What changed in this filing

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Item 9A. Controls and Procedures

2025-02-25 compared with 2024-02-27 · 479 added, 415 removed, 1042 unchanged (46% of the section changed)

11 unchanged sentences

Based on our assessment, management believes that at year-end 2024 our internal control over financial reporting was effective based on the criteria issued by COSO.

Our audited consolidated financial statements include the results of the acquisitions of Key Knife, KWS, and DSTI since their dates of acquisition, including total assets of $315,451,000 and total revenue of $112,858,000 as of and for the fiscal year ended December 28, 2024, but management has excluded these acquisitions from its assessment of the effectiveness of internal control over financial reporting as of December 28, 2024.

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

4 unchanged sentences

Other Information

Insider Trading Arrangements and Policies

Insider Trading Arrangements

None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fiscal quarter ended December 28, 2024.

3 unchanged sentences

Information about our Directors

This information will be included under the heading "Election of Directors" in our 2024 proxy statement for our 2024 Annual Meeting of Shareholders and is incorporated in this report by reference, except for the information concerning executive officers, which is included under the heading "Information about our Executive Officers" in Part I , Item 1 of this report.

This information will be included under the heading "Election of Directors" in our 2025 proxy statement and is incorporated in this report by reference, except for the information concerning executive officers, which is included under the heading "Information about our Executive Officers" in Part I, Item 1 of this report.

Insider Trading Policies

We have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, or the Company itself, that we believe are reasonably designed to promote compliance with insider trading laws, rule and regulations, and any listing standards applicable to us.

See Exhibit 19, Insider Trading Policies and Procedures, in the " Exhibit Index " in Part IV of this report.

Section 16(a) Beneficial Ownership Reporting Compliance

5 unchanged sentences

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

This information will be included under the heading "Stock Ownership" and "Equity Compensation Plan Information" in our 2024 proxy statement and is incorporated in this report by reference.

This information will be included under the heading "Stock Ownership" in our 2025 proxy statement and is incorporated in this report by reference.

The following table provides information about the securities authorized for issuance under our equity compensation plans at year-end 2024:

Equity Compensation Plan Information

Plan Category Number of Securities

to be Issued upon

Outstanding Options,

Warrants, and

Rights Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights Number of Securities

Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)

Equity compensation plans approved by security holders 73,718 (a) $ — (b) 335,478 (c)

Equity compensation plans not approved by security holders — $ — —

Total 73,718 (a) $ — (b) 335,478 (c)

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

(b) Shares of restricted stock units and performance-based restricted stock units outstanding on December 28, 2024 had a weighted average grant date fair value of $258.49.

(c) Includes an aggregate of 71,905 shares of common stock issuable under our employees' stock purchase plan in connection with current and future offering periods under the plan.

Certain Relationships and Related Transactions, and Director Independence

19 unchanged sentences

and Kadant Canada Corp.

( filed as E xh i bit 2.1 to the Registrant's Annual Report on Form 10-K for the year ended December 30, 2023 [File No.

001-1140 6] and inco rporated in this document by referenc e ) .

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

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

3.2 Amended and Restated Bylaws of the Registrant effective November 20, 2014 (filed as Exhibit 3.1 to the Registrant's Form 8-K [File No.

3.2 Amended and Restated By-laws of the Registrant effective November 20, 2014 (filed as Exhibit 3.1 to the Registrant's Form 8-K [File No.

001-11406] filed with the Commission on November 25, 2014 and incorporated in this document by reference).

4.1 Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the year ended December 28, 2019 [File No.

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

4.1 Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 .

10.1* Form of Indemnification Agreement between the Registrant and its directors and officers (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 [File No.

7 unchanged sentences

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

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

Amended and Restated 2006 Equity Incentive Plan of the Registrant effective as of May 15, 2024 (filed as Annex A to the Registrant's Proxy Statement for the Annual Meeting of Stockholders with the Commission on March 27, 2024 [File No.

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

7 unchanged sentences

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

Number Description of Exhibit

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

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

10.11* Form of Time-Based Restricted Stock Unit Award Agreement between the Registrant and its executive officers used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 [File No.

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

Form of Directors Restricted Stock Unit Award Agreement between the Registrant and its non-employee directors used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 [File No.

2 unchanged sentences

001-11406] filed with the Commission on March 7, 2017 and incorporated in this document by reference).

Number Description of Exhibit

First Amendment and Limited Consent, dated as of May 24, 2017, to the Amended and Restated Credit Agreement dated as of March 1, 2017 by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 2017 [File No.

8 unchanged sentences

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

Number Description of Exhibit

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

4 unchanged sentences

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

10.20 Seventh Amendment, dated as of June 24, 2024 , to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10- Q for the q uarter ended June 29, 2024 [File No.

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

Number Description of Exhibit

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

6 unchanged sentences

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

19 Insider Trading Policies and Procedures.

21 Subsidiaries of the Registrant.

5 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

97 Dodd-Frank Compensation Recovery Policy (adopted May 2023) .

Number Description of Exhibit

97 Dodd-Frank Compensation Recovery Policy ( adopted May 2023) (filed as Exhibit 97 to the Registrant's Annual Report on Form 10-K for the year ended December 30 , 202 3 [File No.

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

101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File

45 unchanged sentences

Consolidated Balance Sheet as of December 28, 2024 and December 30, 2023

Consolidated Statement of Income for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022

Consolidated Statement of Comprehensive Income for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022

Consolidated Statement of Cash Flows for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022

Consolidated Statement of Stockholders' Equity for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022

Consolidated Statement of Income for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022

Consolidated Statement of Comprehensive Income for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022

Consolidated Statement of Cash Flows for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022

Consolidated Statement of Stockholders' Equity for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022

Notes to Consolidated Financial Statements

8 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Key Knife, Inc.

(Key Knife), KWS Manufacturing Company, Ltd.

(KWS), and Dynamic Sealing Technologies LLC (DSTI) during 2024, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 28, 2024, Key Knife's, KWS's, and DSTI's internal control over financial reporting associated with total assets of $315,451,000 and total revenues of $112,858,000 included in the consolidated financial statements of the Company as of and for the fiscal year ended December 28, 2024.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Key Knife, KWS, and DSTI.

Basis for Opinions

11 unchanged sentences

We believe that our audits provide a reasonable basis for our opinions.

Report of Independent Registered Public Accounting Firm (continued)

Definition and Limitations of Internal Control Over Financial Reporting

1 unchanged sentence

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

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

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

Report of Independent Registered Public Accounting Firm (continued)

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

4 unchanged sentences

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of uncertain tax positions

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

As disclosed in Note 5 to the consolidated financial statements, the Company has recognized uncertain tax positions amounting to $11,212,000 as of December 30, 2023.

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

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

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

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

Valuation of customer relationships intangible assets acquired in the Key Knife and KWS business combinations

As discussed in Note 2 to the consolidated financial statements, the Company acquired Key Knife for $153,386,000 on January 1, 2024, and also acquired KWS for $79,429,000 on January 24, 2024.

As of the date of each of the transactions, the Company recognized intangible assets acquired with estimated fair values of $91,620,000 for Key Knife and $29,100,000 for KWS, a portion of which related to customer relationships.

The Company determined the fair value of the customer relationships using the multi-period excess earnings methodology.

We identified the assessment of the valuation of certain customer relationships intangible assets acquired in the Key Knife and KWS business combinations as a critical audit matter.

A high degree of subjective auditor judgment was required to evaluate certain assumptions in the valuation of the customer relationships intangible assets, specifically the future revenue growth rates, gross margins, and discount rates.

Additionally, evaluating the discount rates required the involvement of valuation professionals with specialized skills and knowledge.

Minor changes in these assumptions could have had a significant impact on the Company’s estimate of fair value of the customer relationships intangible assets.

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

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

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

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

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s acquisition date valuation process, including controls related to the development of the future revenue growth rates, gross margins, and discount rate assumptions.

We evaluated the future revenue growth rates and gross margins by comparing them to the historical financial results of the acquired businesses.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rates by comparing them to discount rates that were independently developed using publicly available market data for comparable peer companies.

