood processing business returned to a more typical level in 2022.

Record orders for our wood processing business products in 2021 were fueled by a robust U.S.

• Flow Control – Our Flow Control segment bookings remained flat compared to 2022.

In North America, there was constrained capital spending as mills took downtime and paper and containerboard producers consolidated or moved locations to align capacity with demand.

In Europe, there was continued uncertainty in the end markets we serve primarily due to weak macroeconomic conditions caused by elevated inflation and high interest rates.

However, many of the end markets in our Flow Control segment remain strong despite the general sluggishness in the manufacturing sector, and we expect bookings in 2024 to remain stable.

• Industrial Processing – Our Industrial Processing segment bookings decreased 13% compared to 2022 due to strong demand for our wood processing capital equipment in the first half of 2022.

This was fueled by a robust U.S.

housing market and high demand for lumber, OSB and plywood, which drove new capital equipment investment.

As we look forward, there is uncertainty as to how governmental efforts to control inflation may impact this segment's end markets.

Therefore, we expect comparatively lower bookings in 2023 given the high level of bookings we experienced in the first half of 2022.

• Material Handling – Our Material Handling segment had record bookings in 2022 for both parts and consumables and capital equipment.

Bookings increased 20% and organic bookings, which excludes an acquisition and an unfavorable foreign currency translation effect, increased 13% compared to 2021.

We expect this steady demand to continue into 2023 given the anticipated growth trends in recycling and infrastructure investments.

Our global operations have been and continue to be impacted by increasingly complex market conditions fueled by inflationary pressures, including the strengthening of the U.S.

dollar, geopolitical tensions, labor availability, and lingering global supply chain constraints.

Supply chain constraints have resulted in inflationary pressure on material costs, longer lead times, and increased freight costs.

Our businesses are alleviating supply chain constraints through various measures, including advance purchases of raw materials to prevent potential manufacturing disruptions and mitigating increased material and freight costs through price adjustments, when possible.

We expect our operating environment to continue to be challenging as central banks work to address inflationary pressures, which creates more uncertainty for the latter half of 2023.

We believe that the fundamentals of our business remain strong, particularly given our high backlog levels, solid global operations team, and ongoing strength in the markets we serve.

Demand in our wood processing business returned to and has continued at a more typical level.

While there is still a healthy level of quote activity, there has been an increase in the quote to order times.

Demand for our stock-preparation products declined 9% compared to 2022 due to weaker market conditions in most regions.

In Europe, macroeconomic conditions led to a pullback in capital investments and paper mill shutdowns.

Market-related downtime at our customers in the U.S.

contributed to weaker demand for our products.

In China, overall market conditions were sluggish as changes to monetary policy impacted the timing of capital investments and mills focused on bringing capacity online.

We expect that our Industrial Processing segment will have higher bookings in 2024 due in large part to contributions from our recent acquisition of Key Knife, which we anticipate will also result in an incrementally higher percentage of parts and consumables.

In addition, we expect higher demand for our stock-preparation capital equipment driven by projects focused on energy savings and reduced water consumption.

• Material Handling – Our Material Handling segment had record bookings in 2023.

Bookings increased 3% compared to 2022 led by record parts and consumables bookings and a $12 million capital order for the longest conveying line in North America.

The largest contributor to our 2023 bookings increase was our conveying and vibratory business due in part to the positive impact on the aggregates industry from new government legislation.

The aggregates industry significantly expanded plant production capacity to meet demand and, as a result, we expect some slowing in capital expenditures in the near term.

We expect that our Material Handling segment will have higher bookings in 2024 due to contributions from our recent acquisition of KWS and increased demand at our European baling business due in part to government programs aimed at stimulating capital investment.

Our global operations have been and continue to be impacted by complex market conditions fueled by inflationary pressures, geopolitical tensions, labor availability, and softening markets.

While the U.S.

economy has proven more resilient than predicted, growth in the European economy has slowed due to high interest rates and elevated inflation, and China's manufacturing industry has contracted.

We expect our operating environment to continue to be challenging, which creates continued uncertainty for 2024.

However, we believe that the fundamentals of our business remain strong, particularly given our solid market position in key product lines, strong global operations teams, and long-term strength of our end markets.

In addition, we see growth opportunity from different legislation in the U.S.

and abroad aimed at fueling investment, including those targeting environmental initiatives.

International Sales

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

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

In recent years, we have acquired several businesses and continue to pursue acquisition opportunities.

On November 14, 2022, we acquired a business in Canada, which is included in our Material Handling segment, for approximately $3.6 million, net of cash acquired.

In the third quarter of 2021, we acquired The Clouth Group of Companies (Clouth) for $92.9 million, net of cash acquired plus debt assumed.

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

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

Clouth has three manufacturing facilities in Germany and one in Poland.

On August 23, 2021, we acquired East Chicago Machine Tool Corporation (Balemaster) for $53.5 million, net of cash acquired.

Balemaster, which is included in our 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.

We expect several synergies in connection with this acquisition, including expanding our presence in the secondary material processing sector and creating new opportunities for leveraging our high-performance balers produced in Europe.

In the fourth quarter of 2021, we acquired a business in India, which is included in our Industrial Processing segment, for approximately $2.9 million.

