UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~July 2, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission file number 001-11406

KADANT INC.

(Exact name of registrant as specified in its charter)


Delaware									52-1762325
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

One Technology Park Drive

Westford, Massachusetts 01886

(Address of principal executive offices, including zip code)

(978) 776-2000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

KAI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October~~July 29, ~~2021,~~2022, the registrant had ~~11,604,062~~11,662,000 shares of common stock outstanding.

Table of Contents

Kadant Inc.

Quarterly Report on Form 10-Q

for the Period Ended ~~October~~July 2, ~~2021~~2022

Table of Contents


		Page
PART I: Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheet as of ~~October~~July 2, ~~2021~~2022 and January ~~2, 2021~~1, 2022 (unaudited)	3

	Condensed Consolidated Statement of Income for the three- and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020~~July 3, 2021 (unaudited)	4

	Condensed Consolidated Statement of Comprehensive Income for the three- and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020~~July 3, 2021 (unaudited)	5

	Condensed Consolidated Statement of Cash Flows for the ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020~~July 3, 2021 (unaudited)	6

	Condensed Consolidated Statement of Stockholders' Equity for the three- and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020~~July 3, 2021 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	98

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2321

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3231

Item 4.	Controls and Procedures	3231

PART II: Other Information

Item 1A.	Risk Factors	3331

Item 6.	Exhibits	3433

Table of Contents

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

KADANT INC.

Condensed Consolidated Balance Sheet

(Unaudited)


		October 2, 2021			January 2, 2021			July 2, 2022		January 1, 2022
(In thousands, except share and per share amounts)	(In thousands, except share and per share amounts)			(In thousands, except share and per share amounts)
Assets	Assets								Assets
Current Assets:	Current Assets:						Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	82,600		$	65,682	Cash and cash equivalents	$	76,540	$	91,186
Restricted cash (Note 1)	Restricted cash (Note 1)	1,064			958		Restricted cash (Note 1)	1,486		2,975
Accounts receivable, net of allowances of $2,874 and $2,977		120,496			91,540
Accounts receivable, net of allowances of $2,980 and $2,735							Accounts receivable, net of allowances of $2,980 and $2,735	124,704		117,209
Inventories	Inventories	135,476			106,814		Inventories	156,426		134,356
Unbilled revenue		7,915			7,576
Contract assets							Contract assets	11,861		8,626
Other current assets	Other current assets	28,477			17,250		Other current assets	22,975		29,530
Total Current Assets	Total Current Assets	376,028			289,820		Total Current Assets	393,992		383,882
Property, Plant, and Equipment, net of accumulated depreciation of $114,845 and $107,832		110,088			84,642
Property, Plant, and Equipment, net of accumulated depreciation of $116,612 and $114,032							Property, Plant, and Equipment, net of accumulated depreciation of $116,612 and $114,032	105,919		107,989
Other Assets	Other Assets	42,777			40,391		Other Assets	56,666		44,111
Intangible Assets, Net (Note 2)		205,328			160,965
Goodwill (Note 2)		398,907			351,753
Intangible Assets, Net							Intangible Assets, Net	183,317		199,343
Goodwill							Goodwill	384,109		396,887
Total Assets	Total Assets	$	1,133,128		$	927,571	Total Assets	$	1,124,003	$	1,132,212

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity						Liabilities and Stockholders' Equity
Current Liabilities:	Current Liabilities:						Current Liabilities:
Short-term obligations and current maturities of long-term obligations (Note 5)	Short-term obligations and current maturities of long-term obligations (Note 5)	$	5,574		$	1,474	Short-term obligations and current maturities of long-term obligations (Note 5)	$	4,543	$	5,356
Accounts payable	Accounts payable	53,476			32,264		Accounts payable	55,924		59,250
Accrued payroll and employee benefits	Accrued payroll and employee benefits	34,680			31,168		Accrued payroll and employee benefits	31,688		37,203
Customer deposits	Customer deposits	53,087			29,433		Customer deposits	66,088		59,262
Advanced billings	Advanced billings	11,980			8,513		Advanced billings	11,663		11,894
Other current liabilities	Other current liabilities	39,862			31,836		Other current liabilities	43,065		48,532
Total Current Liabilities	Total Current Liabilities	198,659			134,688		Total Current Liabilities	212,971		221,497
Long-Term Obligations (Note 5)	Long-Term Obligations (Note 5)	308,922			232,000		Long-Term Obligations (Note 5)	223,769		264,158
Long-Term Deferred Income Taxes	Long-Term Deferred Income Taxes	36,842			21,669		Long-Term Deferred Income Taxes	36,919		34,944
Other Long-Term Liabilities	Other Long-Term Liabilities	45,319			42,309		Other Long-Term Liabilities	44,180		45,997

Commitments and Contingencies (Note 11)	Commitments and Contingencies (Note 11)	0			0		Commitments and Contingencies (Note 11)	0		0

Stockholders' Equity:	Stockholders' Equity:						Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued	Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued	—			—		Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued	—		—
Common stock, $.01 par value, 150,000,000 shares authorized; 14,624,159 shares issued	Common stock, $.01 par value, 150,000,000 shares authorized; 14,624,159 shares issued	146			146		Common stock, $.01 par value, 150,000,000 shares authorized; 14,624,159 shares issued	146		146
Capital in excess of par value	Capital in excess of par value	112,693			110,824		Capital in excess of par value	114,825		115,888
Retained earnings	Retained earnings	530,596			479,400		Retained earnings	613,146		551,848
Treasury stock at cost, 3,038,629 and 3,081,919 shares		(74,459)			(75,519)
Treasury stock at cost, 2,962,186 and 3,003,419 shares							Treasury stock at cost, 2,962,186 and 3,003,419 shares	(72,586)		(73,596)
Accumulated other comprehensive items (Note 7)	Accumulated other comprehensive items (Note 7)	(27,089)			(19,492)		Accumulated other comprehensive items (Note 7)	(51,379)		(30,350)
Total Kadant Stockholders' Equity	Total Kadant Stockholders' Equity	541,887			495,359		Total Kadant Stockholders' Equity	604,152		563,936
Noncontrolling interest	Noncontrolling interest	1,499			1,546		Noncontrolling interest	2,012		1,680
Total Stockholders' Equity	Total Stockholders' Equity	543,386			496,905		Total Stockholders' Equity	606,164		565,616
Total Liabilities and Stockholders' Equity	Total Liabilities and Stockholders' Equity	$	1,133,128		$	927,571	Total Liabilities and Stockholders' Equity	$	1,124,003	$	1,132,212

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Income

(Unaudited)


		Three Months Ended							Nine Months Ended									Three Months Ended						Six Months Ended
		October 2, 2021				September 26, 2020			October 2, 2021				September 26, 2020					July 2, 2022				July 3, 2021		July 2, 2022		July 3, 2021
(In thousands, except per share amounts)	(In thousands, except per share amounts)							(In thousands, except per share amounts)
Revenue (Notes 1 and 10)	Revenue (Notes 1 and 10)			$	199,789						$	154,610				$	568,063			$	466,597		Revenue (Notes 1 and 10)	$	221,649	$	195,811	$	448,129	$	368,274

Costs and Operating Expenses:	Costs and Operating Expenses:														Costs and Operating Expenses:
Cost of revenue	Cost of revenue	116,096				86,294			323,337				263,510		Cost of revenue			125,611				110,493		253,880		207,241
Selling, general, and administrative expenses	Selling, general, and administrative expenses	52,316				43,853			151,014				134,518		Selling, general, and administrative expenses			55,319				49,267		114,487		98,698
Research and development expenses	Research and development expenses	2,649				2,658			8,547				8,532		Research and development expenses			3,251				3,041		6,329		5,898
Restructuring costs		—				470			—				926
Gain on sale and other expense, net (Note 2)															Gain on sale and other expense, net (Note 2)			—				—		(20,008)		—
		171,061				133,275			482,898				407,486					184,181				162,801		354,688		311,837
Operating Income	Operating Income	28,728				21,335			85,165				59,111		Operating Income			37,468				33,010		93,441		56,437
Interest Income	Interest Income	55				52			176				140		Interest Income			277				56		379		121
Interest Expense	Interest Expense	(1,320)				(1,670)			(3,497)				(6,060)		Interest Expense			(1,366)				(1,066)		(2,600)		(2,177)
Other Expense, Net	Other Expense, Net	(23)				(32)			(71)				(95)		Other Expense, Net			(19)				(24)		(41)		(48)
Income Before Provision for Income Taxes	Income Before Provision for Income Taxes	27,440				19,685			81,773				53,096		Income Before Provision for Income Taxes			36,360				31,976		91,179		54,333
Provision for Income Taxes (Note 4)	Provision for Income Taxes (Note 4)	6,742				4,705			21,252				13,738		Provision for Income Taxes (Note 4)			9,951				8,949		23,329		14,510
Net Income	Net Income	20,698				14,980			60,521				39,358		Net Income			26,409				23,027		67,850		39,823
Net Income Attributable to Noncontrolling Interest	Net Income Attributable to Noncontrolling Interest	(237)				(129)			(635)				(369)		Net Income Attributable to Noncontrolling Interest			(239)				(163)		(488)		(398)
Net Income Attributable to Kadant	Net Income Attributable to Kadant	$	20,461			$	14,851		$	59,886			$	38,989	Net Income Attributable to Kadant			$	26,170			$	22,864	$	67,362	$	39,425

Earnings per Share Attributable to Kadant (Note 3)	Earnings per Share Attributable to Kadant (Note 3)														Earnings per Share Attributable to Kadant (Note 3)
Basic	Basic	$	1.77			$	1.29		$	5.18			$	3.40	Basic			$	2.24			$	1.97	$	5.78	$	3.41
Diluted	Diluted	$	1.75			$	1.28		$	5.14			$	3.38	Diluted			$	2.24			$	1.96	$	5.77	$	3.39

Weighted Average Shares (Note 3)	Weighted Average Shares (Note 3)														Weighted Average Shares (Note 3)
Basic	Basic	11,580				11,504			11,571				11,472		Basic			11,660				11,579		11,645		11,566
Diluted	Diluted	11,668				11,589			11,644				11,550		Diluted			11,689				11,650		11,672		11,631

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)


		Three Months Ended							Nine Months Ended									Three Months Ended						Six Months Ended
		October 2, 2021				September 26, 2020			October 2, 2021				September 26, 2020					July 2, 2022				July 3, 2021		July 2, 2022		July 3, 2021
(In thousands)	(In thousands)							(In thousands)
Net Income	Net Income			$	20,698						$	14,980				$	60,521			$	39,358		Net Income	$	26,409	$	23,027	$	67,850	$	39,823
Other Comprehensive Items:	Other Comprehensive Items:														Other Comprehensive Items:
Foreign currency translation adjustment	Foreign currency translation adjustment	(7,326)				8,656			(7,987)				824		Foreign currency translation adjustment			(19,364)				4,089		(21,648)		(661)
Post-retirement liability adjustments, net (net of tax provision (benefit) of $9, $(6), $21 and $14)		24				(14)			57				34
Effect of post-retirement plan settlement		—				—			—				(119)
Deferred gain (loss) on cash flow hedges (net of tax provision (benefit) of $20, $19, $60 and $(103))		66				51			244				(275)
Post-retirement liability adjustments, net (net of tax provision of $11, $2, $13 and $12)															Post-retirement liability adjustments, net (net of tax provision of $11, $2, $13 and $12)			31				5		40		33
Deferred gain on cash flow hedges (net of tax provision of $46, $21, $114 and $40)															Deferred gain on cash flow hedges (net of tax provision of $46, $21, $114 and $40)			146				65		423		178
Other comprehensive items	Other comprehensive items	(7,236)				8,693			(7,686)				464		Other comprehensive items			(19,187)				4,159		(21,185)		(450)
Comprehensive Income	Comprehensive Income	13,462				23,673			52,835				39,822		Comprehensive Income			7,222				27,186		46,665		39,373
Comprehensive Income Attributable to Noncontrolling Interest	Comprehensive Income Attributable to Noncontrolling Interest	(201)				(191)			(546)				(445)		Comprehensive Income Attributable to Noncontrolling Interest			(129)				(171)		(332)		(345)
Comprehensive Income Attributable to Kadant	Comprehensive Income Attributable to Kadant	$	13,261			$	23,482		$	52,289			$	39,377	Comprehensive Income Attributable to Kadant			$	7,093			$	27,015	$	46,333	$	39,028

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)


		Nine Months Ended						Six Months Ended
		October 2, 2021			September 26, 2020			July 2, 2022		July 3, 2021
(In thousands)	(In thousands)			(In thousands)
Operating Activities	Operating Activities								Operating Activities
Net income attributable to Kadant	Net income attributable to Kadant	$	59,886		$	38,989	Net income attributable to Kadant	$	67,362	$	39,425
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	635			369		Net income attributable to noncontrolling interest	488		398

Net income	Net income	60,521			39,358		Net income	67,850		39,823
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	24,597			23,260		Depreciation and amortization	17,931		15,402
Stock-based compensation expense	Stock-based compensation expense	6,230			5,126		Stock-based compensation expense	4,536		4,026
Provision for losses on accounts receivable		116			505
Loss (gain) on sale of property, plant, and equipment		99			(4)
Provision for losses (benefit) on accounts receivable							Provision for losses (benefit) on accounts receivable	433		(241)
Gain on the sale of assets (Note 2)							Gain on the sale of assets (Note 2)	(20,190)		—
Noncash impairment costs (Note 2)							Noncash impairment costs (Note 2)	182		—
Other items, net	Other items, net	(1,852)			(250)		Other items, net	6,964		1,752
Changes in current assets and liabilities, net of effects of acquisitions:
Changes in assets and liabilities, net of effects of acquisitions:							Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	Accounts receivable	(22,305)			1,306		Accounts receivable	(12,336)		(15,321)
Unbilled revenue	Unbilled revenue	(487)			4,332		Unbilled revenue	(3,694)		1,005
Inventories	Inventories	(10,553)			(6,229)		Inventories	(26,816)		(7,312)
Other current assets		(8,110)			2,840
Other assets							Other assets	686		(3,209)
Accounts payable	Accounts payable	19,822			(13,183)		Accounts payable	(287)		12,904
Other current liabilities		33,332			(4,460)
Customer deposits							Customer deposits	9,329		11,112
Other liabilities							Other liabilities	(2,023)		3,537

Net cash provided by operating activities	Net cash provided by operating activities	101,410			52,601		Net cash provided by operating activities	42,565		63,478

Investing Activities	Investing Activities						Investing Activities
Acquisitions, net of cash acquired (Note 2)		(141,538)			(7,095)
Acquisitions, net of cash acquired							Acquisitions, net of cash acquired	(62)		(159)
Purchases of property, plant, and equipment	Purchases of property, plant, and equipment	(7,688)			(5,419)		Purchases of property, plant, and equipment	(9,815)		(4,318)
Proceeds from sale of property, plant, and equipment	Proceeds from sale of property, plant, and equipment	102			55		Proceeds from sale of property, plant, and equipment	1,942		71

Other	Other	537			—		Other	41		537
Net cash used in investing activities	Net cash used in investing activities	(148,587)			(12,459)		Net cash used in investing activities	(7,894)		(3,869)

Financing Activities	Financing Activities						Financing Activities
Repayment of short- and long-term obligations	Repayment of short- and long-term obligations	(72,723)			(69,034)		Repayment of short- and long-term obligations	(51,379)		(47,138)
Proceeds from issuance of long-term obligations (Note 5)		151,944			26,000
Proceeds from issuance of short- and long-term obligations							Proceeds from issuance of short- and long-term obligations	16,516		88,888
Tax withholding payments related to stock-based compensation	Tax withholding payments related to stock-based compensation	(3,388)			(2,596)		Tax withholding payments related to stock-based compensation	(4,589)		(3,388)
Dividends paid	Dividends paid	(8,559)			(8,141)		Dividends paid	(5,936)		(5,664)

Dividend paid to noncontrolling interest		(560)			(525)
Proceeds from issuance of Company common stock		—			1,614

Other		—			(189)
Net cash provided by (used in) financing activities		66,714			(52,871)

Net cash (used in) provided by financing activities							Net cash (used in) provided by financing activities	(45,388)		32,698

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	(2,513)			660		Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	(5,418)		(803)

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash		17,024			(12,069)
(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash							(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash	(16,135)		91,504
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	66,640			68,273		Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	94,161		66,640
Cash, Cash Equivalents, and Restricted Cash at End of Period	Cash, Cash Equivalents, and Restricted Cash at End of Period	$	83,664		$	56,204	Cash, Cash Equivalents, and Restricted Cash at End of Period	$	78,026	$	158,144

See Note 1, Nature of Operations and Summary of Significant Accounting Policies,

under the heading Supplemental Cash Flow Information for further details.