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

16 unchanged sentences

Intangible Assets, Net ( Notes 1 and 2 )

279,494 159,286

Goodwill ( Notes 1 and 2 )

479,169 392,084

Total Assets $ 1,430,345 $ 1,175,665

1 unchanged sentence

Current Liabilities:

Short-term obligations and current maturities of long-term obligations (Note 6) $ 3,209 $ 3,821

Current maturities of long-term obligations ( Note 6 )

$ 3,376 $ 3,209

Accounts payable 51,062 42,104

Accrued payroll and employee benefits 43,815 41,855

Accrued warranty and installation costs

Customer deposits 35,887 62,641

3 unchanged sentences

Long-Term Obligations ( Note 6 )

285,151 107,666

Long-Term Deferred Income Taxes ( Note 5 )

41,850 36,398

Other Long-Term Liabilities 53,651 40,952

9 unchanged sentences

Accumulated other comprehensive items (Note 13)

( 72,368 ) ( 43,062 )

Total Kadant Stockholders' Equity 847,127 773,702

Noncontrolling interest 2,538 1,722

Noncontrolling interests ( Note 2 )

Total Stockholders' Equity 858,128 776,240

3 unchanged sentences

Consolidated Statement of Income

(In thousands, except per share amounts) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands, except per share amounts) December 28, 2024 December 30, 2023 December 31, 2022

Revenue ( Notes 1 and 1 1 )

$ 1,053,384 $ 957,672 $ 904,739

Costs and Operating Expenses:

2 unchanged sentences

Research and development expenses 14,318 13,562 12,724

Gain on sale and other items, net (Note 8)

Gain on sale and other costs, net ( Note 8 )

658 723 ( 18,856 )

6 unchanged sentences

Provision for Income Taxes ( Note 5 )

40,516 42,210 43,906

Net Income 112,554 116,806 121,730

10 unchanged sentences

Consolidated Statement of Comprehensive Income

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Net Income $ 112,554 $ 116,806 $ 121,730

1 unchanged sentence

Foreign currency translation adjustment

Foreign currency translation adjustment ( 30,198 ) 11,554 ( 25,522 )

Reclassification adjustment for loss included in net income

Pension and other post-retirement liability adjustments, net (net of tax of $ 17 , $ 45 , and $ 225 )

137 644 ( 22 )

Deferred (loss) gain on cash flow hedges (net of tax of $( 32 ), $ 147 , and $ 118 )

Deferred gain (loss) on cash flow hedges (net of tax of $ 13 , $( 32 ), and $ 147 )

38 ( 96 ) 520

1 unchanged sentence

Comprehensive Income 83,111 128,401 97,372

Comprehensive Income Attributable to Noncontrolling Interest ( 816 ) ( 672 ) ( 716 )

Comprehensive Income Attributable to Noncontrolling Interests

( 819 ) ( 816 ) ( 672 )

Comprehensive Income Attributable to Kadant $ 82,292 $ 127,585 $ 96,700

2 unchanged sentences

Consolidated Statement of Cash Flows

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Operating Activities

7 unchanged sentences

Gain on sale of assets and other income ( Note 8 )

— ( 841 ) ( 20,190 )

Loss on liquidation of subsidiary ( Note 8 )

Non-cash impairment costs (Note 8 )

Deferred income tax (benefit) provision ( 1,949 ) 7,159 ( 1,384 )

Deferred income tax provision (benefit) 1,232 ( 1,949 ) 7,159

Other items, net 7,169 4,612 6,658

10 unchanged sentences

Acquisitions, net of cash acquired ( Note 2 )

( 300,335 ) ( 905 ) ( 3,474 )

Purchases of property, plant, and equipment ( 21,005 ) ( 31,850 ) ( 28,199 )

3 unchanged sentences

Financing Activities

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

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

305,211 — 22,057

Repayment of short- and long-term obligations ( 124,480 ) ( 93,965 ) ( 85,510 )

3 unchanged sentences

Dividend paid to noncontrolling interest ( 1,346 ) — ( 630 )

Acquisition of subsidiary shares from noncontrolling interest ( Note 2 )

Other financing activities — ( 8 ) ( 1,254 )

Net cash (used in) provided by financing activities ( 111,111 ) ( 80,569 ) 22,808

Net cash provided by (used in) financing activities 159,914 ( 111,111 ) ( 80,569 )

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash ( 6,549 ) 3,084 ( 6,972 )

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

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

( 10,507 ) 26,728 ( 14,436 )

6 unchanged sentences

Consolidated Statement of Stockholders' Equity

Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Items Noncontrolling Interest Total Stockholders' Equity

Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Items Noncontrolling Interests

Total Stockholders' Equity

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

5 unchanged sentences

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

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

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

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

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

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

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

Net income — — — 116,069 — — — 737 116,806

1 unchanged sentence

— — — ( 13,582 ) — — — — ( 13,582 )

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

Activity under stock plans — — 5,016 — ( 34,019 ) 834 — — 5,850

5 unchanged sentences

Activity under stock plans — — 5,434 — ( 37,898 ) 929 — — 6,363

Noncontrolling interests acquired ( Note 2 )

— — — — — — — 9,319 9,319

Acquisition of subsidiary shares ( N ote 2 )

— — ( 194 ) — — — — ( 329 ) ( 523 )

Dividend paid to noncontrolling interest

— — — — — — — ( 1,346 ) ( 1,346 )

Other comprehensive items — — — — — — ( 29,306 ) ( 137 ) ( 29,443 )

8 unchanged sentences

Its products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping 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 the Company's three reportable operating segments:

Flow Control, Industrial Processing, and Material Handling.

Noncontrolling Interest

One of the Company's foreign subsidiaries that manufactures fluid-handling products is part of a joint venture agreement with an Italian company in which each holds a 50 % ownership interest.

The agreement provides the Company's subsidiary with the option to purchase the remaining 50 % interest in the joint venture.

Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of the Company's three reportable segments consisting of the Flow Control segment, Industrial Processing segment, and Material Handling segment.

Principles of Consolidation

1 unchanged sentence

All material intercompany accounts and transactions have been eliminated.

Noncontrolling Interests

In connection with the Company's January 2024 acquisition of Key Knife, Inc.

and certain of its affiliates (collectively, Key Knife), the Company acquired a 45 % interest in two of Key Knife's subsidiaries.

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 the subsidiary where the Company holds a noncontrolling interest at any time after December 31, 2027.

In May 2024, the Company acquired the remaining shares in one of the two subsidiaries.

See Note 2 , Acquisitions, for additional information about the Company's acquisition of Key Knife.

In addition, one of the Company's foreign subsidiaries that manufactures fluid-handling products is part of a joint venture agreement with an Italian company in which each holds a 50 % ownership interest.

The agreement provides the Company's subsidiary with the option to purchase the remaining 50 % interest in the joint venture.

The Company has adopted a fiscal year ending on the Saturday nearest to December 31.

References to 2023, 2022, and 2021 are for the Company's fiscal years ended December 30, 2023 (fiscal 2023), December 31, 2022 (fiscal 2022) and January 1, 2022 (fiscal 2021).

References to 2024, 2023, and 2022 are for the Company's fiscal years ended December 28, 2024 (fiscal 2024), December 30, 2023 (fiscal 2023) and December 31, 2022 (fiscal 2022).

Financial Statement Presentation

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

Within operating activities in the consolidated statement of cash flows, the Company previously included certain non-cash movements between right-of-use assets and operating lease liabilities as a decrease in other assets and an increase in other liabilities, respectively.

The Company recast the prior periods to exclude this non-cash movement, which did not result in a change to net cash provided by operating activities within the consolidated statement of cash flows in these periods.

The Company reclassified the prior year accrued warranty and installation costs amount in the accompanying consolidated balance sheet to present it separately to conform with the current year presentation.

Use of Estimates and Critical Accounting Policies

5 unchanged sentences

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

2024 Financial Statements

Notes to Consolidated Financial Statements

Revenue Recognition

1 unchanged sentence

Most of the Company’s revenue is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service.

2023 Financial Statements

Notes to Consolidated Financial Statements

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

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

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

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

3 unchanged sentences

The following table presents revenue by revenue recognition method:

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Point in Time $ 935,520 $ 849,507 $ 807,966

5 unchanged sentences

For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation based on the relative stand-alone selling price.

The Company disaggregates its revenue from contracts with customers by reportable operating segment, product type and geography as this best depicts how its revenue is affected by economic factors.

The Company disaggregates its revenue from contracts with customers by reportable segment, product type and geography as this best depicts how its revenue is affected by economic factors.

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Revenue by Product Type:

8 unchanged sentences

$ 1,053,384 $ 957,672 $ 904,739

See Note 12 , Business Segment and Geographical Information, for information on the disaggregation of revenue by reportable operating segment.

See Note 11 , Business Segment and Geographical Information, for information on the disaggregation of revenue by reportable segment.

The following table presents contract balances from contracts with customers:

4 unchanged sentences

Contract liabilities consist of short- and long-term customer deposits, advanced billings, and deferred revenue.

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

Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met.

The majority of the contract liabilities relate to advance payments on contracts accounted for at a point in time.

These advance payments will be recognized as revenue when the

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

2024 Financial Statements

Notes to Consolidated Financial Statements

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.

long-term liabilities in the accompanying consolidated balance sheet.

Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met.

The majority of the contract liabilities relate to advance payments on contracts accounted for at a point in time.

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 $ 70,943,000 in 2024 and $ 65,562,000 in 2023 that was included in the contract liabilities balance at the beginning of 2024 and 2023, respectively.

2 unchanged sentences

For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations as of year-end 2024 was $ 18,959,000 .

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 % after December 28, 2024.

The Company will recognize revenue for these performance obligations as they are satisfied, approximately 52 % of which is expected to occur within the next twelve months and the remaining 48 % after January 3, 2026.

Customers in China will often settle their accounts receivable with banker's acceptance drafts, in which case cash settlement will be delayed until the drafts mature or are settled prior to maturity.

13 unchanged sentences

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Balance at Beginning of Year $ 4,090 $ 3,595 $ 2,735

8 unchanged sentences

These drafts, which totaled $ 5,299,000 at year-end 2024 and $ 10,826,000 at year-end 2023, are included in accounts receivable in the accompanying consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.

