KADANT INC 10-Q

Item 1A – Risk Factors Careful consideration should be given to the factors discussed in Part I, Item 1A, Risk Factors , in our Annual Report for the fiscal year ended December 28, 2024, which could materially affect our business, financial condition or future results, in addition to the information set forth in this Quarterly Report on Form 10-Q. Except for the revised risk factor below regarding " Operating globally subjects us to changes in government regulations and policies in multiple jurisdictions around the world, including those related to tariffs and trade barriers, taxation, exchange controls and political risks, " there have been no material changes from the risk factors disclosed in our Annual Report. Operating globally subjects us to changes in government regulations and policies in multiple jurisdictions around the world, including those related to tariffs and trade barriers, taxation, exchange controls and political risks. Changes in government policies, political unrest, economic sanctions, trade embargoes, or other adverse trade regulations can negatively impact our business. Non-U.S. markets contribute a substantial portion of our revenues, and we intend to continue expanding our presence in these regions. For example, we operate businesses in Mexico and Canada and benefit from the United States-Mexico-Canada Agreement (USMCA). If the United States were to withdraw from or materially modify the USMCA or impose significant tariffs or taxes on goods imported into the United States, the cost of our products 34 Table of Contents KADANT INC. could significantly increase or no longer be priced competitively, which in turn could have a material adverse effect on our business and results of operations. Since February 2025, the Trump administration has relied on the International Emergency Economic Powers Act (IEEPA) to impose a series of tariffs on U.S. trading partners. In February 2025, the Trump administration imposed a 25% tariff on Canada and Mexico for non-USMCA originating goods, and a 20% tariff on China (the trafficking tariffs). As of October 29, 2025, the trafficking tariffs on Canada, Mexico, and China are 35%, 25% and 20%, respectively. In addition, on April 2, 2025, President Trump announced a 10% "baseline" tariff on all U.S. trading partners effective April 5, 2025 and higher, country-specific reciprocal tariffs on 57 countries (the reciprocal tariffs). The reciprocal tariffs do not apply to Canada, Mexico and a few other countries. Although the Trump administration subsequently paused the country-specific reciprocal tariffs for all countries except China, President Trump issued an executive order on July 31, 2025 imposing new country-specific reciprocal tariffs ranging from 10-41% on 69 countries, effective August 7, 2025. Several countries, including the United Kingdom and the European Union, have reached trade agreements with the United States that include reductions in the country-specific reciprocal tariffs and other commitments. Negotiations with numerous other countries continue. On November 1, 2025, President Trump announced the United States and China reached a framework agreement that will result in the suspension of the country-specific reciprocal tariff on China until November 10, 2026, and reduce the trafficking tariff on China from 20% to 10%, effective November 10, 2025. China will remain subject to a reciprocal tariff of 10%. Our business has been negatively affected by these tariffs and may be negatively affected in the future by this quickly evolving tariff situation and the economic uncertainty created thereby. Our business is also affected by various product or sector-specific tariffs that the United States imposes on trading partners. Certain products imported from China, including pulp and paper machinery, are subject to tariffs imposed by the Office of the United States Trade Representative, pursuant to Section 301 of the Trade Act of 1974. The tariffs on pulp and paper machinery are set at 25%. In addition, the U.S. Department of Commerce has imposed tariffs of 50% on numerous categories of steel and aluminum products, under Section 232 of the Trade Expansion Act of 1962, and has expanded these tariffs to include certain derivative steel and aluminum products. On July 30, 2025, President Trump announced the results of a Section 232 investigation on copper, imposing a 50% tariff on imports of semi-finished copper and copper derivatives, effective August 1, 2025. We import products that are impacted by these tariffs. While we try to mitigate the impact of the existing and other proposed tariffs by the Trump administration through pricing and sourcing strategies, we cannot be certain how our customers and competitors will react to the actions we take. The tariffs have and could in the future negatively affect our ability to compete against competitors who do not manufacture in China and/or are not subject to the tariffs. The United States has tightened trade sanctions targeting countries like China and Russia. For example, since 2018 the United States has imposed various trade and economic sanctions targeting certain persons in Russia and certain types of business with Russia. The United States has continued to expand export control restrictions applicable to certain Chinese firms and continued its assessment of new controls for "emerging foundational technologies," escalating U.S.-China tension concerning technology. Moreover, tensions between the United States and China have increased and future actions by the United States or Chinese governments may impact our operations in and imports from China, as well as sales to and from China. In response, Russia and China have begun considering and, in some cases, implementing trade sanctions that could affect U.S.-owned businesses. The imposition of trade sanctions has and may in the future continue to make it generally more difficult to do business in Russia and China and cause delays or prevent shipment of products or services performed by our personnel, or to receive payment for products or services. Additionally, the military conflict between Russia and Ukraine and the global response to it has and may in the future adversely impact our revenues, gross margins and financial results. The United States, the European Union, and many other countries have imposed sanctions on Russia, individuals in Russia and Russian businesses, including several large banks. In 2024, our sales to Russia were minimal at $2.6 million. As a result of the international sanctions regime in place against Russia, it has become extremely difficult to sell any of our equipment or services into Russia. Any proposed sales into Russia are evaluated on a case-by-case basis, taking into account the risks related to the sale, the costs associated with ensuring compliance with applicable sanctions and the likelihood of receiving payment from either party's banks. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty has and could continue to have in the future a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions, and could increase the costs, risks and adverse impacts from these new challenges. The conflict between Russia and Ukraine, as well as other conflicts such as those in the Middle East, may also have the effect of heightening other risks disclosed in our Annual Report, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on 35 Table of Contents KADANT INC. macroeconomic conditions, including inflation and business and consumer spending; disruptions to our global technology infrastructure, including through cyberattack, ransomware attack, or cyber-intrusion; adverse changes in international trade policies and relations; our ability to maintain or increase our prices, including any fuel surcharges in response to rising fuel costs; the energy crisis resulting from the Russia-Ukraine conflict, particularly in Europe; our ability to implement and execute our business strategy; disruptions in global supply chains; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets. Such restrictions have and may in the future continue to have a material adverse impact on our business and operating results.