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited)

Three Months Ended October 2, 2021
(In thousands, except share and per share amounts) Common
Stock Capital in
Excess of Par Value Retained Earnings Treasury
Stock Accumulated
Other
Comprehensive Items Noncontrolling Interest Total
Stockholders' Equity
Shares Amount Shares Amount
Balance at July 3, 2021 14,624,159 $ 146 $ 110,529 $ 513,036 3,043,854 $ (74,587) $ (19,889) $ 1,891 $ 531,126
  Net income — — — 20,461 — — — 237 20,698
Dividend declared – Common Stock, $0.25 per share — — — (2,901) — — — — (2,901)
Activity under stock plans — — 2,164 — (5,225) 128 — — 2,292
Dividend paid to noncontrolling interest — — — — — — — (560) (560)
Noncontrolling interest acquired (Note 2) — — — — — — — 653 653
Purchase of shares of noncontrolling interest (Note 2) — — — — — — — (686) (686)
  Other comprehensive items — — — — — — (7,200) (36) (7,236)
Balance at October 2, 2021 14,624,159 $ 146 $ 112,693 $ 530,596 3,038,629 $ (74,459) $ (27,089) $ 1,499 $ 543,386
Nine Months Ended October 2, 2021
(In thousands, except share and per share amounts) Common
Stock Capital in
Excess of Par Value Retained Earnings Treasury
Stock Accumulated
Other
Comprehensive Items Noncontrolling Interest Total
Stockholders' Equity
Shares Amount Shares Amount
Balance at January 2, 2021 14,624,159 $ 146 $ 110,824 $ 479,400 3,081,919 $ (75,519) $ (19,492) $ 1,546 $ 496,905
  Net income — — — 59,886 — — — 635 60,521
Dividends declared – Common Stock, $0.75 per share — — — (8,690) — — — — (8,690)
Activity under stock plans — — 1,869 — (43,290) 1,060 — — 2,929
Dividend paid to noncontrolling interest — — — — — — — (560) (560)
Noncontrolling interest acquired (Note 2) — — — — — — — 653 653
Purchase of shares of noncontrolling interest (Note 2) — — — — — — — (686) (686)
  Other comprehensive items — — — — — — (7,597) (89) (7,686)
Balance at October 2, 2021 14,624,159 $ 146 $ 112,693 $ 530,596 3,038,629 $ (74,459) $ (27,089) $ 1,499 $ 543,386


	Three Months Ended July 2, 2022
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at April 2, 2022	14,624,159	$	146	$	112,651	$	590,009	2,964,786	$	(72,649)	$	(32,302)	$	1,883	$	599,738
Net income	—	—		—		26,170		—	—		—		239		26,409
Dividend declared – Common Stock, $0.26 per share	—	—		—		(3,033)		—	—		—		—		(3,033)
Activity under stock plans	—	—		2,174		—		(2,600)	63		—		—		2,237
Other comprehensive items	—	—		—		—		—	—		(19,077)		(110)		(19,187)
Balance at July 2, 2022	14,624,159	$	146	$	114,825	$	613,146	2,962,186	$	(72,586)	$	(51,379)	$	2,012	$	606,164

	Six Months Ended July 2, 2022
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at January 1, 2022	14,624,159	$	146	$	115,888	$	551,848	3,003,419	$	(73,596)	$	(30,350)	$	1,680	$	565,616
Net income	—	—		—		67,362		—	—		—		488		67,850
Dividends declared – Common Stock, $0.52 per share	—	—		—		(6,064)		—	—		—		—		(6,064)
Activity under stock plans	—	—		(1,063)		—		(41,233)	1,010		—		—		(53)



Other comprehensive items	—	—		—		—		—	—		(21,029)		(156)		(21,185)
Balance at July 2, 2022	14,624,159	$	146	$	114,825	$	613,146	2,962,186	$	(72,586)	$	(51,379)	$	2,012	$	606,164


	Three Months Ended July 3, 2021
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at April 3, 2021	14,624,159	$	146	$	108,064	$	493,067	3,046,379	$	(74,649)	$	(24,040)	$	1,720	$	504,308
Net income	—	—		—		22,864		—	—		—		163		23,027
Dividend declared – Common Stock, $0.25 per share	—	—		—		(2,895)		—	—		—		—		(2,895)
Activity under stock plans	—	—		2,465		—		(2,525)	62		—		—		2,527
Other comprehensive items	—	—		—		—		—	—		4,151		8		4,159
Balance at July 3, 2021	14,624,159	$	146	$	110,529	$	513,036	3,043,854	$	(74,587)	$	(19,889)	$	1,891	$	531,126

	Six Months Ended July 3, 2021
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at January 2, 2021	14,624,159	$	146	$	110,824	$	479,400	3,081,919	$	(75,519)	$	(19,492)	$	1,546	$	496,905
Net income	—	—		—		39,425		—	—		—		398		39,823
Dividends declared – Common Stock, $0.50 per share	—	—		—		(5,789)		—	—		—		—		(5,789)

Activity under stock plans	—	—		(295)		—		(38,065)	932		—		—		637
Other comprehensive items	—	—		—		—		—	—		(397)		(53)		(450)
Balance at July 3, 2021	14,624,159	$	146	$	110,529	$	513,036	3,043,854	$	(74,587)	$	(19,889)	$	1,891	$	531,126

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

~~Table of Contents~~

~~KADANT INC.~~

~~Condensed Consolidated Statement of Stockholders' Equity (continued)~~

~~(Unaudited)~~

Three Months Ended September 26, 2020
(In thousands, except share and per share amounts) Common
Stock Capital in
Excess of Par Value Retained Earnings Treasury
Stock Accumulated
Other
Comprehensive Items Noncontrolling Interest Total
Stockholders' Equity
Shares Amount Shares Amount
Balance at June 27, 2020 14,624,159 $ 146 $ 107,202 $ 453,874 3,127,565 $ (76,638) $ (45,863) $ 1,638 $ 440,359
  Net income — — — 14,851 — — — 129 14,980
Dividend declared – Common Stock, $0.24 per share — — — (2,762) — — — — (2,762)
Dividend paid to noncontrolling interest — — — — — — — (525) (525)
  Activity under stock plans — — 1,182 — (12,966) 318 — — 1,500
  Other comprehensive items — — — — — — 8,631 62 8,693
Balance at September 26, 2020 14,624,159 $ 146 $ 108,384 $ 465,963 3,114,599 $ (76,320) $ (37,232) $ 1,304 $ 462,245
Nine Months Ended September 26, 2020
(In thousands, except share and per share amounts) Common
Stock Capital in
Excess of Par Value Retained Earnings Treasury
Stock Accumulated
Other
Comprehensive Items Noncontrolling Interest Total
Stockholders' Equity
Shares Amount Shares Amount
Balance at December 28, 2019 14,624,159 $ 146 $ 106,698 $ 435,249 3,214,888 $ (78,778) $ (37,620) $ 1,384 $ 427,079
  Net income — — — 38,989 — — — 369 39,358
Dividends declared – Common Stock, $0.72 per share — — — (8,275) — — — — (8,275)
Dividend paid to noncontrolling interest — — — — — — — (525) (525)
  Activity under stock plans — — 1,686 — (100,289) 2,458 — — 4,144
  Other comprehensive items — — — — — — 388 76 464
Balance at September 26, 2020 14,624,159 $ 146 $ 108,384 $ 465,963 3,114,599 $ (76,320) $ (37,232) $ 1,304 $ 462,245

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

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Kadant Inc. was incorporated in Delaware in November 1991 and trades on the New York Stock Exchange under the ticker symbol "KAI."

Kadant Inc. (together with its subsidiaries, the Company) is a global supplier of ~~high-value, critical components~~technologies and engineered systems ~~used in process industries worldwide.~~that drive Sustainable Industrial Processing. Its products ~~technologies,~~ and services play an integral role in enhancing ~~process~~ efficiency, optimizing energy utilization, and maximizing productivity in ~~resource-intensive industries.~~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 3 reportable operating segments: Flow Control, Industrial Processing, and Material Handling.

Interim Financial Statements

The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at ~~October~~July 2, ~~2021,~~2022, its results of operations, comprehensive income, and stockholders' equity for the three- and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020~~July 3, 2021 and its cash flows for the ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020.~~July 3, 2021. Interim results are not necessarily indicative of results for a full year or for any other interim period.

The condensed consolidated balance sheet presented as of January ~~2, 2021~~1, 2022 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended January ~~2, 2021.~~1, 2022 (the Annual Report). The condensed consolidated financial statements and related notes are presented as permitted by the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-Q and do not contain certain information included in the annual consolidated financial statements and related notes of the Company. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the ~~Company's~~ Annual ~~Report on Form 10-K for the fiscal year ended January 2, 2021, filed~~Report.

Financial Statement Presentation

Certain reclassifications have been made to prior periods to conform with the ~~SEC.~~current period presentation. Specifically, the Company reclassified the change in customer deposits within operating activities from other liabilities to a separate line item and the changes in long-term assets and liabilities from other items, net to other assets and other liabilities, respectively, in the Condensed Consolidated Statement of Cash Flows.

Use of Estimates and Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its condensed consolidated financial statements or in the application of accounting policies, if business conditions were different, or if the Company were to use different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's condensed consolidated financial statements.

Note 1 to the consolidated financial statements in the ~~Company's~~ Annual Report ~~on Form 10-K for the fiscal year ended January 2, 2021~~ describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the Company’s significant accounting policies during the ~~nine~~six months ended ~~October~~July 2, ~~2021.~~2022.

Supplemental Cash Flow Information
Nine Months Ended
(In thousands) October 2,
2021 September 26,
2020
Cash Paid for Interest $ 3,091 $ 5,518
Cash Paid for Income Taxes, Net of Refunds $ 19,320 $ 9,953
Non-Cash Investing Activities:
Fair value of assets acquired $ 185,424 $ 9,295
Cash paid for acquired businesses (149,961) (7,565)
Liabilities Assumed of Acquired Businesses $ 35,463 $ 1,730
Purchases of property, plant, and equipment in accounts payable $ 914 $ 101
Non-Cash Financing Activities:
Issuance of Company common stock upon vesting of restricted stock units $ 3,841 $ 4,557
Dividends declared but unpaid $ 2,901 $ 2,762


	Six Months Ended
(In thousands)	July 2, 2022		July 3, 2021
Cash Paid for Interest	$	2,408	$	1,968
Cash Paid for Income Taxes, Net of Refunds	$	19,167	$	12,475

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Six Months Ended
(In thousands)	July 2, 2022		July 3, 2021
Non-Cash Investing Activities:
Fair value of assets acquired	$	(1,568)	$	197
Cash paid for acquired businesses	(62)		(159)
Liabilities Assumed of Acquired Businesses	$	(1,630)	$	38

Purchases of property, plant, and equipment in accounts payable	$	26	$	169

Non-Cash Financing Activities:
Issuance of Company common stock upon vesting of restricted stock units	$	5,040	$	3,628
Dividends declared but unpaid	$	3,033	$	2,895

Restricted Cash

The Company's restricted cash generally serves as collateral for certain banker's acceptance drafts issued to vendors and for bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business. The majority of the bank guarantees will expire over the next twelve months.

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


(In thousands)	(In thousands)	October 2, 2021		September 26, 2020		January 2, 2021		December 28, 2019		(In thousands)	July 2, 2022		July 3, 2021		January 1, 2022		January 2, 2021
Cash and cash equivalents	Cash and cash equivalents	$	82,600	$	53,554	$	65,682	$	66,786	Cash and cash equivalents	$	76,540	$	73,436	$	91,186	$	65,682
Restricted cash	Restricted cash	1,064		2,650		958		1,487		Restricted cash	1,486		84,708		2,975		958
Total Cash, Cash Equivalents, and Restricted Cash	Total Cash, Cash Equivalents, and Restricted Cash	$	83,664	$	56,204	$	66,640	$	68,273	Total Cash, Cash Equivalents, and Restricted Cash	$	78,026	$	158,144	$	94,161	$	66,640

Inventories

The components of inventories are as follows:


		October 2, 2021				January 2, 2021					July 2, 2022		January 1, 2022
(In thousands)	(In thousands)			(In thousands)
Raw Materials	Raw Materials			$	57,616				$	46,413		Raw Materials	$	64,717	$	59,177
Work in Process	Work in Process	34,636				17,692		Work in Process			37,978		29,448
Finished Goods	Finished Goods	43,224				42,709		Finished Goods			53,731		45,731
		$	135,476			$	106,814				$	156,426	$	134,356

Intangible Assets, Net

~~Acquired~~Gross intangible assets ~~by major asset class are as follows:~~

(In thousands) Gross Accumulated
Amortization Currency
Translation Net
October 2, 2021
Definite-Lived
Customer relationships $ 215,366 $ (75,978) $ (2,613) $ 136,775
Product technology 67,625 (34,615) (1,468) 31,542
Tradenames 7,427 (3,278) (346) 3,803
Other 20,110 (15,463) (552) 4,095
310,528 (129,334) (4,979) 176,215
Indefinite-Lived
Tradenames 29,059 — 54 29,113
Acquired Intangible Assets $ 339,587 $ (129,334) $ (4,925) $ 205,328
January 2, 2021
Definite-Lived
Customer relationships $ 173,728 $ (65,488) $ (1,316) $ 106,924
Product technology 56,111 (31,655) (1,005) 23,451
Tradenames 6,027 (2,946) (282) 2,799
Other 18,248 (14,369) (515) 3,364
254,114 (114,458) (3,118) 136,538
Indefinite-Lived
Tradenames 24,100 — 327 24,427
Acquired Intangible Assets $ 278,214 $ (114,458) $ (2,791) $ 160,965

~~Table of Contents~~

~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

were $340,947,000 at July 2, 2022 and January 1, 2022. Intangible assets are recorded at fair value at the date of acquisition. Subsequent impairment charges are reflected as a reduction in the gross balance, as applicable. Definite-lived intangible assets are stated net of accumulated amortization and currency translation in the accompanying condensed consolidated balance sheet. The Company amortizes definite-lived intangible assets over lives that have been determined based on the anticipated cash flow benefits of the intangible asset. Accumulated amortization was $146,117,000 at July 2, 2022 and $135,327,000 at January 1, 2022.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Goodwill

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


(In thousands)	(In thousands)	Flow Control		Industrial Processing		Material Handling		Total		(In thousands)	Flow Control		Industrial Processing		Material Handling		Total
Balance at January 2, 2021
Balance at January 1, 2022										Balance at January 1, 2022
Gross balance	Gross balance	$	101,437	$	215,881	$	119,944	$	437,262	Gross balance	$	123,589	$	214,982	$	143,825	$	482,396
Accumulated impairment losses	Accumulated impairment losses	—		(85,509)		—		(85,509)		Accumulated impairment losses	—		(85,509)		—		(85,509)
Net balance	Net balance	101,437		130,372		119,944		351,753		Net balance	123,589		129,473		143,825		396,887
2021 Adjustments
Acquisitions (Note 2)		25,349		—		27,699		53,048
2022 Activity										2022 Activity
Acquisitions (a)										Acquisitions (a)	(33)		—		(502)		(535)
Currency translation	Currency translation	(2,417)		(1,351)		(2,126)		(5,894)		Currency translation	(5,905)		(3,271)		(3,067)		(12,243)
Total 2021 adjustments		22,932		(1,351)		25,573		47,154
Balance at October 2, 2021
Total 2022 activity										Total 2022 activity	(5,938)		(3,271)		(3,569)		(12,778)
Balance at July 2, 2022										Balance at July 2, 2022
Gross balance	Gross balance	124,369		214,530		145,517		484,416		Gross balance	117,651		211,711		140,256		469,618
Accumulated impairment losses	Accumulated impairment losses	—		(85,509)		—		(85,509)		Accumulated impairment losses	—		(85,509)		—		(85,509)
Net balance	Net balance	$	124,369	$	129,021	$	145,517	$	398,907	Net balance	$	117,651	$	126,202	$	140,256	$	384,109

(a)Relates to adjustments to the purchase price allocation for acquisitions completed in 2021, principally for inventory, machinery and equipment, and deferred taxes. Measurement period adjustments in 2022 were not material to the Company's results of operations.

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. The Company provides for the estimated cost of product warranties at the time of sale based on 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.

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

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


		Nine Months Ended					Six Months Ended
(In thousands)	(In thousands)	October 2, 2021		September 26, 2020		(In thousands)	July 2, 2022		July 3, 2021
Balance at Beginning of Year	Balance at Beginning of Year	$	7,064	$	6,467	Balance at Beginning of Year	$	7,298	$	7,064
Provision charged to expense	Provision charged to expense	3,289		3,960		Provision charged to expense	2,657		2,709
Usage	Usage	(3,106)		(3,809)		Usage	(2,548)		(2,255)
Acquisitions		429		—
Currency translation	Currency translation	(210)		114		Currency translation	(429)		(74)
Balance at End of Period	Balance at End of Period	$	7,466	$	6,732	Balance at End of Period	$	6,978	$	7,444

Revenue Recognition

Most of the Company’s revenue relates to products and services that require minimal customization and is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. 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. Contracts are accounted for on an over time basis when they include products which have no alternative use and an enforceable right to payment over time. Most of the contracts recognized on an over time basis are for large capital projects. These projects are highly customized for the customer and, as a result, would include a significant cost to rework in the event of cancellation.

1110

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents revenue by revenue recognition method:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 2,		September 26,		October 2,		September 26,			July 2,		July 3,		July 2,		July 3,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Point in Time	Point in Time	$	181,407	$	137,679	$	511,303	$	403,568	Point in Time	$	198,249	$	175,479	$	401,560	$	329,896
Over Time	Over Time	18,382		16,931		56,760		63,029		Over Time	23,400		20,332		46,569		38,378
		$	199,789	$	154,610	$	568,063	$	466,597		$	221,649	$	195,811	$	448,129	$	368,274

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 2,		September 26,		October 2,		September 26,			July 2,		July 3,		July 2,		July 3,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Revenue by Product Type:	Revenue by Product Type:									Revenue by Product Type:
Parts and consumables	Parts and consumables	$	131,225	$	102,729	$	374,307	$	305,087	Parts and consumables	$	145,680	$	124,975	$	291,924	$	243,082
Capital	Capital	68,564		51,881		193,756		161,510		Capital	75,969		70,836		156,205		125,192
		$	199,789	$	154,610	$	568,063	$	466,597		$	221,649	$	195,811	$	448,129	$	368,274
Revenue by Geography (based on customer location):	Revenue by Geography (based on customer location):									Revenue by Geography (based on customer location):
North America	North America	$	105,384	$	87,366	307,243		269,907		North America	$	123,964	$	106,767	248,300		201,859
Europe	Europe	58,813		38,951		159,281		112,881		Europe	52,249		55,827		110,615		100,468
Asia	Asia	25,504		18,847		72,046		50,992		Asia	30,851		24,729		62,838		46,542
Rest of world	Rest of world	10,088		9,446		29,493		32,817		Rest of world	14,585		8,488		26,376		19,405
		$	199,789	$	154,610	$	568,063	$	466,597		$	221,649	$	195,811	$	448,129	$	368,274

See Note 10, Business Segment Information, for information on the disaggregation of revenue by reportable operating segment.

