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Item 7. Management’s Discussion and Analysis

2026-03-03 compared with 2025-02-25 · 170 added, 165 removed, 196 unchanged (63% of the section changed)

9 unchanged sentences

We have aggregated our operating segments into reportable segments where they contained similar products and economic characteristics, and shared similar types of customers, and production and distribution methods.

Our Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration operating segments and our Industrial Processing segment consists of our wood processing and fiber processing (formerly referred to as stock-preparation) operating segments.

See Note 11 , Business Segment and Geographical Information, in the accompanying consolidated financial statements for a description of and financial information on our reportable segments.

Industry and Business Overview

Bookings were a record $981.1 million in 2024, increasing 7% compared to 2023 due to strong contributions from our 2024 acquisitions.

Organic bookings, which is defined as bookings excluding acquisitions and the effect of foreign currency translation, decreased 5% in 2024 compared to 2023 due to weaker demand for our capital equipment products driven by several factors, including economic uncertainties, macroeconomic conditions abroad, and the consolidation of some of our large customers.

While demand for our parts and consumables products remained strong in 2024, there was a lengthening in the timing for securing capital orders as customers became more cautious with some delaying large capital expenditures into 2025.

From a geographic perspective, our operations in North America and Europe were also impacted by the consolidation of some large customers in the paper industry causing disruption and delays in their normal spending levels.

In Europe, sluggish market conditions have been impacted by high interest rates and energy costs.

Additionally, depressed conditions in China led to a tightening of available credit and more cautious capital spending.

We expect stronger capital bookings in 2025, especially in our Industrial Processing segment.

However, the timing of securing capital orders can be uncertain and could shift by quarter and into 2026 due to macroeconomic uncertainty or other factors.

We expect steady demand for our aftermarket products to continue in 2025.

We see long-term strength in our end markets as customers continue to rely on our products to help maximize productivity through more efficient production processes.

In addition, we see growth opportunities from proposed and adopted legislation in the U.S.

and abroad aimed at fueling investment.

Our consolidated bookings increased 5% to a record $1.034 billion in 2025 compared to 2024, driven by strong demand for our parts and consumables products and contributions from our recent acquisitions.

Demand for our capital equipment products in 2025 was consistent with the prior year, as market uncertainty impacted our customers' capital investment decisions.

This uncertainty was driven by escalating tariff rates and economic policies impacting manufacturers’ operating costs.

Persistent tariff uncertainty and ongoing trade negotiations continue to impact market conditions.

This evolving trade environment has resulted in longer quote-to-order conversion times for capital orders.

While customers continue to invest in maintenance and mission-critical equipment, those with discretion over project timing are deferring capital expenditures pending greater clarity regarding input costs and broader economic conditions.

This impact is more pronounced in our Industrial Processing segment, where average capital order values are significantly higher than in our other segments.

From a geographic perspective, volatility in tariffs and trade policies has contributed to market uncertainty in North America, leading to cautious spending by manufacturers.

In Europe, cost pressures and ongoing economic uncertainty related to trade tensions and geopolitical risks continue to impact market activity.

In China, although government-led initiatives to stimulate domestic demand and manufacturing activity have been implemented, escalating trade tensions with the United States are generally expected to have a negative impact.

Overall, we anticipate higher bookings in 2026 compared to 2025, especially in our Industrial Processing segment where customer delays associated with pending orders from 2025 have resulted in a number of capital orders in the pipeline.

We continue to see long-term strength in our end markets as customers rely on our products to enhance productivity through more efficient production processes.

In addition, we anticipate growth opportunities resulting from both proposed and enacted legislation in the United States and internationally that is designed to stimulate investment.

An overview of our business by reportable segment is as follows:

• Flow Control – Our Flow Control segment bookings increased 1% in 2024 compared to 2023, including a 5% increase from acquisitions.

Organic bookings decreased 3% in 2024 compared to 2023 primarily due to sluggish manufacturing activity, especially in Europe.

Weaker demand for paper led to low mill operating rates and mill closures.

In Europe, these challenges were further impacted by weak macroeconomic conditions and aggressive competition, which led to decreased demand for our capital equipment products.

• Flow Control – Our Flow Control segment bookings increased 4% in 2025 compared to 2024.

This increase was primarily driven by strong demand for our parts and consumables products, especially in North America, partially offset by weaker demand for our capital equipment products in all regions.

While quote activity related to capital projects remains strong, there have been delays in the timing for securing orders as customers remain cautious regarding their capital spending decisions.

In certain European markets, excess production capacity and declining demand have resulted in the closure of several mills, adversely affecting demand for our capital equipment products.

We expect steady demand in our Flow Control segment in 2026 and long-term strength in our end markets.

• Industrial Processing – Our Industrial Processing segment bookings increased 15% in 2024 compared to 2023, including an 18% increase from acquisitions.

Organic bookings decreased 2% in 2024 compared to 2023 led by decreased demand for our capital equipment products at our wood processing business in North America.