See Note 2 , Acquisitions, in the accompanying consolidated financial statements for further details.

We expect that a significant driver of our long-term growth will be through the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry.

We have acquired several businesses in recent years and continue to pursue acquisition opportunities.

On January 1, 2024, we acquired Key Knife pursuant to a securities purchase agreement dated December 22, 2023, for approximately $156.0 million in cash, subject to certain customary adjustments.

Key Knife is part of our Industrial Processing segment.

On January 24, 2024, we acquired all of the outstanding equity securities of KWS for approximately $84.0 million in cash, subject to certain customary adjustments.

KWS is part of our Material Handling segment.

We completed several smaller acquisitions in 2022 and 2023.

In 2021, we acquired The Clouth Group of Companies, which is part of our Flow Control segment, and East Chicago Machine Tool Corporation, which is part of our Material Handling segment, for an aggregate $146.4 million, net of cash acquired and debt assumed.

See Note 2 , Acquisitions, and Note 15 , Subsequent Events, in the accompanying consolidated financial statements for further details.

Results of Operations

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

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

We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance,

especially when comparing such results to prior periods.

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

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(In thousands, except percentages) December 30,

2022 January 1,

2022 Total Increase % Change Currency Translation Acquisitions Increase % Change

2023 December 31,

2022 Total Increase % Change Currency Translation Acquisition

Increase % Change

Flow Control $ 363,451 $ 349,107 $ 14,344 4 % $ 1,969 $ — $ 12,375 4 %

1 unchanged sentence

Material Handling 239,518 201,934 37,584 19 % 1,411 — 36,173 18 %

Consolidated Revenue $ 904,739 $ 786,579 $ 118,160 15 % $ (41,065) $ 40,066 $ 119,159 15 %

Consolidated revenue in 2022 increased 15%, including a 5% increase from acquisitions and a 5% decrease from the unfavorable effect of foreign currency translation.

The 15% increase in organic revenue was broad-based with each of our operating segments increasing over 10% compared to 2021.

Revenue at our Flow Control segment increased 21% in 2022, while organic revenue increased 18% with relatively equal contributions from our fluid-handling and doctoring, cleaning, & filtration product lines.

Increased revenue for both our parts and consumables products and capital equipment was driven by strength in the underlying packaging industry, especially in the U.S., and increased demand in Europe resulting in part from high energy prices as customers sought to optimize energy utilization.

Revenue at our Industrial Processing segment increased 8% in 2022, while organic revenue increased 12%.

Nearly 70% of the organic revenue increase was related to our wood processing business where the robust U.S.

housing market and high demand for lumber, OSB and plywood, especially in the first half of the year, drove demand for our products.

Maintenance requirements at many of our wood processing customers and high mill operating rates augmented demand for our parts and consumables products.

The remaining organic revenue increase related to our stock-preparation business where we had steady demand for our products throughout the year.

Compared to 2021, we experienced increased demand for stock-preparation capital equipment primarily at our European operations, as customers sought to reduce their input costs with our fiber processing solutions.

Revenue at our Material Handling segment increased 19% in 2022, while organic revenue increased 15%, due to higher demand for both capital equipment and parts and consumables products at our vibratory and conveying business in North America resulting from strong demand across all industries.

Also contributing to the organic revenue increase was higher demand for capital equipment at our baling operations due to greater market and government-backed policy demand for recycling.

$ 957,672 $ 904,739 $ 52,933 6 % $ (2,037) $ 3 $ 54,967 6 %

Both consolidated revenue and organic revenue increased 6% in 2023 with relatively equal contributions from parts and consumables products and capital equipment products.

The majority of the revenue increase was due to higher demand at our Material Handling segment, especially for our bulk material handling products and, to a lesser extent, increased demand for our parts and consumables products at our Flow Control and Industrial Processing segments.

From a regional perspective, the majority of the revenue increase was driven by higher demand in North America.

In addition, modestly higher demand in Europe was offset by softening demand in China.

Revenue at our Flow Control segment increased 4% in 2023 primarily due to higher demand for parts and consumables products and, to a lesser extent, capital equipment products in North America driven by continued strength in the U.S.

economy and underlying packaging industry.

While there was increased demand for our capital equipment products in Europe from customers seeking to mitigate high energy prices, demand for our parts and consumables products was modestly higher than 2022 reflecting the challenging market conditions.

In China, a slowdown in manufacturing activity resulted in weaker demand for our capital equipment products.

Revenue at our Industrial Processing segment remained flat in 2023, while organic revenue increased 2%.

Organic revenue increased primarily due to higher demand for our capital equipment products and parts and consumable products at our wood processing businesses in North America where the U.S.

economy and housing market continued to demonstrate resiliency against inflationary pressures.

Additionally, demand increased for parts and consumable products in our stock-preparation business in Europe due to maintenance requirements at many of our customers.

This increase was largely offset by softening demand at our stock-preparation businesses in China as manufacturing activity has contracted and mills focus on installing and optimizing capital equipment purchased in prior periods.

Revenue at our Material Handling segment increased 19% in 2023 due to higher demand for our capital equipment products and, to a lesser extent, parts and consumables products at our conveying and vibratory business in North America.

This was due in large part to expansion projects related to the mining of minerals that led to increased demand for our conveying systems, including an expansion project for the longest conveying line in North America.