The following table presents contract balances from contracts with customers:


		October 2, 2021				January 2, 2021					July 2, 2022		January 1, 2022
(In thousands)	(In thousands)			(In thousands)
Accounts Receivable				$	120,496				$	91,540
Contract Assets	Contract Assets	$	7,915			$	7,576	Contract Assets			$	11,861	$	8,626
Contract Liabilities	Contract Liabilities	$	67,025			$	39,269	Contract Liabilities			$	82,408	$	77,004

Contract assets represent unbilled revenue associated with revenue recognized on contracts accounted for on an over time basis, which will be billed in future periods based on the contract terms. 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 condensed 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 ~~$3,973,000~~$13,424,000 in the ~~third~~second quarter of 2022 and $10,070,000 in the second quarter of 2021, ~~$1,656,000 in the third quarter of 2020, $31,183,000~~$47,901,000 in the first ~~nine~~six months of ~~2021~~2022 and ~~$28,522,000~~$27,210,000 in the first ~~nine~~six months of ~~2020~~2021 that was included in the contract liabilities balance at the beginning of 2022 and 2021, ~~and 2020.~~respectively. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital contracts require long lead times and could take up to 24 months to complete. For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations as of ~~October~~July 2, ~~2021~~2022 was ~~$38,135,000.~~$61,659,000. The Company will recognize revenue for these performance obligations as they are satisfied, approximately ~~70%~~52% of which is expected to occur within the next twelve months and the remaining ~~30% within~~48% after the ~~following twelve months.~~

second quarter of 2023.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Banker's Acceptance Drafts Included in Accounts Receivable

The Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date. These drafts, which totaled ~~$7,428,000~~$7,107,000 at ~~October~~July 2, ~~2021~~2022 and ~~$9,445,000~~$8,049,000 at January ~~2, 2021,~~1, 2022, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.

Recent Accounting Pronouncements

~~Recently Adopted Accounting Pronouncements~~

~~Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.~~ In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance, including the recognition of franchise tax, the treatment of a step up in the tax basis of goodwill, and the timing for recognition of enacted changes in tax laws or rates in the interim period annual effective tax rate computation. This new guidance is effective in fiscal 2021, and the transition requirements are primarily prospective. The Company adopted this ASU prospectively at the beginning of fiscal 2021 and its adoption did not have an impact on the condensed consolidated financial statements.

~~Recent Accounting Pronouncements~~ Not Yet Adopted

Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Update (ASU) No. 2020-04, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of reference rates, such as the London Interbank Offered Rate (LIBOR), if certain criteria are met. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. The guidance in this ASU is applicable to the Company's existing contracts and hedging relationships that reference LIBOR and may be adopted prospectively through December 31, 2022. The Company ~~is currently evaluating the effects~~does not expect that the adoption of this ASU will have an impact on its consolidated financial statements.

Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. In October 2021, the FASB issued ASU No. 2021-08, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU will generally result in the Company recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. This new guidance is effective on a prospective basis in fiscal 2023, with early adoption permitted. The impact of the adoption of this ASU on the Company’s consolidated financial statements will be dependent on the contract assets and liabilities acquired in future business combinations.

2. ~~Acquisitions~~Gain on Sale and Other Expense, Net

The ~~Company’s acquisitions have been accounted~~Company entered into several agreements with the local government in China to sell the existing manufacturing building and land use rights of one of its subsidiaries in China for ~~using the purchase method of accounting and the results~~approximately $25,159,000. This subsidiary, which is part of the ~~acquired businesses are~~stock-preparation product line within the Company's Industrial Processing segment, will continue to occupy its current facility until construction of a new facility is complete. The agreements became effective in the first quarter of 2022 after a 31% down payment was received, including 25% in 2021 and 6% in the first quarter of 2022, and a land use right in a new location was secured. As a result, the Company recognized a gain on the sale of these assets of $20,190,000, or $15,143,000, net of deferred taxes of $5,047,000, in the first quarter of 2022. A receivable of $16,082,000 was recognized for the present value of the remaining amount of the sale proceeds, which is due the earlier of when the government sells the property or within two years from the effective date of the agreements. The amount of the receivable recorded at July 2, 2022 was $15,398,000. This receivable is included in ~~its condensed consolidated financial statements from the date of acquisition. Historically, acquisitions have been made at prices above the fair value of identifiable net~~other assets ~~resulting in goodwill. Acquisition costs are included inselling, general, and administrative (SG&A) expenses~~ in the accompanying condensed consolidated ~~statement~~balance sheet.

In addition, the Company recognized an impairment charge of ~~income as incurred. The Company recorded acquisition costs of $2,619,000~~$182,000 in the first ~~nine months of 2021 and $485,000 in the first nine months of 2020.~~

~~In the third~~ quarter of 2021, the Company acquired all partnership interests and shares in The Clouth Group of Companies (Clouth), for $93,127,000, 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 within 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. The Company expects several synergies in connection with this acquisition, including deepening its presence in the growing ceramic blade market and expansion of sales at its existing businesses by leveraging Clouth's complementary global geographic footprint. Clouth has 2 manufacturing facilities in Germany and 1 in Poland and generated revenue of approximately 40,495,000 euros for the trailing twelve months ended June 30, 2021. Goodwill from the Clouth acquisition was $25,349,000, of which $6,240,000 is expected to be deductible for tax purposes over 15 years. In addition, intangible assets acquired were $34,113,000, of which $4,827,000 is expected to be deductible for tax purposes over 15 years. For the quarter ended October 2, 2021, the Company recorded revenue of $9,913,000 and an operating loss of $1,025,000 for Clouth from the date of acquisition, including amortization expense of $2,199,0002022 associated with ~~acquired profit in inventory and backlog. The final purchase accounting and purchase price allocations remain subject~~the write-down of certain fixed assets that will not be moved to ~~change as~~ the new facility.

1312

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed and the valuation of acquired intangibles.~~

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 $53,747,000, net of cash acquired. Balemaster, which is included within 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. The Company expects several synergies in connection with the acquisition, including expansion of its presence in the secondary material processing market and creation of new opportunities for leveraging its high-performance balers produced in Europe. Balemaster's revenue for the trailing twelve months ended June 30, 2021 was approximately $22,166,000. Goodwill from the Balemaster acquisition was $27,699,000, none of which is deductible for tax purposes. In addition, intangible assets acquired were $27,260,000, none of which is deductible for tax purposes. For the quarter ended October 2, 2021, the Company recorded revenue of $2,845,000 and operating income of $221,000 for Balemaster from the date of acquisition, including amortization expense of $621,000 associated with acquired profit in inventory and backlog. The final purchase accounting and purchase price allocations remain subject to change as the Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed and the valuation of acquired intangibles.

~~The following table summarizes the estimated fair values of assets acquired and liabilities assumed and the purchase~~

~~price for Clouth and Balemaster.~~

(In thousands) Clouth Balemaster Total
Net Assets Acquired:
Cash and Cash Equivalents $ 4,666 $ 3,757 $ 8,423
Accounts Receivable 6,863 1,593 8,456
Inventories 15,770 3,993 19,763
Other Current Assets 1,467 36 1,503
Property, Plant, and Equipment 24,508 4,232 28,740
Other Assets 3,923 195 4,118
Definite-Lived Intangible Assets
Customer relationships 19,838 21,800 41,638
Product technology 8,914 2,600 11,514
Tradenames — 1,400 1,400
Other 402 1,460 1,862
Indefinite-Lived Intangible Assets
Tradenames 4,959 — 4,959
Goodwill 25,349 27,699 53,048
Total assets acquired 116,659 68,765 185,424
Short-term Obligations and Current Maturities of Long-term Obligations 1,320 — 1,320
Accounts Payable 1,452 743 2,195
Other Current Liabilities 4,557 3,900 8,457
Long-Term Deferred Income Taxes 10,060 6,423 16,483
Long-Term Obligations 4,141 — 4,141
Other Long-term Liabilities 2,797 195 2,992
Total liabilities assumed 24,327 11,261 35,588
Net assets acquired $ 92,332 $ 57,504 $ 149,836
Purchase Price:
Cash Paid $ 92,332 $ 57,504 $ 149,836

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 Balemaster's definite-lived intangible assets is 17 years, including weighted-average amortization periods of 18 years for customer relationships, 13 years for product technology, and 17 years for tradenames.

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~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Unaudited Supplemental Pro Forma Information~~

Had the acquisition of Clouth been completed as of the beginning of 2020, the Company’s pro forma results of operations for the three- and nine-month periods ended October 2, 2021 and September 26, 2020 would have been as follows:

Three Months Ended Nine Months Ended
October 2,
2021 September 26,
2020 October 2,
2021 September 26,
2020
(In thousands, except per share amounts)
Revenue $ 201,372 $ 166,687 $ 593,500 $ 501,484
Net Income Attributable to Kadant $ 22,125 $ 17,013 $ 64,102 $ 37,106
Earnings per Share Attributable to Kadant
Basic $ 1.91 $ 1.48 $ 5.54 $ 3.23
Diluted $ 1.90 $ 1.47 $ 5.51 $ 3.21

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.

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

•Pre-tax charge to cost of revenue of $3,098,000 in the nine months ended September 26, 2020 and reversal of $1,846,000 in the three and nine months ended October 2, 2021, for the sale of inventory revalued at the date of acquisition.

•Pre-tax charge to SG&A expenses of $2,143,000 in the nine months ended September 26, 2020 and reversal of $860,000 in the three months ended October 2, 2021 and $2,096,000 in the nine months ended October 2, 2021, for acquisition costs and intangible asset amortization related to acquired backlog.

•~~Estimated tax effects related to the pro forma adjustments.~~

These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have resulted had the 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 Balemaster acquisition as the inclusion of its results would not have been materially different from the pro forma results presented above had the acquisition occurred at the beginning of 2020.

3. Earnings per Share

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


		Three Months Ended							Nine Months Ended									Three Months Ended						Six Months Ended
		October 2, 2021				September 26, 2020			October 2, 2021				September 26, 2020					July 2, 2022				July 3, 2021		July 2, 2022		July 3, 2021
(In thousands, except per share amounts)	(In thousands, except per share amounts)							(In thousands, except per share amounts)
Net Income Attributable to Kadant	Net Income Attributable to Kadant			$	20,461						$	14,851				$	59,886			$	38,989		Net Income Attributable to Kadant	$	26,170	$	22,864	$	67,362	$	39,425

Basic Weighted Average Shares	Basic Weighted Average Shares	11,580				11,504			11,571				11,472		Basic Weighted Average Shares			11,660				11,579		11,645		11,566
Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares	Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares	88				85			73				78		Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares			29				71		27		65
Diluted Weighted Average Shares	Diluted Weighted Average Shares	11,668				11,589			11,644				11,550		Diluted Weighted Average Shares			11,689				11,650		11,672		11,631

Basic Earnings per Share	Basic Earnings per Share	$	1.77			$	1.29		$	5.18			$	3.40	Basic Earnings per Share			$	2.24			$	1.97	$	5.78	$	3.41

Diluted Earnings per Share	Diluted Earnings per Share	$	1.75			$	1.28		$	5.14			$	3.38	Diluted Earnings per Share			$	2.24			$	1.96	$	5.77	$	3.39

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling ~~3,000~~8,000 shares in the ~~third~~second quarter of 2022 and 9,000 shares in the second quarter of 2021, ~~11,000 shares in the third quarter of 2020, 19,000~~13,000 shares in the first ~~nine~~six months of ~~2021,~~2022 and ~~30,000 shares~~27,000 in the first ~~nine~~six months of ~~2020~~2021 were not included in the computation of diluted EPS for the respective periods as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods.

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~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

4. Provision for Income Taxes

The provision for income taxes was ~~$21,252,000~~$23,329,000 in the first ~~nine~~six months of ~~2021~~2022 and ~~$13,738,000~~$14,510,000 in the first ~~nine~~six months of ~~2020.~~2021. The effective tax ~~rate~~rates of 26% and 27% in the first ~~nine~~six months of 2022 and 2021, ~~was~~respectively, were higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, nondeductible expenses, and state taxes, and for the first six months of 2021, tax expense associated with the Global Intangible Low-Taxed Income ~~(GILTI)~~ provisions. ~~These increases in tax expense were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements. The effective tax rate of 26% in~~For the first ~~nine~~six months of ~~2020 was higher than the Company's statutory rate of 21% primarily due to nondeductible expenses, the distribution of the Company's worldwide earnings~~2022 and ~~state taxes. These~~2021, these increases in tax expense were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements.

5. Short- and Long-Term Obligations

Short- and long-term obligations are as follows:


		October 2, 2021				January 2, 2021					July 2, 2022		January 1, 2022
(In thousands)	(In thousands)			(In thousands)
Revolving Credit Facility, due 2023	Revolving Credit Facility, due 2023			$	294,610				$	217,963		Revolving Credit Facility, due 2023	$	210,450	$	250,267
Senior Promissory Notes, due 2023 to 2028	Senior Promissory Notes, due 2023 to 2028	10,000				10,000		Senior Promissory Notes, due 2023 to 2028			10,000		10,000
Finance Leases, due 2021 to 2026		1,661				1,631
Other Borrowings, due 2021 to 2028		8,225				3,880
Finance Leases, due 2022 to 2026								Finance Leases, due 2022 to 2026			1,569		1,610
Other Borrowings, due 2022 to 2028								Other Borrowings, due 2022 to 2028			6,293		7,637
Total	Total	314,496				233,474		Total			228,312		269,514
Less: Short-term Obligations and Current Maturities of Long-Term Obligations	Less: Short-term Obligations and Current Maturities of Long-Term Obligations	(5,574)				(1,474)		Less: Short-term Obligations and Current Maturities of Long-Term Obligations			(4,543)		(5,356)
Long-Term Obligations	Long-Term Obligations	$	308,922			$	232,000	Long-Term Obligations			$	223,769	$	264,158

See Note 9, Fair Value Measurements and Fair Value of Financial Instruments, for the fair value information related to the Company's long-term obligations.

Revolving Credit Facility

The Company entered into an unsecured multi-currency revolving credit facility, dated as of March 1, 2017 (as amended and restated to date, the Credit Agreement)., which matures on December 14, 2023. Pursuant to the Credit Agreement, the Company has a borrowing capacity of $400,000,000, with an uncommitted, unsecured incremental borrowing facility of ~~$150,000,000, with a maturity date of December 14, 2023.~~$150,000,000. Interest on borrowings outstanding accrues and is payable in arrears calculated at one of the following rates selected by the Company: (i) the Base Rate, as defined, plus an applicable margin of 0% to 1.25%, or (ii) ~~LIBOR~~Eurocurrency Rate,

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

CDOR Rate and RFR (with a zero percent floor), as applicable and as defined, plus an applicable margin of 1% to 2.25%. The Base Rate is calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as published by Citizens Bank, N.A. (Citizens Bank) and (c) thirty-day U.S. dollar LIBOR (USD LIBOR), as defined, plus 0.50%. The applicable margin is determined based upon the ratio of the Company's total debt, net of unrestricted cash up to $30,000,000 and certain debt obligations, to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement.

The obligations under the Credit Agreement may be accelerated upon the occurrence of an event of default, which includes customary events of default under such financing arrangements. In addition, the Credit Agreement contains negative covenants applicable to the Company and its subsidiaries, including financial covenants requiring the Company to maintain a maximum consolidated leverage ratio of 3.75 to 1.00, or, if the Company elects, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, 4.00 to 1.00, and limitations on making certain restricted payments (including dividends and stock repurchases).

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

In the first nine months of 2021, the Company borrowed an aggregate of $151,944,000 under the Credit Agreement, including $89,944,000 of euro-denominated borrowings, which were primarily used to fund the Company's acquisitions in the third quarter of 2021. See ~~Note 2, Acquisitions, for further details.~~ As of ~~October~~July 2, ~~2021,~~2022, the outstanding balance under the Credit Agreement was ~~$294,610,000,~~$210,450,000, which included ~~$106,610,000~~$70,450,000 of euro-denominated borrowings. As of ~~October~~July 2, ~~2021,~~2022, the Company had ~~$104,912,000~~$189,004,000 of borrowing capacity available under its Credit Agreement, which was calculated by translating its foreign-denominated borrowings using borrowing date foreign exchange rates.

The weighted average interest rate for the outstanding balance under the Credit Agreement was ~~1.46%~~2.49% as of ~~October~~July 2, ~~2021.~~

~~Table of Contents~~

~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

2022.

See Note 8, Derivatives, under the heading Interest Rate Swap Agreement, for information relating to the swap ~~agreement used to hedge the Company’s exposure to movements in the three-month USD LIBOR on its U.S. dollar-denominated debt borrowed under the Credit Agreement.~~agreement.

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 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 a minimum amount of $1,000,000, or the foreign currency equivalent thereof, if applicable)~~ 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.

~~In accordance with the Note Purchase Agreement, the Company may also issue additional senior promissory notes (together with the~~The Initial Notes, the Senior Promissory Notes) up to an additional $115,000,000 until the earlier of December 14, 2021 or the thirtieth day after written notice to terminate the issuance and sale of additional notes pursuant to the Note Purchase Agreement. The Senior Promissory Notes are pari passu with the Company’s indebtedness under the Credit Agreement, and any other senior debt of the Company, subject to certain specified exceptions, and participate in a sharing agreement with respect to the obligations of the Company and its subsidiaries under the Credit Agreement. The Senior Promissory Notes are guaranteed by certain of the Company’s domestic subsidiaries.