Warranty Obligations

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

2024 Financial Statements

Notes to Consolidated Financial Statements

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

Warranty Obligations

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

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

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Should these factors or actual results differ from the Company's estimates, revisions to the estimated warranty liability would be required.

The Company's liability for warranties is included in other current liabilities in the accompanying consolidated balance sheet.

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

3 unchanged sentences

Usage ( 4,957 ) ( 4,606 )

Acquisitions 473 —

Currency translation ( 581 ) 222

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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

2024 Financial Statements

Notes to Consolidated Financial Statements

administrative guidance, as well as guidance on transitional safe harbor relief.

Since the release of the Pillar Two Rules, the OECD has issued four 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 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.

For fiscal 2024, the Company qualifies for the transitional safe harbor, which provides temporary relief from the application of the global minimum tax.

As a result of meeting the transitional safe harbor criteria, the Company does not anticipate a material impact on its effective tax rate or incremental tax liabilities in the near term.

The Company continues to evaluate its eligibility under the safe harbor provisions and monitor evolving regulatory guidance that may affect its long-term tax position.

Earnings per Share

Basic earnings per share (EPS) is computed by dividing net income attributable to Kadant by the weighted average number of shares outstanding during the year.

Diluted EPS is computed using the treasury stock method assuming the effect of all potentially dilutive securities, including stock options (in 2021), restricted stock units (RSUs) and employee stock purchase plan shares.

Diluted EPS is computed using the treasury stock method assuming the effect of all potentially dilutive securities, including restricted stock units (RSUs) and employee stock purchase plan shares.

Cash, Cash Equivalents, and Restricted Cash

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Cash and cash equivalents $ 94,660 $ 103,832 $ 76,371

2 unchanged sentences

Supplemental Cash Flow Information

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Cash Paid for Interest $ 19,699 $ 8,071 $ 6,053

2 unchanged sentences

Fair value of assets acquired $ 360,694 $ 1,338 $ 2,785

Cash paid for acquired businesses, net ( 1,074 ) ( 3,597 ) ( 152,661 )

Increase (decrease) in liabilities assumed $ 264 $ ( 812 ) $ 38,316

Fair value of liabilities assumed (adjusted)

$ 36,340 $ 264 $ ( 812 )

Fair value of noncontrolling interest acquired $ 9,319 $ — $ —

Fair value of contingent consideration acquired $ 1,785 $ — $ —

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

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Dividends declared but unpaid $ 3,762 $ 3,395 $ 3,036

Inventories are stated at the lower of cost (on a first-in, first-out;

or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead.

The Company regularly reviews its quantities of inventories on hand and compares these amounts to the historical and forecasted usage of and demand for each particular product or

2024 Financial Statements

Notes to Consolidated Financial Statements

product line.

Inventories are stated at the lower of cost (on a first-in, first-out;

or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead.

The Company regularly reviews its quantities of inventories on hand and compares these amounts to the historical and forecasted usage of and demand for each particular product or product line.

The Company records a charge to cost of revenue for excess and obsolete inventory to reduce the carrying value of inventories to net realizable value.

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For construction in progress, no provision for depreciation is made until the assets are available and ready for use.

Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable.

Property, plant, and equipment consist of the following:

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

Intangible assets acquired related to the Company's acquisition in 2023 were $ 211,000 , which primarily consisted of customer relationships (see Note 2 , Acquisitions).

Intangible assets acquired related to the Company's acquisitions in 2024 totaled $ 154,023,000 .

See Note 2 , Acquisitions, for further details.

Definite-lived intangible assets at year-end 2024 have a weighted average amortization period of 14 years.

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

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

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

(In thousands) Flow Control Industrial Processing Material Handling Total

Balance as of January 1, 2022

Balance as of December 31, 2022

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

2 unchanged sentences

2023 Activity

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

Impairment loss — ( 29 ) — ( 29 )

Acquisition ( Note 2 )

Currency translation 2,473 2,020 1,339 5,832

5 unchanged sentences

Net balance 120,782 127,194 144,108 392,084

2023 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) Flow Control Industrial Processing Material Handling Total

2024 Activity

Acquisition (Note 2) $ — $ 793 $ 4 $ 797

Acquisitions (Note 2)

15,384 36,096 48,160 99,640

Measurement period adjustment for 2023 acquisition

— ( 22 ) — ( 22 )

Currency translation ( 3,961 ) ( 5,740 ) ( 2,832 ) ( 12,533 )

1 unchanged sentence

$ 11,423 $ 30,334 $ 45,328 $ 87,085

2024 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) Flow Control Industrial Processing Material Handling Total

Balance at December 28, 2024

2 unchanged sentences

Net balance $ 132,205 $ 157,528 $ 189,436 $ 479,169

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

Impairment of Long-Lived Assets

Beginning in 2023, the Company evaluates the recoverability of goodwill and indefinite-lived intangible assets as of the first day of the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset might be impaired.

Prior to 2023, this evaluation was performed as of the end of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset might be impaired.

Impairment of Goodwill and Intangible Assets

The Company evaluates the recoverability of goodwill and indefinite-lived intangible assets as of the first day of the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset might be impaired.

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

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

At October 1, 2023 (the first day of the fourth quarter of 2023), the Company performed a quantitative goodwill impairment analysis (Step 1) for all of its reporting units, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the assets were no t impaired.

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

At year-end 2022, the Company performed a qualitative goodwill impairment assessment (Step 0) for each of its reporting units, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the asset was not impaired.

At September 29, 2024 (the first day of the fourth quarter of 2024), the Company performed a qualitative goodwill impairment assessment (Step 0) for each of its reporting units, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the asset was not impaired.

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

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

2023 Financial Statements

Notes to Consolidated Financial Statements

At year-end 2024, no factors were identified that would alter the conclusions of the September 29, 2024 goodwill impairment analysis

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

Goodwill by reporting unit is as follows:

2 unchanged sentences

Doctoring, Cleaning, & Filtration 55,472 57,602

Stock-Preparation 21,150 20,311

Fiber Processing 20,956 21,150

Wood Processing 136,572 106,044

1 unchanged sentence

$ 479,169 $ 392,084

2024 Financial Statements

Notes to Consolidated Financial Statements

Intangible Assets

At September 29, 2024, the Company performed a qualitative impairment analysis (Step 0) on its indefinite-lived intangible assets and determined that the assets were not impaired.

At year-end 2024, no factors were identified that would alter the conclusions of the September 29, 2024 indefinite-lived intangible asset impairment analysis.

At October 1, 2023, the Company performed a quantitative impairment analysis (Step 1) on its indefinite-lived intangible assets and determined that the assets were not impaired.

At year-end 2023, no factors were identified that would alter the conclusions of the October 1, 2023 indefinite-lived intangible asset impairment analysis.

At year-end 2022, the Company performed a qualitative impairment analysis (Step 0) on its indefinite-lived intangible assets and determined that the assets were not impaired.

At year-end 2023, no factors were identified that would alter the conclusions of the September 29, 2024 indefinite-lived intangible asset impairment analysis.

No triggering events or indicators of impairment were identified in 2024 or 2023 related to the Company's definite-lived intangible assets.

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While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, the estimates and assumptions are inherently uncertain and subject to refinement.

As a result, during the purchase price allocation period, which is generally one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

As a result, during the purchase accounting measurement period, which is generally up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs.

Subsequent to the purchase price allocation period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determ ined.

Acquisition transaction costs are recorded as incurred in SG&A expenses in the accompanying consolidated statement of income and were $ 1,442,000 in 2023 (see Note 15 , Subsequent Events), $ 668,000 in 2022, and $ 3,655,000 in 2021.

The Company estimates the fair value of intangible assets primarily using the multi-period excess earnings and relief-from-royalty valuation methods, which are based on projections of discounted cash flows or royalty payments avoided that are expected from the identifiable intangible assets of the acquired businesses.

The Company's valuation models incorporate significant assumptions, including future revenue growth rates, customer attrition rates, gross and operating margins, discount rates and royalty rates.

Subsequent to the measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determ ined.

Acquisition costs are recorded as incurred in SG&A expenses in the accompanying consolidated statement of income and were $ 2,872,000 in 2024, $ 1,442,000 in 2023, and $ 668,000 in 2022.

Foreign Currency Translation and Transactions

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For time-based RSUs, compensation expense is recognized ratably over the requisite service period for the entire award based on the grant date fair value, and net of actual forfeitures recorded when they occur.

For performance-based RSUs, compensation expense is recognized ratably over the requisite service period for each separately vesting portion of

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.

Compensation expense related to any modified stock-based awards is based on the fair value for those awards as of the modification date with any remaining incremental compensation expense recognized ratably over the remaining requisite service period.

2024 Financial Statements

Notes to Consolidated Financial Statements

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.

The Company uses derivative instruments primarily to reduce its exposure to changes in currency exchange rates and interest rates.

When the Company enters into a derivative contract, the Company makes a determination as to whether the transaction is deemed to be a hedge for accounting purposes.

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

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

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

The change in the fair value of a derivative not deemed to be a hedge is recorded currently in earnings.

The Company does not hold or engage in transactions involving derivative instruments for purposes other than risk management.

