KADANT INC 10-Q

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations When we use the terms "we," "us," "our," and the "Company," we mean Kadant Inc., a Delaware corporation, and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates. This Quarterly Report on Form 10-Q and the documents we incorporate by reference in this report include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management, using information currently available to our management. When we use words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "seeks," "should," "likely," "will," "would," "may," "continue," "could," or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Our future results of operations may differ materially from those expressed in the forward-looking statements. Many of the important factors that will determine these results are beyond our ability to control or predict. You should not put undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. For a discussion of important factors that may cause our actual results to differ materially from those suggested by the forward-looking statements, you should read carefully Risk Factors included in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (Annual Report) and as may be further amended and/or restated in subsequent filings with the SEC. Overview Company Background We are a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing. Our products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping our customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of our business. Our financial results are reported in three reportable operating segments: Flow Control, Industrial Processing, and Material Handling. The Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration product lines; the Industrial Processing segment consists of our wood processing and stock-preparation product lines; and the Material Handling segment consists of our conveying and vibratory, baling, and fiber-based product lines. A description of each segment is as follows: • Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors. Our 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 process recycled paper and timber for the packaging, tissue, wood products, and alternative fuel industries, among others. Our primary products include stock-preparation systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers and custom engineered knife systems. In addition, we provide industrial automation and digitization solutions to process industries. • Material Handling – Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others. Our primary products include conveying and vibratory equipment and balers. In addition, we manufacture and sell biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption. Industry and Business Overview Our consolidated bookings decreased 10% to $248.4 million in the first quarter of 2024 compared to unprecedented record bookings in the first quarter of 2023, but increased 14% compared to the fourth quarter of 2023, including an 11% increase from acquisitions and strong demand for our parts and consumables products across all segments. We expect the strong demand for aftermarket products to continue contributing to higher bookings in 2024 compared to the prior year. Stable demand for our capital equipment is expected to continue in North America, but strengthen during the year in Europe and Asia 23 Table of Contents KADANT INC. following a period of constrained capital spending. We have a healthy level of quote activity, but economic uncertainty as well as funding challenges in certain locations has lengthened the timing for securing capital orders. An overview of our business by segment is as follows: • Flow Control – Our Flow Control segment bookings increased 11% sequentially compared to the fourth quarter of 2023. Increased demand in North America was driven by anticipated spring maintenance requirements. In Europe, despite sequentially higher bookings in the first quarter, there is continued uncertainty in the end markets we serve primarily due to geopolitical tensions and weak macroeconomic conditions. Overall, many of the end markets in our Flow Control segment remain strong despite the general sluggishness in the manufacturing sector, and we expect bookings to remain stable during the remainder of 2024 and consistent with the levels achieved in 2023. • Industrial Processing – Our Industrial Processing segment bookings increased 7% sequentially. This included an 18% increase from acquisitions, partially offset by weaker demand for our capital equipment products at our wood processing and stock-preparation businesses. Higher interest rates have contributed to a decrease in new construction activity in North America depressing demand for lumber and oriented strand board (OSB). An uptick in remodeling is expected later in 2024, which would increase demand for lumber and OSB. We had sequentially higher aftermarket parts bookings at our stock-preparation business, but weaker capital equipment bookings driven by sluggish market conditions and consolidation activity within our customer base, which has caused producers to delay new investment decisions. While there is still a healthy level of quote activity for large capital projects in our Industrial Processing