Debt Compliance

As of ~~October~~July 2, ~~2021,~~2022, the Company was in compliance with the covenants related to its debt obligations.

Finance Leases

The Company's finance leases primarily relate to contracts for vehicles.

Other Borrowings

Other borrowings include a sale-leaseback financing arrangement for a manufacturing facility in Germany. Under this arrangement, the quarterly lease payment includes principal, interest, and a payment to the landlord toward a loan receivable. The interest rate on the outstanding obligation is 1.79%. The secured loan receivable, which is included in other current assets in the accompanying condensed consolidated balance sheet, was ~~$1,374,000~~$1,414,000 at ~~October~~July 2, ~~2021.~~2022. The lease arrangement provides for a fixed price purchase option, net of the projected loan receivable, of ~~$1,540,000~~$1,387,000 at the end of the lease term in August ~~2022. If~~2022, In the second quarter of 2022, the Company ~~does not exercise the~~exercised its purchase option ~~for the facility, it will receive cash from~~and issued a notice of intent to the landlord to ~~settle~~purchase the ~~loan receivable.~~facility. As of ~~October~~July 2, ~~2021, $3,432,000~~2022, $2,920,000 was outstanding under this obligation.

Other borrowings also include ~~$1,150,000~~$804,000 of short-term obligations and ~~$3,629,000~~$2,563,000 of debt obligations outstanding at ~~October~~July 2, ~~2021~~2022 assumed in the acquisition of The Clouth Group of Companies (Clouth), which mature on various dates ranging from ~~2021~~2022 through 2028.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

6. Stock-Based Compensation

The Company recognized stock-based compensation expense of ~~$2,204,000~~$2,276,000 in the ~~third~~second quarter of 2022 and $2,527,000 in the second quarter of 2021, ~~$1,610,000 in the third quarter of 2020, $6,230,000~~$4,536,000 in the first ~~nine~~six months of ~~2021,~~2022, and ~~$5,126,000~~$3,516,000 in the first ~~nine~~six months of ~~2020~~2021 within selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income. The Company recognizes compensation expense for all stock-based awards granted to employees and directors based on the grant date estimate of fair value for those awards. The fair value of RSUs is based on the grant date price of the Company's common stock, reduced by the present value of estimated dividends foregone during the requisite service period. 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 the award based on the grant date fair value, net of actual forfeitures recorded when they occur, and remeasured each reporting period until the total number of RSUs to be issued is known. Unrecognized compensation expense related to stock-based compensation totaled approximately ~~$9,699,000~~$10,331,000 at ~~October~~July 2, ~~2021,~~2022, which will be recognized over a weighted average period of ~~1.7~~1.8 years.

In May 2022, the Company granted an aggregate of 5,175 RSUs to its non-employee directors with a grant date fair value of $935,000. Of these 5,175 RSUs, 4,705 were granted to its incumbent non-employee directors with the remaining 470 RSUs granted to the Company's new non-employee director who became a director effective as of May 1, 2022. For the incumbent non-employee directors, half of these RSUs vested on June 1, 2022 with the remaining RSUs to vest ratably on the last day of the third and fourth fiscal quarters of 2022. For the new non-employee director, half of the RSUs will vest on the last day of the third fiscal quarter and the other half on the last day of the fourth fiscal quarter of 2022.

~~Table of Contents~~

~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

7. Accumulated Other Comprehensive Items

Comprehensive income combines net income and other comprehensive items, which represent certain amounts that are reported as components of stockholders' equity in the accompanying condensed consolidated balance sheet.

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


(In thousands)	(In thousands)	Foreign Currency Translation Adjustment		Post-Retirement Benefit Liability Adjustments		Deferred Loss on Cash Flow Hedges		Total		(In thousands)	Foreign Currency Translation Adjustment		Post-Retirement Benefit Liability Adjustments		Deferred Loss on Cash Flow Hedges		Total
Balance at January 2, 2021		$	(17,894)	$	(770)	$	(828)	$	(19,492)
Balance at January 1, 2022										Balance at January 1, 2022	$	(29,096)	$	(792)	$	(462)	$	(30,350)
Other comprehensive items before reclassifications	Other comprehensive items before reclassifications	(7,898)		27		(12)		(7,883)		Other comprehensive items before reclassifications	(21,492)		27		276		(21,189)
Reclassifications from AOCI	Reclassifications from AOCI	—		30		256		286		Reclassifications from AOCI	—		13		147		160
Net current period other comprehensive items	Net current period other comprehensive items	(7,898)		57		244		(7,597)		Net current period other comprehensive items	(21,492)		40		423		(21,029)
Balance at October 2, 2021		$	(25,792)	$	(713)	$	(584)	$	(27,089)
Balance at July 2, 2022										Balance at July 2, 2022	$	(50,588)	$	(752)	$	(39)	$	(51,379)

Amounts reclassified from AOCI are as follows:

Three Months Ended Nine Months Ended
(In thousands) October 2,
2021 September 26,
2020 October 2,
2021 September 26,
2020 Statement of Income Line Item
Post-retirement Benefit Plans
Recognized net actuarial loss $ (11) $ (14) $ (33) $ (43) Other expense, net
Amortization of prior service cost (3) (2) (9) (5) Other expense, net
Total expense before income taxes (14) (16) (42) (48)
Income tax benefit 4 4 12 132 Provision for income taxes
(10) (12) (30) 84
Cash Flow Hedges (a)
Interest rate swap agreements (114) (109) (336) (215) Interest expense
Forward currency-exchange contracts — 47 — 24 Cost of revenue
Total expense before income taxes (114) (62) (336) (191)
Income tax benefit 27 15 80 46 Provision for income taxes
(87) (47) (256) (145)
Total Reclassifications $ (97) $ (59) $ (286) $ (61)


	Three Months Ended				Six Months Ended
(In thousands)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021		Statement of Income Line Item
Post-retirement Benefit Plans
Recognized net actuarial loss	$	(6)	$	(11)	$	(13)	$	(22)	Other expense, net
Amortization of prior service cost	(2)		(3)		(5)		(6)		Other expense, net
Total expense before income taxes	(8)		(14)		(18)		(28)
Income tax benefit	2		4		5		8		Provision for income taxes
	(6)		(10)		(13)		(20)
Cash Flow Hedges (a)
Interest rate swap agreements	(83)		(113)		(194)		(222)		Interest expense

Income tax benefit	20		27		47		53		Provision for income taxes
	(63)		(86)		(147)		(169)
Total Reclassifications	$	(69)	$	(96)	$	(160)	$	(189)

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

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

8. Derivatives

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 has a $15,000,000 notional value and expires on June 30, 2023. On a quarterly basis, the Company receives three-month USD LIBOR, which is subject to a zero percent floor, and pays a fixed rate of interest of 3.15% plus an applicable margin as defined in the Credit Agreement.

The Company 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 are recorded to AOCI, net of tax. In the event of early termination, the Company will receive from or pay to the counterparty the fair value of the 2018 Swap Agreement, and the unrealized gain or loss outstanding will be recognized in earnings.

~~Table of Contents~~

~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The counterparty to the 2018 Swap Agreement could demand an early termination of that agreement if the Company were to be in default under the Credit Agreement, or any agreement that amends or replaces the Credit Agreement in which the counterparty is a member, and if it were to be unable to cure the default. See Note 5, Short- and Long-Term Obligations, for further details.

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 condensed consolidated statement of income associated with the Company's forward currency-exchange contracts that were not designated as hedges were not material for the three- and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020.~~July 3, 2021.

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


			October 2, 2021					January 2, 2021							July 2, 2022				January 1, 2022
		Balance Sheet Location	Asset (Liability) (a)		Notional Amount (b)			Asset (Liability) (a)		Notional Amount			Balance Sheet Location		Asset (Liability) (a)		Notional Amount (b)		Asset (Liability) (a)		Notional Amount
(In thousands)	(In thousands)						(In thousands)
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:													Derivatives Designated as Hedging Instruments:
Derivatives in an Asset Position:
Forward currency-exchange contract		Other Current Assets	$	—	$	—		$	25	$	842
Derivative in an Asset Position:												Derivative in an Asset Position:
2018 Swap Agreement												2018 Swap Agreement	Other Current Assets		$	3	$	15,000	$	—	$	—
Derivatives in a Liability Position:	Derivatives in a Liability Position:											Derivatives in a Liability Position:
Forward currency-exchange contract		Other Current Liabilities	$	(25)	$	842		$	—	$	—
Forward currency-exchange contracts												Forward currency-exchange contracts	Other Current Liabilities		$	(56)	$	430	$	(44)	$	842
2018 Swap Agreement	2018 Swap Agreement	Other Long-Term Liabilities	$	(745)	$	15,000		$	(1,099)	$	15,000	2018 Swap Agreement	Other Long-Term Liabilities		$	—	$	—	$	(550)	$	15,000

Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:											Derivatives Not Designated as Hedging Instruments:
Derivatives in an Asset Position:	Derivatives in an Asset Position:											Derivatives in an Asset Position:
Forward currency-exchange contracts	Forward currency-exchange contracts	Other Current Assets	$	—	$	—		$	12	$	582	Forward currency-exchange contracts	Other Current Assets		$	—	$	—	$	14	$	1,200
Derivatives in a Liability Position:
Forward currency-exchange contracts		Other Current Liabilities	$	—	$	—		$	(7)	$	825
Derivative in a Liability Position:												Derivative in a Liability Position:
Forward currency-exchange contract												Forward currency-exchange contract	Other Current Liabilities		$	(2)	$	189	$	—	$	—

(a) See Note 9, Fair Value Measurements and Fair Value of Financial Instruments, for the fair value measurements relating to these financial instruments.

(b) The ~~2021~~2022 notional amounts are indicative of the level of the Company's recurring derivative activity.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the ~~nine~~six months ended ~~October~~July 2, ~~2021:~~2022:


(In thousands)	(In thousands)	Interest Rate Swap Agreement		Forward Currency- Exchange Contract		Total		(In thousands)	Interest Rate Swap Agreement		Forward Currency- Exchange Contract		Total
Unrealized (Loss) Gain, Net of Tax, at January 2, 2021		$	(846)	$	18	$	(828)
Unrealized Loss, Net of Tax, at January 1, 2022								Unrealized Loss, Net of Tax, at January 1, 2022	$	(429)	$	(33)	$	(462)
Loss reclassified to earnings (a)	Loss reclassified to earnings (a)	256		—		256		Loss reclassified to earnings (a)	147		—		147
Gain (loss) recognized in AOCI	Gain (loss) recognized in AOCI	25		(37)		(12)		Gain (loss) recognized in AOCI	284		(8)		276
Unrealized Loss, Net of Tax, at October 2, 2021		$	(565)	$	(19)	$	(584)
Unrealized Gain (Loss), Net of Tax, at July 2, 2022								Unrealized Gain (Loss), Net of Tax, at July 2, 2022	$	2	$	(41)	$	(39)

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

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~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

As of ~~October~~July 2, ~~2021,~~2022, the Company expects to reclassify losses of ~~$363,000~~$39,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the 2018 Swap Agreement and the maturity date of the forward currency-exchange contract.

9. Fair Value Measurements and Fair Value of Financial Instruments

Fair value measurement is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

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

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


		Fair Value as of October 2, 2021									Fair Value as of July 2, 2022
(In thousands)	(In thousands)	Level 1		Level 2		Level 3		Total		(In thousands)	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Money market funds and time deposits	Money market funds and time deposits	$	9,774	$	—	$	—	$	9,774	Money market funds and time deposits	$	15,729	$	—	$	—	$	15,729

Banker's acceptance drafts (a)	Banker's acceptance drafts (a)	$	—	$	7,428	$	—	$	7,428	Banker's acceptance drafts (a)	$	—	$	7,107	$	—	$	7,107
2018 Swap Agreement										2018 Swap Agreement	$	—	$	3	$	—	$	3

Liabilities:	Liabilities:									Liabilities:
2018 Swap Agreement		$	—	$	745	$	—	$	745
Forward currency-exchange contract		$	—	$	25	$	—	$	25

Forward currency-exchange contracts (b)										Forward currency-exchange contracts (b)	$	—	$	58	$	—	$	58

Fair Value as of January 2, 2021
(In thousands) Level 1 Level 2 Level 3 Total
Assets:
Money market funds and time deposits $ 8,054 $ — $ — $ 8,054
Banker's acceptance drafts (a) $ — $ 9,445 $ — $ 9,445
Forward currency-exchange contracts $ — $ 37 $ — $ 37
Liabilities:
2018 Swap Agreement $ — $ 1,099 $ — $ 1,099
Forward currency-exchange contracts $ — $ 7 $ — $ 7


	Fair Value as of January 1, 2022
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds and time deposits	$	13,458	$	—	$	—	$	13,458
Banker's acceptance drafts (a)	$	—	$	8,049	$	—	$	8,049
Forward currency-exchange contracts	$	—	$	14	$	—	$	14
Liabilities:
2018 Swap Agreement	$	—	$	550	$	—	$	550
Forward currency-exchange contract	$	—	$	44	$	—	$	44

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

(b)Includes derivatives designated as hedging instruments of $56,000 and derivatives not designated as hedging instruments of $2,000.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company uses the market approach technique to value its financial assets and liabilities, and there were no changes in valuation techniques during the first ~~nine~~six months of ~~2021.~~2022. Banker's acceptance drafts are carried at face value, which approximates their fair value due to the short-term nature of the negotiable instrument. The fair values of the forward currency-exchange contracts are based on quoted forward foreign exchange rates at the reporting date. The fair value of the 2018 Swap Agreement is based on USD LIBOR yield curves at the reporting date. The forward currency-exchange contracts and the 2018 Swap Agreement 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.

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~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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


		October 2, 2021					January 2, 2021					July 2, 2022				January 1, 2022
		Carrying Value		Fair Value			Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
(In thousands)	(In thousands)					(In thousands)
Debt Obligations:	Debt Obligations:														Debt Obligations:
Revolving credit facility	Revolving credit facility	$	294,610	$	294,610		$	217,963	$	217,963	Revolving credit facility	$	210,450	$	210,450	$	250,267	$	250,267
Senior promissory notes	Senior promissory notes	10,000		11,179			10,000		11,157		Senior promissory notes	10,000		10,023		10,000		10,947
Other	Other	4,779		4,779			—		—		Other	3,367		3,367		4,331		4,331
		$	309,389	$	310,568		$	227,963	$	229,120		$	223,817	$	223,840	$	264,598	$	265,545

The carrying value of the Company's revolving credit facility approximates the fair value as the obligation bears variable rates of interest, which adjust frequently, based on prevailing market rates. The fair value of the senior promissory notes is primarily calculated based on quoted market rates plus an applicable margin available to the Company at the respective period end, which represent Level 2 measurements.

10. Business Segment Information

The Company has combined its operating entities into 3 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 ~~screening,~~vibratory, baling, and fiber-based product lines. A description of each segment follows.

•Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors. 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, chippers, and logging machinery. In addition, the Company provides industrial automation and digitization solutions to process industries.

•Material Handling – Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others. The Company's primary products include conveying and vibratory equipment and balers. In addition, the Company manufactures and sells biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption.

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

Three Months Ended Nine Months Ended
October 2, September 26, October 2, September 26,
(In thousands) 2021 2020 2021 2020
Revenue
Flow Control $ 76,253 $ 56,815 $ 210,769 $ 165,329
Industrial Processing 81,620 62,086 233,455 192,468
Material Handling 41,916 35,709 123,839 108,800
$ 199,789 $ 154,610 $ 568,063 $ 466,597

2118

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Three Months Ended Nine Months Ended
October 2, September 26, October 2, September 26,
(In thousands) 2021 2020 2021 2020
Income Before Provision for Income Taxes
Flow Control (a) $ 17,129 $ 13,770 $ 51,899 $ 37,360
Industrial Processing 16,095 12,072 44,449 32,147
Material Handling (b) 3,491 2,614 12,941 10,341
Corporate (c) (7,987) (7,121) (24,124) (20,737)
Total operating income 28,728 21,335 85,165 59,111
Interest expense, net (d) (1,265) (1,618) (3,321) (5,920)
Other expense, net (d) (23) (32) (71) (95)
$ 27,440 $ 19,685 $ 81,773 $ 53,096
Capital Expenditures
Flow Control $ 1,128 $ 509 $ 1,830 $ 1,667
Industrial Processing 1,725 785 4,720 2,460
Material Handling 505 486 1,121 1,167
Corporate 12 42 17 125
$ 3,370 $ 1,822 $ 7,688 $ 5,419
October 2, January 2,
(In thousands) 2021 2021
Total Assets
Flow Control $ 388,662 $ 263,141
Industrial Processing 399,651 379,965
Material Handling 333,535 273,909
Corporate 11,280 10,556
$ 1,133,128 $ 927,571
The following table presents financial information for the Company's reportable operating segments:


	Three Months Ended				Six Months Ended
	July 2,		July 3,		July 2,		July 3,
(In thousands)	2022		2021		2022		2021
Revenue
Flow Control (a)	$	85,220	$	70,762	$	171,046	$	134,516
Industrial Processing	84,402		82,681		177,487		151,835
Material Handling (b)	52,027		42,368		99,596		81,923
	$	221,649	$	195,811	$	448,129	$	368,274

Income Before Provision for Income Taxes
Flow Control (a,c)	$	22,707	$	19,324	$	44,432	$	34,770
Industrial Processing (d,f)	15,285		17,248		53,444		28,354
Material Handling (b,e,f)	8,701		5,281		14,545		9,450
Corporate (g,f)	(9,225)		(8,843)		(18,980)		(16,137)
Total operating income	37,468		33,010		93,441		56,437
Interest expense, net (h)	(1,089)		(1,010)		(2,221)		(2,056)
Other expense, net (h)	(19)		(24)		(41)		(48)
	$	36,360	$	31,976	$	91,179	$	54,333

Capital Expenditures
Flow Control	$	1,031	$	368	$	1,556	$	702
Industrial Processing (i)	5,073		1,191		7,025		2,995
Material Handling	843		495		1,227		616
Corporate	—		5		7		5
	$	6,947	$	2,059	$	9,815	$	4,318

(a)Includes results in 2022 from Clouth, which was acquired between July 19, 2021 and August 10, 2021.