ASC 815, Derivatives and Hedging , requires that all derivatives be recognized on the consolidated balance sheet at fair value.

For derivatives designated as cash flow hedges, the related gains or losses on these contracts are deferred as a component of AOCI.

These deferred gains and losses are recognized in the consolidated statement of income in the period in which the underlying anticipated transaction occurs.

For derivatives designated as fair value hedges, the unrealized gains and losses resulting from the impact of currency exchange rate movements are recognized in earnings in the period in which the exchange rates change and offset the currency gains and losses on the underlying exposures being hedged.

The Company performs an evaluation of the effectiveness of the hedge both at inception and on an ongoing basis.

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

Recent Accounting Pronouncements Not Yet Adopted

Business Combinations - Joint Venture Formations (Topic 805), Recognition and Initiation Measurement.

In August 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-05, to address the diversity in practice on the accounting treatment of joint venture formations.

Under this ASU, a joint venture is required to apply a new basis of accounting at its formation date by valuing the net assets contributed at fair value for both business and asset transactions.

The value of the net assets in total is then allocated to individual assets and liabilities by applying Topic 805 with certain exceptions.

This new guidance is effective for joint ventures with a formation date on or after January 1, 2025 and is required to be applied prospectively.

Additionally, joint ventures with a formation date prior to January 1, 2025 have an option to elect to apply the guidance retrospectively, provided adequate information is available.

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.

Recent Accounting Pronouncements

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

In November 2023, the FASB issued ASU No.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

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

1 unchanged sentence

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.

This ASU is effective for fiscal year-end 2024 and interim periods beginning in fiscal 2025, and requires retrospective application to all prior periods presented in the financial statements.

The Company adopted this ASU during the fourth quarter of 2024, which resulted in additional disclosures.

See Note 11 , Business Segment and Geographical Information, for the Company's enhanced segment disclosures.

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

1 unchanged sentence

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.

This ASU is effective for fiscal year-end 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.

2023 Financial Statements

Notes to Consolidated Financial Statements

On December 19, 2023, the Company acquired a business in Sweden, which is included in the Company's Industrial Processing segment, for approximately $ 895,000 , net of cash acquired.

On November 14, 2022, the Company acquired a business in Canada, which is included in the Company's Material Handling segment, for approximately $ 3,622,000 , net of cash acquired.

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

The majority of the Clouth companies were acquired on July 19, 2021 and the acquisition of the last legal entity occurred on August 10, 2021, which the Company accounted for as a noncontrolling interest during the period from July 19, 2021 to August 10, 2021.

The Company funded the purchase price with euro-denominated borrowings under its revolving credit facility and existing cash.

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

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

Goodwill from the Clouth acquisition was $ 25,773,000 , of which $ 7,116,000 is expected to be deductible for tax purposes over 15 years.

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

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

On August 23, 2021, the Company acquired all the outstanding equity securities in East Chicago Machine Tool Corporation (Balemaster) and certain assets of affiliated companies for $ 53,547,000 , net of cash acquired.

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

manufacturer of horizontal balers and related equipment used primarily for recycling packaging waste at corrugated box plants and large retail and distribution centers.

The Company funded the purchase price with borrowings under its revolving credit facility.

Goodwill from the Balemaster acquisition was $ 26,334,000 , none of which is deductible for tax purposes.

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

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

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

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

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

Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Topic 220).

In November 2024, the FASB issued ASU No.

2024-03, to disaggregate operating expense into specific categories to provide enhanced transparency into the nature and function of expenses.

This ASU is effective for fiscal year-end 2027 and interim periods beginning in fiscal 2028, 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.

Key Knife, Inc.

On January 1, 2024, the Company acquired Key Knife pursuant to a securities purchase agreement dated December 22, 2023, for $ 153,386,000 , net of cash acquired and subject to a post-closing adjustment.

Key Knife is a global supplier of engineered knife systems for custom chipping, planing, and flaking solutions for wood products industries and is part of the Company's Industrial Processing segment.

Goodwill from the Key Knife acquisition was $ 35,894,000 , of which $ 29,158,000 is expected to be deductible for tax purposes over 15 years.

In addition, separately identifiable intangible assets acquired were $ 91,620,000 , of which $ 77,400,000 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.

See "Other Acquisitions" below for additional information.

KWS Manufacturing Company, Ltd.

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

(KWS) for $ 79,429,000 .

The Company paid $ 79,191,000 and assumed a $ 238,000 bank overdraft.

KWS is a leading manufacturer of conveying equipment for the bulk material handling industry and is part of the Company's Material Handling segment.

Goodwill from the KWS acquisition was $ 38,418,000 and separately identifiable intangibles assets were $ 29,100,000 , both of which are expected to be fully deductible for tax purposes over 15 years.

Dynamic Sealing Technologies LLC

On May 31, 2024, the Company acquired all of the outstanding equity securities of Dynamic Sealing Technologies LLC and affiliates (collectively, DSTI) for $ 53,570,000 , net of cash acquired.

DSTI is a leading manufacturer of engineered fluid sealing and transfer solutions for rotating applications and is part of the Company's Flow Control segment.

Goodwill from the DSTI acquisition was $ 14,946,000 , of which $ 14,161,000 is expected to be deductible

2024 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) Clouth Other Total

Net Assets Acquired:

for tax purposes over 15 years.

In addition, separately identifiable intangible assets acquired were $ 24,380,000 , all of which are expected to be fully deductible for tax purposes over 15 years.

Other Acquisitions

On May 2, 2024, the Company acquired a service business in Germany, which is included in the Company's Material Handling segment, for $ 3,352,000 , net of cash acquired and subject to a post-closing adjustment.

On May 6, 2024, the Company acquired the remaining outstanding shares of a Key Knife subsidiary in which the Company previously held a noncontrolling interest for $ 523,000 in cash.

On August 21, 2024, the Company acquired a technology company as part of its Material Handling segment.

The total purchase price was approximately $ 11,785,000 , which included cash paid of $ 8,843,000 net of cash acquired, an estimated post-closing adjustment of $ 1,157,000 to be paid within 18 months of closing, and contingent consideration with a fair value of $ 1,785,000 .

The contingent consideration is payable upon the achievement of certain revenue performance targets earned between June 30, 2025 and June 30, 2027.

The maximum future value of the contingent consideration subject to payment is approximately $ 10,876,000 , calculated using the foreign currency spot rate at December 28, 2024.

The valuation of the contingent consideration is dependent on the following assumptions:

the probability of successful achievement of certain revenue targets, forecasted revenue, revenue volatility, and discount rate.

These assumptions were estimated based on a review of historical and projected results.

See Note 10 , Fair Value Measurements and Fair Value of Financial Instruments, for additional information related to the fair value of the contingent consideration assumed in the acquisition.

In August 2024, the Company acquired certain other assets for a total of $ 1,755,000 in cash.

Purchase Price Allocation

The following table summarizes the aggregate purchase price and estimated fair values of the net assets and noncontrolling interests acquired related to the 2024 acquisitions:

(In thousands) Total

Cash and Cash Equivalents $ 11,509

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Inventories 24,649

Other Current Assets

Property, Plant, and Equipment 37,028

4 unchanged sentences

Tradenames 9,497

Other 401 1,560 1,961

Indefinite-Lived Intangible Assets

Tradenames 4,959 — 4,959

Goodwill 99,640

Total assets acquired 360,694

Short-term Obligations and Current Maturities of Long-term Obligations 1,393 — 1,393

Accounts Payable 3,301

Customer Deposits

Other Current Liabilities

Long-Term Deferred Income Taxes 5,786

Long-Term Obligations 4,244 — 4,244

Other Liabilities 8,240 6,929 15,169

Other Long-Term Liabilities

Total liabilities assumed 36,340

Net assets acquired $ 92,150 $ 60,186 $ 152,336

Noncontrolling interests acquired

Net assets and noncontrolling interests acquired

2024 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) Total

Purchase Price:

Cash Paid $ 311,844

The weighted-average amortization period for Clouth's definite-lived intangible assets is 19 years, including weighted-average amortization periods of 24 years for customer relationships and 10 years for product technology.

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

Fair Value of Contingent Consideration (Note 10)

Estimated Remaining Post-Closing Adjustments, Net

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, which may result in adjustments to the assets and liabilities, including goodwill.

The Company expects the remaining purchase price adjustments will relate to the valuation of acquired intangibles and deferred income taxes associated with its acquisitions made in the second and third quarters of 2024.

Measurement period adjustments made in 2024 were not material to the Company's financial position or results of operations.

The weighted-average amortization period for the definite-lived intangible assets related to the 2024 acquisitions is 17 years, including weighted-average amortization periods of 18 years for customer relationships, 12 years for product technology, and 20 years for tradenames.

Revenue and operating income for the year ended December 28, 2024 associated with the 2024 acquisitions from their respective acquisition dates are as follows:

(In thousands)

Revenue $ 115,227

Operating Income (a)

(a) Includes amortization expense associated with acquired profit in inventory and backlog of $ 8,441,000 in 2024.