segment, there has been an increase in quote-to-order times. We expect higher annual bookings in our Industrial Processing segment in 2024, especially for our parts and consumables products. • Material Handling – Our Material Handling segment bookings increased 32% sequentially and 15% excluding the impact of an acquisition. The 15% increase was led by our conveying and vibratory business due to planned expenditures by our customers for large underground mining projects. In addition, there is increased demand from customers in the aggregates industry related to new infrastructure projects. We anticipate steady demand at our baling business for the remainder of 2024 due in part to government initiatives aimed at stimulating capital investment. We expect contributions from our recent acquisition will lead to higher bookings in our Material Handling segment in 2024 compared to the prior year. 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 activity 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, solid global operations teams, and long-term strength of our end markets. In addition, we see growth opportunities from proposed and adopted legislation in the U.S. and abroad aimed at fueling investment, including those targeting environmental initiatives. For more information related to these challenges, and other factors impacting our business, please see Risk Factors included in Part I, Item 1A, of our Annual Report and subsequent filings with the SEC. International Sales Slightly more than half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada. As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies. To mitigate the impact of foreign currency transaction fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred. Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies. We currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the U.S. dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S. dollar. Global Trade The United States imposes tariffs on certain imports from China, which has and will continue to increase the cost of some of the equipment that we import. Although we have worked to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs. For more information on risks 24 Table of Contents KADANT INC. associated with our global operations, including tariffs, please see Risk Factors, included in Part I, Item 1A, of our Annual Report and subsequent filings with the SEC. Acquisitions We expect that a 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. On January 1, 2024, we acquired Key Knife, Inc. and certain of its affiliates (collectively, Key Knife) for $153.4 million, net of cash acquired. 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 $65.0 million for the twelve months ended September 30, 2023, and is part of our Industrial Processing segment. As part of the Key Knife acquisition, we acquired a 45% interest in two of Key Knife's subsidiaries, increasing our noncontrolling interest liability by $9.3 million. On January 24, 2024, we acquired KWS Manufacturing Company, Ltd. (KWS) for $81.2 million, subject to a post-closing adjustment. KWS is a leading manufacturer of conveying equipment for the bulk material handling industry, with revenue of approximately $45.0 million for the twelve months ended September 30, 2023, and is part of our Material Handling segment. We funded these acquisitions primarily through borrowings under our revolving credit facility. We expect several synergies in connection with the acquisitions, including expansion of product sales into new markets by leveraging our global sales network and relationships, broadening our product portfolio, and strengthening our position in the wood processing and material handling markets. See Note 2 , Acquisitions, in the accompanying condensed consolidated financial statements for further details. Results of Operations First Quarter 2024 Compared With First Quarter 2023 Revenue The following table presents the change in revenue by segment between the first quarters of 2024 and 2023, and those changes excluding the effect of foreign currency translation and acquisitions which we refer to as change in organic revenue. Organic revenue excludes the effect of acquisitions for the four quarterly reporting periods following the date of the acquisition. 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. This non-GAAP measure should not be considered superior to or a substitute for the corresponding U.S. generally accepted accounting principles (GAAP) measure. Revenue by segment in the first quarters of 2024 and 2023 is as follows: Three Months Ended Increase (Decrease) Currency Translation Acquisitions (Non-GAAP) Change in Organic Revenue (In thousands, except percentages) March 30, 2024 April 1, 2023 % Change Increase (Decrease) % Change Flow Control $ 86,682 $ 89,521 $ (2,839) (3)% $ 734 $ — $ (3,573) (4)% Industrial Processing 105,861 83,542 22,319 27% (107) 16,601 5,825 7% Material Handling 56,432 56,695 (263) —% 201 7,762 (8,226) (15)% Consolidated $ 248,975 $ 229,758 $ 19,217 8% $ 828 $ 24,363 $ (5,974) (3)% Consolidated revenue increased 8% in the first quarter of 2024 and organic revenue decreased 3% largely due to weaker demand for our capital equipment products at our Material Handling segment, partially offset by stronger demand