(b)Includes results in 2022 from the East Chicago Machine Tool Corporation (Balemaster), which was acquired on August 23, 2021.

(c)Includes acquisition costs of $62,000 in the six months ended July 2, 2022 and $239,000 and $1,236,000 in the three and six months ended July 3, 2021, respectively.

(d)Includes a gain on the sale of a facility of $20,190,000, non-cash charges for the write-off of an indemnification asset of $575,000, and the write-down of machinery and equipment of $182,000 in the six months ended July 2, 2022. Includes acquisition-related expenses of ~~$2,706,000~~$53,000 and $140,000 in the three and six months ended ~~October 2,~~July 3, 2021, ~~and $3,942,000 in the nine months ended October 2, 2021 and restructuring costs of $265,000 in the three months ended September 26, 2020 and $721,000 in the nine months ended September 26, 2020.~~respectively. Acquisition-related expenses include acquisition costs and amortization expense associated with acquired ~~profit in inventory and~~ backlog.

~~(b)~~ (e)Includes acquisition-related expenses of ~~$799,000~~$717,000 in the six months ended July 2, 2022 and $338,000 and $612,000 in the three and six months ended July 3, 2021, respectively.

(f)Includes a reclassification of acquisition costs from Corporate to the Industrial Processing and Material Handling segments in the three and six months ended July 3, 2021. The results in the three months ended ~~October 2,~~July 3, 2021, include a decrease in operating loss for Corporate of $364,000 and ~~$1,411,000~~a decrease in operating income of $53,000 and $311,000 for the Industrial Processing and Material Handling segments, respectively, and a decrease in operating loss for Corporate of $665,000 and a decrease in operating income of $80,000 and $585,000 for the Industrial Processing and Material Handling segments, respectively, in the ~~nine~~six months ended ~~October 2, 2021 and $248,000 in the three months ended September 26, 2020 and $256,000 in the nine months ended September 26, 2020.~~July 3, 2021.

~~(c)~~ (g)Represents general and administrative expenses.

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

(i)Includes capital expenditures of $3,128,000 and $3,242,000 in the three and six months ended July 2, 2022, respectively, associated with the construction of a manufacturing facility and building relocation project in China. See Note 2, Gain on Sale and Other Expense, Net.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

11. Commitments and Contingencies

Right of Recourse

In the ordinary course of business, the Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may use these banker's acceptance drafts prior to the scheduled maturity date to settle outstanding accounts payable with vendors. Banker's acceptance drafts transferred to vendors are subject to customary right of recourse provisions prior to their scheduled maturity dates. The Company had ~~$11,432,000~~$11,080,000 at ~~October~~July 2, ~~2021~~2022 and ~~$7,568,000~~$9,593,000 at January ~~2, 2021~~1, 2022 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates. Historically, the banker's acceptance drafts have settled upon maturity without any claim of recourse against the Company.

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~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Litigation

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. Such litigation may include, but is not limited to, claims and counterclaims by and against the Company for breach of contract or warranty, canceled contracts, product liability, or bankruptcy-related claims. For legal proceedings in which a loss is probable and estimable, the Company accrues a loss based on the low end of the range of estimated loss when there is no better estimate within the range. 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.

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KADANT INC.

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations

When we use the terms ~~“we,” “us,” “our,”~~"we," "us," "our," and the ~~“Company,”~~"Company," we mean Kadant Inc., a Delaware corporation, and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

This Quarterly Report on Form 10-Q and the documents we incorporate by reference in this report include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management, using information currently available to our management. When we use words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "seeks," "should," "likely," "will," "would," "may," "continue," "could," or similar expressions, we are making forward-looking statements.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Our future results of operations may differ materially from those expressed in the forward-looking statements. Many of the important factors that will determine these results and values are beyond our ability to control or predict. You should not put undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. For a discussion of important factors that may cause our actual results to differ materially from those suggested by the forward-looking statements, you should read carefully Risk Factors included in Part II , Item 1A, of this report and Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2021, as filed with the Securities and Exchange Commission (SEC)~~1, 2022 (the Annual Report) and as may be further amended and/or restated in subsequent filings with the SEC.

Overview

Company Background

We are a global supplier of ~~high-value, critical components~~technologies and engineered systems ~~used in process industries worldwide.~~that drive Sustainable Industrial Processing. Our products ~~technologies,~~ and services play an integral role in enhancing ~~process~~ efficiency, optimizing energy utilization, and maximizing productivity in ~~resource-intensive industries.~~process industries while helping our customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of our operating segments.

Our financial results are reported in three reportable operating segments: Flow Control, Industrial Processing, and Material Handling. The Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration product lines; the Industrial Processing segment consists of our wood processing and stock-preparation product lines; and the Material Handling segment consists of our conveying and ~~screening,~~vibratory, baling, and fiber-based product lines. A description of each segment is as follows:

•Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors. Our primary products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.

•Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products, and alternative fuel industries, among others. Our primary products include stock-preparation systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers, and logging machinery. In addition, we provide industrial automation and digitization solutions to process industries.

•Material Handling – Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others. Our primary products include conveying and vibratory equipment and balers. In addition, we manufacture and sell biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption.

Industry and Business Overview

We had consolidated bookings of $265.9 million in the second quarter of 2022 down slightly from our record bookings of $266.1 million in the first quarter of 2022. Our consolidated bookings in the second quarter of 2022 included $25.9 million attributable to our acquisitions. See Acquisitions below for further details. We also had a higher unfavorable foreign currency translation impact compared to prior quarters due to the strengthening U.S. dollar resulting in a $9.9 million, or 4%, decrease in bookings compared to the second quarter of 2021. Following our record first quarter 2022 bookings, we continued

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KADANT INC.

~~Industry and Business Overview~~

~~We had record consolidated bookings of $244.7 million in the third quarter of 2021, including bookings of $15.0 million attributable~~ to ~~our acquisitions. See~~ ~~Acquisitions~~ ~~below for further details. Our third quarter of 2021 bookings include record orders for capital equipment and continued~~see strong demand for ~~our~~both parts and consumables and capital equipment products. ~~This follows previous consolidated~~We expect a lower level of bookings ~~records set~~ in the ~~prior three quarters as our businesses continue to rebound from the impact~~second half of the ~~COVID-19 pandemic, which adversely affected our~~year compared to the record bookings ~~and revenue for a substantial part~~in the first half of ~~2020.~~2022 as end-market demand slows in response to actions taken by the central banks to control inflation. We ended the ~~third~~second quarter of ~~2021~~2022 with record consolidated backlog of ~~$299.5~~$379.2 million. An overview of our business by segment is as follows:

•Flow Control – ~~During~~Our Flow Control segment had its second highest bookings quarter, following our record bookings in the ~~third~~first quarter, increasing 36% compared to the second quarter of ~~2021, we acquired~~2021. This increase included a 19% increase from our acquisition of The Clouth Group of Companies (Clouth)~~, which contributed $9.9 million~~ and a 5% decrease from the unfavorable effect of ~~bookings for the quarter~~foreign currency translation. . Orders for both parts and consumables products and capital equipment at our existing Flow Control businesses continue to be strong ~~following record~~due to growth in the industries we serve. We expect bookings to moderate in the second half of 2022 compared with the record-setting booking performance achieved during the first half of ~~2021 due to improved market conditions and pent-up demand from depressed levels encountered during most of 2020.~~the year.

•Industrial Processing – Our Industrial Processing segment ~~had record~~ bookings ~~for capital equipment~~increased 3% sequentially and ~~continued~~8% compared to the second quarter of 2021 resulting from strong demand for ~~parts and consumables products during the third quarter of 2021. Orders for both~~our capital equipment ~~and parts and consumables products~~ at our wood processing business ~~were fueled by an ongoing~~due to the robust U.S. housing market and high demand for lumber, oriented strand board and plywood, which continues to result in high parts consumption and drive new capital equipment investment by our customers. More recently, maintenance requirements at many of our wood processing customers have augmented demand for our parts products, which we expect to continue for the remainder of the year. Increasedplywood. Capital bookings at our stock-preparation business ~~was led by orders for fiber processing systems at our North American and European businesses. This followed strong bookings for capital equipment at our Chinese operation~~were lower in the second quarter of 2022 compared to the record bookings levels in the second and third quarters of 2021. While we continue to experience robust capital project activity, we expect a lower level of capital bookings in our Industrial Processing segment in the third quarter of 2022 compared to prior ~~quarter.~~quarters as customers assess new capital expenditures, and as the pace of capacity expansion moderates and new equipment is brought online. Orders for parts and consumables products ~~for~~at our ~~stock-preparation business moderated slightly following three quarters~~Industrial Processing segment increased over the second quarter of ~~strong bookings attributable~~2021 due to ~~improved~~continued improvement in market ~~conditions and pent-up demand.~~conditions.

•Material Handling – Our Material Handling segment ~~also had record~~ bookings inincreased 49% compared to the ~~third~~second quarter of ~~2021. In August~~ 2021, ~~we acquired~~including a 30% increase from our acquisition of East Chicago Machine Tool Corporation (Balemaster) and ~~certain assets of affiliated companies, which contributed $5.1 million of orders for the period. Bookings~~a 19% increase in capital bookings at our conveying and vibratory business. We expect demand for baling products at our European operations ~~continue~~ to ~~be bolstered by improved business conditions, including~~moderate in the ~~recovery~~second half of recycled commodity prices. Bookings at our conveying and screening business have begun to rebound from 2020 levels with ongoing improved demand for our parts and consumables products as a result of the relaxation of pandemic-related restrictions.2022.

While we have seen improved market conditions for our products and we expect our financial results for the remainder of 2021 to be strong, there is still some uncertainty regarding near-term economic growth due to ongoing risks surrounding the COVID-19 pandemic. Additionally, someMany of our operations ~~have been and may~~ continue to be impacted by labor availability and supply chain constraints, ~~resulting~~the latter of which resulted in inflationary pressure on material costs, longer lead times, and increased freight costs, as well as customer-requested delays in shipments. Also, in September 2021, China began limiting electricity usage within many of its provinces, requiring businesses in those regions to take downtime. We have been able to mitigate increased material costs through price adjustments on many of our products; however, we cannot be sure that we will be able to absorb future increases through price adjustments. While ourcosts. Our businesses are ~~working to alleviate~~alleviating supply chain constraints through various measures, including advance purchases of raw materials to prevent potential manufacturing disruptions and mitigating increased material and freight costs through price adjustments, when possible. We believe that the fundamentals of our business will remain positive, particularly given our high backlog levels, continued strong bookings, and ongoing strength in the markets we ~~are unable~~serve. Despite this optimism, we expect our operating environment to ~~predict~~continue to be challenging as a result of the ~~impact of these constraints~~factors impacting our business discussed above and the ~~impact from~~uncertainties and risks surrounding the COVID-19 pandemic, including China's ~~energy use restrictions on the timing of revenue and operating costs on our business in the near future.~~zero-COVID policy. For more information ~~on risks~~ related to ~~health epidemics to our business, including COVID-19,~~these challenges, and other factors impacting our business, ~~discussed above,~~including recent geopolitical tensions, please see Risk Factorsincluded in Part II, Item 1A, of this report, and Part I,1, Item 1A, ~~Risk Factors, included in~~of our Annual Report ~~on Form 10-K for~~and subsequent filings with the ~~fiscal year ended January 2, 2021.~~SEC.

International Sales

~~More~~Slightly more than half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada. As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies. In the first half of 2022, we experienced a significant unfavorable foreign currency translation effect on our results of operations compared to 2021 due to the strengthening of the U.S. dollar against foreign currencies in countries in which we operate, especially the euro. We expect this trend to continue throughout the remainder of the year. We currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the U.S. dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S. dollar. To mitigate the impact of foreign currency transaction fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred. Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies. We currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the U.S. dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S. dollar.

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Global Trade

The United States imposes tariffs on certain imports from China, which has and will continue to increase the cost of some of the equipment that we import. Although we have worked to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs. For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A, Risk Factors, included in our Annual Report ~~on Form 10-K for~~and subsequent filings with the ~~fiscal year ended January 2, 2021.~~SEC.

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Acquisitions

We expect that a significant driver of our growth over the next several years will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry. We continue to pursue acquisition opportunities.

In the third quarter of 2021, we acquired Clouth for ~~$93.1~~$92.9 million, net of cash acquired plus debt assumed. Clouth, which is included in our Flow Control segment, is a leading manufacturer of doctor blades and related equipment used in the production of paper, packaging, and tissue. We expect several synergies in connection with this acquisition, including deepening our presence in the growing ceramic blade market and expansion of product sales at our existing businesses by leveraging Clouth's complementary global geographic footprint. Clouth has ~~two~~three manufacturing facilities in Germany and one in ~~Poland and generated revenue of approximately 40.5 million euros for the trailing twelve months ended June 30, 2021.~~Poland.

In the third quarter of 2021, we also acquired Balemaster for ~~$53.7~~$53.5 million, net of cash acquired. Balemaster, which is included in our 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. We expect several synergies in connection with this acquisition, including expanding our presence in the secondary material processing sector and creating new opportunities for leveraging our high-performance balers produced in Europe. ~~Balemaster's revenue for the trailing twelve months ended June 30, 2021 was approximately $22.2 million.~~

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

~~In June 2020, we made an acquisition in our Industrial Processing segment for approximately $6.9 million, net of cash acquired.~~

Results of Operations

~~Third~~Second Quarter ~~2021~~2022 Compared With ~~Third~~Second Quarter ~~2020~~2021

Revenue

The following table presents the change in revenue by segment between the ~~third~~second quarters of ~~2021~~2022 and ~~2020,~~2021, and those changes excluding the effect of foreign currency translation and acquisitions which we refer to as change in organic revenue. The presentation of the change in organic revenue is a non-GAAP measure. We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding U.S. generally accepted accounting principles (GAAP) measure.

Revenue by segment in the ~~third~~second quarters of ~~2021~~2022 and ~~2020~~2021 was as follows:


																		(Non-GAAP)																														(Non-GAAP)
		Three Months Ended								Currency Translation				Acquisitions				Change in Organic Revenue									Three Months Ended																Currency Translation			Acquisitions		Change in Organic Revenue
(In thousands, except percentages)	(In thousands, except percentages)	October 2, 2021		September 26, 2020		Total Increase		% Change								Increase				% Change		(In thousands, except percentages)			July 2, 2022				July 3, 2021				Total Increase				% Change								Increase			% Change
Flow Control	Flow Control	$	76,253	$	56,815	$	19,438	34	%			$	1,332			$	9,913			$	8,193			14	%	Flow Control			$	85,220			$	70,762			$	14,458			20	%				$	(2,949)	$	11,949	$	5,458		8	%
Industrial Processing	Industrial Processing	81,620		62,086		19,534		31	%	2,847				—				16,687				27	%	Industrial Processing			84,402				82,681				1,721				2	%			(3,683)			185		5,219		6		%
Material Handling	Material Handling	41,916		35,709		6,207		17	%	419				2,845				2,943				8	%	Material Handling			52,027				42,368				9,659				23	%			(2,431)			7,778		4,312		10		%
Consolidated Revenue	Consolidated Revenue	$	199,789	$	154,610	$	45,179	29	%	$	4,598			$	12,758			$	27,823			18	%	Consolidated Revenue			$	221,649			$	195,811			$	25,838			13	%			$	(9,063)		$	19,912	$	14,989	8		%

Consolidated revenue increased 13% in the ~~third~~second quarter of ~~2021 increased 29%, while consolidated organic~~2022, including a 10% increase from acquisitions and a 5% decrease from the negative effect of foreign currency translation. Organic revenue increased ~~18%,~~8% due to higher demand for parts and consumables products, principally at our Flow Control segment and capital equipment ~~principally~~at our Material Handling and Industrial Processing segments as described below.

Revenue at our Flow Control segment increased 20% in the second quarter of 2022, while organic revenue increased 8%. Organic revenue increased due to higher demand for parts and consumables products in North America resulting from improved market conditions.

Revenue at our Industrial Processing segment increased 2% in the second quarter of 2022, while organic revenue increased 6%. Organic revenue increased due to higher demand for parts and ~~Flow Control segments as described below.~~consumables products at our wood processing business due in part to maintenance spending by our customers. Also contributing to the organic revenue increase was an increase in demand for capital equipment at our European stock-preparation business due to several large projects.

Revenue at our Material Handling segment increased 23% in the second quarter of 2022, while organic revenue increased 10% due to higher demand for capital equipment at our European baling operations due to improved business conditions.

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Revenue at our Flow Control segment increased 34% in the third quarter of 2021, while organic revenue increased 14%. Organic revenue increased due to higher demand for parts and consumables products at substantially all locations resulting from improved market conditions and pent-up demand and due to increased capital equipment revenue at our North American business, which was attributable in part to customer reductions in spending and deferrals of equipment installations in the corresponding 2020 period.

Revenue at our Industrial Processing segment increased 31% in the third quarter of 2021, while organic revenue increased 27% due to higher demand for both capital equipment and parts and consumables products at our wood processing and stock-preparation businesses. Demand for our wood processing business products was driven by high mill activity resulting in increased capital investment and higher parts consumption. Increased demand for capital equipment at our stock-preparation business was primarily attributable to capital orders at our Chinese business, offset in part by lower capital equipment revenue at our North American business due to the timing of orders. Organic revenue for parts and consumables products at our North American stock-preparation business also increased due to improved market conditions and pent-up demand coupled with a depressed 2020 period as a result of the COVID-19 pandemic.

