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Item 1. Financial Statements

2024-05-08 compared with 2023-11-08 · 281 added, 259 removed, 413 unchanged (57% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheet

September 30,

2024 December 30,

12 unchanged sentences

Other Assets 50,095 43,609

Intangible Assets, Net 161,034 175,645

Goodwill 384,317 385,455

Intangible Assets, Net (Notes 1 and 2)

273,831 159,286

Goodwill (Notes 1 and 2)

459,917 392,084

Total Assets $ 1,409,426 $ 1,175,665

1 unchanged sentence

Current Liabilities:

Short-term obligations and current maturities of long-term obligations (Note 5) $ 3,116 $ 3,821

Current maturities of long-term obligations (Note 6 )

$ 3,243 $ 3,209

Accounts payable 55,587 42,104

5 unchanged sentences

Long-Term Obligations (Note 6 )

306,773 107,666

Long-Term Deferred Income Taxes 40,972 36,398

10 unchanged sentences

Accumulated other comprehensive items (Note 8 )

( 53,173 ) ( 43,062 )

Total Kadant Stockholders' Equity 782,687 773,702

Noncontrolling interest 2,265 1,722

Noncontrolling interests (Note 2)

Total Stockholders' Equity 794,768 776,240

2 unchanged sentences

Condensed Consolidated Statement of Income

Three Months Ended Nine Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Three Months Ended

2024 April 1,

(In thousands, except per share amounts)

Revenue (Notes 1 and 1 1 )

$ 248,975 $ 229,758

Costs and Operating Expenses:

2 unchanged sentences

Research and development expenses 3,730 3,370

Gain on sale and other costs, net (Note 2) 969 72 1,043 ( 19,936 )

212,048 189,644

6 unchanged sentences

Net Income 24,985 28,259

Net Income Attributable to Noncontrolling Interest ( 175 ) ( 184 ) ( 571 ) ( 672 )

Net Income Attributable to Noncontrolling Interests

( 296 ) ( 184 )

Net Income Attributable to Kadant $ 24,689 $ 28,075

7 unchanged sentences

Condensed Consolidated Statement of Comprehensive Income

Three Months Ended Nine Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Three Months Ended

2024 April 1,

(In thousands)

3 unchanged sentences

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

5 24 ( 3 ) 64

Deferred (loss) gain on cash flow hedges (net of tax of $( 3 ), $ 27 , $( 35 ) and $ 141 )

( 9 ) 83 ( 107 ) 506

Deferred gain (loss) on cash flow hedges (net of tax of $ 13 and $( 14 ))

Other comprehensive items ( 10,183 ) 5,528

Comprehensive Income 14,802 33,787

Comprehensive Income Attributable to Noncontrolling Interest ( 111 ) ( 73 ) ( 543 ) ( 405 )

Comprehensive Income Attributable to Noncontrolling Interests

( 224 ) ( 219 )

Comprehensive Income Attributable to Kadant $ 14,578 $ 33,568

1 unchanged sentence

Condensed Consolidated Statement of Cash Flows

Nine Months Ended

September 30,

2023 October 1,

Three Months Ended

2024 April 1,

(In thousands)

1 unchanged sentence

Net income attributable to Kadant $ 24,689 $ 28,075

Net income attributable to noncontrolling interest 571 672

Net income attributable to noncontrolling interests

Net income 24,985 28,259

2 unchanged sentences

Stock-based compensation expense 2,415 2,238

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

Provision for losses on accounts receivable

Other items, net 803 829

9 unchanged sentences

Investing Activities

Acquisitions, net of cash acquired 277 138

Acquisitions, net of cash acquired (Note 2)

( 232,261 ) —

Purchases of property, plant, and equipment ( 6,271 ) ( 4,469 )

3 unchanged sentences

Financing Activities

Proceeds from issuance of short- and long-term obligations — 21,554

Proceeds from issuance of long-term obligations (Note 6)

Repayment of short- and long-term obligations ( 33,450 ) ( 20,761 )

1 unchanged sentence

Dividends paid ( 3,395 ) ( 3,036 )

Dividend paid to noncontrolling interest — ( 630 )

Proceeds from issuance of Company common stock

Other financing activities — ( 63 )

Net cash used in financing activities ( 85,671 ) ( 62,112 )

Net cash provided by (used in) financing activities

192,905 ( 27,757 )

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash ( 2,308 ) 1,140

Decrease in Cash, Cash Equivalents, and Restricted Cash ( 672 ) ( 19,047 )

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

( 23,835 ) 5,782

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 106,453 79,725

4 unchanged sentences

Condensed Consolidated Statement of Stockholders' Equity

Three Months Ended September 30, 2023

Three Months Ended March 30, 2024

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

2 unchanged sentences

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Comprehensive Items Noncontrolling Interests