Revenue also increased, but to a lesser extent, at our baling business due to higher demand for our products as more industries focus on waste reduction and recycling.

Gross Profit Margin

Gross profit margin by segment in 2023 and 2022 is as follows:

2022 January 1,

Flow Control 52.0% 51.0%

Industrial Processing 39.2% 40.1%

Material Handling 34.4% 34.4%

Consolidated 43.1% 42.9%

Consolidated gross profit margin increased to 43.1% in 2022 compared with 42.9% in 2021.

The consolidated gross profit margin in 2021 included $4.3 million of amortization of acquired profit in inventory, which lowered gross profit margin by 0.5 percentage points and benefits received from government employee retention assistance programs of $0.9 million, which increased gross profit margin by 0.1 percentage points.

2023 December 31,

2022 Basis Point Change

Flow Control 51.8% 52.0% (20) bps

Industrial Processing 40.2% 39.2% 100 bps

Material Handling 35.7% 34.4% 130 bps

Consolidated 43.5% 43.1% 40 bps

Consolidated gross profit margin increased to 43.5% in 2023 compared with 43.1% in 2022 due to higher margins achieved on parts and consumable products, especially at our Material Handling segment.

In addition, higher margins achieved on our capital equipment products were offset by a lower proportion of parts and consumables revenue, which decreased to 62% in 2023 compared to 63% in 2022.

Within our operating segments, gross profit margin:

• Increased to 52.0% at our Flow Control segment from 51.0% in 2021 due to the inclusion of $3.1 million of amortization of acquired profit in inventory, which lowered gross profit margin in 2021 by 1.1 percentage points.

• Decreased to 39.2% from 40.1% at our Industrial Processing segment due to the impact of lower-margin capital equipment revenue at our wood processing businesses and the inclusion of $0.7 million of benefits received from government employee retention assistance programs, which increased gross profit margin in the 2021 period by 0.2 percentage points.

• Remained flat at 34.4% at our Material Handling segment.

The impact of the higher gross profit margin generated from our Balemaster business acquired in the third quarter of 2021 was offset by the inclusion of $1.2 million of amortization of acquired profit in inventory, which lowered gross profit margin by 0.7 percentage points in 2021.

• Decreased to 51.8% at our Flow Control segment from 52.0% in 2022 primarily due to higher margins achieved on our capital equipment products, offset by a decrease in margins for our parts and consumables products.

• Increased to 40.2% at our Industrial Processing segment from 39.2% in 2022 primarily due to higher margins achieved on our parts and consumable products and, to a lesser extent, an increase in the proportion of higher-margin stock-preparation parts and consumables revenue.

• Increased to 35.7% at our Material Handling segment from 34.4% in 2022 primarily due to higher margins achieved for our parts and consumables products, partially offset by a decrease in the proportion of higher-margin conveying and vibratory parts and consumables products revenue.

Selling, General, and Administrative Expenses

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(In thousands, except percentages) December 30,

2022 % of Revenue January 1,

2022 % of Revenue Increase % Change

2023 December 31,

2022 Increase % Change

Flow Control $ 87,427 $ 86,458 $ 969 1%

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Material Handling 43,008 40,067 2,941 7%

Corporate 35,995 N/A 32,680 N/A 3,315 10 %

Corporate 39,445 35,995 3,450 10%

Consolidated $ 236,264 $ 224,405 $ 11,859 5%

Consolidated SG&A expenses as a percentage of revenue decreased to 25% in 2022 from 27% in 2021 principally due to the increase in revenue.

Consolidated SG&A expenses increased $15.6 million primarily due to higher compensation expense associated with existing and new personnel and increased travel costs, which are gradually returning to pre-pandemic levels.

Consolidated SG&A expense also included increases from an incremental $11.3 million of SG&A expenses from acquisitio ns, the inclusion of $1.4 million of benefits received from government employee retention assistance programs in 2021, and $1.3 million from indemnification asset reversals related to the release of tax reserves.

These increases were offset by a $9.8 million favorable effect of foreign currency translation and a decrease of $3.6 million in acquisition-related costs.

Consolidated as a Percentage of Revenue

Consolidated SG&A expenses as a percentage of revenue was 25% in both 2023 and 2022.

Consolidated SG&A expenses increased $11.9 million, or 5%, in 2023 compared to 2022, which included a decrease of $1.2 million in indemnification asset reversals related to the release of tax reserves.

Excluding the decrease in indemnification asset reversals, consolidated SG&A expenses increased $13.1 million, or 6%, primarily due to annual wage increases, as well as incremental travel and consulting costs.

Within our operating segments, SG&A expenses:

• Increased $9.7 million at our Flow Control segment principally due to the inclusion of an incremental $7.8 million of SG&A expenses from Clouth, increased compensation expense and travel costs, indemnification asset reversals of $0.7 million related to the release of tax reserves, and the inclusion of benefits received from government employee retention assistance programs of $0.8 million in 2021.

These increases were partially offset by a $4.8 million favorable effect of foreign currency translation and a decrease of $2.6 million in incremental acquisition-related costs.