Revenue at our Material Handling segment increased 17% in the third quarter of 2021, while organic revenue increased 8%. Increased demand for products at our European baling operation due to improved business conditions in Europe, including the recovery of recycled commodity prices, was partially offset by lower capital equipment revenue at our conveying and screening business.

Gross Profit Margin

Gross profit margin by segment in the ~~third~~second quarters of ~~2021~~2022 and ~~2020~~2021 was as follows:


		Three Months Ended			Basis Point Change			Three Months Ended		Basis Point Change
		October 2, 2021		September 26, 2020				July 2, 2022	July 3, 2021
Flow Control	Flow Control	49.7	%	52.9%	(320)	bps	Flow Control	52.8%	52.8%	0	bps
Industrial Processing	Industrial Processing	39.7	%	43.7%	(400)	bps	Industrial Processing	38.4%	40.1%	(170)	bps
Material Handling	Material Handling	31.9	%	31.1%	80	bps	Material Handling	35.9%	34.9%	100	bps
Consolidated Gross Profit Margin	Consolidated Gross Profit Margin	41.9	%	44.2%	(230)	bps	Consolidated Gross Profit Margin	43.3%	43.6%	(30)	bps

Consolidated gross profit margin ~~declined~~decreased to ~~41.9%~~43.3% in the ~~third~~second quarter of ~~2021~~2022 compared with ~~44.2%~~43.6% in the ~~third~~second quarter of ~~2020~~2021 due to the inclusion of ~~$2.2~~$0.5 million of ~~amortization of acquired profit in inventory, which lowered consolidated gross profit margin in the 2021 period by 1.1 percentage points, and the inclusion of $1.6 million for~~ benefits received from government employee retention assistance programs, which increased ~~consolidated gross profit margin in the 2020 period by 1.1 percentage points.~~

Gross profit margin at our Flow Control segment decreased to 49.7% in the third quarter of 2021 compared with 52.9% in the third quarter of 2020 primarily due to the inclusion of $1.8 million of amortization of acquired profit in inventory for Clouth, which lowered gross profit margin in the 2021 period by ~~2.4~~0.3 percentage ~~points, and a lower~~points.

Within our operating segments, gross profit ~~margin profile for Clouth. Gross profit margin at our existing businesses increased principally due~~margin:

•Decreased to ~~higher margins on parts and consumables.~~

~~Gross profit margin~~38.4% from 40.1% at our Industrial Processing segment ~~decreased to 39.7% in the third quarter of 2021 compared with 43.7% in the third quarter of 2020~~ due to the impact of lower-margin capital equipment revenue at our Chinese stock-preparation business and the inclusion of ~~$1.4~~$0.4 million for benefits received from government employee retention assistance programs, which increased gross profit margin in the ~~2020~~2021 period by ~~2.3~~0.5 percentage ~~points, and the impact of lower-margin capital equipment revenue at our Chinese stock-preparation business.~~points.

~~Gross profit margin~~•Increased to 35.9% from 34.9% at our Material Handling segment ~~increased to 31.9% in the third quarter of 2021 compared with 31.1% in the third quarter of 2020~~ primarily due to a higher gross profit margin profile ~~for~~from our Balemaster ~~and an improved gross profit margin at our existing baler~~ business ~~resulting from a favorable product mix and higher revenue. These items were offset~~acquired in ~~part by $0.4 million of amortization of acquired profit in inventory for Balemaster, which lowered gross profit margin for this segment by 0.9 percentage points.~~

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Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses by segment in the ~~third~~second quarters of ~~2021~~2022 and ~~2020~~2021 were as follows:


		Three Months Ended												Three Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	October 2, 2021		% of Revenue		September 26, 2020		% of Revenue		Increase		% Change	(In thousands, except percentages)	July 2, 2022		% of Revenue	July 3, 2021		% of Revenue	Increase		% Change
Flow Control	Flow Control	$	19,658	26	%	$	15,136	27	%	$	4,522	30%	Flow Control	$	20,969	25%	$	17,064	24%	$	3,905	23%
Industrial Processing	Industrial Processing	15,229		19	%	13,759		22	%	1,470		11%	Industrial Processing	15,614		18%	14,420		17%	1,194		8%
Material Handling	Material Handling	9,465		23	%	7,955		22	%	1,510		19%	Material Handling	9,498		18%	8,993		21%	505		6%
Corporate	Corporate	7,964		N/A		7,003		N/A		961		14%	Corporate	9,238		N/A	8,790		N/A	448		5%
Consolidated SG&A Expenses	Consolidated SG&A Expenses	$	52,316	26	%	$	43,853	28	%	$	8,463	19%	Consolidated SG&A Expenses	$	55,319	25%	$	49,267	25%	$	6,052	12%

Consolidated SG&A expenses as a percentage of revenue ~~decreased to 26%~~remained flat at 25% in the ~~third~~second quarter of ~~2021~~2022 compared with ~~28% in~~ the ~~third~~second quarter of ~~2020 primarily due to higher revenue.~~2021. Consolidated SG&A expenses increased ~~$8.5~~$6.1 million due to the inclusion of ~~$3.4~~$5.0 million of SG&A expenses from acquisitions, ~~an incremental $0.9 million of acquisition-related~~increased selling-related costs $0.9 million from the unfavorable effect of currency translation, and a $0.7 million decrease in benefits received from government employee retention assistance programs. The remaining $2.6 million is principally due to increased incentive compensation, travel-related costs, and professional services fees resulting fromassociated with improved business ~~conditions.~~

~~SG&A expenses at our Flow Control segment increased $4.5 million principally due to~~conditions, and the inclusion of ~~$2.8 million of SG&A expenses from Clouth, $0.9 million of acquisition-related costs, and $0.4 million from the unfavorable effect of foreign currency translation.~~

~~SG&A expenses at our Industrial Processing segment increased $1.5 million principally due to the inclusion of $0.7 million in the 2020 period for~~ benefits received from government employee retention assistance programs ~~increased travel-related costs and professional service fees, and $0.5~~of $1.0 million ~~from~~in the ~~unfavorable~~second quarter of 2021. These increases were offset by a $2.1 million favorable effect of foreign currency ~~translation.~~translation and a decrease of $0.6 million in acquisition costs.

Within our operating segments, SG&A ~~expenses~~expenses:

•Increased $3.9 million at our ~~Material Handling~~Flow Control segment ~~increased $1.5 million~~ principally due to the inclusion of ~~$0.6~~$3.5 million of SG&A expenses from Clouth, increased selling-related costs, and $0.5 million of benefits received from government employee retention assistance programs which lowered SG&A in the 2021 period. These increases were partially offset by a $0.8 million favorable effect of foreign currency translation and a $0.2 million decrease in acquisition costs.

•Increased $1.2 million at our Industrial Processing segment principally due to increased selling-related costs, partially offset by a $0.9 million favorable effect of foreign currency translation.

•Increased $0.5 million at our Material Handling segment principally due to the inclusion of $1.4 million of SG&A expenses from Balemaster, ~~increased travel-related costs~~partially offset by a $0.4 million favorable effect of foreign currency translation and ~~professional service fees, and $0.2 million of incremental acquisition-related costs.~~

~~SG&A expenses at Corporate increased $1.0 million primarily due to additional incentive compensation as~~ a ~~result of our improved financial performance.~~

~~Restructuring Costs~~

~~Restructuring costs were $0.5 million in the third quarter of 2020, which represented severance costs of~~ $0.3 million ~~in our Flow Control segment and $0.2 million in our Industrial Processing segment.~~

~~Interest Expense~~

~~Interest expense decreased to $1.3 million in the third quarter of 2021 from $1.7 million in the third quarter of 2020 due to a lower weighted-average interest rate.~~

~~Provision for Income Taxes~~

Our provision for income taxes increased to $6.7 million in the third quarter of 2021 from $4.7 million in the third quarter of 2020. The effective tax rate of 25% in the third quarter of 2021 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, state taxes, and tax expense associated with Global Intangible Low-Taxed Income (GILTI) provisions. These increases in tax expense were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements. The effective tax rate of 24% in the third quarter of 2020 was higher than our statutory rate of 21% primarily due to nondeductible expenses and the distribution of our worldwide earnings. These increases in tax expense were offset in part by a tax benefit related to final GILTI regulations issued by the U.S. Treasury Department during the third quarter of 2020 on an election to provide a high-tax exception to the GILTI tax retroactive to 2018.

acquisition costs.

~~Net Income~~

Net income increased to $20.7 million in the third quarter of 2021 from $15.0 million in the third quarter of 2020 primarily due to a $7.4 million increase in operating income, offset in part by a $2.0 million increase in provision for income taxes (see discussions above for further details).

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Interest Expense

Interest expense increased to $1.4 million in the second quarter of 2022 from $1.1 million in the second quarter of 2021 due to a higher weighted-average interest rate in the second quarter of 2022 as compared to the second quarter of 2021.

Provision for Income Taxes

Provision for income taxes increased to $10.0 million in the second quarter of 2022 from $8.9 million in the second quarter of 2021. The effective tax rate of 27% in the second quarter of 2022 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, nondeductible expenses, and the cost of repatriating the earnings of certain foreign subsidiaries. The effective tax rate of 28% in the second quarter of 2021 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, state taxes, and tax expense associated with Global Intangible Low-Taxed Income (GILTI) provisions.

Net Income

Net income increased to $26.4 million in the second quarter of 2022 from $23.0 million in the second quarter of 2021 primarily due to a $4.5 million increase in operating income, offset in part by a $1.0 million increase in provision for income taxes (see discussions above for further details).

First ~~Nine~~Six Months ~~2021~~2022 Compared With First ~~Nine~~Six Months ~~2020~~2021

Revenue

The following table presents changes in revenue by segment between the first ~~nine~~six months of ~~2021~~2022 and ~~2020,~~2021, and those changes excluding the effect of foreign currency translation and acquisitions which we refer to as change in organic revenue. The presentation of the change in organic revenue is a non-GAAP measure. We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure.

Revenue by segment in the first ~~nine~~six months of ~~2021~~2022 and ~~2020~~2021 was as follows:


																		(Non-GAAP)																														(Non-GAAP)
		Nine Months Ended								Currency Translation				Acquisitions				Change in Organic Revenue									Six Months Ended																Currency Translation			Acquisitions		Change in Organic Revenue
(In thousands, except percentages)	(In thousands, except percentages)	October 2, 2021		September 26, 2020		Total Increase		% Change								Increase				% Change		(In thousands, except percentages)			July 2, 2022				July 3, 2021				Total Increase				% Change								Increase			% Change
Flow Control	Flow Control	$	210,769	$	165,329	$	45,440	27	%			$	6,749			$	9,913			$	28,778			17	%	Flow Control			$	171,046			$	134,516			$	36,530			27	%				$	(4,377)	$	24,222	$	16,685		12	%
Industrial Processing	Industrial Processing	233,455		192,468		40,987		21	%	12,087				509				28,391				15	%	Industrial Processing			177,487				151,835				25,652				17	%			(5,072)			319		30,405		20		%
Material Handling	Material Handling	123,839		108,800		15,039		14	%	3,348				2,845				8,846				8	%	Material Handling			99,596				81,923				17,673				22	%			(3,494)			15,371		5,796		7		%
Consolidated Revenue	Consolidated Revenue	$	568,063	$	466,597	$	101,466	22	%	$	22,184			$	13,267			$	66,015			14	%	Consolidated Revenue			$	448,129			$	368,274			$	79,855			22	%			$	(12,943)		$	39,912	$	52,886	14		%

Consolidated revenue in the first ~~nine~~six months of ~~2021~~2022 increased 22%, ~~while consolidated organic~~including an 11% increase from acquisitions and a 3% decrease from the negative effect of foreign currency translation. Organic revenue increased 14%, principally driven by higher demand for ~~parts and consumables products~~capital equipment at our Industrial Processing segment and, to a lesser extent, ~~capital equipment~~parts and consumables at our Flow Control and Industrial Processing segments, as described below.

Revenue at our Flow Control segment increased 27% in the first ~~nine~~six months of ~~2021,~~2022, while organic revenue increased ~~17%~~12%. ~~The increase in organic~~Organic revenue ~~resulted from~~increased due to higher demand for our parts and consumables products in North America and ~~to a lesser extent,~~ capital equipment ~~at substantially all locations. Increased demand for parts and consumables products was due~~ in part to maintenance requirements at many of our customer locations and pent-up demand, while the 2020 period was depressed as a result of customer downtimes and shutdowns as well as visitation restrictions related to the COVID-19 pandemic. Increased demand for capital equipment was due toEurope, resulting from improved market ~~conditions and pent-up demand~~ w~~hile the corresponding 2020 period was adversely impacted by customer reductions in capital spending and deferrals of equipment installations as a result of the COVID-19 pandemic.~~conditions.

Revenue at our Industrial Processing segment increased ~~21%~~17% in the first ~~nine~~six months of ~~2021,~~2022, while organic revenue increased ~~15%~~20% due to higher demand for capital equipment, especially in Europe and, to a lesser extent, China and North America. Demand for our wood processing business products was driven by high mill activity resulting in increased capital investment and higher parts consumption. Increased demand for capital equipment at our stock-preparation business primarily occurred at our European and Chinese operations due to improved market conditions. Also contributing to the organic revenue increase was an increase in demand for parts and consumables products at our wood processing ~~and stock-preparation businesses and capital equipment at our wood processing business. Demand for parts and consumables products and, to a lesser extent, capital equipment at our wood processing~~ business ~~was driven by high mill activity resulting in higher parts consumption and increased capital investment. Demand for parts and consumables at our North American stock-preparation business increased~~ due to improved market conditions and pent-up demand coupled with a depressed 2020 period as a result of the COVID-19 pandemic. Conversely, lower capital equipment revenue at our North American and European stock-preparation businesses due to the timing of orders and curtailedmaintenance spending by our ~~customers, which impacted revenue in the first half of 2021, was offset in part by revenue attributable to capital equipment orders at our Chinese business.~~customers.

Revenue at our Material Handling segment increased ~~14%~~22% in the first ~~nine~~six months of ~~2021,~~2022, while organic revenue increased ~~8%. Increased~~7% due to higher demand for ~~products~~capital equipment at our European baling ~~operation~~operations due to improved business ~~conditions in Europe, including the recovery of recycled commodity prices, was partially offset by lower capital equipment revenue at our conveying and screening business.~~

~~Gross Profit Margin~~

~~Gross profit margin by segment in the first nine months of 2021 and 2020 was as follows:~~
Nine Months Ended Basis Point Change
October 2,
2021 September 26,
2020
Flow Control 51.8 % 53.1% (130) bps
Industrial Processing 40.1 % 41.0% (90) bps
Material Handling 33.8 % 33.5% 30 bps
Consolidated Gross Profit Margin 43.1 % 43.5% (40) bps

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conditions, and parts and consumables at our conveying business resulting from a strong demand in the aggregate and food and packaging industries.

Gross Profit Margin

Gross profit margin by segment in the first six months of 2022 and 2021 was as follows:


	Six Months Ended		Basis Point Change
	July 2, 2022	July 3, 2021
Flow Control	52.6%	53.0%	(40)	bps
Industrial Processing	38.5%	40.3%	(180)	bps
Material Handling	36.1%	34.8%	130	bps
Consolidated Gross Profit Margin	43.3%	43.7%	(40)	bps

Consolidated gross profit margin ~~declined slightly~~decreased to ~~43.1%~~43.3% in the first ~~nine~~six months of 2022 compared with 43.7% in the first six months of 2021 ~~compared with 43.5% in~~due to the ~~first nine months~~inclusion of ~~2020. The 2021 period included $2.2~~$0.9 million of ~~amortization of acquired profit in inventory, which lowered consolidated gross profit margin by 0.4 percentage points. We~~benefits received ~~benefits~~ from government employee retention assistance programs, ~~of $0.9 million, or 0.2% of revenue, in the first nine months of 2021 compared with $2.9 million, or 0.6% of revenue, in the first nine months of 2020.~~

Gross profit margin at our Flow Control segment decreased to 51.8% in the first nine months of 2021 compared with 53.1% in the first nine months of 2020 due to the inclusion of $1.8 million of amortization of acquired profit in inventory, which ~~lowered the~~increased gross profit margin in the 2021 period by ~~0.9~~0.2 percentage points, and the impact of lower margin capital equipment revenue.

Within our operating segments, gross profit margin:

•Decreased to ~~a lesser extent,~~52.6% from 53.0% at our Flow Control segment due to a lower gross profit margin profile ~~for Clouth.~~from our recently acquired Clouth business.

~~Gross profit margin~~•Decreased to 38.5% from 40.3% at our Industrial Processing segment ~~decreased to 40.1% in the first nine months of 2021 compared with 41.0% in the first nine months of 2020~~ due to lower benefits received from government retention assistance programs. We received benefits from government employee retention assistance programs of $0.7 million, or 0.3% of revenue, in the first nine months of 2021 compared with $2.4 million, or 1.2% of revenue, in the first nine months of 2020. Higher margins at our wood processing business ~~primarily resulting from manufacturing efficiencies related to higher production volumes were offset by~~ the impact of lower-margin capital equipment revenue at our Chinese stock-preparation ~~business.~~business and the inclusion of $0.7 million for benefits received from government employee retention assistance programs, which increased gross profit margin in the 2021 period by 0.4 percentage points.

~~Gross profit margin~~•Increased to 36.1% from 34.8% at our Material Handling segment ~~increased slightly~~primarily due to ~~33.8%~~a higher gross profit margin profile from our Balemaster business acquired in ~~the first nine months of 2021 compared with 33.5% in the first nine months of 2020.~~2021.