Stockholders' Equity

Shares Amount Shares Amount

Balance at July 1, 2023

Balance at December 30, 2023

14,624,159 $ 146 $ 124,940 $ 763,131 2,915,978 $ ( 71,453 ) $ ( 43,062 ) $ 2,538 $ 776,240

3 unchanged sentences

Activity under stock plans — — ( 2,687 ) — ( 34,765 ) 852 — — ( 1,835 )

Other comprehensive items — — — — — — ( 9,044 ) ( 64 ) ( 9,108 )

Balance at September 30, 2023 14,624,159 $ 146 $ 122,444 $ 739,133 2,917,063 $ ( 71,480 ) $ ( 58,591 ) $ 2,265 $ 733,917

Nine Months Ended September 30, 2023

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

Stock Capital in

Excess of Par Value Retained Earnings Treasury

Stock Accumulated

Comprehensive Items Noncontrolling Interest Total

Stockholders' Equity

Shares Amount Shares Amount

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

Net income — — — 88,673 — — — 571 89,244

Dividends declared – Common Stock, $ 0.87 per share

Noncontrolling interests acquired ( Note 2 )

— — — — — — — 9,319 9,319

Activity under stock plans — — 2,520 — ( 32,934 ) 807 — — 3,327

Other comprehensive items — — — — — — ( 10,111 ) ( 72 ) ( 10,183 )

Balance at September 30, 2023 14,624,159 $ 146 $ 122,444 $ 739,133 2,917,063 $ ( 71,480 ) $ ( 58,591 ) $ 2,265 $ 733,917

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

Condensed Consolidated Statement of Stockholders' Equity (continued)

Three Months Ended October 1, 2022

Balance at March 30, 2024 14,624,159 $ 146 $ 122,253 $ 784,062 2,881,213 $ ( 70,601 ) $ ( 53,173 ) $ 12,081 $ 794,768

Three Months Ended April 1, 2023

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

5 unchanged sentences

Shares Amount Shares Amount

Balance at July 2, 2022

Balance at December 31, 2022

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

3 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

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

Net income — — — 94,849 — — — 672 95,521

Dividends declared – Common Stock, $ 0.78 per share

— — — ( 9,096 ) — — — — ( 9,096 )

Activity under stock plans — — 919 — ( 42,861 ) 1,050 — — 1,969

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

Other comprehensive items — — — — — — ( 43,609 ) ( 267 ) ( 43,876 )

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

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

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 September 30, 2023, its results of operations, comprehensive income, and stockholders' equity for the three- and nine-month periods ended September 30, 2023 and October 1, 2022 and its cash flows for the nine-month periods ended September 30, 2023 and October 1, 2022.

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 March 30, 2024, its results of operations, comprehensive income, cash flows, and stockholders' equity for the three-month periods ended March 30, 2024 and April 1, 2023.

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

7 unchanged sentences

Note 1 to the consolidated financial statements in the 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 September 30, 2023.

There have been no material changes in the Company’s significant accounting policies during the quarter ended March 30, 2024.

Supplemental Cash Flow Information

Nine Months Ended

(In thousands) September 30,

2023 October 1,

Three Months Ended

(In thousands) March 30,

2024 April 1,

Cash Paid for Interest $ 4,484 $ 2,161

1 unchanged sentence

Non-Cash Investing Activities:

Reduction in fair value of assets acquired $ ( 270 ) $ ( 1,768 )

Cash received for acquired businesses

Increase (decrease) in liabilities assumed $ 7 $ ( 1,630 )

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

Fair value of assets acquired

$ 266,061 $ —

Cash paid for businesses acquired

( 238,306 ) —

Liabilities assumed and noncontrolling interests acquired

Purchases of property, plant, and equipment in accounts payable $ 1,342 $ 299

Notes to Condensed Consolidated Financial Statements

Nine Months Ended

(In thousands) September 30,

2023 October 1,

Three Months Ended

(In thousands) March 30,

2024 April 1,

Non-Cash Financing Activities:

3 unchanged sentences

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) September 30,

2023 October 1,

The majority of these restrictions will expire over the next twelve months .

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

(In thousands) March 30,

2024 April 1,

2023 December 30,

2022 January 1,

2023 December 31,

Cash and cash equivalents $ 81,440 $ 81,183 $ 103,832 $ 76,371

2 unchanged sentences

The components of inventories are as follows:

September 30,

2024 December 30,

2 unchanged sentences

Work in Process 41,180 32,147

Finished Goods 54,816 54,020

Finished Goods (includes $ 3,581 and $ 5,182 at customer locations)

60,083 53,792

$ 171,958 $ 152,677

Intangible Assets, Net

Gross intangible assets were $ 342,742,000 at September 30, 2023 and $ 343,130,000 at December 31, 2022.