• Increased $1.1 million at our Industrial Processing segment due to increased compensation and selling-related costs, an indemnification asset reversal related to the release of tax reserves of $0.6 million, and the inclusion of benefits received from government employee retention assistance programs of $0.5 million in 2021.

These increases were partially offset by a $3.4 million favorable effect of foreign currency translation.

• Increased $1.5 million at our Material Handling segment principally due to the inclusion of an incremental $3.1 million of SG&A expenses from Balemaster, offset in part by a $1.6 million favorable effect of foreign currency translation.

• Increased $3.3 million at Corporate primarily due to increased compensation expense and travel costs.

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,

• Increased $1.0 million at our Flow Control segment primarily due to annual wage increases, incremental travel and trade show costs, and an unfavorable effect of foreign currency translation of $0.7 million.

These increases were partially offset by a decrease in bad debt expense, acquisition costs, and the inclusion of an indemnification asset reversal related to the release of tax reserves of $0.7 million in 2022.

• Increased $4.5 million at our Industrial Processing segment principally due to increased compensation expense associated with existing and new personnel, incremental travel and trade show costs, and $1.1 million of acquisition costs.

These increases were partially offset by a $1.0 million favorable effect of foreign currency translation and the inclusion of an indemnification asset reversal related to the release of tax reserves of $0.6 million in 2022.

• Increased $2.9 million at our Material Handling segment due to increased compensation expense associated with existing and new personnel and increased selling-related costs, partially offset by a decrease of $0.5 million in acquisition-related costs.

• Increased $3.5 million at Corporate due to annual wage increases and consulting costs.

Gain on Sale and Other Items, Net

The components of gain on sale and other items, net in 2023 and 2022 are as follows:

(In thousands) December 30, 2023 December 31, 2022

Gain on Sale of Assets $ — $ (20,190)

Impairment Costs 731 804

Other Income (841) —

Relocation Costs

Restructuring Costs

Impairment Costs

$ 723 $ (18,856)

Gain on Sale of Assets

We entered into several agreements with the local government in China to sell the existing manufacturing building and land use rights at one of our subsidiaries in China for $25.2 million and relocate to a new facility (China Transaction).

We entered into several agreements with the local government in China to sell our then existing manufacturing building and land use rights of one of our subsidiaries in China for $25.2 million 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, we recognized a gain on the China Transaction of $20.2 million, or $15.1 million, net of deferred taxes of $5.0 million, in the first quarter of 2022.

A receivable of $16.1 million was recognized for the present value of the remaining amount of the sale proceeds, which is due on 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 $15.2 million.

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

In 2021, gain on sale of assets included a gain of $0.5 million on the sale of a building within our Industrial Processing segment.

Impairment and Restructuring Costs

During 2022, we recorded impairment costs of $0.7 million within our Industrial Processing segment.

The impairment costs included $0.5 million primarily related to the write-down of inventory at our business in Russia and $0.2 million 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, we initiated a restructuring plan within our Flow Control segment to eliminate a redundant ceramic blade manufacturing operation that resulted from our 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 $0.4 million, of which $0.2 million were recorded in 2022 and $0.2 million in 2021, and facility and other closure costs totaled $0.4 million, all of which were recorded in 2022.

During 2021, we also recorded asset impairment charges related to this restructuring plan of $0.5 million for the write-down of an intangible asset, $0.2 million for the write-down of certain machinery and equipment, and $0.1 million for the write-down of a right-of-use asset.

We do not expect to incur additional restructuring charges related to this restructuring plan.

See Note 8 , Gain on Sale and Other Costs, Net in the accompanying consolidated financial statements for further details.

Our subsidiary, which is part of the Industrial Processing segment, relocated to its new facility during the third quarter of 2023.

See Note 8 , Gain on Sale and Other Items, Net in the accompanying consolidated financial statements for further details.

Other Income and Relocation Costs

In 2023, in connection with the China Transaction, we recognized income of $0.8 million from outsourcing the demolition and cleanup of the then existing manufacturing building in China and sale of the remaining fixed assets.

In addition, we incurred costs of $0.8 million related to the relocation of machinery and equipment and administrative offices to the new manufacturing facility.

Restructuring and Impairment Costs

2023 Restructuring Plans

• Restructuring and impairment costs of $0.4 million in 2023 within our Flow Control segment related to our restructuring plan to consolidate a small manufacturing operation into a larger facility in Germany.

Restructuring and impairment costs related to this plan consisted of severance costs for the termination of 10 employees, facility and other closure costs, and asset-write downs.

• Restructuring costs of $0.4 million in 2023 within our Flow Control segment related to the termination of a contract at one of our operations in Germany.

2021 Restructuring Plan

• Restructuring costs of $0.6 million in 2022 within our Flow Control segment related to our 2021 restructuring plan to eliminate a redundant ceramic blade manufacturing operation in France.

Restructuring costs related to this plan consisted of severance costs for the termination of five employees and facility and other closure costs.

Other Impairment Costs

• Impairment costs of $0.7 million in 2022 within our Industrial Processing segment consisted of $0.5 million primarily related to the write-down of inventory at our business in Russia and $0.2 million associated with the China Transaction related to the write-down of certain fixed assets that were not moved to the new manufacturing facility.

Interest Expense

Interest expense increased to $8.4 million in 2023 from $6.5 million in 2022 primarily due to a higher weighted-average interest rate, offset in part by lower average debt outstanding in 2023 compared with 2022.