High mortgage rates and economic uncertainty led to a decline in new construction in the U.S., leading to reduced demand

for OSB, lumber, and our products.

Consequently, the number of dormant or idle lines in the North American lumber industry remained high as lumber producers waited for market conditions to improve.

We anticipate that the significant pent up demand for housing, coupled with the continued focus on remodeling, will lead to increased demand for our wood processing products in 2025.

Demand for our capital equipment and aftermarket parts products at our fiber processing businesses remained stable compared to 2023, except at our Chinese operations due to challenging market conditions.

Overcapacity led to the closure of several smaller mills, while declining prices reduced profit margins at the remaining mills.

These unfavorable conditions led to delays in capital project activity.

In addition, the consolidation of some large customers in the paper industry disrupted and delayed their normal spending patterns, leading to decreased demand for our products in North America and Europe.

In this environment, customers are increasingly focused on projects aimed at reducing input costs, which is expected to drive increased demand for our products in this segment.

• Material Handling – Our Material Handling segment bookings increased 5% in 2024 compared to 2023, including a 17% increase from acquisitions.

Organic bookings decreased 13% led by a reduction in capital equipment bookings.

At our conveying and vibratory business, a large $12 million capital order for a conveying line in 2023 resulted in comparatively weaker capital bookings in 2024.

This impact was coupled with constrained capital spending by customers in the aggregates industry.

However, the long-term outlook for the aggregates industry remains strong, particularly in North America, fueled by new infrastructure projects as a result of significant federal and state investment.

At our baling businesses, organic bookings decreased both in North America and Europe, as customers were reluctant to commit to capital expenditures towards the end of the year.

While quote activity was active, a drop in used paper prices, constrained market conditions in Europe, and uncertainty related to borrowing costs all contributed to customers’ hesitation.

We expect customers will place these orders in 2025.

For the overall Material Handling segment, planned infrastructure projects and asset modernization in the recycling and waste management sectors are expected to lead to increased demand in 2025.

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

While the U.S.

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

We expect our operating environment to continue to be challenging, which creates continued uncertainty for 2025.

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

• Industrial Processing – Our Industrial Processing segment bookings increased 6% in 2025 compared to 2024, while organic bookings remained flat as strong performance at our wood processing product line was offset by weaker results in our fiber processing product line.

Within our wood processing product line, capital equipment bookings increased 66% in 2025 compared to 2024, primarily driven by demand from the engineered wood industry in North America, where customers select our products for their ability to maximize wood fiber utilization.

Despite these positive results, overall demand for our capital equipment in the wood processing product line was constrained by uncertain market conditions.

While quote activity for large capital projects remains active, economic and tariff-related uncertainty has led to a lengthening in quote-to-order times as customers await improved market conditions, with some customers delaying capital orders into 2026.

Capital bookings at our fiber processing product line decreased 26% in 2025 compared to 2024 due to constrained capital spending related to macroeconomic conditions.

These conditions have resulted in the deferral of capital orders into 2026.

Tariff-related uncertainty has had a greater impact in this segment due to higher average capital order values and our customers’ ability to delay the timing of large capital projects.

Despite these factors, demand for our aftermarket parts in our Industrial Processing segment has remained strong as customers prioritize maintenance spending.

We expect steady demand for our aftermarket parts to continue in 2026.

In addition, we anticipate a strengthening in demand for our capital equipment products in this segment in 2026, supported by the expected receipt of several large capital orders currently in the pipeline.

• Material Handling – Our Material Handling segment bookings increased 6% in 2025 compared to 2024, due to increased demand for our capital equipment products at our conveying and vibratory business.

This increase was driven by underground mineral mining projects where customers placed substantial equipment orders to meet their operational requirements, partially offset by a decrease in demand for parts and consumables.

In addition, there was higher demand at our baling business for both capital equipment and aftermarket products.

In 2026, we expect steady demand for aftermarket parts and increased demand for capital equipment products in this segment.

Our global operations have been and continue to be impacted by complex market conditions fueled by tariff-related uncertainty, inflationary pressures, and geopolitical tensions.

We expect our operating environment to continue to be challenging, resulting in continued uncertainty for 2026.

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

For more information related to these challenges, and other factors impacting our business, please see Part I, Item 1A , "Risk Factors."

International Sales

Approximately 50% of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada.

Approximately half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada.

As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S.

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dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S.

The United States has imposed tariffs in the past and more recently proposed and implemented new tariffs on certain imports, which has and will continue to increase the cost of some of the parts and equipment we import.

In addition, foreign countries may implement retaliatory tariffs in response to these actions by the United States, which may negatively impact our operations.

The United States has imposed tariffs in the past and more recently proposed and implemented new tariffs on certain countries and imports, which has and will continue to increase the cost of some of the parts and equipment we import.

In addition, foreign countries have implemented and may in the future implement additional retaliatory tariffs in response to these actions by the United States, which have negatively impacted and may in the future negatively impact our operations.

Although we are working to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs.

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

On January 1, 2024, we acquired Key Knife for $153.4 million, 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, with revenue of approximately $65.0 million for the twelve months ended September 30, 2023, and is part of our Industrial Processing segment.