Acquired intangible assets by major asset class are as follows:

(In thousands) Gross Accumulated

Amortization Currency

Translation Net

March 30, 2024

Definite-Lived

Customer relationships $ 318,271 $ ( 113,072 ) $ ( 6,733 ) $ 198,466

Product technology 82,276 ( 45,051 ) ( 2,632 ) 34,593

Tradenames 14,489 ( 4,441 ) ( 419 ) 9,629

Other 22,020 ( 18,589 ) ( 616 ) 2,815

437,056 ( 181,153 ) ( 10,400 ) 245,503

Indefinite-Lived

Tradenames 29,059 — ( 731 ) 28,328

Acquired Intangible Assets $ 466,115 $ ( 181,153 ) $ ( 11,131 ) $ 273,831

Notes to Condensed Consolidated Financial Statements

(In thousands) Gross Accumulated

Amortization Currency

Translation Net

December 30, 2023

Definite-Lived

Customer relationships $ 218,959 $ ( 108,519 ) $ ( 5,562 ) $ 104,878

Product technology 67,576 ( 43,786 ) ( 2,367 ) 21,423

Tradenames 7,039 ( 4,262 ) ( 388 ) 2,389

Other 20,320 ( 17,715 ) ( 604 ) 2,001

313,894 ( 174,282 ) ( 8,921 ) 130,691

Indefinite-Lived

Tradenames 29,059 — ( 464 ) 28,595

Acquired Intangible Assets $ 342,953 $ ( 174,282 ) $ ( 9,385 ) $ 159,286

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 $ 169,804,000 at September 30, 2023 and $ 155,834,000 at December 31, 2022.

Notes to Condensed Consolidated Financial Statements

Intangible assets associated with the Company's 2024 acquisitions totaled $ 123,150,000 , which primarily related to customer relationships and product technology.

See Note 2 , Acquisitions, for further details.

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

5 unchanged sentences

2024 Activity

Acquisition adjustments — — 4 4

Acquisitions (Note 2)

— 34,058 38,468 72,526

Fair value adjustment — ( 22 ) — ( 22 )

Currency translation ( 1,792 ) ( 1,911 ) ( 968 ) ( 4,671 )

Total 2024 activity ( 1,792 ) 32,125 37,500 67,833

Balance at September 30, 2023

Balance at March 30, 2024

Gross balance 118,990 244,857 181,608 545,455

7 unchanged sentences

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

Nine Months Ended

(In thousands) September 30,

2023 October 1,

Notes to Condensed Consolidated Financial Statements

Three Months Ended

(In thousands) March 30,

2024 April 1,

Balance at Beginning of Year $ 8,154 $ 7,283

1 unchanged sentence

Usage ( 724 ) ( 1,068 )

Acquisitions 475 —

Currency translation ( 150 ) 87

6 unchanged sentences

These projects are highly customized for the customer and, as a result, would include a significant cost to rework in the event of cancellation.

Notes to Condensed Consolidated Financial Statements

The following table presents revenue by revenue recognition method:

Three Months Ended Nine Months Ended

September 30, October 1, September 30, October 1,

Three Months Ended

March 30, April 1,

(In thousands) 2024 2023

4 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30, October 1, September 30, October 1,

Three Months Ended

March 30, April 1,

(In thousands) 2024 2023

10 unchanged sentences

See Note 1 1 , Business Segment Information, for information on the disaggregation of revenue by reportable operating segment.

Notes to Condensed Consolidated Financial Statements

The following table presents contract balances from contracts with customers:

September 30,

2024 December 30,

8 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 $ 9,613,000 in the third quarter of 2023 and $ 11,912,000 in the third quarter of 2022, and $ 56,841,000 in the first nine months of 2023 and $ 59,813,000 in the first nine months of 2022 that was included in the contract liabilities balance at the beginning of 2023 and 2022, respectively.

The Company recognized revenue of $ 33,666,000 in the first quarter of 2024 and $ 27,016,000 in the first quarter of 2023 that was included in the contract liabilities balance at the beginning of 2024 and 2023, respectively.

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

Certain capital equipment contracts require longer 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 was $ 47,568,000 as of September 30, 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 third quarter of 2024.

Notes to Condensed Consolidated Financial Statements

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 88 % of which is expected to occur within the next twelve months and the remaining 12 % thereafter.

Banker's Acceptance Drafts Included in Accounts Receivable

2 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 $ 8,558,000 at September 30, 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.

These drafts, which totaled $ 6,723,000 at March 30, 2024 and $ 10,826,000 at December 30, 2023, 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.

In accordance with Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740), the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which these differences are expected to reverse.

A tax valuation allowance is established, as needed, to reduce deferred tax assets to the amount expected to be realized.

In the period in which it becomes more likely than not that some or all of the deferred tax assets will be realized, the valuation allowance will be adjusted.

It is the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

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

At March 30, 2024, the Company believes that it has appropriately accounted for any liability for unrecognized tax benefits.