We expect interest expense will increase significantly in 2024 as a result of the $230.0 million borrowed in January 2024 to fund our Key Knife and KWS acquisitions.

Provision for Income Taxes

Our provision for income taxes increased to $43.9 million in 2022 from $27.2 million in 2021.

The effective tax rate of 27% in 2022 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, and state taxes.

These increases in tax expense were offset in part by a decrease in tax related to the reversal of tax reserves associated with uncertain tax positions.

The effective tax rate of 24% in 2021 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, and state taxes.

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

Net income increased to $121.7 million in 2022 from $84.9 million in 2021 primarily due to a $54.6 million increase in operating income, offset in part by a $16.7 million increase in provision for income taxes (see discussions above for further details).

Our provision for income taxes decreased to $42.2 million in 2023 from $43.9 million in 2022.

The effective tax rate of 27% in both 2023 and 2022 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.

Net income decreased to $116.8 million in 2023 from $121.7 million in 2022 primarily due to a $5.5 million decrease in operating income and a $1.9 million increase in interest expense, offset in part by a $1.7 million decrease in provision for income taxes.

Net income in 2022 included a $15.1 million after-tax gain on the sale of a building related to the China Transaction (see discussions above for further details).

Non-GAAP Key Performance Indicators

In addition to the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including organic revenue (defined as revenue excluding the effect of foreign currency translation and acquisitions), adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin (defined as adjusted EBITDA divided by revenue), and free cash flow (defined as net cash provided by operating activities less capital expenditures).

adjusted EBITDA margin (defined as adjusted EBITDA divided by revenue), and free cash flow (defined as net cash provided by operating activities less capital expenditures).

We use organic revenue in order to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods (see discussion in Revenue above).

Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude impairment and restructuring costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and certain gains or losses.

Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude restructuring and impairment costs, acquisition costs, relocation costs, amortization expense related to acquired profit in inventory and backlog, and other income and expense, as indicated.

These items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs, expenditures or income, or none at all.

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We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

Our non-GAAP financial measures are not meant to be considered superior to or a substitute for the results of operations or cash flow prepared in accordance with GAAP.

In addition, our non-GAAP financial measures have limitations

associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Our non-GAAP financial measures are not meant to be considered superior to or a substitute for the results of operations or cash flows prepared in accordance with GAAP.

In addition, our non-GAAP financial measures have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin from net income attributable to Kadant is as follows:

(In thousands, except percentages) December 30,

2022 January 1,

2023 December 31,

2022 January 1,

5 unchanged sentences

Operating Income 165,757 171,282 116,710

Gain on Sale (a) (20,190) (515) —

Gain on Sale and Other Income (a)

(841) (20,190) (515)

Acquisition Costs 1,442 668 3,655

Indemnification Asset Reversals (b) 102 1,316 —

Impairment and Restructuring Costs 1,334 980 2,979

Relocation Costs

Restructuring and Impairment Costs

766 1,334 980

Acquired Backlog Amortization (c) — 703 1,326

9 unchanged sentences

(In thousands) December 30,

2022 January 1,

2023 December 31,

2022 January 1,

3 unchanged sentences

$ 133,695 $ 74,426 $ 149,649

(a) Includes a $20.2 million gain on the China Transaction in our Industrial Processing segment.

(a) Includes a $20.2 million gain in 2022 on the China Transaction in our Industrial Processing segment.

(b) Represents indemnification asset reversals related to the release of tax reserves associated with uncertain tax positions.

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(d) Represents (income) expense within cost of revenue associated with amortization of acquired profit in inventory.

(e) Includes capital expenditures of $10.4 million in 2022 associated with the China Transaction.

2021 Compared to 2020

A detailed discussion of the year-over-year results of operations for 2021 compared with 2020 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC.

(e) Includes capital expenditures of $7.4 million in 2023 and $10.4 million in 2022 associated with the China Transaction.

Liquidity and Capital Resources

Consolidated working capital was $201.9 million at December 31, 2022, compared with $162.4 million at January 1, 2022.

Cash and cash equivalents were $76.4 million at December 31, 2022, compared with $91.2 million at January 1, 2022, which included cash and cash equivalents held by our foreign subsidiaries of $75.8 million at December 31, 2022 and $83.8 million at January 1, 2022.

Consolidated working capital was $225.8 million at December 30, 2023, compared with $201.9 million at December 31, 2022.

Cash and cash equivalents were $103.8 million at December 30, 2023, compared with $76.4 million at December 31, 2022, which included cash and cash equivalents held by our foreign subsidiaries of $94.6 million at December 30, 2023 and $75.8 million at December 31, 2022.

Cash flow information is as follows:

(In thousands) December 30,

2022 January 1,

2023 December 31,

Net Cash Provided by Operating Activities $ 165,545 $ 102,625

Net Cash Used in Investing Activities (30,790) (29,520)

Net Cash (Used in) Provided by Financing Activities (80,569) 22,808

Net Cash Used in Financing Activities

(111,111) (80,569)

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash 3,084 (6,972)

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

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

$ 26,728 $ (14,436)

Operating Activities

Cash provided by operating activities decreased to $102.6 million in 2022 from $162.4 million in 2021 due to the timing of investments in working capital.