On January 24, 2024, we acquired KWS for $79.4 million.

KWS is a leading manufacturer of conveying equipment for the bulk material handling industry, with revenue of approximately $45.0 million for the twelve months ended September 30, 2023, and is part of our Material Handling segment.

On May 31, 2024, we acquired DSTI for $53.6 million, net of cash acquired.

DSTI is a leading manufacturer of engineered fluid sealing and transfer solutions for rotating applications, with revenue of approximately $25.0 million for the twelve months ended March 31, 2024, and is part of our Flow Control segment.

We funded these acquisitions primarily through borrowings under our revolving credit facility.

We expect several synergies in connection with the acquisitions, including expansion of product sales into new markets by leveraging our global sales network and relationships, broadening our product portfolio, and strengthening our position in the various markets we serve.

We also completed several smaller acquisitions in 2024.

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

On July 9, 2025, we acquired Babbini S.p.A and G.P.S.

Engineering S.r.l (collectively, Babbini), two Italy-based companies specializing in industrial dewatering and engineered power transmission solutions, for approximately $16.5 million, net of cash acquired.

On October 7, 2025, we acquired Clyde Industries Holdings, Inc.

and its subsidiaries (collectively, Clyde Industries), a manufacturer of highly engineered boiler efficiency and cleaning system technologies for $173.7 million, net of

cash acquired.

Babbini and Clyde Industries are part of our Industrial Processing segment.

We funded these acquisitions primarily through borrowings under our revolving credit facility.

We expect several synergies in connection with the acquisitions, including expansion of product sales into new markets by leveraging our global sales network and relationships, as well as broadening our product portfolio, strengthening our position in the various markets served, and realizing the value of the acquired workforce.

On January 29, 2026, we entered into a definitive agreement to acquire the shares of voestalpine BÖHLER Profil GmbH & Co KG and voestalpine BÖHLER Profil VerwaltungsGmbH (collectively, voestalpine BÖHLER Profil), a global supplier of tailor-made special profiles with complex geometries and high-performance industrial knives, for approximately 157.0 million euros in cash, subject to certain customary adjustments.

The closing of this acquisition is subject to receipt of certain Austrian regulatory approvals and the satisfaction of customary closing conditions, and will be financed primarily through borrowings under our revolving credit facility.

Upon closing, voestalpine BÖHLER Profil will become part of our Industrial Processing segment and its name will change to Kadant Profil GmbH & Co KG.

Results of Operations

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Organic Revenue

(In thousands, except percentages) December 28,

(In thousands, except percentages) January 3,

2026 December 28,

2023 Increase

% Change Acquisitions

Currency Translation

2024 Increase (Decrease)

% Change Acquisitions Currency Translation Increase (Decrease) % Change

Flow Control $ 382,866 $ 371,177 $ 11,689 3 % $ 8,215 $ 3,583 $ (109) — %

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Material Handling 259,893 249,469 10,424 4 % 611 $ 3,190 6,623 3 %

$ 1,053,384 $ 957,672 $ 95,712 10 % $ 115,417 $ (4,602) $ (15,103) (2) %

Consolidated revenue increased 10% in 2024, including a 12% increase from acquisitions.

Organic revenue decreased 2% primarily due to weak demand in our Material Handling segment, partially offset by stronger demand at our Industrial Processing segment, especially for our capital equipment products.

From a geographic perspective, organic revenue was impacted by softening demand in Europe due to weak macroeconomic conditions.

Revenue at our Flow Control segment increased 2% while organic revenue decreased 1% in 2024 driven by lower demand for our capital equipment products in Europe reflecting challenging market conditions and a slowdown in manufacturing activity.

This decrease was partially offset by higher demand for our capital equipment products in North America, especially our fluid handling products that help customers optimize energy utilization and maximize productivity.

Revenue at our Industrial Processing segment increased 22% in 2024, including a 17% increase from acquisitions.

Organic revenue increased 6% in 2024 led by increased demand for our capital equipment products at our fiber processing business.

Capital equipment revenue increased 28% at our fiber processing business due to higher completion rates on large projects recognized on an over time basis in China and increased replacement and refurbishment projects in North America.

In addition, maintenance and production requirements at our customers in North America led to increased demand for our parts and consumables products at our wood processing business.

Revenue at our Material Handling segment increased 4% in 2024, including a 17% increase from acquisitions.

Organic revenue decreased 13% led by weaker demand for our capital equipment products.

At our conveying and vibratory business, a large expansion project for a conveying line in 2023 resulted in comparatively lower capital revenue in 2024.

At our baling business in Europe, high interest rates and declines in waste paper prices led to decreased demand for our capital equipment products.

Consolidated $ 1,052,248 $ 1,053,384 $ (1,136) — % $ 36,662 $ 6,998 $ (44,796) (4) %

Consolidated revenue was consistent with 2024, while organic revenue decreased 4% primarily due to weaker demand for our capital equipment products, especially at our Industrial Processing segment.