Unaudited Supplemental Pro Forma Information

The following unaudited pro forma information provides the effect of the Company's 2021 acquisition of Clouth as if it had occurred at the beginning of 2020:

(In thousands, except per share amounts) January 1,

The following unaudited pro forma information provides the effect of the Key Knife, KWS and DSTI acquisitions as if had they been completed as of the beginning of 2023:

(In thousands, except per share amounts) December 28, 2024 December 30, 2023

Revenue $ 1,064,976 $ 1,093,750

1 unchanged sentence

Earnings per Share Attributable to Kadant

Basic $ 10.01 $ 9.07

Diluted $ 9.99 $ 9.04

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

The historical consolidated pro forma financial information of the Company, Key Knife, KWS, and DSTI above has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisitions 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 reversal to cost of revenue of $ 3,082,000 in 2021, for the sale of inventory revalued at the date of acquisition.

• Pre-tax charge to cost of revenue of $ 5,297,000 in 2023 and reversal of $ 5,141,000 in 2024 for the sale of inventory revalued at the date of acquisition.

• Pre-tax charge to SG&A expenses of $ 3,496,000 in 2023 and reversal of $ 2,898,000 in 2024 for intangible asset amortization related to acquired backlog.

• Pre-tax charge to SG&A expenses of $ 2,872,000 in 2023 and reversal of $ 2,872,000 in 2024 for acquisition costs.

• 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.

The Company's pro forma results of operations exclude its other acquisitions in 2024 as the inclusion of those results would not have been materially different from the pro forma results presented above.

2024 Financial Statements

Notes to Consolidated Financial Statements

• Pre-tax reversal to SG&A expenses of $ 2,710,000 in 2021 and $ 399,000 in 2021, for acquisition costs and intangible asset amortization related to acquired backlog, respectively.

• 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 acquisition of Clouth occurred as of the beginning of 2020, or that may result in the future.

The Company's pro forma results exclude the Company's other acquisitions in 2021 as the inclusion of those results would not have been materially different from the pro forma results presented above had the acquisitions occurred at the beginning of 2020.

On December 19, 2023, the Company acquired a business in Sweden, which is included in the Company's Industrial Processing segment, for approximately $ 895,000 , net of cash acquired.

On November 14, 2022, the Company acquired a business in Canada, which is included in the Company's Material Handling segment, for approximately $ 3,622,000 , net of cash acquired.

Employee Benefit Plans

9 unchanged sentences

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

RSU Awards $ 10,119 $ 9,376 $ 8,222

Employee Stock Purchase Plan Awards 520 389 354

Total $ 9,765 $ 8,576 $ 8,527

$ 10,639 $ 9,765 $ 8,576

The Company grants RSUs to non-employee directors and certain employees.

5 unchanged sentences

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

There were no unvested non-employee director RSUs at December 28, 2024.

Performance-Based Restricted Stock Units

3 unchanged sentences

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

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

2024 Financial Statements

Notes to Consolidated Financial Statements

Unrecognized compensation expense related to the unvested performance-based RSUs totaled $ 4,171,000 at year-end 2024, and will be recognized over a weighted average period of 1.4 years.

20 unchanged sentences

The total fair value of shares vested was $ 9,089,000 in 2024, $ 7,834,000 in 2023, and $ 8,337,000 in 2022.

Stock Options

The Company has not granted stock options since 2013.

Prior to 2014, the Company granted nonqualified stock options to its executive officers that vested over three years and were not exercisable until vested.

Options awarded were granted at an exercise price equal to the fair market value of the Company's common stock on the date of grant.

There were no stock options outstanding at year-end 2023, 2022 and 2021 as all remaining stock options were exercised prior to the end of 2021.

The total intrinsic value of options exercised and total cash received from options exercised during the year ended January 1, 2022 were $ 4,986,000 and $ 665,000 , respectively.

Employee Stock Purchase Plan

3 unchanged sentences

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

The Company issued 10,627 shares for 2023 (issued in fiscal 2024), 9,111 shares in 2022, and 10,230 shares in 2021 of its common stock under this plan.

The Company issued 8,818 shares for 2024 (issued in fiscal 2025), 10,627 shares in 2023 (issued in fiscal 2024), and 9,111 shares in 2022 of its common stock under this plan.

The Company had 71,905 shares available for grant under the employee stock purchase plan at year-end 2024.

2023 Financial Statements

Notes to Consolidated Financial Statements

401(k) Savings and Other Defined Contribution Plans

10 unchanged sentences

and foreign subsidiaries.

2024 Financial Statements

Notes to Consolidated Financial Statements

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

8 unchanged sentences

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Domestic $ 51,417 $ 57,810 $ 46,558

2 unchanged sentences

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Current Provision:

9 unchanged sentences

$ 40,516 $ 42,210 $ 43,906

2023 Financial Statements

Notes to Consolidated Financial Statements

The Company receives a tax deduction upon the exercise of nonqualified stock options and the vesting of RSUs.

The Company receives a tax deduction upon the vesting of RSUs.

The Company recognizes excess income tax benefits and tax deficiencies related to stock-based compensation arrangements as discrete items within the provision for income taxes in the reporting period in which they occur.

The Company recognized an income tax benefit of $ 523,000 in 2024, $ 354,000 in 2023 and $ 501,000 in 2022 in the accompanying consolidated statement of income.

2024 Financial Statements

Notes to Consolidated Financial Statements

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Provision for Income Taxes at Statutory Rate $ 32,145 $ 33,393 $ 34,784

3 unchanged sentences

Nondeductible expenses 1,731 1,730 2,683

tax cost of foreign earnings 1,270 932 481

Provision for (reversal of) tax benefit reserves, net 386 ( 1,368 ) ( 444 )

tax (benefit) cost of foreign earnings ( 1,379 ) 1,270 932

(Reversal of) provision for tax benefit reserves, net ( 65 ) 386 ( 1,368 )

Research and development tax credits ( 503 ) ( 520 ) ( 425 )

29 unchanged sentences

The valuation allowance at year-end 2024 was $ 7,570,000 , consisting of $ 63,000 in the United States and $ 7,507,000 in foreign jurisdictions.

The decrease in the valuation allowance in 2023 of $ 1,154,000 is related primarily to utilization of net operating losses and a decrease in unbenefited deferred tax assets from a restructuring,

The decrease in the valuation allowance in 2024 of $ 259,000 is related primarily to utilization of net operating losses and fluctuations in foreign currency exchange rates, partially offset by the valuation allowance recorded in purchase accounting.

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

When assessing the need for a valuation

2024 Financial Statements

Notes to Consolidated Financial Statements

partially offset by fluctuations in foreign currency exchange rates.

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

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

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

3 unchanged sentences

Of the foreign net operating loss carryforwards, $ 1,244,000 will expire in the years 2025 through 2044, and the remainder do not expire.

As of year-end 2023, the Company also had state disallowed business interest expense carryforwards of $ 71,000 and foreign tax credits of $ 382,000 , of which $ 120,000 came from the acquisition of Syntron Material Handling Group, LLC and certain of its affiliates in 2019.

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

The utilization of these tax attributes is limited to the Company’s future taxable income.

As of year-end 2024, the Company had foreign tax credits carryforwards of $ 240,000 .

The foreign tax credit carryforward begins to expire in 2028.

The utilization of this tax attribute is limited to the Company's future taxable income.

At year-end 2024, the Company had approximately $ 296,095,000 of unremitted foreign earnings.

6 unchanged sentences

In management's opinion, adequate provisions for income taxes have been made for all years subject to audit.

As of year-end 2023, the Company had a liability of $ 11,212,000 for unrecognized tax benefits which, if recognized, would reduce the effective tax rate.

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

As of year-end 2024, the Company had a liability of $ 14,510,000 for unrecognized tax benefits of which $ 6,032,000 , if recognized, would reduce the effective tax rate.

A reconciliation of unrecognized tax benefits is as follows:

(In thousands) December 28, 2024 December 30, 2023

1 unchanged sentence

Gross Increases – Tax Positions in Prior Periods 80 44

Gross Increases – Tax Positions in Prior Periods Arising from Acquisitions (a) 4,372 —

Gross Decreases – Tax Positions in Prior Periods ( 25 ) ( 37 )

4 unchanged sentences

Unrecognized Tax Benefits, End of Year $ 14,510 $ 11,212

(a) Indemnification assets of $ 4,372,000 were also recorded.

A portion of the unrecognized tax benefits generated in 2024 is offset by deferred tax assets in the accompanying consolidated balance sheet.

1 unchanged sentence

The Company has accrued $ 3,488,000 at year-end 2024 and $ 2,017,000 at year-end 2023 for the potential payment of interest and penalties.

The interest and penalties included in the accompanying consolidated statement of income was an expense of $ 120,000 in 2023 and a benefit of $ 333,000 in 2022.

The interest and penalties included in the accompanying consolidated statement of income was an expense of $ 131,000 in 2024 and $ 120,000 in 2023.

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

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

It is reasonably possible that over the next fiscal year the amount of liability for unrecognized tax benefits may be reduced by up to $ 1,135,000 primarily from the expiration of tax statutes of limitations.

2023 Financial Statements

Notes to Consolidated Financial Statements

The Company remains subject to U.S.

2 unchanged sentences

In addition, the Company remains subject to state and local income tax examinations in the United States for the tax years 2003 through 2024.