Selling, General, and Administrative Expenses

SG&A expenses by segment in the first ~~nine~~six months of ~~2021~~2022 and ~~2020~~2021 were as follows:


		Nine Months Ended												Six Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	October 2, 2021		% of Revenue		September 26, 2020		% of Revenue		Increase		% Change	(In thousands, except percentages)	July 2, 2022		% of Revenue		July 3, 2021		% of Revenue		Increase		% Change
Flow Control	Flow Control	$	54,226	26	%	$	46,876	28	%	$	7,350	16%	Flow Control	$	43,053	25	%	$	34,568	26	%	$	8,485	25%
Industrial Processing	Industrial Processing	45,339		19	%	42,499		22	%	2,840		7%	Industrial Processing	31,983		18	%	30,110		20	%	1,873		6%
Material Handling	Material Handling	27,518		22	%	24,730		23	%	2,788		11%	Material Handling	20,502		21	%	18,053		22	%	2,449		14%
Corporate	Corporate	23,931		N/A		20,413		N/A		3,518		17%	Corporate	18,949		N/A		15,967		N/A		2,982		19%
Consolidated SG&A Expenses	Consolidated SG&A Expenses	$	151,014	27	%	$	134,518	29	%	$	16,496	12%	Consolidated SG&A Expenses	$	114,487	26	%	$	98,698	27	%	$	15,789	16%

Consolidated SG&A expenses as a percentage of revenue decreased to 26% in the first six months of 2022 compared with 27% in the first ~~nine~~six months of 2021 ~~compared with 29% in the first nine months of 2020~~ principally due to higher revenue. Consolidated SG&A expenses increased ~~$16.5~~$15.8 million ~~principally~~ due to ~~$5.2 million from the unfavorable effect of currency translation,~~ the inclusion of ~~$3.7~~$11.1 million of SG&A expenses from acquisitions, ~~additional incentive~~increased compensation ~~resulting from our improved financial performance, an incremental $2.5 million of acquisition-related costs,~~expense associated with existing and new personnel, and increased ~~professional service fees.~~selling-related costs associated with improved business conditions. These increases were offset in part by a $3.1 million favorable effect of foreign currency translation.

Within our operating segments, SG&A ~~expenses included benefits received from government employee retention assistance programs of $1.4~~expenses:

•Increased $8.5 million ~~in the first nine months of 2021 and $1.8 million in the first nine months of 2020.~~

~~SG&A expenses~~ at our Flow Control segment ~~increased $7.4 million~~ principally due to the inclusion of ~~$2.8~~$7.8 million of SG&A expenses from Clouth ~~$2.1~~and increased personnel and selling-related costs. These increases were partially offset by a $1.2 million ~~of acquisition-related costs, and $1.8 million from the unfavorable~~favorable effect of foreign currency translation.

~~SG&A expenses~~•Increased $1.9 million at our Industrial Processing segment ~~increased $2.8 million principally~~ due to ~~$2.6~~increased selling-related costs and a $0.6 million ~~from~~reversal of an indemnification asset related to the ~~unfavorable~~release of tax reserves. These increases were partially offset by a $1.2 million favorable effect of foreign currency ~~translation and a $0.7~~translation.

•Increased $2.4 million ~~reduction in benefits received from government assistance programs.~~

~~SG&A expenses~~ at our Material Handling segment ~~increased $2.8 million~~ principally due to ~~$0.8 million from the unfavorable effect of foreign currency translation, an incremental $0.8 million of acquisition-related costs, and~~ the inclusion of ~~$0.6~~$3.1 million of SG&A expenses from ~~Balemaster.~~

~~SG&A expenses at Corporate increased $3.5 million primarily due to additional incentive compensation as result of improved financial performance and, to~~Balemaster, partially offset by a ~~lesser extent, higher professional service fees.~~

~~Restructuring Costs~~

~~Restructuring costs were $0.9 million in the first nine months of 2020, which represented severance costs of~~ $0.7 million ~~in our Flow Control segment and $0.2 million in our Industrial Processing segment.~~

favorable effect of foreign currency translation.

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•Increased $3.0 million at Corporate primarily due to increased incentive compensation and travel expense due to improved business conditions.

Gain on Sale and Other Expense, Net

We entered into several agreements with the local government in China to sell the existing manufacturing building and land use rights at one of our subsidiaries in China for $25.2 million. The agreements became effective in the first quarter of 2022 after a 31% down payment was received, including 25% in 2021 and 6% in the first quarter of 2022, and a land use right in a new location was secured. As a result, we recognized a gain on the sale of these assets of $20.2 million, or $15.1 million, net of deferred taxes of $5.1 million, in the first quarter of 2022. A receivable of $16.1 million was recognized for the present value of the remaining amount of the sale proceeds, which is due the earlier of when the government sells the property or within two years from the effective date of the agreements. The amount of the receivable recorded at July 2, 2022 was $15.4 million. Our subsidiary, which is part of our Industrial Processing segment, will continue to occupy its current facility until construction of its new facility is complete.

In the first quarter of 2022, we recognized an impairment charge of $0.2 million related to the write-down of certain fixed assets that will not be moved to the new facility.

Interest Expense

Interest expense ~~decreased~~increased to ~~$3.5~~$2.6 million in the first ~~nine~~six months of ~~2021~~2022 from ~~$6.1~~$2.2 million in the first ~~nine~~six months of ~~2020~~2021 due to a ~~lower~~higher weighted-average interest rate ~~and lower outstanding debt~~ for the first ~~nine~~six months of 2022 compared to the first six months of 2021.

Provision for Income Taxes

~~Our provision~~Provision for income taxes increased to ~~$21.3~~$23.3 million in the first ~~nine~~six months of ~~2021~~2022 from ~~$13.7~~$14.5 million in the first ~~nine~~six months of ~~2020 and represented 26% of pre-tax income in both periods.~~2021. The effective tax rate of 26% in the first ~~nine~~six months of 2022 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, and state taxes. These increases in tax expense were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements. The effective tax rate of 27% in the first six months of 2021 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, state taxes, and tax expense associated with GILTI. These increases in tax expense were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements. The effective tax rate in the first nine months of 2020 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, and state taxes. These increases in tax expense were offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements.

Net Income

Net income increased to ~~$60.5~~$67.9 million in the first ~~nine~~six months of ~~2021~~2022 from ~~$39.4~~$39.8 million in the first ~~nine~~six months of ~~2020~~2021 primarily due to a ~~$26.1~~$37.0 million increase in operating income, ~~and a $2.6 million decrease in interest expense,~~ offset in part by a ~~$7.5~~$8.8 million increase in provision for income taxes (see discussions above for further details).

Non-GAAP Key Performance Indicators

In addition to the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including organic revenue (defined as revenue excluding the effect of foreign currency translation and acquisitions), adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin (defined as adjusted EBITDA divided by revenue), and free cash flow (defined as cash flow provided by operations less capital expenditures).

We use organic revenue in order to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods (see discussion in Revenue above). Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude impairment costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and certain gains or losses. These items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs, expenditures or income, or none at all. Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities.

We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making

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and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

Our non-GAAP financial measures are not meant to be considered superior to or a substitute for the results of operations or cash flow prepared in accordance with GAAP. In addition, our non-GAAP financial measures have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin is as follows:


	Three Months Ended				Six Months Ended
(In thousands, except percentages)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net Income Attributable to Kadant	$	26,170	$	22,864	$	67,362	$	39,425
Net Income Attributable to Noncontrolling Interest	239		163		488		398
Provision for Income Taxes	9,951		8,949		23,329		14,510
Interest Expense, Net	1,089		1,010		2,221		2,056
Other Expense, Net	19		24		41		48
Operating Income	37,468		33,010		93,441		56,437
Gain on Sale of Assets (a)	—		—		(20,190)		—
Acquisition Costs	—		603		76		1,901
Indemnification Asset Reversal (b)	—		—		575		—
Impairment Costs	—		—		182		—
Acquired Backlog Amortization (c)	—		27		703		87
Acquired Profit in Inventory Amortization (d)	—		—		(218)		—
Adjusted Operating Income (non-GAAP measure)	37,468		33,640		74,569		58,425
Depreciation and Amortization	8,486		7,689		17,228		15,315
Adjusted EBITDA (non-GAAP measure)	$	45,954	$	41,329	$	91,797	$	73,740
Adjusted EBITDA Margin (non-GAAP measure)	20.7%		21.1%		20.5%		20.0%

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


	Three Months Ended				Six Months Ended
(In thousands)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Cash Provided by Operating Activities	$	18,797	$	44,386	$	42,565	$	63,478
Less: Capital Expenditures (e)	(6,947)		(2,059)		(9,815)		(4,318)
Free Cash Flow (non-GAAP measure)	$	11,850	$	42,327	$	32,750	$	59,160

(a) Consists of a $20.2 million gain on the sale of a Chinese facility in our Industrial Processing segment pursuant to a relocation plan.

(b) Represents an indemnification asset reversal related to the release of tax reserves associated with uncertain tax positions.

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

(e) Includes capital expenditures of $3.1 million and $3.2 million in the three and six months ended July 2, 2022, respectively, associated with the construction of a new manufacturing facility in China (as discussed below).

Liquidity and Capital Resources

Consolidated working capital was ~~$177.4~~$181.0 million at ~~October~~July 2, ~~2021,~~2022, compared with ~~$155.1~~$162.4 million at January ~~2, 2021.~~1, 2022. Cash and cash equivalents were ~~$82.6~~$76.5 million at ~~October~~July 2, ~~2021,~~2022, compared with ~~$65.7~~$91.2 million at January ~~2, 2021,~~1, 2022, which included cash and cash equivalents held by our foreign subsidiaries of ~~$78.6~~$70.1 million at ~~October~~July 2, ~~2021~~2022 and ~~$63.6~~$83.8 million at January ~~2, 2021.~~1, 2022.

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Cash Flows

Cash flow information in the first ~~nine~~six months of ~~2021~~2022 and ~~2020~~2021 was as follows:


		Nine Months Ended					Six Months Ended
(In thousands)	(In thousands)	October 2, 2021		September 26, 2020		(In thousands)	July 2, 2022		July 3, 2021
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	$	101,410	$	52,601	Net Cash Provided by Operating Activities	$	42,565	$	63,478
Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(148,587)		(12,459)		Net Cash Used in Investing Activities	(7,894)		(3,869)
Net Cash Provided by (Used in) Financing Activities		66,714		(52,871)
Net Cash (Used in) Provided by Financing Activities						Net Cash (Used in) Provided by Financing Activities	(45,388)		32,698
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	(2,513)		660		Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	(5,418)		(803)
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash		$	17,024	$	(12,069)
(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash						(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash	$	(16,135)	$	91,504

Operating Activities

Cash provided by operating activities ~~increased~~decreased to ~~$101.4~~$42.6 million in the first ~~nine~~six months of ~~2021~~2022 from ~~$52.6~~$63.5 million in the first ~~nine~~six months of ~~2020.~~2021. 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. ~~The~~

Cash provided by income in the first six months of 2022 was offset in part by investments in working capital. Increases in inventory and accounts receivable used cash of $39.2 million, including $26.8 million from inventory primarily related to capital equipment orders that will ship in the latter half of fiscal 2022 and early fiscal 2023. These uses of cash were offset in part by an increase in cash provided ~~by operating activities in the 2021 period was principally driven by improvements in net income and working capital.~~of $9.3 million from customer deposits.

Cash provided by ~~working capital was $11.7 million~~income in the first ~~nine~~six months of ~~2021.~~2021 was offset in part by investments in working capital. Cash provided by working capital in 2021 included $33.3 million from other current liabilities primarily due to an increase in customer deposits and advance billings related to capital equipment orders that will be fulfilled over the next year and $19.8$12.9 million from accounts payable ~~attributable~~related to inventory purchases for increased ~~inventory purchases.~~order activity and $11.1 million in customer deposits for capital equipment orders. These sources of cash were offset in part by cash used of ~~$22.3~~$22.6 million for accounts receivable ~~mostly due to~~and inventory as a result of revenue growth and ~~timing of shipments, $10.6 million for a buildup of inventories primarily for capital equipment orders and~~ to ~~mitigate potential supply chain issues, and $8.1 million for other current assets principally due to a prepayment for raw material at one of our Chinese businesses.~~

Cash used for working capital was $15.4 million in the first nine months of 2020. Cash used for working capital in 2020 included $6.2 million for inventories primarily related to the buildup of inventory for capital equipment and spare parts

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~~that were shipped in late fiscal 2020 and early fiscal 2021 and $13.2 million from accounts payable primarily due to reduced spending levels in 2020.~~support increased demand.

Investing Activities

Cash used in investing activities was ~~$148.6~~$7.9 million in the first ~~nine~~six months of ~~2021,~~2022, compared with ~~$12.5~~$3.9 million in the first ~~nine~~six months of ~~2020.~~2021. Cash used in investing activities in the first six months of 2022 included ~~consideration paid~~capital expenditures of $9.8 million, which included $3.2 million for ~~acquisitions, net~~expenditures associated with the manufacturing facility and building relocation project in China. This use of cash ~~acquired,~~was partially offset by proceeds received from the sale of ~~$141.5 million~~assets of $1.9 million. Cash used in investing activities in the first six months of 2021 ~~period and $7.1 million in the 2020 period.~~included capital expenditures of $4.3 million.

Financing Activities

Cash used in financing activities was $45.4 in the first six months of 2022, compared with cash provided by financing activities ~~was $66.7~~of $32.7 million in the first ~~nine~~six months of ~~2021, compared with cash used in financing activities~~2021. Repayment of ~~$52.9~~short- and long-term obligations was $51.4 million in the first ~~nine~~six months of ~~2020. Borrowings~~2022, partially offset by borrowings under our revolving credit facility ~~were $151.9~~of $16.5 million compared to borrowings under our revolving credit facility of $88.9 million in the first ~~nine~~six months of 2021, ~~including $140.3 million~~partially offset by repayment of short- and long-term obligations of $47.1 million. In addition, taxes paid related to ~~fund acquisitions, and $26.0~~the vesting of equity awards was $4.6 million in the first ~~nine~~six months of ~~2020, including $18.9 million used~~2022 compared to ~~prepay the outstanding principal balance on our real estate loan. Repayment of long-term obligations was $72.7~~$3.4 million in the first ~~nine~~six months of ~~2021, and $69.0 million in the first nine months of 2020, including the $18.9 million prepayment of the real estate loan.~~2021.

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash

The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries. The ~~$2.5~~$5.4 million reduction in cash, cash equivalents, and restricted cash in the first ~~nine~~six months of ~~2021~~2022 was primarily attributable to the strengthening of the U.S. dollar against the ~~euro.~~euro and Chinese renminbi and, to a lesser extent, the British pound sterling.

Borrowing Capacity and Debt Obligations

We entered into an unsecured multi-currency revolving credit facility, dated as of March 1, 2017 (as amended and restated to date, the Credit Agreement). As of ~~October~~July 2, ~~2021,~~2022, the outstanding balance under the Credit Agreement was $210.5 million, which included $70.5 million of euro-denominated borrowings. As of July 2, 2022, we have a borrowing capacity ~~of $369.9 million, including $104.9 million~~ available under the Credit Agreement ~~an additional $150~~of $189.0 million in anaddition to a $150.0 million uncommitted, unsecured incremental

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borrowing ~~facility under the Credit Agreement, and $115 million of senior promissory notes available for issuance under~~facility. Under our ~~uncommitted Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement), which expires on December 14, 2021. Under these~~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 4.00. As of ~~October~~July 2, ~~2021,~~2022, our leverage ratio was ~~1.69~~1.05 and we were in compliance with our debt covenants. ~~Except for $5.6 million~~We expect to renew our Credit Agreement prior to its maturity date of ~~short-term obligations and current maturities of long-term obligations, we do not have any material mandatory principal payments on our debt obligations until~~December 14, 2023. See Note 5, Short- and Long-Term Obligations, in the accompanying condensed consolidated financial statements for additional information regarding our debt obligations.

Additional Liquidity and Capital Resources

On May ~~20, 2021,~~19, 2022, our board of directors approved the repurchase of up to ~~$20~~$50 million of our equity securities during the period from May ~~20, 2021~~19, 2022 to May ~~20, 2022.~~19, 2023. We have not repurchased any shares of our common stock under this authorization or under our previous $20 million authorization which expired on May ~~13, 2021.~~20, 2022.

We paid cash dividends of ~~$8.6~~$5.9 million in the first ~~nine~~six months of ~~2021.~~2022. On ~~September 9, 2021,~~May 19, 2022, we declared a quarterly cash dividend of ~~$0.25~~$0.26 per share totaling ~~$2.9~~$3.0 million that will be paid on ~~November~~August 11, ~~2021.~~2022. Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change. The declaration of cash dividends is subject to our compliance with the covenant in our revolving credit facility related to our consolidated leverage ratio.

We plan to make expenditures of approximately $5$21 to $7$23 million during the remainder of ~~2021~~2022 for property, plant, and ~~equipment.~~equipment, including $9 million for a new manufacturing facility. One of our Chinese subsidiaries is building a new manufacturing facility and relocating over the next two years. Capital expenditures for the new facility are estimated to be approximately $20 million, including $12 million in 2022. The cost of the new facility will be offset by the proceeds received from the sale of our existing facility. See Note 2, Gain on Sale and Other Expense, Net, in the accompanying condensed consolidated financial statements for additional information regarding the relocation of our Chinese manufacturing facility.

As of ~~October~~July 2, ~~2021,~~2022, we had approximately ~~$230.6~~$217.7 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest ~~$212.5~~$182.2 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any. In the first ~~nine~~six months of ~~2021,~~2022, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future. The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately ~~$4.4~~$3.0 million.

In the future, our liquidity position will be affected by cash flows from operations, cash paid to service our debt obligations, acquisitions, capital projects, dividends, and stock repurchases. We believe that existing cash and cash equivalents, along with cash generated from operations, our existing ~~resources, together with the borrowings available under our Credit Agreement~~borrowing capacity and ~~available through our Note Purchase Agreement, and the cash~~

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~~we expect~~continued access to ~~generate from operations,~~debt markets, will be sufficient to meet the capital requirements of our operations for the next 12 months and foreseeable future.