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

In December 2021, the Organisation for Economic Co-operation and Development (OECD) released model rules introducing a new 15% global minimum tax for large multinational enterprises with an annual global revenue exceeding 750,000,000 euros (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 the 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

Notes to Condensed Consolidated Financial Statements

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.

The Company is monitoring developments of the Pillar Two Rules and is evaluating the potential impact they may have on the jurisdictions in which it operates.

Recent Accounting Pronouncements Not Yet Adopted

7 unchanged sentences

The impact of the adoption of this ASU on the Company's consolidated financial statements will be dependent upon joint ventures formed in future periods.

Gain on Sale and Other Costs, Net

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

Three Months Ended Nine Months Ended

September 30, October 1, September 30, October 1,

(In thousands) 2023 2022 2023 2022

Gain on Sale of Assets

$ — $ — $ — $ ( 20,190 )

Relocation Costs

Restructuring Costs 398 72 398 72

Impairment Costs 36 — 36 182

$ 969 $ 72 $ 1,043 $ ( 19,936 )

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 $ 25,159,000 and relocate to a new facility (China Transaction).

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

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

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

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

Segment Reporting - Improving Reportable Segment Disclosures (Topic 280).

In November 2023, the FASB issued ASU No.

2023-07, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses.

Under this ASU, a company is required to enhance its segment disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources.

This ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods.

This ASU is effective for the Company's fiscal year ending December 28, 2024, and interim periods beginning in fiscal 2025, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements.

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

Income Taxes - Improvements to Income Tax Disclosures (Topic 740) .

In December 2023, the FASB issued ASU No.

2023-09, to improve income tax disclosure requirements, primarily through enhanced disclosures related to the income tax rate reconciliation and income taxes paid.

This ASU is effective for fiscal 2025, with early adoption permitted, and may be applied retrospectively.

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

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

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

Acquisition costs were $ 1,124,000 in the first quarter of 2024 and are included in selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income.

The Company expects several synergies in connection with the acquisitions described below, including expansion of product sales into new markets by leveraging its global sales network and relationships, broadening its product portfolio, and strengthening its position in the wood processing and material handling markets.

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

Key Knife, Inc.

On January 1, 2024, the Company acquired Key Knife Inc.

and certain of its affiliates (collectively, Key Knife) pursuant to a securities purchase agreement dated December 22, 2023, for $ 153,386,000 , net of cash acquired.

The Company paid $ 156,925,000 at closing and $ 2,372,000 as a post-closing adjustment in the second quarter of 2024.

Key Knife is a global supplier of engineered knife systems for custom chipping, planing, and flaking solutions for wood products industries, with revenue of approximately $ 65,000,000 for the twelve months ended September 30, 2023, and is part of the Company's Industrial Processing segment.

Goodwill from the Key Knife acquisition was $ 34,058,000 , of which $ 27,682,000 is expected to be deductible for tax purposes over 15 years.

In addition, intangible assets acquired were $ 94,550,000 , of which $ 79,600,000 is expected to be deductible for tax purposes over 15 years.

As part of the acquisition, the Company acquired a 45 % interest in two of Key Knife's subsidiaries, increasing its noncontrolling interest liability by $ 9,319,000 based on the income valuation approach.

Under a put and purchase option as outlined in the securities purchase agreement, the seller can demand the Company purchase, or the Company can demand that the seller sell to the Company, the remaining interest in these subsidiaries at any time after December 31, 2027.

The purchase price would be based on a total enterprise value as defined in the original purchase agreement.

Notes to Condensed Consolidated Financial Statements

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

KWS Manufacturing Company, Ltd.

On January 24, 2024, the Company acquired all of the outstanding equity securities of KWS Manufacturing Company, Ltd.

(KWS) for $ 81,247,000 , subject to a post-closing adjustment.

The Company paid $ 81,009,000 at closing and assumed a $ 238,000 overdraft.

KWS is a leading manufacturer of conveying equipment for the bulk material handling industry, with revenue of approximately $ 45,000,000 for the twelve months ended September 30, 2023, and is part of the Company's Material Handling segment.

Goodwill from the KWS acquisition was $ 38,468,000 and intangibles assets were $ 28,600,000 , both of which are expected to be fully deductible for tax purposes over 15 years.

Purchase Price Allocation

The following table summarizes the aggregate estimated fair values of the net assets and noncontrolling interests acquired and purchase price for the Key Knife and KWS acquisitions:

(In thousands) Total

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 411

Currency translation ( 794 )

Balance at September 30, 2023 (included in other current assets)

Relocation Costs

As part of the China Transaction, the Company incurred costs of $ 535,000 in the third quarter of 2023 and $ 609,000 in the first nine months of 2023 related to the relocation of machinery and equipment and administrative offices to the new manufacturing facility.

Restructuring and Impairment Costs

The Company initiated restructuring plans within its Flow Control segment as follows:

• During the third quarter of 2023, the Company initiated a restructuring plan to consolidate a small manufacturing operation into a larger facility in Germany (2023 Restructuring Plan).