at our Industrial Processing segment. From a regional perspective, the majority of the decrease in organic revenue was driven by softening demand in Europe and China due to weak macroeconomic conditions. Revenue at our Flow Control segment decreased 3% and organic revenue decreased 4% in the first quarter of 2024 due to decreased demand in Europe and China reflecting the challenging market conditions and slowdown in manufacturing activity. This decrease was partially offset by higher demand for our capital equipment products in North America driven by continued strength in the U.S. economy and underlying packaging industry. Revenue at our Industrial Processing segment increased 27% in the first quarter of 2024, including a 20% increase from acquisitions. Organic revenue increased 7% in the first quarter of 2024 primarily due to increased demand for our capital 25 Table of Contents KADANT INC. equipment products, especially at our stock-preparation business in China following a slowdown in manufacturing activity when mills were focusing on installing and optimizing capital equipment purchased in prior periods. In addition, we experienced higher demand for our capital equipment products at our wood processing businesses in North America where the U.S. economy and housing market continued to demonstrate resiliency against inflationary pressures. Revenue at our Material Handling segment remained flat in the first quarter of 2024, while organic revenue decreased 15% driven by weaker demand at our baling business. In Europe, while the requests for proposals are high, customers are more cautious given the weaker economic environment, which has resulted in a lengthening of quote-to-order times. In North America, a decrease in capital equipment revenue was due in part to customer-requested shipping delays at our baling business from the first to the second quarter of 2024. In addition, several large projects in the first quarter of 2023 at our conveying and vibratory business in North America resulted in comparatively lower revenue in the first quarter of 2024. Gross Profit Margin Gross profit margin by segment in the first quarters of 2024 and 2023 is as follows: Three Months Ended Basis Point Change March 30, 2024 April 1, 2023 Flow Control 53.9% 53.3% 60 bps Industrial Processing 41.7% 40.6% 110 bps Material Handling 35.6% 36.1% (50) bps Consolidated 44.6% 44.4% 20 bps Consolidated gross profit margin increased to 44.6% in the first quarter of 2024 compared with 44.4% in the first quarter of 2023 due to a larger proportion of higher-margin parts and consumables revenue and higher margins achieved on our capital equipment products especially at our Flow Control segment. This increase was partially offset by the inclusion of $2.3 million of amortization expense related to acquired profit in inventory, which lowered consolidated gross profit margin in 2024 by 0.9 percentage points. Within our operating segments, gross profit margin: • Increased to 53.9% at our Flow Control segment from 53.3% in the 2023 period primarily due to higher margins achieved on our capital equipment products. • Increased to 41.7% at our Industrial Processing segment from 40.6% in the 2023 period due to higher margins achieved on our parts and consumables products, as well as a higher proportion of parts and consumables revenue. These increases were partially offset by the inclusion of $1.3 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 1.2 percentage points. • Decreased to 35.6% at our Material Handling segment from 36.1% in the 2023 period due to the inclusion of $1.0 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 1.8 percentage points. This decrease was partially offset by a larger proportion of higher-margin parts and consumables revenue. Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses by segment in the first quarters of 2024 and 2023 is as follows: Three Months Ended (In thousands, except percentages) March 30, 2024 April 1, 2023 Increase % Change Flow Control $ 23,424 $ 22,217 $ 1,207 5% Industrial Processing 22,518 16,298 6,220 38% Material Handling 14,040 10,719 3,321 31% Corporate 10,323 9,328 995 11% Consolidated $ 70,305 $ 58,562 $ 11,743 20% Consolidated as a Percentage of Revenue 28% 25% Consolidated SG&A expenses as a percentage of revenue increased to 28% in 2024 from 25% in 20 23. Consolidated SG&A expenses increased $11.7 million, or 20%, primarily due to the inclusion of $7.3 million of SG&A expenses from 26 Table of Contents KADANT INC. acquisitions and an incremental $1.9 million of acquisition-related costs. Acquisition-related costs included in SG&A consist of acquisition costs and amortization expense associated with acquired backlog. Within our operating segments, SG&A expenses: • Increased $1.2 million at our Flow Control segment principally due to increased incentive compensation, higher bad debt expense, an indemnification asset reversal of $0.2 million, and an unfavorable effect of foreign currency translation of $0.2 million. • Increase d $6.2 million at our Industrial Processing segment due to the inclusion of $5.1 million of SG&A expenses from acquisitions, $0.6 million of acquisition-related costs and increased compensation expense. • Increased $3.3 million at our Material Handling segment