Contractual Obligations and Other Commercial Commitments

There have been no material changes to our contractual obligations and other commercial commitments during the first ~~nine~~six months of ~~2021~~2022 compared with those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, except for an increase of $81.0 million of short- and long-term obligations as of October 2, 2021 primarily related to our acquisitions. See ~~Note~~ 2~~, Acquisitions, and~~ ~~Note 5, Short- and Long-term Obligations, in the accompanying condensed consolidated financial statements.~~Report.

Application of Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenue and expenses during the reporting period. Our critical accounting policies are defined as those that entail significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Management evaluates its estimates on an ongoing basis based on historical experience, current economic and market conditions, and other assumptions management believes are reasonable. We believe that our most critical accounting policies which are significant to our consolidated financial statements, and which involve the most complex or subjective decisions or assessments, are those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the section captioned "Application of Critical Accounting ~~Policies and~~ Estimates" in Part II, Item 7, of our Annual ~~Report on Form 10-K for the fiscal year ended January 2, 2021.~~Report. There have been no material changes to these critical accounting policies since the end of fiscal ~~2020~~2021 that warrant disclosure.

Recent Accounting Pronouncements

See Note 1, under the headings ~~Recently Adopted Accounting Pronouncements~~ ~~and~~ Recent Accounting Pronouncements Not Yet Adopted, in the accompanying condensed consolidated financial statements for details.

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Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk from changes in interest rates and foreign currency exchange rates has not changed materially from our exposure as disclosed in Part II, Item 7A, of our Annual ~~Report on Form 10-K for the fiscal year ended January 2, 2021.~~Report.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~October~~July 2, ~~2021.~~2022. The term "disclosure controls and procedures," as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the evaluation of our disclosure controls and procedures as of ~~October~~July 2, ~~2021,~~2022, our Chief Executive Officer and Chief Financial Officer concluded that as of ~~October~~July 2, ~~2021,~~2022, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended ~~October~~July 2, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A – Risk Factors

In addition to the revised risk factors below regarding “~~Supply chain constraints, inflationary pressure, price increases~~ "We have significant international sales and ~~shortages~~operations and face risks related to health epidemics and pandemics, including the COVID-19 pandemic, which has and continues to present challenges to our business and results of operations" and "Operating globally subjects us to changes in ~~raw materials~~government regulations and ~~components,~~policies in multiple jurisdictions around the world, including those related to tariffs and ~~dependency upon certain suppliers for such raw materials~~trade barriers, taxation, exchange controls and ~~components could adversely impact our operating results~~political risks," ~~,” and “We are subject to risks and costs associated with environmental laws and regulations~~,” careful consideration should be given to the risk factors disclosed in Part I, Item 1A, Risk Factors, in our Annual Report, ~~on Form 10-K for the fiscal year ended January 2, 2021,~~ 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.

We have significant international sales and operations and face risks related to health epidemics and pandemics, including the COVID-19 pandemic, which has and continues to present challenges to our business and results of operations.

~~Supply chain constraints, inflationary pressure, price increases~~Our business and ~~shortages in raw materials and components, and dependency upon certain suppliers for such raw materials and components could adversely impact our operating results.~~

~~Some of our businesses~~operations have been and may continue to be ~~impacted~~challenged by the effects of the COVID-19 pandemic and may be challenged by other adverse public health developments, including disruptions or restrictions on our employees’ and other service providers’ ability to travel, reductions in our workforce, temporary closures of our facilities or the facilities of our customers, suppliers or other vendors in our supply chain, ~~constraints, resulting~~potentially including single source suppliers, and other disruptions in ~~inflationary pressure on material costs, longer lead times, port congestion, and increased freight costs.~~the supply chain. In addition, ~~current or future governmental policies may increase~~ the ~~risk of inflation which~~COVID-19 pandemic has impacted and other disease outbreaks could ~~further increase the costs of raw materials~~impact global trade and ~~components~~reduce demand for our ~~businesses. If we are unable~~products, and adversely affect the U.S. or global economy and capital markets.

The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to ~~mitigate~~“shelter-in-place,” and initially created significant disruption of the ~~impact of supply chain constraints~~financial markets. The COVID-19 pandemic has adversely affected, and ~~inflationary pressure through price increases or other measures~~may adversely affect in the future, our business and results of operations, ~~and financial condition could be negatively impacted.~~

We use a variety of raw materials, including a significant amount of stainless steel, carbon steel, commodities and critical components to manufacture our products. Increases in the prices of such raw materials, commodities and critical components could adversely affect our operating results if we were unable to fully offset the effect of these increased costs through price increases, productivity improvements, or cost reduction programs.

Some of our businesses depend on a limited number of suppliers to provide critical components used in the manufacture of our products. If we are unable to obtain sufficient supplies of these components or these sources of supply cease to be available to us, we could experience shortages in critical components or be unable to meet our commitments to customers. Alternative sources of supply could be more expensive, or in some cases, we could be unable to locate such alternative sources. We believe our current sources of raw materials, commodities and critical components will generally be sufficient for our needs in the foreseeable future. However, our operating results could be negatively impacted if supply is insufficient for our operations or if we are unable to expand supply as ~~needed.~~

While our businesses are working to alleviate supply chain constraints through various measures, we are unable to predict the impact of these constraints on the timing of revenue and operating costs of our business in the near future.

~~We are subject to risks and costs associated with environmental laws and regulations.~~

The manufacturing of our products requires the use of hazardous materials that are subject to a broad array of environmental, health and safety laws and regulations. Our failure to manage the use, transportation, emissions, discharge, storage, recycling, or disposal of hazardous materials could lead to increased costs or regulatory penalties, fines and legal liability. Our ability to expand, modify or operate our manufacturing facilities in the future may be impeded by environmental regulations, such as air quality, wastewater requirements, and energy supply and use restrictions. The Chinese government ~~has pledged to tackle the country's hazardous smog and improve air quality conditions ahead of high-profile events, such as the upcoming Winter Olympics in Beijing, which has prompted~~ authorities to impose strict pollution control measures. Additionally, in September 2021, the Chinese government began limiting electricity usage within many of its provinces, requiring businesses in those regions to take unscheduled downtime.~~Regulators~~ have ~~in the past~~imposed, and may in the future ~~temporarily restrict the operations~~impose, temporary mandatory closures of our ~~manufacturing~~facilities, travel restrictions, work-from-home orders, vaccine or testing mandates and social distancing protocols and other restrictions that have impacted our ability to adequately staff and maintain our operations at normal levels. China’s zero-COVID strategy heightens the risk that our facilities in ~~a particular geographic location~~China may be closed by government authorities as a result of ~~attempts to control pollution levels, or energy supply or use restrictions~~any COVID cases in China. Environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify product designs, or incur other expenses. New regulations promulgated in reaction to climate change could result in increased manufacturing costs associated with air pollution control requirements, and increased or new monitoring, recordkeeping, and reporting of greenhouse gas emissions. We also see the potential for higher energy costs driven by climate change regulations. Implementation of such new regulations could increasea particular facility. Additionally, our ~~costs or require us to modify our operations and negatively impact our business and~~financial results ~~of operations.~~have been adversely

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impacted and may be adversely impacted in the future by decreased levels of bookings, customer-requested delays on certain capital projects and service work, customer downtime and shutdowns, and visitation restrictions at many customer facilities, all of which have affected and may adversely affect in the future our ability to recognize revenue for sales of our products and services. We may also incur future costs related to COVID-19, such as increased employee benefit costs if a significant number of our employees contract COVID-19 and require hospitalization or other costly medical treatment, or expenses related to repeated cleaning and sanitizing of our facilities, which may also adversely affect our financial results. In March 2020, we experienced a significant decrease in market capitalization due to a decline in our stock price, and the overall U.S. stock market also declined significantly amid market volatility driven by the uncertainty surrounding the outbreak of COVID-19. The future impact of the COVID-19 pandemic could include further disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future.

The COVID-19 pandemic has evolved and continues to evolve rapidly. As a result, we cannot reasonably estimate the scope of the impact of the COVID-19 pandemic, including the potential impact of emerging variants or the response of government authorities to any such variants or other developments, on our business and the adverse effect and impact the COVID-19 pandemic may ultimately have on our business and our stock price. For instance, we may face additional requests from customers to delay the production or delivery of our products, particularly capital equipment products, which would affect our ability to recognize revenue for sales of such products. Other customers may decide not to proceed with large capital equipment orders in order to conserve their cash. A delay on our part of the production of our products may lead to liquidated damages owed to our customers. Further implementation, extension or renewal of government-mandated closures, “shelter-in-place” orders or vaccine or testing mandates related to the COVID-19 pandemic may create further disruption to our operations, our workforce, the supply chain, and our customer and vendor operations. The evolving effects of the COVID-19 pandemic on the global economy are uncertain, and we may be further adversely affected by general economic conditions, even if government mandates are repealed. The impact of COVID-19 could worsen if new and more virulent or transmissible variants emerge which result in a resurgence of COVID-19 infection in affected regions.

In addition, travel, commercial and other similar restrictions put in place by various government authorities in response to COVID-19 have contributed to global supply disruptions and we have, and may in the future, incur costs to mitigate such disruptions, which could be significant. New information may emerge concerning the severity of COVID-19 or any of its variants, the pace and method through which it is transmitted, contained and/or treated, and the nature of the approach of the local governments in the jurisdictions in which we operate to handling the outbreak, any of which could impact our employees, operations, suppliers, customers and/or operating and financial results, including our ability to determine our quarterly results. We operate in 20 countries and the government responses in each of those countries have differed and resulted in varying levels of containment of COVID-19, degree and duration of closures, and nature of safety precautions, all of which we have and will continue to manage. Although we have worked and continue to work diligently to ensure that our global facilities can operate with minimal disruption, mitigate the impact of the outbreak on our employees’ health and safety, and address the supply chain impact on ourselves and our customers, the full extent to which COVID-19 has affected and will affect the global economy and our results will depend on future developments and factors that cannot be predicted.

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 we benefited from the North American Free Trade Agreement, which has been replaced by the United States-Mexico-Canada Agreement (USMCA), from which we also benefit. 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 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.

In addition, the Office of the United States Trade Representative has imposed tariffs on a wide variety of products from China, including pulp and paper machinery equipment, 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 25% on numerous categories of steel imports, and 10% on numerous categories of aluminum imports, from most countries under Section 232 of the Trade Expansion Act of 1962. While we try to mitigate the impact of the existing and other proposed tariffs 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.

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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. 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 may 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 could 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 2021, our sales to Russia were $10.7 million, or 1% of our revenue. 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. To the extent the current conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening many 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 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; 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 could have a material adverse impact on our business and operating results going forward.

Item 6 – Exhibits


Exhibit Number
						Description of Exhibit


1010.1						~~Executive Transition~~Employment Agreement between ~~the Registrant~~Kadant Johnson Europe B.V. and ~~Eric T. Langevin~~Fredrik H. Westerhout dated ~~October 27, 2021.~~May 16, 2022.

31.1						Certification of the Principal Executive Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2						Certification of the Principal Financial Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32						Certification of the Chief Executive Officer and the Chief Financial Officer of the Registrant Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

~~______________________~~

* Indicates management contract or compensatory plan or arrangement.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			KADANT INC.

Date: ~~November~~August 10, ~~2021~~2022			/s/ Michael J. McKenney
			Michael J. McKenney
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

3534


	Three Months Ended October 2, 2021
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at July 3, 2021	14,624,159	$	146	$	110,529	$	513,036	3,043,854	$	(74,587)	$	(19,889)	$	1,891	$	531,126
Net income	—	—		—		20,461		—	—		—		237		20,698
Dividend declared – Common Stock, $0.25 per share	—	—		—		(2,901)		—	—		—		—		(2,901)
Activity under stock plans	—	—		2,164		—		(5,225)	128		—		—		2,292
Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(560)		(560)
Noncontrolling interest acquired (Note 2)	—	—		—		—		—	—		—		653		653
Purchase of shares of noncontrolling interest (Note 2)	—	—		—		—		—	—		—		(686)		(686)
Other comprehensive items	—	—		—		—		—	—		(7,200)		(36)		(7,236)
Balance at October 2, 2021	14,624,159	$	146	$	112,693	$	530,596	3,038,629	$	(74,459)	$	(27,089)	$	1,499	$	543,386

	Nine Months Ended October 2, 2021
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at January 2, 2021	14,624,159	$	146	$	110,824	$	479,400	3,081,919	$	(75,519)	$	(19,492)	$	1,546	$	496,905
Net income	—	—		—		59,886		—	—		—		635		60,521
Dividends declared – Common Stock, $0.75 per share	—	—		—		(8,690)		—	—		—		—		(8,690)
Activity under stock plans	—	—		1,869		—		(43,290)	1,060		—		—		2,929
Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(560)		(560)
Noncontrolling interest acquired (Note 2)	—	—		—		—		—	—		—		653		653
Purchase of shares of noncontrolling interest (Note 2)	—	—		—		—		—	—		—		(686)		(686)
Other comprehensive items	—	—		—		—		—	—		(7,597)		(89)		(7,686)
Balance at October 2, 2021	14,624,159	$	146	$	112,693	$	530,596	3,038,629	$	(74,459)	$	(27,089)	$	1,499	$	543,386


	Three Months Ended September 26, 2020
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at June 27, 2020	14,624,159	$	146	$	107,202	$	453,874	3,127,565	$	(76,638)	$	(45,863)	$	1,638	$	440,359
Net income	—	—		—		14,851		—	—		—		129		14,980
Dividend declared – Common Stock, $0.24 per share	—	—		—		(2,762)		—	—		—		—		(2,762)
Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(525)		(525)
Activity under stock plans	—	—		1,182		—		(12,966)	318		—		—		1,500
Other comprehensive items	—	—		—		—		—	—		8,631		62		8,693
Balance at September 26, 2020	14,624,159	$	146	$	108,384	$	465,963	3,114,599	$	(76,320)	$	(37,232)	$	1,304	$	462,245

	Nine Months Ended September 26, 2020
(In thousands, except share and per share amounts)	Common Stock			Capital in Excess of Par Value		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Items		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at December 28, 2019	14,624,159	$	146	$	106,698	$	435,249	3,214,888	$	(78,778)	$	(37,620)	$	1,384	$	427,079
Net income	—	—		—		38,989		—	—		—		369		39,358
Dividends declared – Common Stock, $0.72 per share	—	—		—		(8,275)		—	—		—		—		(8,275)
Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(525)		(525)
Activity under stock plans	—	—		1,686		—		(100,289)	2,458		—		—		4,144
Other comprehensive items	—	—		—		—		—	—		388		76		464
Balance at September 26, 2020	14,624,159	$	146	$	108,384	$	465,963	3,114,599	$	(76,320)	$	(37,232)	$	1,304	$	462,245


(In thousands)	Gross		Accumulated Amortization		Currency Translation		Net
October 2, 2021
Definite-Lived
Customer relationships	$	215,366	$	(75,978)	$	(2,613)	$	136,775
Product technology	67,625		(34,615)		(1,468)		31,542
Tradenames	7,427		(3,278)		(346)		3,803
Other	20,110		(15,463)		(552)		4,095
	310,528		(129,334)		(4,979)		176,215
Indefinite-Lived
Tradenames	29,059		—		54		29,113
Acquired Intangible Assets	$	339,587	$	(129,334)	$	(4,925)	$	205,328

January 2, 2021
Definite-Lived
Customer relationships	$	173,728	$	(65,488)	$	(1,316)	$	106,924
Product technology	56,111		(31,655)		(1,005)		23,451
Tradenames	6,027		(2,946)		(282)		2,799
Other	18,248		(14,369)		(515)		3,364
	254,114		(114,458)		(3,118)		136,538
Indefinite-Lived
Tradenames	24,100		—		327		24,427
Acquired Intangible Assets	$	278,214	$	(114,458)	$	(2,791)	$	160,965


(In thousands)	Clouth		Balemaster		Total
Net Assets Acquired:
Cash and Cash Equivalents	$	4,666	$	3,757	$	8,423
Accounts Receivable	6,863		1,593		8,456
Inventories	15,770		3,993		19,763
Other Current Assets	1,467		36		1,503
Property, Plant, and Equipment	24,508		4,232		28,740
Other Assets	3,923		195		4,118
Definite-Lived Intangible Assets
Customer relationships	19,838		21,800		41,638
Product technology	8,914		2,600		11,514
Tradenames	—		1,400		1,400
Other	402		1,460		1,862
Indefinite-Lived Intangible Assets
Tradenames	4,959		—		4,959
Goodwill	25,349		27,699		53,048
Total assets acquired	116,659		68,765		185,424

Short-term Obligations and Current Maturities of Long-term Obligations	1,320		—		1,320
Accounts Payable	1,452		743		2,195
Other Current Liabilities	4,557		3,900		8,457
Long-Term Deferred Income Taxes	10,060		6,423		16,483
Long-Term Obligations	4,141		—		4,141
Other Long-term Liabilities	2,797		195		2,992
Total liabilities assumed	24,327		11,261		35,588
Net assets acquired	$	92,332	$	57,504	$	149,836

Purchase Price:
Cash Paid	$	92,332	$	57,504	$	149,836


	Fair Value as of January 2, 2021
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds and time deposits	$	8,054	$	—	$	—	$	8,054
Banker's acceptance drafts (a)	$	—	$	9,445	$	—	$	9,445
Forward currency-exchange contracts	$	—	$	37	$	—	$	37
Liabilities:
2018 Swap Agreement	$	—	$	1,099	$	—	$	1,099
Forward currency-exchange contracts	$	—	$	7	$	—	$	7