The Company recorded total restructuring and impairment charges of $ 434,000 in the third quarter of 2023 and first nine months of 2023, which consisted of severance costs of $ 369,000 for the termination of 10 employees, asset-write downs of $ 36,000 , and facility and other closure costs of $ 29,000 .

• During the fourth quarter of 2021, the Company initiated a restructuring plan to eliminate a redundant ceramic blade manufacturing operation in France (2021 Restructuring Plan).

The Company recorded additional restructuring costs of $ 72,000 in the third quarter and first nine months of 2022 related to this plan, which consisted of severance costs for the termination of two employees.

A summary of the changes in accrued restructuring costs included in other current liabilities in the accompanying condensed consolidated balance sheet, which are expected to be paid in the fourth quarter of 2023 and early 2024, are as follows:

(In thousands)

Severance Costs Facility and Other Closure Costs Total

2021 Restructuring Plan

Cash and Cash Equivalents $ 5,673

Accounts Receivable 10,021

Inventories 15,156

Other Current Assets 1,132

Property, Plant, and Equipment 33,648

Other Assets 4,755

Definite-Lived Intangible Assets

Customer relationships 99,300

Product technology 14,700

Tradenames 7,450

Acquired backlog

Goodwill 72,526

Total assets acquired 266,061

Accounts Payable 2,263

Customer Deposits

Other Current Liabilities 4,470

Long-Term Deferred Income Taxes 4,292

Other Long-Term Liabilities

Total liabilities assumed 18,436

Noncontrolling interests acquired

Net assets and noncontrolling interests acquired

Purchase Price:

Cash Paid at Closing

Post-closing Adjustments

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

For the quarter ended March 30, 2024, the acquisitions had aggregate revenue of $ 24,296,000 and a net operating loss of $ 315,000 from the dates of acquisition, including amortization expense of $ 3,130,000 associated with acquired profit in inventory and backlog.

The weighted-average amortization period for the definite-lived intangible assets related to the 2024 acquisitions is 18 years, including weighted-average amortization periods of 19 years for customer relationships, 12 years for product technology, and 17 years for tradenames.

Notes to Condensed Consolidated Financial Statements

Unaudited Supplemental Pro Forma Information

Had the acquisitions of Key Knife and KWS been completed as of the beginning of 2023, the Company’s pro forma results of operations for the quarters ended March 30, 2024 and April 1, 2023 would have been as follows:

Three Months Ended

2024 April 1,

(In thousands, except per share amounts)

Revenue $ 251,640 $ 257,391

Net Income Attributable to Kadant $ 27,310 $ 24,824

Earnings per Share Attributable to Kadant

Basic $ 2.33 $ 2.13

Diluted $ 2.33 $ 2.12

The historical consolidated pro forma financial information of the Company, Key Knife and KWS above has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition and related financing arrangements, (ii) expected to have a continuing impact on the Company, and (iii) factually supportable.

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

• Pre-tax charge to cost of revenue of $ 2,331,000 in 2023 and reversal in 2024, for the sale of inventory revalued at the date of acquisition.

• Pre-tax charge to SG&A expenses of $ 1,923,000 in 2023 and reversal in 2024, for acquisition costs and intangible asset amortization related to acquired backlog.

• Estimated tax effects related to the pro forma adjustments.

These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have resulted had the acquisitions occurred as of the beginning of 2023, or that may result in the future.

Restructuring Costs

The Company initiated a restructuring plan within its Flow Control segment in the third quarter of 2023 to consolidate a small manufacturing operation into a larger facility in Germany.

As part of this restructuring plan, the Company incurred restructuring and impairment costs totaling $ 400,000 , including severance costs of $ 335,000 for the termination of 10 employees, facility and other closure costs of $ 29,000 , and asset write-downs of $ 36,000 .

The Company also incurred restructuring costs within its Flow Control segment of $ 366,000 in the fourth quarter of 2023 related to the termination of a contract at one of its operations in Germany.

A summary of the changes in accrued restructuring costs included in other current liabilities in the accompanying condensed consolidated balance sheet is as follows:

(In thousands) Severance Costs Contract Termination Costs Total

2023 Restructuring Plans

Balance at December 30, 2023

2 unchanged sentences

Currency translation ( 5 ) ( 8 ) ( 13 )

Balance at September 30, 2023

2023 Restructuring Plan

Provision $ 369 $ 29 $ 398

Usage ( 23 ) — ( 23 )

Currency translation ( 10 ) ( 1 ) ( 11 )

Balance at September 30, 2023

Balance at March 30, 2024

$ — $ 122 $ 122

In addition, the Company recorded an impairment charge of $ 182,000 in the first nine months of 2022 for the write-down of certain fixed assets that were not moved to the new facility related to the China Transaction.

The remaining accrued restructuring costs are expected to be paid by the end of the second quarter of 2024.