Short- and Long-Term Obligations

Short- and long-term obligations are as follows:

2024 Financial Statements

Notes to Consolidated Financial Statements

Long-Term Obligations

Long-term obligations are as follows:

(In thousands) December 28, 2024 December 30, 2023

4 unchanged sentences

Total 288,527 110,875

Short-Term Obligations and Current Maturities of Long-Term Obligations ( 3,209 ) ( 3,821 )

Current Maturities of Long-Term Obligations ( 3,376 ) ( 3,209 )

Long-Term Obligations $ 285,151 $ 107,666

4 unchanged sentences

Pursuant to the Credit Agreement, the Company has a borrowing capacity of $ 400,000,000 and interest on borrowings outstanding accrues and is payable in arrears calculated at one of the following rates selected by the Company:

(i) the Base Rate, as defined, plus a margin of 0 % to 1.25 %, or (ii) Eurocurrency Rate, Term SOFR (plus a 10 basis point credit spread adjustment), CDOR Rate, and RFR, as applicable and defined, plus a margin of 1.0 % to 2.25 %.

(i) the Base Rate, as defined, plus a margin of 0 % to 1.25 %, or (ii) Eurocurrency Rate, Term SOFR (plus a 10 basis point credit spread adjustment), Term CORRA, and RFR, as applicable and defined, plus a margin of 1.0 % to 2.25 %.

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

3 unchanged sentences

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

At year-end 2023, the outstanding balance under the Credit Agreement was $ 98,761,000 , which included $ 75,761,000 of euro-denominated borrowin gs primarily used to fund the Company's acquisitions in 2021.

At year-end 2024, the outstanding balance under the Credit Agreement was $ 278,384,000 , which included $ 71,384,000 of euro-denominated borrowin gs .

Th e Company had $ 121,760,000 of borrowing capacity available at year-end 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 5.27 % as of year-end 2024 and 5.24 % as of year-end 2023.

See Note 10 , Derivatives, under the heading Interest Rate Swap Agreement , for information relating to the Company's swap agreement, which matured on June 30, 2023.

Senior Promissory Notes

In 2018, the Company entered into an uncommitted, unsecured Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement).

Simultaneous with the execution of the Note Purchase Agreement, the Company issued senior promissory notes (Initial Notes) in an aggregate principal amount of $ 10,000,000 , with a per annum interest rate of 4.90 % payable semiannually, and a maturity date of December 14, 2028.

The Company is required to prepay a

Simultaneously with the execution of the Note Purchase Agreement, the Company issued senior promissory notes (Initial Notes) in an aggregate principal amount of $ 10,000,000 , with a per annum interest rate of 4.90 % payable semiannually, and a maturity date of December 14, 2028.

The Company was required to prepay a portion of the principal of the Initial Notes beginning on December 14, 2023 and for each year thereafter, and may optionally prepay the principal on the Initial Notes, together with any prepayment premium, at any time in accordance with the Note Purchase Agreement.

The obligations of the Initial Notes may be accelerated upon an event of default as defined in the Note Purchase Agreement, which includes customary events of default under such financing arrangements.

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

2024 Financial Statements

Notes to Consolidated Financial Statements

portion of the principal of the Initial Notes beginning on December 14, 2023 and each year thereafter, and may optionally prepay the principal on the Initial Notes, together with any prepayment premium, at any time in accordance with the Note Purchase Agreement.

the Company and its subsidiaries under the Credit Agreement.

The Initial Notes are guaranteed by certain of the Company's domestic subsidiaries.

5 unchanged sentences

Other Borrowings

At year-end 2023, other borrowings included $ 556,000 of short-term obligations and $ 1,439,000 of long-term debt obligations outstanding assumed in the acquisition of Clouth, which have maturity dates ranging from 2026 to 2028 and interest rates of up to 1.70 %.

At year-end 2024, other borrowings included $ 1,460,000 of debt obligations, which have maturity dates ranging from 2026 to 2028 and interest rates of up to 1.70 %.

Annual Repayment Requirements

The following schedule presents the annual repayment requirements for the Company’s short-and long-term obligations, excluding finance leases, as of year-end 2023.

The following schedule presents the annual repayment requirements for the Company’s long-term obligations, excluding finance leases, as of year-end 2024.

(In thousands) Total

11 unchanged sentences

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

2023 Financial Statements

Notes to Consolidated Financial Statements

Contingencies

2 unchanged sentences

The Company believes that it has adequate reserves for any potential liability in connection with such guarantees.

2024 Financial Statements

Notes to Consolidated Financial Statements

From time to time, the Company is subject to various claims and legal proceedings covering a range of matters that arise in the ordinary course of business.

2 unchanged sentences

If the Company were found to be liable for any of the claims or counterclaims against it, the Company would incur a charge against earnings for amounts in excess of legal accruals.

Gain on Sale and Other Items, Net

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

Gain on Sale and Other Costs, Net

The components of gain on sale and other costs, net are as follows:

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

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

Relocation Costs

Restructuring Costs

Impairment Costs

Restructuring and Impairment Costs

Other Costs (Income)

$ 658 $ 723 $ ( 18,856 )

3 unchanged sentences

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.

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

The government settled $ 685,000 of the receivable in 2024.

The outstanding receivable was $ 14,377,000 at year-end 2024, which the Company expects will be repaid in full, although the timing is uncertain.

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

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

A summary of the change in the outstanding receivable on the China Transaction, which is included in other current assets in the consolidated balance sheet, is as follows:

(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)

Balance at December 30, 2023

Accretion of interest income 135

Proceeds received

Currency translation ( 483 )

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

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

The building was vacated as part

2023 Financial Statements

Notes to Consolidated Financial Statements

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

Other Items, Net

Other Income and Relocation Costs

In 2023, in connection with the China Transaction, the Company recognized income of $ 841,000 from outsourcing the demolition and cleanup of the then existing manufacturing building in China and sale of the remaining fixed assets.

In addition, the Company incurred costs of $ 798,000 related to the relocation of machinery and equipment and administrative offices to the new manufacturing facility.

Balance at December 28, 2024

Other Costs, Net

Restructuring and Impairment Costs

1 unchanged sentence

2023 Restructuring Plans

• The Company incurred restructuring and impairment costs of $ 400,000 in 2023 related to consolidating a small manufacturing operation into a larger facility in Germany.

• The Company incurred restructuring and impairment costs of $ 400,000 in 2023 related to the consolidation of a small manufacturing operation into a larger facility in Germany.

These charges consisted of 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 incurred restructuring costs of $ 366,000 related to the termination of a contract at one of its operations in Germany.

The Company does not expect to incur additional costs related to its 2023 restructuring plans.

• The Company incurred restructuring costs of $ 366,000 in 2023 related to the termination of a contract at one of its operations in Germany.

2024 Financial Statements

Notes to Consolidated Financial Statements

2021 Restructuring Plan

• The Company incurred restructuring costs of $ 568,000 in 2022 and $ 176,000 in 2021 related to its plan to eliminate a redundant ceramic blade manufacturing operation in France.

• The Company incurred restructuring costs of $ 568,000 in 2022 related to its plan to eliminate a redundant ceramic blade manufacturing operation in France.

These charges consisted of severance costs for the termination of five employees and facility and other closure costs.

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

The Company also recorded restructuring costs of $ 35,000 and impairment costs of $ 731,000 within its Industrial Processing segment during 2022.

• The Company incurred restructuring costs of $ 35,000 and impairment costs of $ 731,000 within its Industrial Processing segment during 2022.

The impairment costs included $ 549,000 primarily related to the write-down of inventory from the Company's operations in Russia and $ 182,000 related to the write-down of certain fixed assets that were not moved to the new manufacturing facility in China as part of the China Transaction.

A summary of the changes in accrued restructuring costs included in other current liabilities in the accompanying consolidated balance sheet, which are expected to be paid in the first half 2024, are as follows:

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

(In thousands) Severance Costs Contract Termination Costs

6 unchanged sentences

$ 201 $ 313 $ —

2021 Restructuring Plan

Provision $ 176 $ — $ — $ 176

Usage ( 19 ) — — ( 19 )

( 195 ) ( 303 ) —

Currency translation

( 6 ) ( 10 ) —

Balance at December 28, 2024

2021 Restructuring Plan

Balance at January 1, 2022

Provision 205 — 398 603

Usage ( 159 ) — ( 231 ) ( 390 )

$ 156 $ — $ — $ 156

205 — 398 603

( 159 ) — ( 231 ) ( 390 )

Currency translation

( 13 ) — 33 20

Balance at December 31, 2022

Usage ( 187 ) — ( 199 ) ( 386 )

$ 189 $ — $ 200 $ 389

( 187 ) — ( 199 ) ( 386 )

Currency translation

( 2 ) — ( 1 ) ( 3 )

Balance at December 30, 2023

2023 Financial Statements

Notes to Consolidated Financial Statements

The Company enters into operating and finance lease commitments primarily for its manufacturing and office space, vehicles, and equipment that expire on various dates over the next 11 years, some of which include one or more options to extend the lease for up to five years .

$ — $ — $ — $ —

Other Costs (Income)

In 2024, the Company recognized a loss of $ 658,000 from the recognition of a currency translation adjustment associated with the liquidation of a small foreign subsidiary in the Flow Control segment.

In 2023, in connection with the China Transaction, the Company recognized income of $ 841,000 related to the outsourcing of demolition and cleanup of the then existing manufacturing building in China and sale of the remaining fixed assets.

In addition, the Company incurred relocation costs of $ 798,000 in 2023 related to the relocation of machinery and equipment and administrative offices to the new manufacturing facility.

The Company enters into operating and finance lease commitments primarily for its manufacturing and office space, vehicles, and equipment that expire on various dates over the next 17 years, some of which include assumed options to extend the lease term for up to 10 years.

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

1 unchanged sentence

The components of lease expense are as follows:

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Operating Lease Cost (a)

1 unchanged sentence

Short-Term Lease Cost 810 698 697

2024 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Finance Lease Cost:

5 unchanged sentences

Supplemental cash flow information related to leases is as follows:

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

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

3 unchanged sentences

ROU Assets Obtained in Exchange for Lease Obligations:

Operating leases $ 8,120 $ 4,002 $ 7,247

Operating leases (a)

$ 17,496 $ 8,120 $ 4,002

Finance leases $ 1,598 $ 989 $ 1,468

(a) Includes ROU assets of $ 10,847,000 in 2024 obtained in connection with the Company's acquisitions.

Supplemental balance sheet information related to leases is as follows:

10 unchanged sentences

ROU assets, net Property, plant, and equipment, net $ 1,983 $ 1,749

Short-term obligations Short-term obligations and current maturities of long-term obligations $ 983 $ 981

Short-term obligations Current maturities of long-term obligations

$ 1,075 $ 983

Long-term obligations Long-term obligations 948 806

Total finance lease liabilities $ 2,023 $ 1,789

2023 Financial Statements

Notes to Consolidated Financial Statements

December 28, 2024 December 30, 2023

5 unchanged sentences

Finance leases 5.11 % 4.71 %

2024 Financial Statements

Notes to Consolidated Financial Statements

As of December 28, 2024, future lease payments for lease liabilities are as follows:

4 unchanged sentences

2027 5,527 202

2028 3,842 24

2030 and Thereafter

3 unchanged sentences

As of December 28, 2024, the Company had no significant operating and finance leases that had not yet commenced.

Interest Rate Swap Agreement

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

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 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

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.

Such exposures result from assets and liabilities that are denominated in currencies other than the functional currencies of the Company's subsidiaries.

Forward currency-exchange contracts that hedge forecasted accounts receivable or accounts payable are designated as cash flow hedges and unrecognized gains and losses are recorded to AOCI, net of tax.

Deferred gains and losses are recognized in the statement of income in the period in which the underlying transaction occurs.

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 consolidated statement of income associated with the Company's forward currency-exchange contracts that were not designated as hedges were not material in 2023, 2022, and 2021.

2023 Financial Statements

Notes to Consolidated Financial Statements

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

December 30, 2023 December 31, 2022

(In thousands) Balance Sheet

Location Asset

(Liability) (a) Notional

Amount (b) Asset

(Liability) (a) Notional

Derivatives Designated as Hedging Instruments:

Derivatives in an Asset Position:

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

Derivatives in a Liability Position:

Forward currency-exchange contract Other Current

Liabilities $ ( 51 ) $ 430 $ ( 54 ) $ 430

Derivatives Not Designated as Hedging Instruments:

Derivatives in an Asset Position:

Forward currency-exchange contracts Other Current Assets $ 8 $ 701 $ 15 $ 647

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

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

The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the year ended December 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 )

Gain recognized in AOCI

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

$ — $ ( 38 ) $ ( 38 )

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

At year-end 2023, the Company expects to reclassify losses of $ 38,000 from AOCI to earnings over the next twelve months based on the maturity date of the forward currency-exchange contract.

Fair Value Measurements and Fair Value of Financial Instruments

4 unchanged sentences

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

2023 Financial Statements

Notes to Consolidated Financial Statements

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:

4 unchanged sentences

Forward currency-exchange contracts $ — $ 39 $ — $ 39

Forward currency-exchange contract $ — $ 51 $ — $ 51

Contingent consideration ( Note 2) (b)

$ — $ — $ 1,678 $ 1,678

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 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 2023.

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

(b) Included in other long-term liabilities in the accompanying consolidated balance sheet.

The Company uses the market approach technique to value its Level 1 and Level 2 financial assets and liabilities, and there were no changes in valuation techniques during 2024.

Banker's acceptance drafts are carried at face value which

2024 Financial Statements

Notes to Consolidated Financial Statements

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 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 Company uses the income approach technique to estimate the fair value of its Level 3 contingent consideration, including valuation models that incorporate probability adjusted assumptions and simulations related to the achievement of milestones and the likelihood of making the related payment.

The unobservable inputs used in the fair value measurements include the probability of successful achievement of certain revenue targets, forecasted revenue, revenue volatility, and discount rates.

Projected contingent consideration related to revenue-based payments are discounted back to the current period using a discounted cash flow model.

Changes to the fair value of contingent consideration can result from changes to one or multiple inputs, including the discount rate, projected revenue, revenue volatility, and the assumed probabilities of successful achievement of certain revenue targets.

The following table provides a rollforward of the change in the fair value of the contingent consideration as determined by Level 3 inputs:

(in thousands)

Balance Measured at Inception (Note 2)

Currency translation

Balance at December 28, 2024

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

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Business Segment and Geographical Information

The Company has combined its operating entities into three reportable operating segments:

Flow Control, Industrial Processing, and Material Handling.

The Flow Control segment consists of the fluid-handling and doctoring, cleaning, & filtration product lines;

the Industrial Processing segment consists of the wood processing and stock-preparation product lines;

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

A description of each segment follows.

The Company is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing and operates in three reportable segments consisting of its Flow Control segment, Industrial Processing segment, and Material Handling segment.

The Company aggregated its operating segments into its reportable segments where they contained similar products and economic characteristics, and shared similar types of customers, and production and distribution methods.

The Flow Control segment is comprised of its fluid-handling and its doctoring, cleaning, & filtration operating segments, and the Industrial Processing segment is comprised of its wood processing and its fiber processing operating segments.

Each of our reportable segments is led by a segment vice president, who reports directly to the Chief Executive Officer (CEO).

The Company has determined that its CEO is its Chief Operating Decision Maker (CODM) who is responsible for assessing performance and allocating resources.

The CODM utilizes segment gross profit margin and segment operating income margin to evaluate the performance of each segment and allocate resources effectively.

The CODM primarily reviews these profit measures in comparison to forecasts, trends, key performance targets, and results of industry peers to assess profitability, identify areas for improvement, and make strategic decisions regarding investments and resource allocation within each segment.

2024 Financial Statements

Notes to Consolidated Financial Statements

• 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.

The following is a brief description of the Company's reportable segments:

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.

The Company's primary products include fiber processing (formerly referred to as stock-preparation) systems and recycling equipment, chemical pulping equipment, debarkers, stranders, and chippers.

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

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

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

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

Flow Control (a)

The following tables present financial information for the Company's reportable segments:

December 28, 2024

(In thousands) Flow Control Industrial Processing Material Handling Total

Revenue $ 371,177 $ 432,738 $ 249,469 $ 1,053,384

Cost of revenue

176,340 252,068 158,828 587,236

Industrial Processing 354,703 353,698 328,762

Material Handling (b)

Gross Profit 194,837 180,670 90,641 466,148

Gross Profit Margin 52.5 % 41.8 % 36.3 % 44.3 %

Operating Expenses:

Selling expenses 55,326 42,008 24,592 121,926

General and administrative expenses 35,686 33,638 16,668 85,992

Research and development expenses

5,874 6,231 2,213 14,318

Intangible asset amortization expense 5,260 11,094 12,686 29,040

Other segment items (a) 1,079 1,076 409 2,564

Segment Operating Income

$ 91,612 $ 86,623 $ 34,073 $ 212,308

Income Before Provision for Income Taxes

Flow Control (c)

Segment Operating Income Margin

24.7 % 20.0 % 13.7 % 20.2 %

Industrial Processing (d)

Corporate Expenses (b)

Interest Expense, Net (c)

Other Expense, Net (c)

Income Before Provision for Income Taxes

(In thousands)

Flow Control Industrial Processing Material Handling Corporate Total

Other Segment Disclosures

Depreciation expense (d)

$ 6,675 $ 9,513 $ 4,310 $ 49 $ 20,547

Material Handling (e)

Segment assets (e) 431,536 569,817 411,178 17,814 1,430,345

Capital expenditures 7,225 8,121 5,638 21 21,005

2024 Financial Statements

Notes to Consolidated Financial Statements

December 30, 2023

(In thousands) Flow Control Industrial Processing Material Handling Total

Revenue $ 363,451 $ 354,703 $ 239,518 $ 957,672

Cost of revenue

175,144 212,247 153,975 541,366

Corporate (f)

Gross Profit 188,307 142,456 85,543 416,306

Gross Profit Margin 51.8 % 40.2 % 35.7 % 43.5 %

Operating Expenses:

Selling expenses

51,315 31,660 19,978 102,953

Total operating income 165,757 171,282 116,710

Interest expense, net (g)

General and administrative expenses

33,625 27,747 13,836 75,208

Other expense, net (g)

Research and development expenses

4,865 6,834 1,843 13,542

Intangible asset amortization expense 2,953 6,355 9,140 18,448

Other segment items (a) 300 579 54 933

Segment Operating Income

$ 95,249 $ 69,281 $ 40,692 $ 205,222

Total Assets (h)

Segment Operating Income Margin

26.2 % 19.5 % 17.0 % 21.4 %

Industrial Processing 443,189 419,095 405,575

Material Handling

Corporate Expenses (b)

Interest Expense, Net (c)

Other Expense, Net (c)

Income Before Provision for Income Taxes

(In thousands)

Flow Control Industrial Processing Material Handling Corporate Total

Other Segment Disclosures

Depreciation expense (d)

$ 6,094 $ 5,443 $ 3,239 $ 73 $ 14,849

Corporate (i)

Segment assets (e)

391,719 443,189 326,226 14,531 1,175,665

Capital expenditures (f)

5,920 22,068 3,834 28 31,850

Depreciation and Amortization

December 31, 2022

(In thousands) Flow Control Industrial Processing Material Handling Total

Revenue $ 349,107 $ 353,698 $ 201,934 $ 904,739

Cost of revenue

167,513 215,215 132,456 515,184

Industrial Processing 11,798 12,575 13,467

Material Handling

Gross Profit 181,594 138,483 69,478 389,555

Gross Profit Margin 52.0 % 39.2 % 34.4 % 43.1 %

Operating Expenses:

Selling expenses

49,248 28,314 17,890 95,452

Corporate 73 97 128

General and administrative expenses

33,464 25,950 12,501 71,915

Capital Expenditures

Research and development expenses

4,626 6,268 1,767 12,661

Industrial Processing (j)

Intangible asset amortization expense 3,450 7,119 9,938 20,507

Gain on sale of asset

— ( 20,190 ) — ( 20,190 )

Material Handling

Other segment items (a) 864 1,268 ( 262 ) 1,870

Segment Operating Income

$ 89,942 $ 89,754 $ 27,644 $ 207,340

Corporate 28 62 20

Segment Operating Income Margin

25.8 % 25.4 % 13.7 % 22.9 %

Corporate Expenses (b)

Interest Expense, Net (c)

Other Expense, Net (c)

Income Before Provision for Income Taxes

2024 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022

December 31, 2022 (continued)

(In thousands)

Flow Control Industrial Processing Material Handling Corporate Total

Other Segment Disclosures

Depreciation expense (d)

$ 5,729 $ 5,456 $ 3,147 $ 97 $ 14,429

Segment assets (e)

386,804 419,095 336,492 7,490 1,149,881

Capital expenditures (f)

4,425 20,137 3,575 62 28,199

(a) Includes restructuring and impairment costs, acquisition costs, net indemnification asset reversals associated with uncertain tax positions, and certain gains and losses.

(b) Primarily consists of general and administrative expenses.

(d) Depreciation expense by reportable segment is included within cost of revenue and selling, general and administrative, and research and development expenses.

(e) Excludes intercompany receivables or payables and investment in subsidiary balances as the CODM uses total assets excluding these amounts as the measurement for the Company's segment assets.

Corporate assets primarily consist of cash and cash equivalents, tax assets, ROU assets, and property, plant, and equipment, net.

(f) Included within Industrial Processing are capital expenditures of $ 7,424,000 and $ 10,379,000 in 2023 and 2022, respectively, related to the construction of a new manufacturing facility in China (see Note 8 , Gain on Sale and Other Costs, Net).

The following tables present the Company’s revenue and long-lived assets by geographical area:

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022

Geographical Information

United States $ 521,528 $ 448,600 $ 404,835

China 81,458 85,500 82,121

Canada 114,257 73,183 87,951

China 75,896 81,458 85,500

Germany 43,858 43,036 45,994

1 unchanged sentence

$ 1,053,384 $ 957,672 $ 904,739

Long-lived Assets (l):

Long-lived Assets (b):

United States $ 82,048 $ 48,394 $ 47,483

China (j) 24,380 15,834 6,613

China 23,346 24,380 15,834

Germany 19,310 20,953 22,437

3 unchanged sentences

$ 170,331 140,504 118,855

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

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

(c) Includes restructuring and impairment costs of $ 766,000 , $ 568,000 and $ 980,000 in 2023, 2022 and 2021, respectively.

Includes acquisition-related expenses of $ 254,000 and $ 6,191,000 in 2022 and 2021, respectively.

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

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

(d) Includes other income of $ 841,000 , acquisition costs of $ 1,066,000 , and relocation costs of $ 798,000 in 2023.

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

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

(e) Includes acquisition-related expenses of $ 376,000 , $ 899,000 and $ 2,851,000 in 2023, 2022 and 2021, respectively.

Includes a non-cash charge for the write-off of an indemnification asset of $ 126,000 in 2023.

(f) Primarily consists of general and administrative expenses.

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

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

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

(j) Includes capital expenditures of $ 7,424,000 and $ 10,379,000 in 2023 and 2022, respectively, related to the construction of a new manufacturing facility in China (see Note 8 , Gain on Sale and Other Items, Net).

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

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

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

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

2024 Financial Statements

2 unchanged sentences

Basic and diluted EPS were calculated as follows:

(In thousands, except per share amounts) December 30, 2023 December 31, 2022 January 1, 2022

(In thousands, except per share amounts) December 28, 2024 December 30, 2023 December 31, 2022

Net Income Attributable to Kadant $ 111,598 $ 116,069 $ 120,928

Basic Weighted Average Shares 11,739 11,700 11,654

Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares 29 34 76

Effect of Restricted Stock Units and Employee Stock Purchase Plan Shares 32 29 34

Diluted Weighted Average Shares 11,771 11,729 11,688

5 unchanged sentences

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

(In thousands) Foreign Currency Translation Adjustment Pension and Other Post-Retirement Benefit Liability Adjustments Deferred 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 Total

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

4 unchanged sentences

Amounts reclassified out of AOCI are as follows:

(In thousands) December 30, 2023 December 31, 2022 January 1, 2022 Statement of Income Line Item

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Statement of Income Line Item

Foreign Currency Translation

Cumulative translation adjustment (a) $ ( 658 ) $ — $ — Gain on sale and other costs, net

Retirement Benefit Plans

4 unchanged sentences

$ ( 8 ) $ ( 13 ) $ ( 34 )

Cash Flow Hedges (a)

Interest rate swap agreements 136 ( 208 ) ( 451 ) Interest expense

2024 Financial Statements

Notes to Consolidated Financial Statements

(In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Statement of Income Line Item

Cash Flow Hedges

Interest rate swap agreements (b) $ — $ 136 $ ( 208 ) Interest expense

Forward currency-exchange contracts ( 50 ) — — SG&A expense

Total income (expense) before income taxes 136 ( 208 ) ( 294 )

Income tax (provision) benefit ( 37 ) 50 70 Provision for income taxes

Total expense (income) before income taxes ( 50 ) 136 ( 208 )

Income tax benefit (provision) 12 ( 37 ) 50 Provision for income taxes

( 38 ) 99 ( 158 )

Total Reclassifications $ ( 704 ) $ 86 $ ( 192 )

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

2023 Financial Statements

Notes to Consolidated Financial Statements

Subsequent Events

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 approximately $ 156,000,000 in cash, subject to certain customary adjustments.

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 141 employees in the United States and Canada.

Key Knife is part of the Company's Industrial Processing segment.

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

(KWS) for approximately $ 84,000,000 in cash, subject to certain customary adjustments.

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 165 employees in the United States.

KWS is part of the Company's Material Handling segment.

The Company expects several synergies in connection with these acquisitions, including expansion of product sales into new markets by leveraging Key Knife's and KWS' existing presence, strengthening of relationships and sourcing efficiencies.

The excess of the purchase price for the acquisitions over the net assets acquired will be recorded as goodwill.

The Company has not yet completed its preliminary assessment of the fair value of the assets acquired and liabilities assumed in these acquisitions, including the valuation of intangible assets and goodwill, due to the proximity of the acquisitions to the issuance of these consolidated financial statements.

Accordingly and as permitted by ASC 80 5, Business Combinations , the Company is unable to provide further disclosures, including the allocation of the purchase price and pro forma financial information, for these acquisitions at this time.

Borrowings Under the Credit Agreement

In January 2024, the Company borrowed $ 230,000,000 in aggregate under its existing revolving credit facility, pursuant to the terms of the Credit Agreement, to fund the Key Knife and KWS acquisitions.

(a) Relates to a loss recognized from a cumulative translation adjustment associated with the liquidation of a small foreign subsidiary within the Flow Control segment.

(b) Relates to the Company's unrealized gains (losses) associated with its $ 15,000,000 notional value 2018 interest rate swap agreement used to hedge its exposure to movements in USD LIBOR on its U.S.

dollar-denominated debt, which matured on June 30, 2023.

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

What changed 10-K

Item 9A. Controls and Procedures