Uncertainty related to the cost of capital and global trade, together with volatile input costs, contributed to a significant slowdown in the timing of securing large capital orders.

As a result, revenue from capital equipment products decreased 16% in 2025 compared to 2024.

From a geographic perspective, organic revenue was impacted by softening demand across most regions due to weak macroeconomic conditions fueled by trade tensions and geopolitical issues.

While customers delayed large capital expenditures, the demand for our parts and consumables products was strong and represented a record 71% of revenue in 2025.

Revenue at our Flow Control segment increased 3% in 2025, while organic revenue remained flat compared to 2024 due to lower demand for our capital equipment products, especially in North America, as a result of challenging market conditions.

Ongoing mill closures, production curtailments, and merger activity have contributed to weak market conditions in the pulp and paper industry.

This decrease was offset by higher demand for parts and consumables products, with strength in North America offsetting weaker market conditions in Europe.

Revenue at our Industrial Processing segment decreased 5% in 2025, and organic revenue decreased 12% due to reduced demand for our capital equipment products primarily at our wood processing businesses.

This was driven by weak conditions in the housing market attributable to limited supply and affordability challenges.

The weaker demand for lumber and elevated import costs drove mill closures and curtailments.

While there is active quote activity for large capital projects, economic uncertainty has increased the time for securing orders with certain orders being delayed to 2026.

Revenue from capital equipment products also decreased in 2025 at our fiber processing businesses across most regions, especially in China, where trade tensions were further compounded by sluggish economic conditions, resulting in more cautious capital spending.

Given the delay in committing to major capital expenditures, many customers focused their spending on critical parts and maintenance.

As a result, demand for our parts and consumables products in this segment remained strong, with an 11% increase in 2025 compared to 2024.

Revenue at our Material Handling segment increased 4% in 2025, driven by higher demand at our baling businesses for both capital equipment and parts and consumables products, primarily attributable to our baling business in Europe, where public policies support higher recycling rates.

Gross Profit Margin

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2024 Basis Point Change

Flow Control 52.5% 51.8% 70 bps

Industrial Processing 41.8% 40.2% 160 bps

Material Handling 36.3% 35.7% 60 bps

Consolidated 44.3% 43.5% 80 bps

Consolidated gross profit margin increased to 44.3% in 2024 compared with 43.5% in 2023 due to a favorable increase in the proportion of parts and consumables revenue, which increased to 66% of total revenue compared to 62% in 2023.

This increase was partially offset by the inclusion of $5.2 million of amortization expense related to acquired profit in inventory, which lowered consolidated gross profit margin in 2024 by 0.4 percentage points.

Flow Control 52.3%

Industrial Processing 43.0%

Material Handling 38.1%

Consolidated 45.2%

Consolidated gross profit margin increased to 45.2% in 2025 from 44.3% in 2024 due to an increase in the proportion of higher-margin parts and consumables revenue, which increased to 71% of consolidated revenue in 2025 compared to 66% in 2024.

Gross profit margin included amortization expense related to acquired profit in inventory of $1.5 million, which lowered gross profit margin by 0.2 percentage points in 2025, compared to expense of $5.2 million, which lowered gross profit margin by 0.4 percentage points in 2024.

Within our reportable segments, gross profit margin:

• Increased to 52.5% at our Flow Control segment from 51.8% in 2023 primarily due to higher margins achieved on our capital equipment products.

This increase was partially offset by the inclusion of $2.0 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.5 percentage points.

• Increased to 41.8% at our Industrial Processing segment from 40.2% in 2023 due to higher margins achieved on our capital equipment products and a higher proportion of parts and consumables revenue.

These increases were partially offset by the inclusion of $2.2 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.5 percentage points.

• Increased to 36.3% at our Material Handling segment from 35.7% in 2023.

The favorable increase in the proportion of parts and consumables revenue in 2024 was partially offset by the inclusion of $1.0 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.5 percentage points.

• Decreased to 52.3% at our Flow Control segment from 52.5% in 2024 due to lower margins achieved on our capital equipment products, which was partially offset by the inclusion of $2.0 million of amortization expense related to acquired profit in inventory in 2024, which decreased gross profit margin in 2024 by 0.5 percentage points.

• Increased to 43.0% at our Industrial Processing segment from 41.8% in 2024 due to an increase in the proportion of higher-margin parts and consumables revenue in 2025, partially offset by lower margins achieved on our capital equipment products.

• Increased to 38.1% at our Material Handling segment from 36.3% in 2024 due to higher margins achieved on our capital equipment products in 2025 and, to a lesser extent, the inclusion of $1.0 million of amortization expense related to acquired profit in inventory in the 2024 period, which decreased gross profit margin in 2024 by 0.5 percentage points.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses by reportable segment and corporate in 2025 and 2024 are as follows:

(In thousands, except percentages) December 28,

(In thousands, except percentages) January 3,

2026 December 28,

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Consolidated as a Percentage of Revenue 28.7% 26.6%

Consolidated SG&A expenses as a percentage of revenue increased to 27% in 2024 compared to 25% in 2023 principally due to the impact of our acquisitions and acquisition-related costs.