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended Nine Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Three Months Ended

2024 April 1,

(In thousands, except per share amounts)

5 unchanged sentences

Diluted Earnings per Share $ 2.10 $ 2.40

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling 5,000 shares in the third quarter of 2023, 4,000 shares in the third quarter of 2022, 23,000 shares in the first nine months of 2023 and 10,000 shares in the first nine months 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 respective reporting periods.

The effect of outstanding and unvested restricted stock units (RSUs) of the Company’s common stock totaling 33,000 shares in the first quarter of 2024 and 38,000 shares in the first quarter of 2023 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 $ 31,761,000 in the first nine months of 2023 and $ 33,075,000 in the first nine months of 2022.

The effective tax rate of 26 % in the first nine months of 2023 and 2022 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, state taxes, and nondeductible expenses.

Short- and Long-Term Obligations

Short- and long-term obligations are as follows:

September 30,

The provision for income taxes was $ 7,854,000 in the first quarter of 2024 and $ 9,763,000 in the first quarter of 2023.

The effective tax rate of 24 % in the first quarter of 2024 was higher than the Company’s statutory rate of 21% primarily due to nondeductible expenses, the distribution of the Company’s worldwide earnings, state taxes, the cost of repatriating the earnings of certain foreign subsidiaries, and tax expense associated with the Global Intangible Low-Taxed Income provisions.

These items were offset in part by net excess income tax benefits from stock-based compensation arrangements, foreign tax credits, and a tax benefit associated with a foreign exchange loss recognized upon the Company’s repatriation of certain previously taxed foreign earnings.

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, offset in part by net excess income tax benefits from stock-based compensation arrangements.

Long-Term Obligations

Long-term obligations are as follows:

2024 December 30,

5 unchanged sentences

Total 310,016 110,875

Short-term Obligations and Current Maturities of Long-Term Obligations ( 3,116 ) ( 3,821 )

Current Maturities of Long-Term Obligations

( 3,243 ) ( 3,209 )

Long-Term Obligations $ 306,773 $ 107,666

1 unchanged sentence

Revolving Credit Facility

The Company's unsecured multi-currency revolving credit facility, originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement) matures on November 30, 2027 and has a borrowing capacity of $ 400,000,000 , in addition to an uncommitted, unsecured incremental borrowing facility of $ 200,000,000 .

Notes to Condensed Consolidated Financial Statements

$ 400,000,000 , in addition to an uncommitted, unsecured incremental borrowing facility of $ 200,000,000 .

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, 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 %.

Notes to Condensed Consolidated Financial Statements

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.

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

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 September 30, 2023, the outstanding balance under the Credit Agreement was $ 115,494,000 , which included $ 72,494,000 of euro-denominated borrowings.

The Company had $ 284,911,000 of borrowing capacity available as of September 30, 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 5.43 % as of September 30, 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, which matured on June 30, 2023.

During the first quarter of 2024, the Company borrowed an aggregate of $ 234,000,000 under the Credit Agreement, which was primarily used to fund the Company's acquisitions of Key Knife and KWS.

See Note 2 , Acquisitions, for further details.

As of March 30, 2024, the outstanding balance under the Credit Agreement was $ 297,884,000 , which included $ 73,884,000 of euro-denominated borrowings.

The Company had $ 101,664,000 of borrowing capacity available as of March 30, 2024, 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 6.04 % as of March 30, 2024 and 5.24 % as of year-end 2023.

Senior Promissory Notes

6 unchanged sentences

Debt Compliance

As of September 30, 2023, the Company was in compliance with the covenants related to its debt obligations.

As of March 30, 2024, the Company was in compliance with the covenants related to its debt obligations.

Stock-Based Compensation

The Company recognized stock-based compensation expense of $ 2,357,000 in the third quarter of 2023, $ 2,040,000 in the third quarter of 2022, $ 7,243,000 in the first nine months of 2023 and $ 6,576,000 in the first nine months of 2022 within selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income.

The Company recognized stock-based compensation expense of $ 2,415,000 in the first quarter of 2024 and $ 2,238,000 in the first quarter of 2023 within SG&A expenses in the accompanying condensed consolidated statement of income.

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

2 unchanged sentences

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

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 9,716,000 at September 30, 2023, which will be recognized over a weighted average period of 1.7 years.

Unrecognized compensation expense related to stock-based compensation totaled approximately $ 15,745,000 at March 30, 2024, which will be recognized over a weighted average period of 2.1 years.

Notes to Condensed Consolidated Financial Statements

Non-Employee Director RSUs

In May 2023, the Company granted an aggregate of 4,340 RSUs to its non-employee directors with an aggregate grant date fair value of $ 849,000 , of which 50 % vested on June 1, 2023, 25 % vested on the last day of the third fiscal quarter of 2023 and the remaining 25 % are to vest on the last day of the fourth fiscal quarter of 2023.