principally due to the inclusion of $2.2 million of SG&A expenses from an acquisition and $1.3 million of acquisition-related costs. • Increased $1.0 million at Corporate due to increased consulting costs and incentive compensation expense. Interest Expense Interest expense increased to $4.7 million in the first quarter of 2024 from $2.4 million in the first quarter of 2023 due to increased borrowings under our revolving credit facility, which were primarily used to fund our acquisitions and, to a lesser extent, a higher weighted-average interest rate. We expect interest expense will increase significantly in 2024 compared to 2023 as a result of these borrowings. Provision for Income Taxes Provision for income taxes decreased to $7.9 million in the first quarter of 2024 from $9.8 million in the first quarter of 2023. The effective tax rate of 24% in the first quarter of 2024 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our 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 our repatriation of certain previously taxed foreign earnings. The effective tax rate of 26% in the first quarter of 2023 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, and state taxes, offset in part by net excess income tax benefits from stock-based compensation arrangements. Net Income Net income decreased to $25.0 million in the first quarter of 2024 from $28.3 million in the first quarter of 2023 primarily due to a $3.2 million decrease in operating income and a $2.3 million increase in interest expense, offset in part by a $1.9 million decrease in provision for income taxes (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 cash flow provided by operations 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 acquisition costs, amortization expense related to acquired profit in inventory and backlog, and other income or 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. Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts 27 Table of Contents KADANT INC. and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. 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 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 is as follows: Three Months Ended (In thousands, except percentages) March 30, 2024 April 1, 2023 Net Income Attributable to Kadant $ 24,689 $ 28,075 Net Income Attributable to Noncontrolling Interests 296 184 Provision for Income Taxes 7,854 9,763 Interest Expense, Net 4,058 2,071 Other Expense, Net 30 21 Operating Income 36,927 40,114 Acquisition Costs 1,124 — Indemnification Asset Reversals, Net (a) 90 — Acquired Backlog Amortization (b) 799 — Acquired Profit in Inventory Amortization (c) 2,331 — Adjusted Operating Income (non-GAAP measure) 41,271 40,114 Depreciation and Amortization 10,940 8,446 Adjusted EBITDA (non-GAAP measure) $ 52,211 $ 48,560 Adjusted EBITDA Margin (non-GAAP measure) 21.0% 21.1% (a) Represents net indemnification asset reversal related to the release of tax reserves associated with uncertain tax positions. (b) Represents intangible amortization expense associated with acquired backlog. (c) Represents amortization expense within cost of revenue associated with acquired profit in inventory. A reconciliation of free cash flow from cash flow provided by operating activities is as follows: Three Months Ended (In thousands) March 30, 2024 April 1, 2023 Cash Provided by Operating Activities $ 22,831 $ 36,866 Capital Expenditures (6,271) (4,469) Free Cash Flow (non-GAAP measure) $ 16,560 $ 32,397 Liquidity and Capital Resources Consolidated working capital was $232.7 million at March 30, 2024, compared with $225.8 million at December 30, 2023. Cash and cash equivalents were $81.4 million at March 30, 2024, compared with $103.8 million at December 30, 2023, which included cash and cash equivalents held by our foreign subsidiaries o f $71.1 million at March 30, 2024 and $94.6 million at December 30, 2023. 28 Table of Contents KADANT INC. Cash Flows Cash flow information in the first quarters of 2024 and 2023 is as follows: Three Months Ended (In thousands) March 30, 2024 April 1, 2023 Net Cash Provided by Operating Activities $ 22,831 $ 36,866 Net Cash Used in Investing Activities (237,263) (4,467) 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) Increase in Cash, Cash Equivalents, and Restricted Cash $ (23,835) $ 5,782 Operating Activities Cash provided by operating activities decreased to $22.8 million in the first quarter of 2024 from $36.9 million in the first quarter of 2023 primarily due to an increase 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. Significant cash outflows associated with working capital in the first quarter of 2024 related to other liabilities, accounts receivable, and inventory. Decreases in other liabilities used cash of $15.3 million primarily related to incentive compensation payments. Increases in accounts receivable used cash of $8.0 million mostly due to the timing of payments and purchases of inventory used cash of $6.7 million. These uses of cash were offset in part by cash provided by an increase in accounts payable of $15.0 million related to inventory purchases and the timing of payments. Significant cash outflows associated with working capital in the first quarter of 2023 related to inventory. Increases in inventory used cash of $14.0 