Consolidated SG&A expenses increased $43.7 million, or 18%, primarily due to the inclusion of $35.6 million of SG&A expenses from acquisitions, $4.7 million of incremental acquisition-related costs and annual wage increases.

Acquisition-related costs included in SG&A consist of amortization expense associated with acquired backlog and acquisition costs.

Consolidated SG&A expenses increased $21.9 million, or 8%, in 2025 compared to 2024 primarily due to the inclusion of $13.2 million of SG&A expenses from acquisitions and higher compensation-related costs.

In addition, the weakening of the U.S.

dollar resulted in a $4.4 million increase in SG&A expenses, including $2.2 million from the unfavorable effect of foreign currency translation and a $2.2 million shift from foreign currency gains in the 2024 period to losses in the 2025 period.

Within our reportable segments and corporate, SG&A expenses:

• Increased $9.3 million at our Flow Control segment principally due to the inclusion of $5.2 million of SG&A expenses from acquisitions, $2.2 million of acquisition-related costs and increased compensation expense, partially offset by a decrease in commission expense.

• Increased $21.4 million at our Industrial Processing segment due to the inclusion of $19.5 million of SG&A expenses from acquisitions and increased compensation expense.

These increases were partially offset by a $0.5 million favorable effect of foreign currency translation.

• Increased $11.3 million at our Material Handling segment primarily due to the inclusion of $10.9 million of SG&A expenses from acquisitions and $2.4 million of incremental acquisition-related costs, partially offset by a decrease in expense related to external commissions and sales incentives.

• Increased $1.6 million at Corporate due to annual wage increases and consulting costs.

• Increased $5.3 million at our Flow Control segment principally due to the inclusion of $4.5 million of SG&A expenses from acquisitions and the impact of the weakening of the U.S.

dollar, which resulted in a $2.6 million increase in SG&A expenses, including $1.4 million from the unfavorable effect of foreign currency translation and a $1.2 million shift from foreign currency gains in the 2024 period to losses in the 2025 period.

These increases were partially offset by a decrease of $1.4 million in acquisition-related costs.

• Increased $11.9 million at our Industrial Processing segment principally due to the inclusion of $7.7 million of SG&A expenses from acquisitions and a $3.2 million increase in acquisition costs.

• Increased $1.3 million at our Material Handling segment, including increases of $1.6 million in compensation expense, $1.0 million of SG&A expenses from acquisitions, $0.9 million in selling-related costs, and $0.6 million from the unfavorable effect of foreign currency translation.

These increases were partially offset by a decrease of $2.6 million in acquisition-related costs.

• Increased $3.5 million at Corporate principally due to a $2.2 million increase in compensation expense and a $1.3 million increase in insurance expense.

Other Costs, Net

The components of other costs, net in 2025 and 2024 are as follows:

(In thousands) December 28,

(In thousands) January 3,

2026 December 28,

Restructuring and Impairment Costs $ 442 $ —

Other Costs (Income)

Restructuring and Impairment Costs

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

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

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

Other Costs (Income)

• Loss of $0.7 million in 2024 related to the recognition of a cumulative translation adjustment associated with the liquidation of a small foreign subsidiary in the Flow Control segment.

• In 2022, we entered into several agreements with the local government in China to sell our then existing manufacturing building and land use rights of one of our subsidiaries in China (China Transaction).

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

In addition, we incurred costs of $0.8 million in 2023 related to the relocation of machinery and equipment and administrative offices to the new manufacturing facility in China.

$ 1,313 $ 658

• In 2025, within our Industrial Processing segment, we incurred restructuring costs of $0.1 million, primarily consisting of severance costs associated with the termination of two employees in connection with the closure of a small business in Europe, and an impairment charge of $0.3 million associated with previously acquired technology that will no longer be utilized.

• In 2025, we recognized land remediation costs of $0.9 million associated with the prior-period sale of a manufacturing facility and land use rights at one of our Chinese subsidiaries included within our Industrial Processing segment.

• In 2024, we recognized a loss of $0.7 million within our Flow Control segment from the recognition of a currency translation adjustment associated with the liquidation of a small foreign subsidiary.

Interest Expense

Interest expense increased to $20.0 million in 2024 from $8.4 million in 2023 due to increased borrowings under our revolving credit facility, which were primarily used to fund our acquisitions and, to a lesser extent, a higher weighted average interest rate.

Interest expense decreased 22% to $15.6 million in 2025 from $20.0 million in 2024 due to debt repayments and a lower weighted average interest rate.

We expect interest expense to increase significantly in 2026 as a result of the borrowing incurred in 2025 to fund our most recent acquisition and the anticipated borrowing in 2026 to fund our pending acquisition.

Provision for Income Taxes

Our provision for income taxes decreased to $40.5 million in 2024 from $42.2 million in 2023 primarily due to the decrease of $5.9 million in pre-tax income.