Performance-based RSUs

14 unchanged sentences

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

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

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

Balance at December 30, 2023 $ ( 43,013 ) $ ( 11 ) $ ( 38 ) $ ( 43,062 )

3 unchanged sentences

( 10,150 ) 1 38 ( 10,111 )

Balance at September 30, 2023 $ ( 58,391 ) $ ( 151 ) $ ( 49 ) $ ( 58,591 )

Notes to Condensed Consolidated Financial Statements

Amounts reclassified from AOCI are as follows:

Three Months Ended Nine Months Ended

(In thousands) September 30,

2023 October 1,

2022 September 30,

2023 October 1,

2022 Statement of Income Line Item

Retirement Benefit Plans

Recognized net actuarial loss

$ ( 1 ) $ ( 6 ) $ ( 3 ) $ ( 19 ) Other expense, net

Amortization of prior service cost

( 2 ) ( 2 ) ( 7 ) ( 7 ) Other expense, net

Total expense before income taxes

( 3 ) ( 8 ) ( 10 ) ( 26 )

Income tax benefit 1 2 3 7 Provision for income taxes

( 2 ) ( 6 ) ( 7 ) ( 19 )

Cash Flow Hedges (a)

Interest rate swap agreement — ( 33 ) 136 ( 227 ) Interest expense

Income tax benefit (provision)

— 8 ( 37 ) 55 Provision for income taxes

— ( 25 ) 99 ( 172 )

Total Reclassifications $ ( 2 ) $ ( 31 ) $ 92 $ ( 191 )

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

Interest Rate Swap Agreement

In 2018, the Company entered into an interest rate swap agreement (2018 Swap Agreement) with Citizens Bank, N.A.

to hedge its exposure to movements in USD LIBOR on its U.S.

dollar-denominated debt.

The 2018 Swap Agreement, which had a $ 15,000,000 notional value, matured on June 30, 2023.

Prior to the maturity of the 2018 Swap Agreement, on a quarterly basis, the Company received three-month USD LIBOR, which was subject to a zero percent floor, and paid a fixed rate of interest of 3.15 % plus an applicable margin as was defined in the Credit Agreement.

The Company had designated its 2018 Swap Agreement as a cash flow hedge and structured it to be 100 % effective.

Unrealized gains and losses related to the fair value of the 2018 Swap Agreement were recorded to AOCI, net of tax.

Forward Currency-Exchange Contracts

Balance at March 30, 2024 $ ( 53,163 ) $ ( 10 ) $ — $ ( 53,173 )

The Company uses forward currency-exchange contracts that generally have maturities of twelve months or less to hedge exposures resulting from fluctuations in currency exchange rates.

3 unchanged sentences

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

Gains and losses reported within SG&A expenses in the accompanying condensed consolidated statement of income associated with the Company's forward currency-exchange contracts that were not designated as hedges were not material for the three- and nine-month periods ended September 30, 2023 and October 1, 2022.

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 March 30, 2024 and April 1, 2023.

Notes to Condensed Consolidated Financial Statements

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

September 30, 2023 December 31, 2022

March 30, 2024 December 30, 2023

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

1 unchanged sentence

Derivatives Designated as Hedging Instruments:

Derivative in an Asset Position:

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

Derivatives in a Liability Position:

8 unchanged sentences

(b) The 2024 notional amounts are indicative of the level of the Company's recurring derivative activity.

The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the nine months ended September 30, 2023:

(In thousands) Interest Rate Swap Agreement Forward Currency-Exchange Contract Total

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

Gain reclassified to earnings (a) ( 99 ) — ( 99 )

The following table summarizes the activity in AOCI associated with the Company's foreign currency exchange contract designated as a cash flow hedge as of and for the three months ended March 30, 2024:

(In thousands) Total

Unrealized Loss, Net of Tax, at December 30, 2023 $ ( 38 )

Loss recognized in AOCI 38

— ( 8 ) ( 8 )

Unrealized Loss, Net of Tax, at September 30, 2023

$ — $ ( 49 ) $ ( 49 )

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

As of September 30, 2023, the Company expects to reclassify losses of $ 49,000 from AOCI to earnings over the next twelve months based on the maturity date of the forward currency-exchange contract.

Unrealized Loss, Net of Tax, at March 30, 2024

Fair Value Measurements and Fair Value of Financial Instruments

4 unchanged sentences

• 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 September 30, 2023

Fair Value as of March 30, 2024

(In thousands) Level 1 Level 2 Level 3 Total

2 unchanged sentences

Forward currency-exchange contracts $ — $ 13 $ — $ 13

Notes to Condensed Consolidated Financial Statements

Fair Value as of December 30, 2023

2 unchanged sentences

Banker's acceptance drafts (a) $ — $ 10,826 $ — $ 10,826

2018 Swap Agreement (b) $ — $ 131 $ — $ 131

Forward currency-exchange contracts $ — $ 8 $ — $ 8

1 unchanged sentence

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

(b) The 2018 Swap Agreement matured on June 30, 2023.