million primarily related to capital equipment orders that shipped throughout 2023. This use of cash was offset in part by $11.1 million of cash provided by customer deposits. Investing Activities Cash used in investing activities was $237.3 million in the first quarter of 2024, compared with $4.5 million in the first quarter of 2023. Consideration paid for acquisitions, net of cash acquired, was $232.3 million in the first quarter of 2024. Additionally, cash used in investing activities included capital expenditures of $6.3 million in the first quarter of 2024 and $4.5 million in the first quarter of 2023. Financing Activities Cash provided by financing activities was $192.9 million in the first quarter of 2024, compared with cash used in financing activities of $27.8 million in the first quarter of 2023. Borrowings under our revolving credit facility were $234.0 million in 2024, including $230.0 million to fund acquisitions. Repayments of short- and long-term obligations were $33.5 million in 2024 compared to $20.8 million in 2023. Cash dividends paid to stockholders were $3.4 million in 2024 and $3.0 million in 2023. In addition, taxes paid related to the vesting of equity awards were $5.9 million in 2024 compared to $3.9 million in 2023. Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries. The $2.3 million decrease in cash, cash equivalents, and restricted cash in the first quarter of 2024 related to exchange rates was primarily attributable to the strengthening of the U.S. dollar against the euro, the Canadian dollar, the Chinese renminbi and Swedish krona. The $1.1 million increase in cash, cash equivalents, and restricted cash in the first quarter of 2023 was primarily attributable to the weakening of the U.S. dollar against the euro, and to a lesser extent, the Mexican peso and the Chinese renminbi. 29 Table of Contents KADANT INC. Borrowing Capacity and Debt Obligations Our 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 total borrowing capacity of $400.0 million. In the first quarter of 2024, we borrowed $234.0 million under our revolving credit facility, which was primarily used to fund our acquisitions of Key Knife and KWS, and will result in significantly higher interest payments in 2024 compared to 2023. As of March 30, 2024, our outstanding balance under the Credit Agreement was $297.9 million, which included $73.9 million of euro-denominated borrowings, and we had $101.7 million of available borrowing capacity, in addition to a $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 March 30, 2024, our leverage ratio was 1.12 and we were in compliance with our debt covenants. See Note 6 , Long-Term Obligations, in the accompanying condensed consolidated financial statements for additional information regarding our debt obligations. Additional Liquidity and Capital Resources 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. We paid cash dividends of $3.4 million in the first quarter of 2024. On March 6, 2024, we declared a quarterly cash dividend of $0.32 per share totaling $3.8 million that was paid on May 8, 2024. Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change. The declaration of cash dividends is subject to our compliance with the covenant in our Credit Agreement related to our consolidated leverage ratio. We plan to make expenditures of approximately $23.0 to $25.0 million during the remainder of 2024 for property, plant, and equipment. As of March 30, 2024, we had approximately $270.8 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest $205.0 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any. In the first quarter of 2024, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future. The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately $3.4 million. We believe that existing cash and cash equivalents, along with future 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. Application of Critical Accounting Policies and Estimates Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenue and expenses during the reporting period. Our critical accounting policies are defined as those that entail significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Management evaluates its estimates on an ongoing basis based on historical experience, current economic and market conditions, and other assumptions management believes are reasonable. We believe that our most critical accounting policies which are significant to our consolidated financial statements, and which involve the most complex or subjective decisions or assessments, are those described in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading Application of Critical Accounting Estimates in Part II, Item 7, of our Annual Report. There have been no material changes to these critical accounting policies since the end of fiscal 2023 that warrant disclosure. Recent Accounting Pronouncements See Note 1 , under the heading Recent Accounting Pronouncements Not Yet Adopted, in the accompanying condensed consolidated financial statements for details. Item 3 – Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk from changes in interest rates and foreign currency exchange rates has not changed materially from our exposure as disclosed in Part II, Item 7A, of our Annual Report. 30 Table of Contents KADANT INC.