The effective tax rate was 26.5% in both 2024 and 2023 and was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.

Net income decreased to $112.6 million in 2024 from $116.8 million in 2023 primarily due to a $11.6 million increase in interest expense, offset in part by a $5.5 million increase in operating income and a $1.7 million decrease in provision for income taxes (see discussions above for further details).

Our provision for income taxes decreased to $39.9 million in 2025 from $40.5 million in 2024.

Our effective tax rate of 27.8% in 2025 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries.

These items were partially offset by foreign tax credits.

Our effective tax rate of 26.5% in 2024 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.

Net income decreased to $103.7 million in 2025 from $112.6 million in 2024 due to a $14.0 million decrease in operating income, offset in part by a $4.5 million decrease in interest expense and a $0.6 million decrease in income taxes (see discussions above for further details).

Non-GAAP Key Performance Indicators

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

Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude amortization expense related to acquired profit in inventory and backlog, acquisition costs,

restructuring and impairment costs, relocation costs and other income and expense, as indicated.

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

Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude amortization expense related to acquired intangible assets, profit in inventory and backlog (collectively, purchase accounting expenses);

acquisition costs;

restructuring and impairment costs;

and other income or

expense, as indicated.

We exclude acquisition-related purchase accounting expenses to provide a more meaningful and consistent comparison of our operating results over time and with peer companies.

While we have a history of acquisition activity, such transactions do not occur on a predictable cycle, and the size and nature of these transactions will vary.

We believe it is important for investors to understand that these intangible assets were recorded as part of purchase accounting and that they contribute to revenue generation.

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

Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities.

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

(In thousands, except percentages) December 28,

(In thousands, except percentages) January 3,

2026 December 28,

1 unchanged sentence

Net Income Attributable to Kadant $ 101,969 $ 111,598 $ 116,069

Net Income Attributable to Noncontrolling Interest 956 737 802

Net Income Attributable to Noncontrolling Interests

1,712 956 737

Provision for Income Taxes 39,904 40,516 42,210

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Operating Income 157,288 171,252 165,757

Gain on Sale (a)

Acquired Profit in Inventory Amortization (b)

Intangible Asset Amortization Expense

27,440 25,788 18,448

Acquired Backlog Amortization (c)

Profit in Inventory Amortization Expense (a)

1,504 5,189 —

Backlog Amortization Expense (b)

Acquisition Costs

Indemnification Asset Reversal, Net (d)

4,425 2,872 1,442

Restructuring and Impairment Costs

Other Costs (Income) (e)

Indemnification Asset Reversal, Net (c)

Other Costs (d)

1,313 658 723

Adjusted Operating Income (non-GAAP measure)

193,384 209,169 186,472

Depreciation and Amortization 46,335 33,297 34,233

Depreciation Expense

22,924 20,547 14,849

Adjusted EBITDA (non-GAAP measure)

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A reconciliation of free cash flow from net cash provided by operating activities is as follows:

(In thousands) December 28,

(In thousands) January 3,

2026 December 28,

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Net Cash Provided by Operating Activities $ 171,328 $ 155,265 $ 165,545

Capital Expenditures (f)

Capital Expenditures (e)

(17,048) (21,005) (31,850)

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$ 154,280 $ 134,260 $ 133,695

(a) Represents a gain on the China Transaction in our Industrial Processing segment.

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

(d) Represents the provision for or reversal of indemnification assets related to the establishment or release of tax reserves associated with uncertain tax positions.

(e) Includes a loss of $0.7 million from the recognition of a cumulative translation adjustment associated with the liquidation of a small foreign subsidiary in our Flow Control segment in 2024.

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

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

(b) Represents intangible amortization expense associated with acquired backlog.

(c) Represents the reversal of indemnification assets related to the release of tax reserves associated with uncertain tax positions.

(d) Includes land remediation costs of $0.9 million, restructuring costs of $0.1 million, and impairment costs of $0.3 million in our Industrial Processing segment in 2025, a loss of $0.7 million from the recognition of a cumulative translation adjustment associated with the liquidation of a small foreign subsidiary in our Flow Control segment in 2024, and restructuring and impairment costs of $0.8 million in our Flow Control segment in 2023.

(e) Includes capital expenditures of $7.4 million in 2023 related to a new manufacturing facility in China.

Liquidity and Capital Resources

Consolidated working capital was $250.8 million at December 28, 2024, compared with $225.8 million at December 30, 2023.

Cash and cash equivalents were $94.7 million at December 28, 2024, compared with $103.8 million at December 30, 2023, which included cash and cash equivalents held by our foreign subsidiaries of $73.8 million at December 28, 2024 and $94.6 million at December 30, 2023.

Consolidated working capital was $313.8 million at January 3, 2026, compared with $250.8 million at December 28, 2024.

Cash and cash equivalents were $119.6 million at January 3, 2026, compared with $94.7 million at December 28, 2024, which included cash and cash equivalents held by our foreign subsidiaries of $100.3 million at January 3, 2026 and $73.8 million at December 28, 2024.