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 2023.

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 quarter of 2024.

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

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

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

The forward currency-exchange contracts and the 2018 Swap Agreement prior to its maturity were hedges of either recorded assets or liabilities or anticipated transactions and represent or represented the estimated amount the Company would receive or pay upon liquidation of the contracts.

The forward currency-exchange contracts are hedges of either recorded assets or liabilities or anticipated transactions and represent the estimated amount the Company would receive or pay upon liquidation of the contracts.

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

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

September 30, 2023 December 31, 2022

March 30, 2024 December 30, 2023

Carrying Value Fair Value Carrying Value Fair Value

13 unchanged sentences

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:

1 unchanged sentence

The Company's primary products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.

• Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products and alternative fuel industries, among others.

The Company's primary products include stock-preparation systems and recycling equipment, chemical pulping equipment, debarkers, stranders and chippers.

• Industrial Processing – Equipment, machinery, and technologies used to process recycled paper and timber for the packaging, tissue, wood products and alternative fuel industries, among others.

The Company's primary products include stock-preparation systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers and custom engineered knife systems.

In addition, the Company provides industrial automation and digitization solutions to process industries.

1 unchanged sentence

The Company's primary products include conveying and vibratory equipment and balers.

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

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

Three Months Ended Nine Months Ended

September 30, October 1, September 30, October 1,

In addition, the Company

Notes to Condensed Consolidated Financial Statements

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

The following table presents financial information for the Company's reportable operating segments and includes the results of Key Knife, acquired on January 1, 2024, within the Industrial Processing segment, and the results of KWS, acquired on January 24, 2024, within the Material Handling segment.

See Note 2 , Acquisitions, for further details.

Three Months Ended

March 30, April 1,

(In thousands) 2024 2023

1 unchanged sentence

Industrial Processing

105,861 83,542

Material Handling 56,432 56,695

1 unchanged sentence

Income Before Provision for Income Taxes

Flow Control (a) $ 24,246 $ 22,874 $ 74,256 $ 67,306

Industrial Processing (b) 19,023 17,550 51,968 70,994

Material Handling (c) 10,345 6,945 30,006 21,490

Corporate (d) ( 10,070 ) ( 8,483 ) ( 29,494 ) ( 27,463 )

$ 21,710 $ 24,189

Industrial Processing (a)

19,999 15,967

Material Handling (b)

Corporate (c)

( 10,323 ) ( 9,329 )

Total operating income 36,927 40,114

Interest expense, net (e) ( 1,669 ) ( 1,450 ) ( 5,669 ) ( 3,671 )

Other expense, net (e) ( 20 ) ( 19 ) ( 62 ) ( 60 )

Interest expense, net (d)

( 4,058 ) ( 2,071 )

Other expense, net (d)

( 30 ) ( 21 )

$ 32,839 $ 38,022

Capital Expenditures

Flow Control $ 1,874 $ 1,404

Industrial Processing (f) 7,299 4,654 16,007 11,679

Industrial Processing

Material Handling

1 unchanged sentence

$ 6,271 $ 4,469

(a) Includes restructuring and impairment costs of $ 434,000 in both the three and nine months ended September 30, 2023, and $ 72,000 in both the three and nine months ended October 1, 2022.

Includes acquisition-related expenses of $ 410,000 and $ 254,000 in the three and nine months ended October 1, 2022, respectively.

(b) Includes relocation costs of $ 535,000 and $ 609,000 in the three and nine months ended September 30, 2023, respectively.

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

March 30, December 30,

(In thousands) 2024 2023

Flow Control $ 383,516 $ 391,719

Industrial Processing

606,803 443,189

Material Handling

409,005 326,226

Corporate 10,102 14,531

$ 1,409,426 $ 1,175,665

(a) Includes acquisition-related costs of $ 1,890,000 in 2024, including acquisition costs of $ 599,000 and amortization expense associated with acquired profit in inventory of $ 1,291,000 .

(b) Includes acquisition-related costs of $ 2,364,000 in 2024, including acquisition costs of $ 525,000 and amortization expense associated with acquired profit in inventory and backlog of $ 1,839,000 .

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

Notes to Condensed Consolidated Financial Statements

(d) Represents general and administrative expenses.

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

(f) Includes capital expenditures of $ 2,476,000 and $ 5,763,000 in the three and nine months ended September 30, 2023, respectively, and $ 2,155,000 and $ 5,397,000 in the three and nine months ended October 1, 2022, respectively, related to the China Transaction.

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

Commitments and Contingencies

4 unchanged sentences

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

The Company had $ 9,954,000 at September 30, 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.

The Company had $ 4,524,000 at March 30, 2024 and $ 9,090,000 at December 30, 2023 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.

4 unchanged sentences

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