Cash provided by operating activities increased to $165.5 million in 2023 from $102.6 million in 2022 primarily due to a reduction in cash used for working capital.

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

Cash provided by operating activities in 2022 was due to cash provided by net income, offset in part by investments in working capital.

Increases in inventories and accounts receivable used cash of $54.6 million, including $36.1 million for inventory primarily related to capital equipment orders that will ship in 2023.

These uses of cash were offset in part by $14.4 million of cash provided by customer deposits.

Cash provided by operating activities in 2021 was due to cash provided by net income and working capital.

Cash provided by working capital in 2021 included $54.0 million from customer deposits and accounts payable, reflecting the impact of increased capital equipment order activity, and $19.5 million from other liabilities, which included a $6.2 million deposit received for the anticipated sale of a building in connection with the China Transaction, and an increase in our accrued incentive compensation, advance billings, and accrued income taxes resulting from our improved financial performance.

These sources of cash were offset in part by cash used of $27.9 million for accounts receivable and inventories as a result of revenue growth and to support increased demand, and $15.0 million for other assets due in part to prepayments for raw materials and a land use right operating lease related to the relocation of our existing facility in China.

During 2023, significant cash inflows associated with working capital related to inventory, other liabilities and unbilled revenue.

Shipments of inventory provided cash of $14.1 million and increases in other liabilities provided cash of $9.2 million due to the timing of payments to subcontractors and outside vendors.

In addition, a reduction in unbilled revenue provided cash of $6.5 million.

These sources of cash were offset in part by $28.9 million of cash outflows associated with accounts payable and customer deposits primarily due to the timing of payments.

During 2022, significant cash outflows associated with working capital related to inventory and accounts receivable.

Increases in inventories and accounts receivable used cash of $54.6 million, including $36.1 million for inventory primarily related to capital equipment orders that shipped in 2023.

These uses of cash were offset in part by $14.4 million of cash received from customer deposits.

Investing Activities

Cash used in investing activities was $30.8 million in 2023 compared to $29.5 million in 2022.

Cash used in investing activities in 2022 included capital expenditures of $28.2 million, which included $10.4 million for expenditures associated with the construction of a new manufacturing facility in China, and $3.5 million for acquisitions.

This use of cash was partially offset by proceeds received from the sale of assets of $2.1 million in 2022.

Cash used in investing activities in 2021 included $144.0 million for acquisitions and $12.8 million for capital expenditures.

Capital expenditures were $31.9 million in 2023 and $28.2 million in 2022, including capital expenditures associated with the China Transaction of $7.4 million in 2023 and $10.4 million in 2022.

Financing Activities

Cash used in financing activities was $80.6 million in 2022, compared with cash provided by financing activities of $22.8 million in 2021.

In 2022, we had net debt repayments of $63.4 million, which consisted of repayments of short- and long-term obligations of $85.5 million, partially offset by short- and long-term borrowings of $22.1 million, primarily under our revolving credit facility.

In 2021, we had net borrowings of $36.3 million, which consisted of borrowings under our revolving credit facility of $151.9 million, including $140.3 million used to fund acquisitions, partially offset by repayments of short- and long-term obligations of $115.6 million.

In addition, we made payments of cash dividends to stockholders of $12.0 million in 2022 and $11.5 million in 2021.

Cash used in financing activities was $111.1 million in 2023 compared to $80.6 million in 2022.

Repayments of short- and long-term obligations were $94.0 million in 2023 compared to repayments of short- and long-term obligations of $85.5 million, partially offset by borrowings under our revolving credit facility of $22.1 million in 2022.

Cash dividends paid to stockholders were $13.2 million in 2023 and $12.0 million in 2022.

In addition, taxes paid related to the vesting of equity awards were $3.9 million in 2023 compared to $4.6 million in 2022.

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

T he exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiari es.

Th e $7.0 million reduction in cash, cash equivalents and restricted cash in 2022 was primarily attributable to the strengthening of the U.S.

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

The $3.1 million increase in cash, cash equivalents, and restricted cash in 2023 related to exchange rates was primarily attributable to the weakening of the U.S.

dollar against the euro, the Canadian dollar, and Mexican peso.

The $7.0 million reduction in cash, cash equivalents and restricted cash in 2022 related to exchange rates was primarily attributable to the strengthening of the U.S.

dollar against the Chinese renminbi, euro, and British pound sterling.

The $3.2 million reduction i n cash, cash equivalents and restricted cash in 2021 was primarily attributable to the strengthening of the U.S.

dollar against the euro and Swedish krona, offset in part by the weakening of the U.S.

dollar against the Chinese renminbi.

Borrowing Capacity and Debt Obligations

On November 30, 2022, we entered into a sixth amendment to our 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 our uncommitted, unsecured incremental borrowing facility from $150 million to $200 million.

Among other things, this amendment extended the maturity date to November 30, 2027, and increased our uncommitted, unsecured incremental borrowing facility from $150.0 million to $200.0 million.

We have a total borrowing capacity of $400.0 million under our Credit Agreement.

At year-end 2022, we had $214.1 million of borrowing capacity available under our Credit Agreement, in addition to the $200 million uncommitted, unsecured incremental borrowing facility.

As of December 30, 2023, we had $301.1 million of borrowing capacity available under our Credit Agreement, in addition to the $200.0 million uncommitted, unsecured incremental borrowing facility.

Under our debt agreements, our leverage ratio must be less than 3.75 or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than 4.25.

As of December 31, 2022, our leverage ratio was 0.74 and we were in compliance with our debt covenan ts.

As of December 30, 2023, our leverage ratio was 0.27 and we were in compliance with our debt covenants.

See Note 6 , Short- and Long-Term Obligations, in the accompanying consolidated financial statements for additional information regarding our debt obligations.

In January 2024, we borrowed $230.0 million under our revolving credit facility to fund the acquisitions of Key Knife and KWS.

Borrowings under our revolving credit facility bear variable rates of interest and adjust frequently based on prevailing market rates and the terms of our Credit Agreement.

The weighted average interest related to this debt was 6.45% at the time of borrowing.

Following these acquisitions, we had borrowing capacity of $71.1 million under our Credit Agreement, in addition to the $200.0 million uncommitted, unsecured incremental borrowing facility.

See Note 6 , Short-and Long-term Obligations, and Note 15 , Subsequent Events, in the accompanying consolidated financial statements for additional information.

Additional Liquidity and Capital Resources

In addition to the obligations on our consolidated balance sheet at December 30, 2023, which include, but are not limited to, short- and long-term obligations ( Note 6 ), unrecognized tax benefits ( Note 5 ), and leases ( Note 9 ), we have outstanding letters of credit and bank guarantees of $23.4 million at December 30, 2023, primarily relating to performance obligations and customer deposit guarantees ( Note 7 ).

On May 18, 2023, our board of directors approved the repurchase of up to $50.0 million of our equity securities during the period from May 18, 2023 to May 18, 2024.

We have not repurchased any shares of our common stock under this authorization or our previous $20 million authorization, which expired on May 20, 2022.

We have not repurchased any shares of our common stock under this authorization or under our previous $50.0 million authorization that expired on May 19, 2023.

We paid cash dividends of $13.2 million in 2023.

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The declaration of cash dividends is also subject to our compliance with the covenant in our Credit Agreement related to our consolidated leverage ratio.

We plan to make capital expenditures of approximately $32 to $34 million during 2023 for property, plant, and equipment, including $8 to $9 million for a new manufacturing facility in China.

One of our Chinese subsidiaries entered into several agreements with the Chinese government in the first quarter of 2022 to sell its existing facility but will continue to occupy it until construction of a new facility is completed, which is expected in 2023.

Capital expenditures for the new facility are approximately $19 million, including $10.4 million paid in 2022 and $8.6 million to be paid in 2023.

These expenditures will be offset by the proceeds received from the sale of our existing facility, the remainder of which is due the earlier of when the government sells the property or the first quarter of 2024.

Capital expenditures for 2023 also include a facility expansion project of $5 million related to our wood processing product line.

We plan to make capital expenditures of approximately $29.0 to $31.0 million during 2024 for property, plant, and equipment, including $2.0 million related to final payments for the China Transaction.

As of December 30, 2023, we had approximately $285.0 million of total unremitted foreign earnings.

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We believe that our existing cash and cash equivalents, along with cash generated from operations, our existing borrowing capacity, and continued access to debt markets, will be sufficient to meet the capital requirements of our operations for the next 12 months and the foreseeable future.

Material Contractual Obligations

The following table summarizes our material contractual obligations as of December 31, 2022 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods.

Detailed information concerning these obligations can be found in Note 6 - Short- and Long-Term Obligations, Note 7 - Commitments and Contingencies, and Note 9 - Leases in the accompanying consolidated financial statements.

(In millions) Less than 1 Year 1-3 Years 3-5 Years After 5 Years Total

Debt Obligations:

Principal payments $ 2.8 $ 4.5 $ 190.2 $ 1.7 $ 199.2

Interest payments (a) 8.6 16.9 15.8 0.1 41.4

Operating and Finance Lease Obligations 6.3 8.3 4.3 9.3 28.2

Letters of Credit and Bank Guarantees 27.5 4.6 0.4 — 32.5

Total $ 45.2 $ 34.3 $ 210.7 $ 11.1 $ 301.3

(a) Includes interest expense on both variable and fixed rate debt assuming no prepayments.

Variable interest rates have been assumed to remain constant through the end of the term at the rates that existed as of year-end 2022.

Application of Critical Accounting Estimates

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

The preparation of these consolidated financial

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

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

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

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tax authorities, as well as to tax agreements and treaties among these governments.

Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits.

Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and

assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits.

Changes in tax laws, regulations, agreements and treaties, currency-exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and our results of operations.

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As part of this evaluation, we consider our 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.

At year-end 2022, we continued to maintain a valuation allowance in the United States against certain of our state operating loss carryforwards due to the uncertainty of future profitability in these state jurisdictions in the United States, and we maintained valuation allowances in certain foreign jurisdictions because of the uncertainty of future profitability.

At year-end 2023, we maintained a valuation allowance against a portion of our state operating loss carryforwards in the United States and a valuation allowance in certain foreign jurisdictions due to the uncertainty of future profitability in the state and those foreign jurisdictions.

Our tax valuation allowance was $7.8 million at year-end 2023.

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To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period may be affected.

We intend to repatriate the distributable reserves of select foreign subsidiaries back to the United States and, during 2022, we recorded $0.8 million of net tax expense associated with these foreign earnings that we plan to repatriate in 2023.

We intend to repatriate the distributable reserves of select foreign subsidiaries back to the United States and, during 2023, we recorded $0.7 million of tax expense associated with these foreign earnings that we plan to repatriate in 2024.

Except for these select foreign subsidiaries, we intend to reinvest indefinitely the earnings of our international subsidiaries in order to support the current and future capital needs of their operations, including the repayment of our foreign debt.

In December 2021, the OECD released the Pillar Two Rules.

Since the release of the Pillar Two Rules, the OECD has issued three tranches of administrative guidance, as well as guidance on transitional safe harbor relief.

Various countries, including the member states of the European Union, have adopted Pillar Two Rules into their domestic laws, with certain rules coming into effect for fiscal years beginning in 2024.

Some countries are in the process of drafting legislation for adoption in future years.

While the Pillar Two Rules serve as a framework for implementing the minimum tax, countries may enact domestic laws that vary slightly from the Pillar Two Rules and may also adjust domestic tax incentives to align with the Pillar Two Rules on different timelines.

We are monitoring developments of the Pillar Two Rules and are evaluating the potential impact they may have on the jurisdictions in which we operate.

Revenue Recognition

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The remaining portion of our revenue is recognized on an over time basis using an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation.

Most revenue recognized on an over time basis is for large capital products that are highly customized for the customer and, as a result, would include significant cost to rework in the

event of cancellation.

Most revenue recognized on an over time basis is for large capital products that are highly customized for the customer and, as a result, would include significant cost to rework in the event of cancellation.

The over time basis of accounting requires significant judgment in determining applicable contract costs and the corresponding revenue to be recognized, which could be different if there were to be changes to the circumstances of the contract.

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Valuation of Goodwill and Intangible Assets

We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination, including the determination of the fair value of intangible assets acquired, which represents a significant portion of the purchase price in many of our acquisitions.

of the purchase price in many of our acquisitions.

We estimate the fair value of intangible assets primarily based on projections of discounted cash flows which we expect to arise from identifiable intangible assets of acquired businesses.

The determination of the allocation of the purchase price for the fair value of intangible assets acquired requires significant judgment as does the determination as to whether such intangibles are amortizable or non-amortizable and, if amortizable, the amortization period of the intangible asset.

We evaluate the recoverability of goodwill and indefinite-lived intangible assets as of the end of each fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired.

Beginning in 2023, we evaluate the recoverability of goodwill and indefinite-lived intangible assets as of the first day of our fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired.

Prior to 2023, this evaluation was performed as of the end of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired.

Potential impairment indicators include a significant decline in sales, earnings, or cash flows, material adverse changes in the business climate, and a significant decline in the market capitalization due to a sustained decrease in our stock price.

We are permitted to first assess qualitative factors to determine whether the quantitative impairment test is necessary.

If the qualitative impairment analysis (Step 0) results in a determination that the fair value of a reporting unit or an indefinite lived intangible asset is more likely than not less than its carrying amount, we perform a quantitative impairment analysis (Step 1).

We may bypass the qualitative assessment and proceed directly to the quantitative assessment.

Estimates of discounted future cash flows arising from intangible assets acquired require assumptions related to revenue and operating income growth rates, discount rates, and other factors.

Different assumptions from those made in our analysis could materially affect projected cash flows and our evaluation of goodwill and indefinite-lived intangible assets for impairment.

At year-end 2022 and 2021, we performed a qualitative impairment analysis (Step 0) for our reporting units.

At October 1, 2023 (the first day of the fourth quarter of 2023), we performed a quantitative impairment analysis on our goodwill and indefinite-lived intangible assets.

Based on these analyses, we determined goodwill and indefinite-lived intangible assets were not impaired.

Goodwill totaled $384.3 million and indefinite-lived intangible assets totaled $28.2 million at October 1, 2023.

At year-end 2023, no factors were identified that would alter the conclusions of our October 1, 2023 analysis.

Goodwill totaled $392.1 million and indefinite-lived intangible assets totaled $28.6 million at year-end 2023.

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Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset.

No indicators of impairment were identified in 2022 and 2021, except for impairment charges of $0.5 million in 2021 related to the closure of a business in our Flow Control Segment.

No indicators of impairment were identified in 2023 and 2022.

Definite-lived intangible assets were $130.7 million at year-end 2023.

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Any future impairment charges could have a material adverse effect on our results of operations in the period in which an impairment is determined to exist.

See Note 1 , Nature of Operations and Summary of Significant Accounting Policies, under the heading Impairment of Long-Lived Assets , in the accompanying consolidated financial statements for further details regarding impairment costs recorded.

We value our inventory at the lower of the actual cost (on a first-in, first-out;

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Recent Accounting Pronouncements

See Note 1 , Nature of Operations and Summary of Significant Accounting Policies, under the heading Recently Adopted Accounting Pronouncements , in the accompanying consolidated financial statements for further details.

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

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 7. Management’s Discussion and Analysis