Cash flow information is as follows:

(In thousands) December 28,

(In thousands) January 3,

2026 December 28,

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Net Cash Used in Investing Activities (205,418) (319,137)

Net Cash Provided by (Used in) Financing Activities

Net Cash Provided by Financing Activities

54,012 159,914

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash 6,813 (6,549)

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

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

$ 26,735 $ (10,507)

Operating Activities

Cash provided by operating activities decreased to $155.3 million in 2024 from $165.5 million in 2023 primarily due to an increase in cash used for working capital.

Cash provided by operating activities increased to $171.3 million in 2025 from $155.3 million in 2024 primarily due to a reduction in cash used for working capital.

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

During 2024, significant operating cash outflows were associated with accounts receivable, customer deposits and other liabilities.

Significant operating cash outflows associated with working capital in 2025 resulted from inventory, accounts payable and other liabilities.

Purchases of inventory used cash of $12.9 million, a decrease in accounts payable used cash of $7.2 million due to reduced spending levels for capital equipment projects, and other liabilities used cash of $23.2 million primarily related to incentive compensation payments.

These uses of cash were offset in part by a decrease in accounts receivable of $13.5 million due to timing of shipments, cash received from contract assets of $12.2 million related to contracts accounted for on an over time basis, and cash received from customer deposits of $9.4 million due to the timing of capital equipment orders.

Significant operating cash outflows associated with working capital in 2024 resulted from accounts receivable, customer deposits and other liabilities.

A decrease in customer deposits used cash of $29.8 million due to a reduction in capital equipment orders and an increase in accounts receivable and contract assets used cash of $9.8 million primarily due to our revenue growth.

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These uses of cash were offset in part by cash provided from the shipment of inventory of $24.0 million and increases in accounts payable of $10.6 million related to inventory purchases and the timing of payments.

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

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

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

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

Investing Activities

Cash used in investing activities was $205.4 million in 2025 compared with $319.1 million in 2024.

Consideration paid for acquisitions, net of cash acquired, was $300.3 million in 2024.

Additionally, capital expenditures were $21.0 million in 2024 and $31.9 million in 2023, which included capital expenditures associated with the China Transaction of $7.4 million.

Consideration paid for acquisitions, net of cash acquired, was $190.0 million in 2025 and $300.3 million in 2024.

Additionally, capital expenditures were $17.0 million in 2025 and $21.0 million in 2024.

Financing Activities

Cash provided by financing activities was $159.9 million in 2024 compared with cash used of $111.1 million in 2023.

Borrowings under our revolving credit facility were $305.2 million in 2024, which were primarily used to fund our 2024 acquisitions.

Repayments of short- and long-term obligations were $124.5 million in 2024 compared to $94.0 million in 2023.

Cash provided by financing activities was $54.0 million in 2025 compared with $159.9 million in 2024.

Borrowings under our revolving credit facility were $199.0 million in 2025 and $305.2 million in 2024, and were primarily used to fund our acquisitions.

Repayments of short- and long-term obligations were $123.4 million in 2025 and $124.5 million in 2024.

Cash dividends paid to stockholders were $15.8 million in 2025 and $14.7 million in 2024.

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

The $6.5 million decrease in cash, cash equivalents, and restricted cash in 2024 related to exchange rates was primarily attributable to the strengthening of the U.S.

The $6.8 million increase in cash, cash equivalents, and restricted cash in 2025 related to exchange rates was primarily attributable to the weakening of the U.S.

dollar against the euro and, to a lesser extent, the Swedish krona, the Chinese renminbi, and the Canadian dollar.

The $6.5 million decrease in cash, cash equivalents and restricted cash in 2024 was primarily attributable to the strengthening of the U.S.

dollar against the euro and the Canadian dollar and, to a lesser extent, the Brazilian real and Mexican peso.

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

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

Borrowing Capacity and Debt Obligations

Our unsecured multi-currency revolving credit facility originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement) matures on November 30, 2027 and has a total borrowing capacity of $400.0 million.

On September 26, 2025, we entered into an eighth amendment and joinder (Eighth Amendment) to our unsecured multi-currency revolving credit facility, originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement).

The Eighth Amendment, among other things, increased our aggregate borrowing capacity from $400.0 million to $750.0 million and extended the maturity date from November 30, 2027 to September 26, 2030.

In addition to the increased committed borrowing capacity, an uncommitted, unsecured incremental borrowing facility of $200.0 million continues to be available under the Credit Agreement.

In 2025, we borrowed $199.0 million under our revolving credit facility, which was primarily used to fund our acquisitions.

As of December 28, 2024, our outstanding balance under the Credit Agreement was $278.4 million, including $71.4 million of euro-denominated borrowings.

As of January 3, 2026, our outstanding balance under the Credit Agreement was $366.7 million, which included $92.7 million of euro-denominated borrowings.

We also had $383.2 million of available borrowing capacity, along with a $200.0 million uncommitted, unsecured incremental borrowing facility.

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

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

As of December 28, 2024, our leverage ratio was 0.99 and we were in compliance with our debt covenants.

Under our debt agreements, our leverage ratio must be less than 3.75 to 1 or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than 4.25 to 1.

As of January 3, 2026, our leverage ratio was 1.33 and we were in compliance with our debt covenants.

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

On January 29, 2026, we entered into a definitive agreement to acquire the shares of voestalpine BÖHLER Profil for approximately 157.0 million euros in cash, subject to certain customary adjustments.

Additional Liquidity and Capital Resources

In addition to the obligations on our consolidated balance sheet at December 28, 2024, which include, but are not limited to, long-term obligations ( Note 6 ), unrecognized tax benefits ( Note 5 ), leases ( Note 9 ), and contingent consideration associated with a 2024 acquisition ( Note 2 ), we have outstanding letters of credit and bank guarantees of $13.9 million at December 28, 2024, primarily relating to performance obligations and customer deposit guarantees ( Note 7 ).

In addition to the obligations on our consolidated balance sheet at January 3, 2026, which include, but are not limited to, long-term obligations ( Note 6 ), unrecognized tax benefits ( Note 5 ), leases ( Note 9 ), and contingent consideration associated with a 2024 acquisition ( Note 2 ), we have outstanding letters of credit and bank guarantees of $16.4 million at January 3, 2026, primarily relating to customer deposit guarantees and performance obligations ( Note 7 ).

On May 15, 2025, our board of directors approved the repurchase of up to $50.0 million of our equity securities during the period from May 15, 2025 to May 15, 2026.

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We plan to make capital expenditures of approximately $23.0 to $27.0 million during 2026 for property, plant, and equipment.

As of December 28, 2024, we had approximately $296.1 million of total unremitted foreign earnings.

As of January 3, 2026, we had approximately $150.9 million of total unremitted foreign earnings.

It is our intent to indefinitely reinvest $93.1 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any.

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For a discussion on the application of these estimates and other accounting policies, see Note 1 , Nature of Operations and Summary of Significant Accounting Policies, in the accompanying consolidated financial statements.

We believe that our most critical accounting policies and estimates upon which our financial position depends, and which involve the most complex or subjective decisions or assessments, are those described below.

We believe that our most critical accounting

policies and estimates upon which our financial position depends, and which involve the most complex or subjective decisions or assessments, are those described below.

We operate in numerous countries under many legal forms and, as a result, are subject to the jurisdiction of numerous domestic and non-U.S.

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

We compute our provision for income taxes using the asset and liability method, and we recognize deferred tax assets

and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for tax loss or credit carryforwards.

We compute our provision for income taxes using the asset and liability method, and we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for tax loss or credit carryforwards.

We measure deferred tax assets and liabilities using the currently enacted tax rates that are expected to apply to taxable income in the years in which we expect to realize those deferred tax assets and liabilities.

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

At year-end 2024, we maintained a valuation allowance against a portion of our state operating loss carryforwards in the United States and a valuation allowance in certain foreign jurisdictions due to the uncertainty of future profitability in the state and those foreign jurisdictions.

At year-end 2025, we maintained a valuation allowance predominantly in certain foreign jurisdictions due to the uncertainty of future profitability in those jurisdictions.

Our tax valuation allowance was $8.7 million at year-end 2025.

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

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.

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

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

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

We continue to assess the potential impact of the Pillar Two global minimum tax on our operations and effective tax rate.

Certain jurisdictions in which we operate have enacted or proposed legislation to align with the OECD's Pillar Two Rules.

For fiscal 2024, we qualify 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, we do not anticipate a material impact on our effective tax rate or incremental tax liabilities in the near term.

We continue to evaluate our eligibility under the safe harbor provisions and monitor evolving regulatory guidance that may affect our long-term tax position.

In 2025, we incurred Pillar Two top-up tax that was assessed under the Undertaxed Profits Rule (UTPR).

The related UTPR top-up tax was recorded within our provision for income taxes in 2025 and did not have a material impact on our effective tax rate or consolidated financial statements.

In January 2026, the OECD released additional administrative guidance (Side-by-Side package) introducing new safe harbors.

The package includes an elective Side-by Side safe harbor that, subject to adoption into local law, may exempt eligible U.S.

parented multinational groups from the application of certain aspects of the global minimum tax regime for fiscal years beginning on or after January 1, 2026.

We continue to evaluate the applicability of available safe harbors, monitor developments in OECD guidance and local-country implementation, and assess the potential impact on our future Pillar Two compliance obligations and effective tax rate.

Revenue Recognition

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

We estimate 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 we expect from the identifiable intangible assets of the acquired businesses.

We estimate 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 we expect from the identifiable intangible assets of the acquired businesses.

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

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Goodwill totaled $497.1 million and indefinite-lived intangible assets totaled $28.9 million at September 28, 2025.

During the fourth quarter, we recognized goodwill of $55.8 million in connection with the Clyde Industries acquisition.

At year-end 2025, no factors were identified that would alter the conclusions of our September 28, 2025 analysis.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis