SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


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


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 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 28, ~~2022,~~2023, the registrant had ~~11,663,601~~11,705,898 shares of common stock outstanding.

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

October 1,
2022 January 1,
2022
(In thousands, except share and per share amounts)
Assets
Current Assets:
Cash and cash equivalents $ 72,936 $ 91,186
Restricted cash (Note 1) 2,178 2,975
Accounts receivable, net of allowances of $3,038 and $2,735 128,253 117,209
Inventories 156,567 134,356
Contract assets 16,064 8,626
Other current assets 24,995 29,530
Total Current Assets 400,993 383,882
Property, Plant, and Equipment, net of accumulated depreciation of $116,292 and $114,032 105,439 107,989
Other Assets 53,748 44,111
Intangible Assets, Net 173,707 199,343
Goodwill 372,966 396,887
Total Assets $ 1,106,853 $ 1,132,212
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term obligations and current maturities of long-term obligations (Note 5) $ 1,553 $ 5,356
Accounts payable 53,495 59,250
Accrued payroll and employee benefits 35,912 37,203
Customer deposits 69,394 59,262
Advanced billings 7,958 11,894
Other current liabilities 44,688 48,532
Total Current Liabilities 213,000 221,497
Long-Term Obligations (Note 5) 208,114 264,158
Long-Term Deferred Income Taxes 34,926 34,944
Other Long-Term Liabilities 41,309 45,997
Commitments and Contingencies (Note 11)
Stockholders' Equity:
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 146 146
Capital in excess of par value 116,807 115,888
Retained earnings 637,601 551,848
Treasury stock at cost, 2,960,558 and 3,003,419 shares (72,546) (73,596)
Accumulated other comprehensive items (Note 7) (73,959) (30,350)
Total Kadant Stockholders' Equity 608,049 563,936
Noncontrolling interest 1,455 1,680
Total Stockholders' Equity 609,504 565,616
Total Liabilities and Stockholders' Equity $ 1,106,853 $ 1,132,212


	July 1, 2023		December 31, 2022
(In thousands, except share and per share amounts)
Assets
Current Assets:
Cash and cash equivalents	$	66,725	$	76,371
Restricted cash	3,470		3,354
Accounts receivable, net of allowances of $3,578 and $3,595	135,633		130,297
Inventories	176,380		163,672
Contract assets	11,986		14,898
Other current assets	41,449		26,818
Total Current Assets	435,643		415,410
Property, Plant, and Equipment, net of accumulated depreciation of $128,555 and $121,442	125,875		118,855
Other Assets	43,775		54,516
Intangible Assets, Net	167,327		175,645
Goodwill	388,802		385,455
Total Assets	$	1,161,422	$	1,149,881

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term obligations and current maturities of long-term obligations (Note 5)	$	3,464	$	3,821
Accounts payable	48,911		58,060
Accrued payroll and employee benefits	32,003		35,672
Customer deposits	70,580		64,361
Advanced billings	12,043		7,966
Other current liabilities	46,217		43,581
Total Current Liabilities	213,218		213,461
Long-Term Obligations (Note 5)	153,409		197,340
Long-Term Deferred Income Taxes	38,690		38,745
Other Long-Term Liabilities	43,080		44,764

Commitments and Contingencies (Note 11)

Stockholders' Equity:
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	146		146
Capital in excess of par value	120,117		119,924
Retained earnings	711,664		660,644
Treasury stock at cost, 2,918,261 and 2,949,997 shares	(71,509)		(72,287)
Accumulated other comprehensive items (Note 7)	(49,547)		(54,578)
Total Kadant Stockholders' Equity	710,871		653,849
Noncontrolling interest	2,154		1,722
Total Stockholders' Equity	713,025		655,571
Total Liabilities and Stockholders' Equity	$	1,161,422	$	1,149,881

Three Months Ended Nine Months Ended
October 1,
2022 October 2,
2021 October 1,
2022 October 2,
2021
(In thousands, except per share amounts)
Revenue (Notes 1 and 10) $ 224,510 $ 199,789 $ 672,639 $ 568,063
Costs and Operating Expenses:
Cost of revenue 129,154 116,096 383,034 323,337
Selling, general, and administrative expenses 53,153 52,316 167,640 151,014
Research and development expenses 3,245 2,649 9,574 8,547
Gain on sale and other costs, net (Note 2) 72 — (19,936) —
185,624 171,061 540,312 482,898
Operating Income 38,886 28,728 132,327 85,165
Interest Income 271 55 650 176
Interest Expense (1,721) (1,320) (4,321) (3,497)
Other Expense, Net (19) (23) (60) (71)
Income Before Provision for Income Taxes 37,417 27,440 128,596 81,773
Provision for Income Taxes (Note 4) 9,746 6,742 33,075 21,252
Net Income 27,671 20,698 95,521 60,521
Net Income Attributable to Noncontrolling Interest (184) (237) (672) (635)
Net Income Attributable to Kadant $ 27,487 $ 20,461 $ 94,849 $ 59,886
Earnings per Share Attributable to Kadant (Note 3)
Basic $ 2.36 $ 1.77 $ 8.14 $ 5.18
Diluted $ 2.35 $ 1.75 $ 8.12 $ 5.14
Weighted Average Shares (Note 3)
Basic 11,662 11,580 11,651 11,571
Diluted 11,700 11,668 11,681 11,644


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
(In thousands, except per share amounts)
Revenue (Notes 1 and 10)	$	245,053	$	221,649	$	474,811	$	448,129

Costs and Operating Expenses:
Cost of revenue	138,503		125,611		266,215		253,880
Selling, general, and administrative expenses	59,990		55,319		118,552		114,487
Research and development expenses	3,408		3,251		6,778		6,329
Gain on sale and other costs, net (Note 2)	74		—		74		(20,008)
	201,975		184,181		391,619		354,688
Operating Income	43,078		37,468		83,192		93,441
Interest Income	316		277		615		379
Interest Expense	(2,245)		(1,366)		(4,615)		(2,600)
Other Expense, Net	(21)		(19)		(42)		(41)
Income Before Provision for Income Taxes	41,128		36,360		79,150		91,179
Provision for Income Taxes (Note 4)	11,182		9,951		20,945		23,329
Net Income	29,946		26,409		58,205		67,850
Net Income Attributable to Noncontrolling Interest	(212)		(239)		(396)		(488)
Net Income Attributable to Kadant	$	29,734	$	26,170	$	57,809	$	67,362

Earnings per Share Attributable to Kadant (Note 3)
Basic	$	2.54	$	2.24	$	4.94	$	5.78
Diluted	$	2.54	$	2.24	$	4.94	$	5.77

Weighted Average Shares (Note 3)
Basic	11,704		11,660		11,693		11,645
Diluted	11,723		11,689		11,709		11,672

Three Months Ended Nine Months Ended
October 1,
2022 October 2,
2021 October 1,
2022 October 2,
2021
(In thousands)
Net Income $ 27,671 $ 20,698 $ 95,521 $ 60,521
Other Comprehensive Items:
Foreign currency translation adjustment (22,798) (7,326) (44,446) (7,987)
Post-retirement liability adjustments, net (net of tax provision of $8, $9, $21 and $21) 24 24 64 57
Deferred gain on cash flow hedges (net of tax provision of $27, $20, $141 and $60) 83 66 506 244
Other comprehensive items (22,691) (7,236) (43,876) (7,686)
Comprehensive Income 4,980 13,462 51,645 52,835
Comprehensive Income Attributable to Noncontrolling Interest (73) (201) (405) (546)
Comprehensive Income Attributable to Kadant $ 4,907 $ 13,261 $ 51,240 $ 52,289


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
(In thousands)
Net Income	$	29,946	$	26,409	$	58,205	$	67,850
Other Comprehensive Items:
Foreign currency translation adjustment	(400)		(19,364)		5,173		(21,648)
Post-retirement liability adjustments, net (net of tax of $(1), $11, $(3) and $13)	(2)		31		(8)		40
Deferred (loss) gain on cash flow hedges (net of tax of $(18), $46, $(32) and $114)	(59)		146		(98)		423
Other comprehensive items	(461)		(19,187)		5,067		(21,185)
Comprehensive Income	29,485		7,222		63,272		46,665
Comprehensive Income Attributable to Noncontrolling Interest	(213)		(129)		(432)		(332)
Comprehensive Income Attributable to Kadant	$	29,272	$	7,093	$	62,840	$	46,333

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

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.


	Three Months Ended July 1, 2023
(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 1, 2023	14,624,159	$	146	$	117,547	$	685,325	2,920,678	$	(71,569)	$	(49,085)	$	1,941	$	684,305
Net income	—	—		—		29,734		—	—		—		212		29,946
Dividend declared – Common Stock, $0.29 per share	—	—		—		(3,395)		—	—		—		—		(3,395)
Activity under stock plans	—	—		2,570		—		(2,417)	60		—		—		2,630

Other comprehensive items	—	—		—		—		—	—		(462)		1		(461)
Balance at July 1, 2023	14,624,159	$	146	$	120,117	$	711,664	2,918,261	$	(71,509)	$	(49,547)	$	2,154	$	713,025

	Six Months Ended July 1, 2023
(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 31, 2022	14,624,159	$	146	$	119,924	$	660,644	2,949,997	$	(72,287)	$	(54,578)	$	1,722	$	655,571
Net income	—	—		—		57,809		—	—		—		396		58,205
Dividends declared – Common Stock, $0.58 per share	—	—		—		(6,789)		—	—		—		—		(6,789)
Activity under stock plans	—	—		193		—		(31,736)	778		—		—		971



Other comprehensive items	—	—		—		—		—	—		5,031		36		5,067
Balance at July 1, 2023	14,624,159	$	146	$	120,117	$	711,664	2,918,261	$	(71,509)	$	(49,547)	$	2,154	$	713,025

Three Months Ended October 1, 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 July 2, 2022 14,624,159 $ 146 $ 114,825 $ 613,146 2,962,186 $ (72,586) $ (51,379) $ 2,012 $ 606,164
Net income — — — 27,487 — — — 184 27,671
Dividend declared – Common Stock, $0.26 per share — — — (3,032) — — — — (3,032)
Activity under stock plans — — 1,982 — (1,628) 40 — — 2,022
Dividend paid to noncontrolling interest — — — — — — — (630) (630)
Other comprehensive items — — — — — — (22,580) (111) (22,691)
Balance at October 1, 2022 14,624,159 $ 146 $ 116,807 $ 637,601 2,960,558 $ (72,546) $ (73,959) $ 1,455 $ 609,504
Nine Months Ended October 1, 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 — — — 94,849 — — — 672 95,521
Dividends declared – Common Stock, $0.78 per share — — — (9,096) — — — — (9,096)
Activity under stock plans — — 919 — (42,861) 1,050 — — 1,969
Dividend paid to noncontrolling interest — — — — — — — (630) (630)
Other comprehensive items — — — — — — (43,609) (267) (43,876)
Balance at October 1, 2022 14,624,159 $ 146 $ 116,807 $ 637,601 2,960,558 $ (72,546) $ (73,959) $ 1,455 $ 609,504


	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

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

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 — — — — — — — 653 653
Purchase of shares of noncontrolling interest — — — — — — — (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 — — — — — — — 653 653
Purchase of shares of noncontrolling interest — — — — — — — (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

~~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 technologies and engineered systems that drive Sustainable Industrial Processing. Its products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of the Company's three reportable operating segments: Flow Control, Industrial Processing, and Material Handling.

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 1, ~~2022,~~2023, its results of operations, comprehensive income, and stockholders' equity for the three- and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 and its cash flows for the ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021.~~2023. 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 1,~~December 31, 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 1,~~December 31, 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 Annual Report.

~~Financial Statement Presentation~~

Certain reclassifications have been made to prior periods to conform with the 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 Annual Report 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 1, ~~2022.~~2023.

Supplemental Cash Flow Information


		Nine Months Ended					Six Months Ended
(In thousands)	(In thousands)	October 1, 2022		October 2, 2021		(In thousands)	July 1, 2023		July 2, 2022
Cash Paid for Interest	Cash Paid for Interest	$	3,907	$	3,091	Cash Paid for Interest	$	4,443	$	2,408
Cash Paid for Income Taxes, Net of Refunds	Cash Paid for Income Taxes, Net of Refunds	$	28,692	$	19,320	Cash Paid for Income Taxes, Net of Refunds	$	23,792	$	19,167

Non-Cash Investing Activities:						Non-Cash Investing Activities:
Reduction in fair value of assets acquired						Reduction in fair value of assets acquired	$	(270)	$	(1,568)
Cash received (paid) for acquired businesses						Cash received (paid) for acquired businesses	277		(62)
Increase (decrease) in liabilities assumed						Increase (decrease) in liabilities assumed	$	7	$	(1,630)

Purchases of property, plant, and equipment in accounts payable						Purchases of property, plant, and equipment in accounts payable	$	1,134	$	26

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Nine Months Ended
(In thousands) October 1,
2022 October 2,
2021
Non-Cash Investing Activities:
Fair value of assets (adjusted) acquired $ (1,768) $ 185,424
Cash received (paid) for acquired businesses 138 (149,961)
Liabilities (adjusted) assumed of acquired businesses $ (1,630) $ 35,463
Purchase of property with outstanding loan receivable $ 1,397 $ —
Purchases of property, plant, and equipment in accounts payable $ 36 $ 914
Non-Cash Financing Activities:
Issuance of Company common stock upon vesting of restricted stock units $ 5,295 $ 3,841
Dividends declared but unpaid $ 3,032 $ 2,901


	Six Months Ended
(In thousands)	July 1, 2023		July 2, 2022
Non-Cash Financing Activities:
Issuance of Company common stock upon vesting of restricted stock units	$	4,717	$	5,040
Dividends declared but unpaid	$	3,395	$	3,033

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.~~business and for certain banker's acceptance drafts issued to vendors. 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:

The components of inventories are as follows:

Intangible Assets, Net

Gross intangible assets were ~~$340,947,000~~$342,742,000 at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~$343,130,000 at December 31, 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 ~~$151,001,000~~$165,300,000 at ~~October~~July 1, ~~2022~~2023 and ~~$135,327,000~~$155,834,000 at ~~January 1,~~December 31, 2022.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

(In thousands) Flow Control Industrial Processing Material Handling Total
Balance at January 1, 2022
Gross balance $ 123,589 $ 214,982 $ 143,825 $ 482,396
Accumulated impairment losses — (85,509) — (85,509)
Net balance 123,589 129,473 143,825 396,887
2022 Activity
   Acquisitions (a) (33) — (502) (535)
   Currency translation (10,203) (7,953) (5,230) (23,386)
   Total 2022 activity (10,236) (7,953) (5,732) (23,921)
Balance at October 1, 2022
Gross balance 113,353 207,029 138,093 458,475
Accumulated impairment losses — (85,509) — (85,509)
Net balance $ 113,353 $ 121,520 $ 138,093 $ 372,966

~~(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.


(In thousands)	Flow Control		Industrial Processing		Material Handling		Total
Balance at December 31, 2022
Gross balance	$	118,309	$	209,919	$	142,765	$	470,993
Accumulated impairment losses	—		(85,538)		—		(85,538)
Net balance	118,309		124,381		142,765		385,455
2023 Activity
Acquisition adjustments	—		—		4		4
Currency translation	1,169		1,428		746		3,343
Total 2023 activity	1,169		1,428		750		3,347
Balance at July 1, 2023
Gross balance	119,478		211,347		143,515		474,340
Accumulated impairment losses	—		(85,538)		—		(85,538)
Net balance	$	119,478	$	125,809	$	143,515	$	388,802

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:

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 equipment 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.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents revenue by revenue recognition method:

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:

(a) The components of revenue by geography in the three and six months ended July 2, 2022 have been recast to conform to the current period presentation.

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:

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 ~~$11,912,000~~$20,212,000 in the ~~third~~second quarter of 2023 and $13,424,000 in the second quarter of 2022, and ~~$3,973,000 in the third quarter of 2021, $59,813,000~~$47,228,000 in the first ~~nine~~six months of ~~2022~~2023 and ~~$31,183,000~~$47,901,000 in the first ~~nine~~six months of ~~2021~~2022 that was included in the contract liabilities balance at the beginning of ~~2022~~2023 and ~~2021,~~2022, respectively. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital equipment contracts require ~~long~~longer 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 1, 2022 was $48,976,000. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 64% of which is expected to occur within the next twelve months and the remaining 36% after the third quarter of 2023.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

was $54,925,000 as of July 1, 2023. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 75% of which is expected to occur within the next twelve months and the remaining 25% after the second quarter of 2024.

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 ~~$6,755,000~~$3,550,000 at ~~October~~July 1, ~~2022~~2023 and ~~$8,049,000~~$5,729,000 at ~~January 1,~~December 31, 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 Not Yet Adopted~~

~~Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.~~ In March 2020, the Financial Accounting Standards Board (FASB) issued 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 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. Gain on Sale and Other Costs, Net

Gain on Sale of Assets

The 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 ~~approximately $25,159,000. This subsidiary, which is part of the stock-preparation product line within the Company's Industrial Processing segment, will continue~~$25,159,000 and relocate to ~~occupy its current facility until construction of~~ a new facility ~~is complete.~~(the China Transaction). 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~~China Transaction of $20,190,000, or $15,143,000 net of deferred taxes of $5,047,000, in the first quarter of 2022. A receivable of $16,082,000 was recognized for the present value of the remaining amount of the sale proceeds, which is due the earlier of when the government sells the property or within two years from the effective date of the agreements. The ~~receivable outstanding at October 1, 2022 was $14,646,000. This receivable~~subsidiary, which is ~~included in other assets~~part of the Industrial Processing segment, will continue to occupy its current facility until construction of its new facility is complete, which is expected during the second half of 2023.

A summary of the change in the ~~accompanying condensed consolidated balance sheet.~~outstanding receivable on the China Transaction is as follows:


(In thousands)	July 1, 2023
Balance at Inception	$	17,294
Present value discount	(1,212)
Receivable recorded, net	16,082
Accretion of interest income	422
Currency translation	(1,323)
Balance at December 31, 2022 (included in other assets)	15,181
Accretion of interest income	278
Currency translation	(707)
Balance at July 1, 2023 (included in other current assets)	$	14,752

~~During~~Other costs of $74,000 in the second quarter of 2023 and $182,000 in the first quarter of 2022 consisted of charges in the ~~Company recognized an impairment charge of $182,000~~Company's Industrial Processing segment associated with the China Transaction for the write-down of certain fixed assets that will not be moved to the new manufacturing facility in China ~~as discussed above.~~and facility moving costs.

During the third quarter of 2022, the Company recorded restructuring costs within its Flow Control segment of $72,000, which consisted of severance costs related to the termination of two employees. This restructuring plan was initiated in the fourth quarter of 2021 to eliminate a redundant ceramic blade manufacturing operation that resulted from the Company's acquisition of The Clouth Group of Companies (Clouth) in the third quarter of 2021.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 1, 2022				October 2, 2021			October 1, 2022				October 2, 2021					July 1, 2023				July 2, 2022		July 1, 2023		July 2, 2022
(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			$	27,487						$	20,461				$	94,849			$	59,886		Net Income Attributable to Kadant	$	29,734	$	26,170	$	57,809	$	67,362

Basic Weighted Average Shares	Basic Weighted Average Shares	11,662				11,580			11,651				11,571		Basic Weighted Average Shares			11,704				11,660		11,693		11,645
Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares		38				88			30				73
Effect of Restricted Stock Units and Employee Stock Purchase Plan Shares															Effect of Restricted Stock Units and Employee Stock Purchase Plan Shares			19				29		16		27
Diluted Weighted Average Shares	Diluted Weighted Average Shares	11,700				11,668			11,681				11,644		Diluted Weighted Average Shares			11,723				11,689		11,709		11,672

Basic Earnings per Share	Basic Earnings per Share	$	2.36			$	1.77		$	8.14			$	5.18	Basic Earnings per Share			$	2.54			$	2.24	$	4.94	$	5.78

Diluted Earnings per Share	Diluted Earnings per Share	$	2.35			$	1.75		$	8.12			$	5.14	Diluted Earnings per Share			$	2.54			$	2.24	$	4.94	$	5.77

The effect of outstanding and unvested restricted stock units (RSUs) of the Company's common stock totaling ~~4,000~~26,000 shares in the ~~third~~second quarter of 2023, 8,000 shares in the second quarter of 2022, ~~and 3,000 shares in the third quarter of 2021, 10,000~~32,000 shares in the first ~~nine~~six months of ~~2022~~2023 and ~~19,000~~13,000 shares in the first ~~nine~~six months of ~~2021~~2022 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 respective reporting periods.

4. Provision for Income Taxes

The provision for income taxes was ~~$33,075,000~~$20,945,000 in the first ~~nine~~six months of ~~2022~~2023 and ~~$21,252,000~~$23,329,000 in the first ~~nine~~six months of ~~2021.~~2022. The effective tax rate of 26% in the first ~~nine~~six months of ~~2022~~2023 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, state taxes, and nondeductible ~~expenses, and state taxes.~~expenses. The effective tax rate of 26% in the first ~~nine~~six months of ~~2021~~2022 was 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 tax expense associated with the Global Intangible Low-Taxed Income provisions.~~taxes. These increases in ~~tax expenses~~tax expense in the first ~~nine~~six months of ~~2021~~2022 were offset in part by a decrease in tax expense 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 1, 2022				January 1, 2022					July 1, 2023		December 31, 2022
(In thousands)	(In thousands)			(In thousands)
Revolving Credit Facility, due 2023				$	195,036				$	250,267
Revolving Credit Facility, due 2027								Revolving Credit Facility, due 2027			$	142,562	$	186,131
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 2022 to 2026		1,760				1,610
Other Borrowings, due 2022 to 2028		2,871				7,637
Finance Leases, due 2023 to 2026								Finance Leases, due 2023 to 2026			1,757		1,940
Other Borrowings, due 2023 to 2028								Other Borrowings, due 2023 to 2028			2,554		3,090
Total	Total	209,667				269,514		Total			156,873		201,161
Less: Short-term Obligations and Current Maturities of Long-Term Obligations	Less: Short-term Obligations and Current Maturities of Long-Term Obligations	(1,553)				(5,356)		Less: Short-term Obligations and Current Maturities of Long-Term Obligations			(3,464)		(3,821)
Long-Term Obligations	Long-Term Obligations	$	208,114			$	264,158	Long-Term Obligations			$	153,409	$	197,340

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~~Company's unsecured multi-currency revolving credit facility, ~~dated as of~~originally entered into on 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~~November 30, 2027 and has a borrowing capacity of $400,000,000, ~~with~~in addition to an uncommitted, unsecured incremental borrowing facility of $200,000,000. Interest on

1413

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~$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) Eurocurrency Rate, Term SOFR (plus a 10 basis point credit spread adjustment), CDOR Rate, and RFR, ~~(with a zero percent floor),~~ as applicable and as defined, plus an applicable margin of 1%1.0% to 2.25%. The margin is determined based upon the ratio of the Company's total debt, net of unrestricted cash up to ~~$30,000,000 and certain debt obligations,~~$50,000,000, to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. Additionally, the Credit Agreement requires the payment of a commitment fee payable in arrears on the available borrowing capacity under the Credit Agreement, which ranges from 0.125% to 0.350%.

~~The obligations~~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~~4.25 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.

As of ~~October~~July 1, ~~2022,~~2023, the outstanding balance under the Credit Agreement was ~~$195,036,000,~~$142,562,000, which included ~~$71,036,000~~$74,562,000 of euro-denominated borrowings. ~~As of October 1, 2022, the~~The Company had ~~$206,284,000~~$257,267,000 of borrowing capacity available ~~under its Credit Agreement,~~as of July 1, 2023, which was calculated by translating its foreign-denominated borrowings using the administrative agent's borrowing date foreign exchange ~~rates.~~rates, in addition to the $200,000,000 uncommitted, unsecured incremental borrowing facility.

The weighted average interest rate for the outstanding balance under the Credit Agreement was ~~3.50%~~5.27% as of ~~October~~July 1, 2023 and 4.33% as of year-end 2022.

See Note 8, Derivatives, under the heading Interest Rate Swap Agreement, for information relating to the swap ~~agreement.~~agreement, which matured on June 30, 2023.

Senior Promissory Notes

In 2018, the Company entered into an uncommitted, unsecured Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement). Simultaneous with the execution of the Note Purchase Agreement, the Company issued senior promissory notes (Initial Notes) in an aggregate principal amount of $10,000,000, with a per annum interest rate of 4.90% payable semiannually, and a maturity date of December 14, 2028. The Company is required to prepay a portion of the principal of the Initial Notes beginning on December 14, 2023 and each year thereafter, and may optionally prepay the principal on the Initial Notes, together with any prepayment premium, at any time in accordance with the Note Purchase Agreement. The obligations of the Initial Notes may be accelerated upon an event of default as defined in the Note Purchase Agreement, which includes customary events of default under such financing arrangements.

The Initial Notes are pari passu with the Company’s indebtedness under the Credit Agreement, and any other senior debt 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 1, ~~2022,~~2023, 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~~

Prior to August 2022, the Company's other borrowings included a sale-leaseback financing arrangement for a manufacturing facility in Germany. This arrangement provided for a fixed price purchase option of the facility from the landlord at the end of the lease term in August 2022. The Company exercised this option and acquired the facility from the landlord for 2,722,000 euros, or approximately $2,730,000. The Company applied its outstanding loan receivable due from the landlord of 1,393,000 euros, or approximately $1,397,000, towards the purchase of the facility.

Other borrowings also include $637,000 of short-term obligations and $2,212,000 of debt obligations outstanding at October 1, 2022 assumed in the acquisition of Clouth, which mature on various dates ranging from 2022 through 2028.

~~Table of Contents~~

~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

6. Stock-Based Compensation

The Company recognized stock-based compensation expense of ~~$2,040,000~~$2,648,000 in the ~~third~~second quarter of 2023, $2,276,000 in the second quarter of 2022, ~~and $2,204,000 in the third quarter of 2021, $6,576,000~~$4,886,000 in the first ~~nine~~six months of ~~2022,~~2023 and ~~$6,230,000~~$4,536,000 in the first ~~nine~~six months of ~~2021~~2022 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 ~~$8,366,000~~$12,021,000 at ~~October~~July 1, ~~2022,~~2023, which will be recognized over a weighted average period of ~~1.7~~1.8 years.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Non-Employee Director RSUs

In May ~~2022,~~2023, the Company granted an aggregate of ~~5,175~~4,340 RSUs to its non-employee directors with aan aggregate 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$849,000, of ~~May 1, 2022. For the incumbent non-employee directors,~~which 50% ~~of these RSUs~~ vested on June 1, ~~2022,~~2023, 25% ~~of these RSUs vested~~vest on the last day of the third fiscal quarter of ~~2022~~2023 and the remaining 25% ~~are to~~ vest on the last day of the fourth fiscal quarter of ~~2022. For~~2023.

Performance-based RSUs

On March 7, 2023, the ~~new non-employee director,~~Company granted performance-based RSUs to certain of its officers, which represented, in aggregate, the right to receive 21,009 shares (target RSU amount), with an aggregate grant date fair value of $4,528,000. The RSUs are subject to adjustment based on the achievement of the performance measure selected for the fiscal year, which is a specified target for adjusted earnings before interest, taxes, depreciation, and amortization (target adjusted EBITDA) generated from operations for the fiscal year. The RSUs are adjusted by comparing the actual adjusted EBITDA for the performance period to the target adjusted EBITDA. Actual adjusted EBITDA between 50% and 100% of the target adjusted EBITDA results in an adjustment of 50% to 100% of the target RSU amount. Actual adjusted EBITDA between 100% and 115% of the target adjusted EBITDA results in an adjustment using a straight-line linear scale between 100% and 150% of the target RSU amount. Actual adjusted EBITDA in excess of 115% results in an adjustment capped at 150% of the target RSU amount. If actual adjusted EBITDA is below 50% of the target adjusted EBITDA for the 2023 fiscal year, these performance-based RSUs ~~vested~~will be forfeited. The Company recognizes compensation expense based on the ~~last day~~probable number of performance-based RSUs expected to vest. Following the ~~third fiscal quarter~~adjustment, the performance-based RSUs will be subject to additional time-based vesting, and will vest in three equal annual installments on March 10 of ~~2022~~2024, 2025, and 2026, provided that the ~~other half are to vest~~officer is employed by the Company on the ~~last day~~applicable vesting dates.

Time-based RSUs

On March 7, 2023, the Company granted time-based RSUs representing 16,528 shares to certain of its officers and employees with an aggregate grant date fair value of $3,562,000. These time-based RSUs vest in three equal annual installments on March 10 of 2024, 2025, and 2026, provided that a recipient is employed by the ~~fourth fiscal quarter of 2022.~~Company on the applicable vesting dates.

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) Foreign
Currency
Translation
Adjustment Post-Retirement Benefit Liability Adjustments Deferred Gain (Loss) on Cash Flow Hedges Total
Balance at January 1, 2022 $ (29,096) $ (792) $ (462) $ (30,350)
Other comprehensive items before reclassifications (44,179) 45 334 (43,800)
Reclassifications from AOCI — 19 172 191
Net current period other comprehensive items (44,179) 64 506 (43,609)
Balance at October 1, 2022 $ (73,275) $ (728) $ 44 $ (73,959)

~~Amounts reclassified from AOCI are as follows:~~

Three Months Ended Nine Months Ended
(In thousands) October 1,
2022 October 2,
2021 October 1,
2022 October 2,
2021 Statement of Income Line Item
Post-retirement Benefit Plans
Recognized net actuarial loss $ (6) $ (11) $ (19) $ (33) Other expense, net
Amortization of prior service cost (2) (3) (7) (9) Other expense, net
Total expense before income taxes (8) (14) (26) (42)
Income tax benefit 2 4 7 12 Provision for income taxes
(6) (10) (19) (30)
Cash Flow Hedges (a)
Interest rate swap agreements (33) (114) (227) (336) Interest expense
Income tax benefit 8 27 55 80 Provision for income taxes
(25) (87) (172) (256)
Total Reclassifications $ (31) $ (97) $ (191) $ (286)


(In thousands)	Foreign Currency Translation Adjustment		Pension and Other Post-Retirement Benefit Liability Adjustments		Deferred Gain (Loss) on Cash Flow Hedges		Total
Balance at December 31, 2022	$	(54,488)	$	(148)	$	58	$	(54,578)
Other comprehensive items before reclassifications	5,137		(13)		1		5,125
Reclassifications from AOCI	—		5		(99)		(94)
Net current period other comprehensive items	5,137		(8)		(98)		5,031
Balance at July 1, 2023	$	(49,351)	$	(156)	$	(40)	$	(49,547)

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

1615

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Amounts reclassified from AOCI are as follows:


	Three Months Ended				Six Months Ended
(In thousands)	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022		Statement of Income Line Item
Retirement Benefit Plans
Recognized net actuarial loss	$	(1)	$	(6)	$	(2)	$	(13)	Other expense, net
Amortization of prior service cost	(3)		(2)		(5)		(5)		Other expense, net
Total expense before income taxes	(4)		(8)		(7)		(18)
Income tax benefit	1		2		2		5		Provision for income taxes
	(3)		(6)		(5)		(13)
Cash Flow Hedges (a)
Interest rate swap agreement	76		(83)		136		(194)		Interest expense

Income tax (provision) benefit	(23)		20		(37)		47		Provision for income taxes
	53		(63)		99		(147)
Total Reclassifications	$	50	$	(69)	$	94	$	(160)

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

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~~which had a $15,000,000 notional value, ~~and expires~~matured on June 30, 2023. OnPrior to the maturity of the 2018 Swap Agreement, on a quarterly basis, the Company ~~receives~~received three-month USD LIBOR, which iswas subject to a zero percent floor, and ~~pays~~paid a fixed rate of interest of 3.15% plus an applicable margin as was defined in the Credit Agreement.

The Company had designated its 2018 Swap Agreement as a cash flow hedge and structured it to be 100% effective. Unrealized gains and losses related to the fair value of the 2018 Swap Agreement ~~are~~were 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.

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 1, ~~2022~~2023 and ~~October~~July 2, ~~2021.~~2022.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


				October 1, 2022								January 1, 2022												July 1, 2023								December 31, 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:
Derivative in an Asset Position:	Derivative in an Asset Position:																	Derivative in an Asset Position:
2018 Swap Agreement	2018 Swap Agreement		Other Current Assets			$	140			$	15,000			$	—			$	—	2018 Swap Agreement		Other Current Assets				$	—			$	—			$	131			$	15,000
Derivatives in a Liability Position:	Derivatives in a Liability Position:																	Derivatives in a Liability Position:
2018 Swap Agreement		Other Long-Term Liabilities		$	—			$	—			$	(550)			$	15,000
Forward currency-exchange contracts		Other Current Liabilities		$	(82)			$	430			$	(44)			$	842
Forward currency-exchange contract																		Forward currency-exchange contract			Other Current Liabilities			$	(52)			$	430			$	(54)			$	430

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		$	—			$	—			$	14			$	1,200	Forward currency-exchange contracts			Other Current Assets			$	—			$	—			$	15			$	647
Derivative in a Liability Position:
Derivatives in a Liability Position:																		Derivatives in a Liability Position:
Forward currency-exchange contract	Forward currency-exchange contract	Other Current Liabilities		$	(14)			$	189			$	—			$	—	Forward currency-exchange contract			Other Current Liabilities			$	(1)			$	100			$	—			$	—

(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 ~~2022~~2023 notional amounts are indicative of the level of the Company's recurring derivative activity.

~~Table of Contents~~

~~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 1, ~~2022:~~2023:

(In thousands) Interest Rate Swap
Agreement Forward Currency-
Exchange
Contract Total
Unrealized Loss, Net of Tax, at January 1, 2022 $ (429) $ (33) $ (462)
Loss reclassified to earnings (a) 172 — 172
Gain (loss) recognized in AOCI 363 (29) 334
Unrealized Gain (Loss), Net of Tax, at October 1, 2022 $ 106 $ (62) $ 44


(In thousands)	Interest Rate Swap Agreement		Forward Currency-Exchange Contract		Total
Unrealized Gain (Loss), Net of Tax, at December 31, 2022	$	99	$	(41)	$	58
Gain reclassified to earnings (a)	(99)		—		(99)
Gain recognized in AOCI	—		1		1
Unrealized Loss, Net of Tax, at July 1, 2023	$	—	$	(40)	$	(40)

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

As of ~~October~~July 1, ~~2022,~~2023, the Company expects to reclassify ~~gains~~losses of ~~$44,000~~$40,000 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.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 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


	Fair Value as of December 31, 2022
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds and time deposits	$	8,351	$	—	$	—	$	8,351
Banker's acceptance drafts (a)	$	—	$	5,729	$	—	$	5,729
2018 Swap Agreement (b)	$	—	$	131	$	—	$	131
Forward currency-exchange contracts	$	—	$	15	$	—	$	15
Liabilities:
Forward currency-exchange contract	$	—	$	54	$	—	$	54

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

(b)~~Includes derivatives designated as hedging instruments of $82,000 and derivatives not designated as hedging instruments of $14,000.~~The 2018 Swap Agreement matured on June 30, 2023.

~~Table of Contents~~

~~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 ~~2022.~~2023. Banker's acceptance drafts are carried at face value, which approximates their fair value due to the short-term nature of the negotiable instrument. 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 iswas based on USD LIBOR yield curves at the reporting date. The forward currency-exchange contracts and the 2018 Swap Agreement ~~are~~prior to its maturity were hedges of either recorded assets or liabilities or anticipated transactions and represent or represented the estimated amount the Company would receive or pay upon liquidation of the contracts. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the table above.

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

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 three reportable operating segments: Flow Control, Industrial Processing, and Material Handling. The Flow Control segment consists of the fluid-handling and doctoring, cleaning, & filtration product lines; the Industrial Processing segment consists of the wood processing and stock-preparation product lines; and the Material Handling segment consists of the conveying and vibratory, baling, and fiber-based product lines.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A description of each segment ~~follows.~~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.

~~Table of Contents~~

~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

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

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

~~(c)Includes acquisition-related expenses~~other costs of ~~$410,000 and $254,000~~$74,000 in the three and ~~nine~~six months ended ~~October~~July 1, ~~2022, respectively,~~2023 and ~~$2,706,000 and $3,942,000~~$182,000 in the ~~three and nine~~six months ended ~~October~~July 2, 2021, respectively. Acquisition-related expenses include acquisition costs and amortization expense associated with acquired profit in inventory and backlog. Includes restructuring costs of $72,000 in the three and nine months ended October 1, 2022, respectively.

~~(d)~~2022. Includes a gain on the sale of a facility of $20,190,000 (see Note 2, Gain on Sale and Other Costs, Net) and 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 ~~nine~~six months ended ~~October 1,~~July 2. 2022.

~~(e)~~(b)Includes a non-cash charge for the write-off of an indemnification asset of $177,000 in the three and six months ended July 1, 2023 and acquisition-related expenses of $717,000 in the ~~nine~~six months ended ~~October 1, 2022 and $799,000 and $1,411,000 in the three and nine months ended October~~July 2, ~~2021, respectively.~~2022.

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

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

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(e)Includes capital expenditures of ~~$2,155,000~~$3,108,000 and ~~$5,397,000~~$3,287,000 in the three and ~~nine~~six months ended ~~October~~July 1, 2023, respectively, and $3,128,000 and $3,242,000 in the three and six months ended July 2, 2022, respectively, ~~associated with~~related to the ~~construction of a manufacturing facility in China.~~China Transaction. See Note 2, Gain on Sale and Other Costs, Net.

~~Table of Contents~~

~~KADANT INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

11. Commitments and Contingencies

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 ~~$9,793,000~~$12,315,000 at ~~October~~July 1, ~~2022~~2023 and ~~$9,593,000~~$11,238,000 at ~~January 1,~~December 31, 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.

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.

Table of Contents

KADANT INC.

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

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

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

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Our future results of operations may differ materially from those expressed in the forward-looking statements. Many of the important factors that will determine these results 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 1,~~December 31, 2022 (the Annual Report) and as may be further amended and/or restated in subsequent filings with the SEC.

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

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

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

•Industrial Processing – Equipment, machinery, and technologies used to 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~~Our consolidated bookings ~~of $210.9~~were $215.2 million in the ~~third~~second quarter of ~~2022, down~~2023, decreasing 22% sequentially from ~~the robust~~record bookings ~~experienced~~ in the first quarter of 2023, which included several large orders in our Material Handling and ~~second quarters of 2022 of $266.1 million and $265.9 million, respectively, and $244.7 million~~Flow Control segments. Our bookings returned to a more typical level in the ~~third~~second quarter following a general slowdown in industrial activity, and we expect bookings for the remainder of the year to be consistent with the second quarter of ~~2021, as industrial demand has moderated. Demand for our capital equipment products~~2023. We ended the second quarter with a strong backlog of $362.8 million, more than half of which was ~~down 39% sequentially primarily from~~attributable to our Industrial Processing segment. An overview of our business by segment ~~where demand has slowed following major capacity additions over the past several years. We continue to see strong demand for our parts and consumables, down slightly from record~~is as follows:

Table of Contents

KADANT INC.

~~demand in the~~ first half of 2022. We expect a lower level of bookings in the last quarter of 2022 compared to previous quarters as end-market demand slows in response to actions taken by the central banks in several countries to control inflation. We ended the third quarter of 2022 with consolidated backlog of $350.3 million. An overview of our business by segment is as follows:

•Flow Control – Our Flow Control segment ~~had its third highest~~ bookings ~~quarter, following~~decreased 16% sequentially compared to record bookings in the first ~~half~~quarter of ~~2022, increasing 11%~~2023 led by weaker demand in Europe where inflationary pressures resulted in constrained spending. We expect a slight decrease in demand in this segment for the remainder of the year compared to the ~~third~~second quarter of ~~2021. This increase included an 8% decrease from~~2023 reflecting the ~~unfavorable effect of foreign currency translation. Orders for both parts and consumables products and capital equipment continue~~overall softening in industrial production, but expect our end markets to be strong due in part to high energy prices as customers seek to optimize energy utilization. We expect bookings to moderate in the last quarter of 2022 compared with the record booking performance achieved during the first nine months of 2022 due to growing uncertainty in the macroeconomic environment.remain healthy.

•Industrial Processing – Our Industrial Processing segment bookings decreased ~~34% compared to record bookings in~~18% sequentially from the ~~third~~first quarter of ~~2021, and 29% sequentially after several quarters of growth, in part due to lower~~2023 driven by weaker demand for our capital equipment atproducts. Demand for our wood processing ~~business. This decrease was largely due to a reversion~~capital equipment returned to more typical ~~demand~~levels in the second quarter of 2023 after the record-setting pace experienced over the last two years, which was fueled by a ~~period~~robust U.S. housing market. Demand for our wood processing parts and consumable products declined sequentially in the second quarter of ~~high activity. In addition, capital bookings decreased at~~2023 but remained strong. Orders for our stock-preparation ~~business compared to strong bookings~~capital equipment products declined sequentially in the ~~third~~second quarter of ~~2021. We expect sequentially higher capital bookings~~2023, especially in ~~our Industrial Processing segment in the last quarter of 2022, but lower than the first~~Europe and ~~second quarters of 2022, as~~China, while demand for ~~capital equipment returns to more typical levels~~. ~~Orders for~~our parts and consumables products ~~at our~~remained stable during the same period. We expect steady demand in the Industrial Processing segment ~~increased sequentially and over~~for the ~~third quarter~~remainder of ~~2021, however, we anticipate lower bookings in~~ the ~~last quarter of 2022 compared~~year, but remain cautious as to ~~the robust demand we experienced in prior quarters of 2022.~~how governmental efforts to control inflation may impact this segment's end markets.

•Material Handling – Our Material Handling segment bookings decreased 2%35% sequentially compared to the ~~third~~record bookings in the first quarter of ~~2021, including~~2023. Our vibratory and conveying business led the sequential decline primarily due to a ~~5% decrease from~~large capital equipment order valued at approximately $12 million booked in the ~~unfavorable effect~~first quarter for the longest conveying line in North America. Demand in our baling business also declined sequentially in both the U.S. and Europe due in part to the delay of ~~foreign currency translation.~~ capital equipment projects given the increased uncertainty in the economy. We expect demand ~~for our material handling products to continue to moderate~~ in the ~~last~~Material Handling segment for the second half of 2023 to be steady and consistent with the second quarter of ~~2022 compared with the record levels experienced in the first half of the year.~~2023.

~~Many of our~~Our global operations have been and continue to be impacted by complex market conditions fueled by inflationary pressures, geopolitical tensions, and labor ~~availability and supply chain constraints,~~availability. While the latter of which resulted in inflationary pressure on material costs, longer lead times, and increased freight costs. Our businesses are 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 and ongoing strengthU.S economy has proven more resilient, growth in the ~~markets we serve. Despite this optimism, we~~European economy has slowed due to high energy prices and surging inflation, and China's manufacturing activity has contracted. We expect our operating environment to continue to be challenging as ~~a result~~central banks work to address inflationary pressures, which creates continued uncertainty for the remainder of 2023. However, we believe that the ~~factors impacting~~fundamentals of our business ~~discussed above~~remain strong, particularly given our high backlog levels, solid global operations teams, and ongoing strength in the ~~uncertainties and risks surrounding the COVID-19 pandemic, including China's zero-COVID policy.~~ markets we serve.

For more information related to these challenges, and other factors impacting our business, ~~including recent geopolitical tensions,~~ please see Risk Factors included in~~Part II, Item 1A, of this report, and~~ Part I, Item 1A, of our Annual Report and subsequent filings with the SEC.

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 nine months 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.

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 Risk Factors, included in ~~Part II, Item 1A, of this report, and~~ Part I, Item 1A, of our Annual Report and subsequent filings with the SEC.

~~Table of Contents~~

~~KADANT INC.~~

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. WeIn recent years, we have acquired several businesses and continue to pursue acquisition opportunities.

~~In the third quarter~~

Results of Operations

~~Third~~Second Quarter ~~2022~~2023 Compared With ~~Third~~Second Quarter ~~2021~~2022

The following table presents the change in revenue by segment between the ~~third~~second quarters of ~~2022~~2023 and ~~2021,~~2022, and those changes excluding the effect of foreign currency translation and acquisitions which we refer to as change in organic revenue. Organic revenue excludes the effect of acquisitions for the four quarterly reporting periods following the date of the acquisition. The presentation of the change in organic revenue is a non-GAAP measure. We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding U.S. generally accepted accounting principles (GAAP) measure.

Revenue by segment in the ~~third~~second quarters of 2023 and 2022 ~~and 2021 was~~is as follows:

Consolidated revenue increased ~~12%~~11% in the ~~third~~second quarter of ~~2022,~~2023, including a 7%1% decrease from the unfavorable effect of foreign currency translation. ~~Organic~~All our operating segments contributed to the 12% increase in organic revenue led by our Flow Control segment. The majority of the organic revenue increase was due to higher demand for our capital equipment, especially at our Industrial Processing segment's wood processing businesses and, to a lesser extent, our Flow Control segment. In addition, we experienced increased ~~19%~~demand for our parts and consumables products at our Material Handling segment's vibratory and conveying business and at our Flow Control segment.

Revenue at our Flow Control segment increased 12% in the second quarter of 2023 primarily due to higher demand for capital equipment, ~~across all segments~~especially in North America and, to a lesser extent, for our parts and consumables ~~products, principally at our Flow Control and Material Handling segments as described below.~~

~~Revenue at our Flow Control segment increased 14% in the third quarter of 2022, while organic revenue increased~~ ~~22%.~~products. The ~~increase in organic revenue was due to~~ higher demand for ~~both~~ parts and consumables ~~products~~occurred in all regions and ~~capital equipment resulting~~was driven by the strength in ~~part~~the underlying packaging industry primarily in North America, and from our customers, primarily in Europe, seeking to mitigate high energy prices ~~as customers seek to~~with our products that optimize energy ~~utilization. Parts and consumables revenue was particularly strong in Europe and North America due to improved market conditions and price increases. Increased demand for capital equipment was driven primarily by our Chinese operations due to several large projects.~~utilization.

Revenue at our Industrial Processing segment increased 5%7% in the ~~third~~second quarter of ~~2022,~~2023, while organic revenue increased ~~11%~~9%. ~~Organic~~The increase in organic revenue ~~increased principally due to~~was primarily driven by higher demand for capital equipment at our wood processing businesses due to several large projects in North ~~America~~America. This increase was offset in part by softening demand at our stock-preparation businesses in China as manufacturing activity has contracted and mills focus on installing and optimizing capital equipment purchased in prior periods.

Revenue at our Material Handling segment increased 14% in the second quarter of 2023 primarily from our parts and consumables products ~~throughout~~at our ~~Industrial Processing segment. These~~vibratory and conveying business in North America partially due to the fulfillment of orders from our backlog, which led to record parts and consumables revenue in this segment in the second quarter of 2023. Revenue also increased, but to a lesser extent, at our baling business in North America driven by the sale of our capital equipment products used to recycle packaging materials.

Table of Contents

KADANT INC.

increases were partially offset by a decrease in demand for capital equipment at our stock-preparation businesses as mills focus on installing and optimizing capital equipment purchased in prior periods.

Revenue at our Material Handling segment increased 23% in the third quarter of 2022, while organic revenue increased 30%, due to higher demand for both capital equipment and parts and consumables products. Increased demand at our conveying and vibratory equipment business was driven by several large capital equipment orders in North America, as well as price increases to offset higher input costs. At our baling business, increased demand for our cap~~ital equipment in both North America and Europe was offset in part by a decrease in parts and consumables revenue in Europe partially due to shipment delays.~~

Gross profit margin by segment in the ~~third~~second quarters of 2023 and 2022 ~~and 2021 was~~is as follows:

Consolidated gross profit margin increased to ~~42.5%~~43.5% in the ~~third~~second quarter of 2023 compared with 43.3%`in the second quarter of 2022 ~~compared with 41.9%~~due to higher margins achieved on our capital equipment products, especially in our Industrial Processing segment, partially offset by a decrease in the ~~third quarter~~proportion of ~~2021,~~higher-margin parts and consumables revenue, which ~~included $2.2 million of amortization of acquired profit in inventory that lowered gross profit margin~~ decreased to 62% compared to 66% in the ~~2021 period by 1.1 percentage points.~~prior year period.

Within our operating segments, gross profit margin:

•~~Increased~~Decreased to ~~51.6%~~51.4% at our Flow Control segment from ~~49.7%~~52.8% in the ~~2021~~2022 period ~~which included $1.8 million of amortization of acquired profit in inventory that lowered gross profit margin in the 2021 period by 2.4 percentage points.~~

•~~Decreased to 39.3% from 39.7% at our Industrial Processing segment~~ due to a lower percentage of parts and consumables revenue compared to the ~~impact of lower-margin capital equipment revenue at~~prior year period and lower margins achieved on our ~~wood processing businesses.~~parts and consumables products.

•Increased to ~~32.3%~~39.5% at our Industrial Processing segment from 38.4% in the 2022 period due to higher margins achieved on wood processing capital equipment products, partially offset by a decrease in the proportion of higher-margin parts and consumables revenue.

•Increased to 36.8% at our Material Handling segment from ~~31.9%~~35.9% in the ~~2021~~2022 period ~~which included $0.4 million~~due to a greater proportion of ~~amortization of acquired profit in inventory that lowered gross profit margin in~~higher-margin parts and consumables revenue compared to the ~~2021~~prior year period, ~~by 0.9 percentage points.~~and higher margins achieved on our capital equipment products.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses by segment in the ~~third~~second quarters of 2023 and 2022 ~~and 2021 were~~are as follows:

Consolidated SG&A expenses as a percentage of revenue decreased to 24% in the ~~third~~second quarter of 2023 compared with 25% in the second quarter of 2022 ~~compared with 26% in the third quarter of 2021~~ principally due to ~~a 12%~~the increase in ~~revenue.~~revenue. Consolidated SG&A expenses were higher in the second quarter of 2023 due to increased ~~$0.8~~compensation expense, trade show and travel-related costs, and professional service fees.

Within our operating segments, SG&A expenses:

•Increased $1.2 million at our Flow Control segment principally due to increased compensation expense, travel costs, and professional service fees.

•Increased $1.1 million at our Industrial Processing segment due to increased compensation expense associated with existing and new personnel and ~~increased selling-related costs.~~incremental trade show and travel-related costs. These increases were ~~largely~~ offset in part by a ~~$3.4~~$0.4 million favorable effect of foreign currency ~~translation and a decrease of $0.9 million in incremental acquisition-related costs.~~translation.

Table of Contents

KADANT INC.

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

•Increased ~~$1.1~~$1.5 million at our ~~Flow Control~~Material Handling segment principally due to increased compensation expense associated with existing and new personnel and ~~increased travel costs. These increases were partially offset by~~ a ~~$1.9~~$0.2 million ~~favorable effect~~indemnification asset reversal related to the release of ~~foreign currency translation and a decrease of $0.5 million in acquisition-related costs.~~tax reserves.

•~~Decreased $0.6~~Increased $0.9 million at Corporate due to increased professional service fees and compensation expense associated with existing and new personnel.

Other Costs

Other costs of $0.1 million in the second quarter of 2023 within our Industrial Processing segment ~~principally due to~~associated with the China Transaction (as defined below in theresults of operations for the first six months of 2023 compared with the first six months of 2022) included a ~~$0.9 million favorable effect~~write-down of ~~foreign currency translation. This decrease was offset in part by increased compensation expense and selling-related costs.~~

•Decreased $0.1 million at our Material Handling segment principally due a $0.5 million favorable effect of foreign currency translation and a $0.4 million decrease in acquisition-related costs. These decreases were largely offset by increased compensation expense.

•~~Increased $0.5 million at Corporate primarily due to increased incentive compensation and travel costs.~~

~~Gain on Sale and Other Costs, Net~~

~~During the third quarter of 2022, we recorded restructuring costs within our Flow Control segment of $0.1 million, which consisted of severance costs related~~certain fixed assets that will not be moved to the ~~termination of two employees. This restructuring plan was initiated~~new manufacturing facility in ~~the fourth quarter of 2021 to eliminate a redundant ceramic blade manufacturing operation that resulted from our acquisition of Clouth.~~China and facility moving costs.

Interest Expense

Interest expense increased to ~~$1.7~~$2.2 million in the ~~third~~second quarter of ~~2022~~2023 from ~~$1.3~~$1.4 million in the ~~third~~second quarter of ~~2021~~2022 due to a higher weighted-average interest rate, partially offset by lower average debt outstanding in the ~~third~~second quarter of ~~2022~~2023 compared to the ~~third~~second quarter of ~~2021.~~2022.

Provision for Income Taxes

Provision for income taxes increased to ~~$9.7~~$11.2 million in the ~~third~~second quarter of ~~2022~~2023 from ~~$6.7~~$10.0 million in the ~~third~~second quarter of ~~2021.~~2022. The effective tax rate of ~~26%~~27% in the ~~third~~second quarter of 2023 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, nondeductible expenses, and tax expense associated with Global Intangible Low-Taxed Income provisions. 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 ~~state taxes. The effective tax rate~~the cost of ~~25% in~~repatriating the ~~third quarter~~earnings 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 in the third quarter of 2021 were offset in part by a decrease in tax expense related to the net excess income tax benefits from stock-based compensation arrangements.certain foreign subsidiaries.

Net Income

Net income increased to ~~$27.7~~$29.9 million in the ~~third~~second quarter of ~~2022~~2023 from ~~$20.7~~$26.4 million in the ~~third~~second quarter of ~~2021~~2022 primarily due to a ~~$10.2~~$5.6 million increase in operating income, offset in part by a ~~$3.0~~$0.9 million increase in interest expense and a $1.2 million increase in provision for income taxes (see discussions above for further details).

First ~~Nine~~Six Months ~~2022~~2023 Compared With First ~~Nine~~Six Months ~~2021~~2022

Revenue

The following table presents changes in revenue and organic revenue by segment between the first ~~nine~~six months of ~~2022~~2023 and ~~2021.~~2022. Organic revenue is a non-GAAP measure as defined above in the results of operations for the ~~third~~second quarter of ~~2022~~2023 compared with the ~~third~~second quarter of ~~2021.~~2022.

Revenue by segment in the first six months of 2023 and 2022 is as follows:


											(Non-GAAP)
	Six Months Ended							Currency Translation			Change in Organic Revenue
(In thousands, except percentages)	July 1, 2023		July 2, 2022		Increase (Decrease)		% Change			Increase			% Change
Flow Control	$	185,250	$	171,046	$	14,204	8%	$	(2,802)		$	17,006		10%
Industrial Processing	173,509		177,487		(3,978)		(2)%	(6,146)			2,168			1%
Material Handling	116,052		99,596		16,456		17%	(776)			17,232			17%
Consolidated	$	474,811	$	448,129	$	26,682	6%	$	(9,724)		$	36,406		8%

Consolidated revenue in the first six months of 2023 increased 6%, including a 2% decrease from the unfavorable effect of foreign currency translation. The organic revenue increase of 8% was led by our Material Handling and Flow Control segments due to higher demand for both our parts and consumables and capital equipment products.

Revenue at our Flow Control segment increased 8% in the first six months of 2023, while organic revenue increased 10% with relatively equal contributions from our fluid-handling and doctoring, cleaning, & filtration product lines. The increase

Table of Contents

KADANT INC.

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

(Non-GAAP)
Nine Months Ended Currency Translation Acquisitions Change in Organic Revenue

(In thousands, except percentages) October 1,
2022 October 2,
2021 Total Increase % Change Increase % Change
Flow Control $ 257,926 $ 210,769 $ 47,157 22 % $ (10,663) $ 24,222 $ 33,598 16 %
Industrial Processing 263,572 233,455 30,117 13 % (9,940) 473 39,584 17 %
Material Handling 151,141 123,839 27,302 22 % (6,358) 15,371 18,289 15 %
Consolidated Revenue $ 672,639 $ 568,063 $ 104,576 18 % $ (26,961) $ 40,066 $ 91,471 16 %

Consolidated revenue in the first nine months of 2022 increased 18%, including a 7% increase from acquisitions and a 5% decrease from the unfavorable effect of foreign currency translation. Organic revenue increased 16%, ~~principally driven by~~primarily due to higher demand for ~~capital equipment led by our Industrial Processing segment and~~ parts and consumables ~~at our Flow Control segment~~and capital equipment products in North America driven by strength in the underlying packaging industry and, to a lesser extent, demand from our customers, primarily in Europe, seeking to mitigate high energy prices with our products that optimize energy utilization. We are more cautious about the outlook for the remainder of the year as mills take downtime and reduce maintenance spending and customers in Europe face challenging market conditions.

Revenue at our Industrial Processing segment ~~as described below.~~

~~Revenue at our Flow Control segment increased 22%~~decreased 2% in the first ~~nine~~six months of ~~2022,~~2023, while organic revenue increased ~~16%~~1%. Organic revenue increased primarily due to higher demand for our ~~parts~~capital equipment products at both our stock-preparation and ~~consumables products~~wood processing businesses in North America where the U.S. economy and ~~Europe due~~housing market continued to ~~improved market conditions, especially compared to the first half of 2021. Also contributing to the organic revenue~~demonstrate resiliency against inflationary pressures. This increase was ~~higher~~largely offset by softening demand ~~for capital equipment in China and Europe primarily for our doctoring, cleaning, and filtration systems.~~

Revenue at our Industrial Processing segment increased 13% in the first nine months of 2022, while organic revenue increased 17%, due to higher demand for capital equipment, principally in Europe and North America and, to a lesser extent, a higher demand for parts and consumables, primarily in North America. Increased demand for our wood processing business products, for both capital and parts and consumables products, principally in North America, was driven by high mill activity, which resulted in increased capital investment and higher parts consumption. In addition, increased demand for capital equipment at our stock-preparation businesses ~~primarily at our European~~in China as manufacturing activity has contracted and ~~Chinese operations, due to improved market conditions compared to early 2021.~~mills focus on installing and optimizing capital equipment purchased in prior periods.

Revenue at our Material Handling segment increased ~~22%~~17% in the first ~~nine~~six months of ~~2022, while organic revenue increased 15%, due to higher demand for capital equipment at our European baling operations driven~~2023 led by ~~improved business conditions, and parts and consumables at~~ our vibratory and conveying business in North America. Expansion projects related to the mining of minerals led to increased demand for our aboveground and underground conveying systems. In addition, parts and consumables revenue at our vibratory and conveying business increased over 25% from the prior year period partially due to the fulfillment of orders from our backlog. Revenue also increased, but to a lesser extent, at our baling business in North America ~~resulting from strong demand in~~driven by the ~~aggregate and food and~~sale of our capital equipment products used to recycle packaging ~~industries.~~materials.

Gross Profit Margin

Gross profit margin by segment in the first ~~nine~~six months of 2023 and 2022 ~~and 2021 was~~is as follows:


		Nine Months Ended		Basis Point Change			Six Months Ended		Basis Point Change
		October 1, 2022	October 2, 2021				July 1, 2023	July 2, 2022
Flow Control	Flow Control	52.3%	51.8%	50	bps	Flow Control	52.3%	52.6%	(30)	bps
Industrial Processing	Industrial Processing	38.8%	40.1%	(130)	bps	Industrial Processing	40.0%	38.5%	150	bps
Material Handling	Material Handling	34.8%	33.8%	100	bps	Material Handling	36.4%	36.1%	30	bps
Consolidated Gross Profit Margin		43.1%	43.1%	0	bps
Consolidated						Consolidated	43.9%	43.3%	60	bps

Consolidated gross profit margin ~~remained flat at 43.1%~~increased to 43.9% in the first ~~nine~~six months of 2023 compared with 43.3% in the first six months of 2022 compared with the first nine months of 2021. The consolidated gross profit margin in 2021 was impacted by $2.2 million of amortization of acquired profit in inventory, which lowered gross profit margin in the 2021 period by 0.4 percentage points,due to higher margins achieved on capital equipment products, partially offset by ~~the benefits received from government employee retention assistance programs~~a lower proportion of ~~$0.9 million~~parts and consumables revenue, which decreased to 64% compared to 65% in the ~~2021 period, which increased gross profit margin by 0.2 percentage points.~~prior year period.

Within our operating segments, gross profit margin:

•~~Increased~~Decreased to 52.3% at our Flow Control segment from ~~51.8%~~52.6% in the ~~2021~~2022 period ~~which included $1.8 million~~primarily due to a lower proportion of ~~amortization of acquired profit in inventory that lowered gross profit margin in the 2021 period by 0.9 percentage points.~~parts and consumables revenue.

•~~Decreased~~Increased to ~~38.8% from 40.1%~~40.0% at our Industrial Processing segment from 38.5% in the 2022 period primarily due to higher margins achieved on our stock-preparation capital equipment products.

•Increased to 36.4% at our Material Handling segment from 36.1% in the 2022 period principally due to higher margins achieved on our parts and consumables products.

Selling, General, and Administrative Expenses

SG&A expenses by segment in the first six months of 2023 and 2022 were as follows:


	Six Months Ended
(In thousands, except percentages)	July 1, 2023		July 2, 2022		Increase		% Change
Flow Control	$	44,417	$	43,053	$	1,364	3%
Industrial Processing	32,975		31,983		992		3%
Material Handling	21,738		20,502		1,236		6%
Corporate	19,422		18,949		473		2%
Consolidated	$	118,552	$	114,487	$	4,065	4%
Consolidated as a Percentage of Revenue	25%		26%

Consolidated SG&A expenses as a percentage of revenue decreased to 25% in the first six months of 2023 compared with 26% in the first six months of 2022 principally due to the ~~impact of lower-margin capital equipment~~increase in revenue ~~at our wood processing businesses and at our Chinese stock-preparation business~~. Consolidated SG&A expenses in the ~~2022~~first

2726

Table of Contents

KADANT INC.

~~period, 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 0.3 percentage points.~~

•Increased to 34.8% from 33.8% at our Material Handling segment primarily due to a higher gross profit margin profile from our Balemaster business acquired in 2021 and the inclusion of $0.4 million of amortization of acquired profit in inventory, which lowered gross profit margin in the 2021 period by 0.3 percentage points.

~~Selling, General, and Administrative Expenses~~

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

Nine Months Ended

(In thousands, except percentages) October 1,
2022 % of Revenue October 2,
2021 % of Revenue Increase % Change
Flow Control $ 63,770 25 % $ 54,226 26 % $ 9,544 18 %
Industrial Processing 46,643 18 % 45,339 19 % 1,304 3 %
Material Handling 29,823 20 % 27,518 22 % 2,305 8 %
Corporate 27,404 N/A 23,931 N/A 3,473 15 %
Consolidated SG&A Expenses $ 167,640 25 % $ 151,014 27 % $ 16,626 11 %

~~Consolidated SG&A expenses as~~2023 included a percentage of revenue decreased to 25% in the first nine months of 2022 compared with 27% in the first nine months of 2021 principally due to an 18% increase in revenue. Consolidated SG&A expenses increased $16.6 million due to the inclusion of $11.3 million of SG&A expenses from acquisitions, increased compensation expense associated with existing and new personnel, increased selling-related costs associated with improved business conditions, and the inclusion of benefits received from government employee retention assistance programs of $1.4 million in the first nine months of 2021. These increases were offset in part by a $6.5$2.1 million favorable effect of foreign currency, ~~translation~~a decrease of $0.8 million in acquisition-related costs, and a decrease of ~~$2.1~~$0.4 million in ~~incremental acquisition-related~~indemnification asset reversals related to the release of tax reserves. Excluding these favorable items, consolidated SG&A expenses increased $7.4 million, or 6%, primarily due to increased compensation expense and travel-related costs.

Within our operating segments, SG&A expenses:

•Increased ~~$9.5~~$1.4 million at our Flow Control segment ~~principally~~primarily due ~~to the inclusion of $7.8 million of SG&A expenses from Clouth,~~to increased compensation expense and travel ~~costs, and the inclusion of benefits received from government employee retention assistance programs of $0.8 million in the first nine months of 2021.~~costs. These increases were partially offset by a ~~$3.2~~$0.6 million favorable effect of foreign currency translation and a decrease ~~of $1.6 million~~ in ~~incremental acquisition-related costs.~~bad debt expense.

•Increased ~~$1.3~~$1.0 million at our Industrial Processing segment principally due to increased compensation expense associated with existing and ~~selling-related costs, a $0.6 million reversal of an indemnification asset related to the release of tax reserves,~~new personnel and ~~the inclusion of benefits received from government employee retention assistance programs of $0.5 million in the first nine months of 2021.~~incremental trade show and travel-related costs. These increases were partially offset by a ~~$2.2~~$1.3 million favorable effect of foreign currency translation and ~~a decrease~~the inclusion of ~~$0.2~~an indemnification asset reversal related to the release of tax reserves of $0.6 million in ~~incremental acquisition-related costs.~~2022.

•Increased ~~$2.3~~$1.2 million at our Material Handling segment ~~principally~~ due to increased compensation expense associated with existing and new personnel and, to a lesser extent, the inclusion of ~~$3.1 million~~an indemnification asset reversal related to the release of ~~SG&A expenses from Balemaster, increased travel costs, and the inclusion of benefits received from government employee retention assistance programs~~tax reserves of $0.2 ~~million in the first nine months of 2021.~~million. These increases were partially offset by a ~~$1.2~~decrease of $0.7 million in acquisition-related costs and a $0.2 million favorable effect of foreign currency ~~translation and a decrease of $0.3 million in incremental acquisition-related costs.~~translation.

•Increased ~~$3.5~~$0.5 million at Corporate ~~primarily~~ due to increased professional service fees and compensation expense ~~for~~associated with existing and new ~~personnel.~~personnel, partially offset by a decrease in incentive compensation.

Gain on Sale and Other Costs, Net

Gain on Sale of Assets

We entered into several agreements with the local government in China to sell the existing manufacturing building and land use rights atof one of our subsidiaries in China for $25.2 ~~million.~~million and relocate to a new facility (the China Transaction). 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~~China Transaction of $20.2 million, or $15.1 million, net of deferred taxes of ~~$5.1~~$5.0 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 receivable outstanding at October 1, 2022 was $14.6 million. Our

~~Table of Contents~~

~~KADANT INC.~~

subsidiary, which is part of ~~our~~the Industrial Processing segment, will continue to occupy its current facility until construction of its new facility is ~~complete.~~

complete, which is expected during the second half of 2023. See
Note 2, Gain on Sale and Other Costs, Net, in the accompanying condensed consolidated financial statements for further details.

Other Costs

~~During~~Other costs of $0.1 million in the first ~~quarter~~six months of 2023 and $0.2 million in the first six months of 2022 ~~we recognized an impairment charge of $0.2 million related to~~within our Industrial Processing segment associated with the China Transaction included a write-down of certain fixed assets that will not be moved to the new manufacturing facility in China ~~as discussed above.~~

During the third quarter of 2022, we recorded restructuring costs within our Flow Control segment of $0.1 million which consisted of severance costs related to the termination of two employees. This restructuring plan was initiated in the fourth quarter of 2021 to eliminate a redundant ceramic blade manufacturing operation that resulted from our acquisition of Clouth.and facility moving costs.

Interest Expense

Interest expense increased to ~~$4.3~~$4.6 million in the first ~~nine~~six months of ~~2022~~2023 from ~~$3.5~~$2.6 million in the first ~~nine~~six months of ~~2021~~2022 due to a higher weighted-average interest rate, partially offset by lower average debt outstanding in the first ~~nine~~six months of ~~2022~~2023 compared to the first ~~nine~~six months of ~~2021.~~2022.

Provision for Income Taxes

Provision for income taxes ~~increased~~decreased to ~~$33.1~~$20.9 million in the first ~~nine~~six months of ~~2022~~2023 from ~~$21.3~~$23.3 million in the first ~~nine~~six months of ~~2021.~~ 2022. The effective tax rate of 26% in the first ~~nine~~six months of ~~2022~~2023 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible ~~expenses, and state taxes.~~expenses. The effective tax rate of 26% in the first ~~nine~~six months of ~~2021~~2022 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, and state ~~taxes, and tax expense associated with GILTI.~~taxes. These increases in ~~tax~~tax expense in the first ~~nine~~six months of ~~2021~~2022 were offset in part by a decrease in tax expense related to the net excess income tax benefits from stock-based compensation arrangements.

Net Income

Net income ~~increased~~decreased to ~~$95.5~~$58.2 million in the first ~~nine~~six months of ~~2022~~2023 from ~~$60.5~~$67.9 million in the first ~~nine~~six months of ~~2021~~ 2022 primarily due to a ~~$47.2~~decrease in operating income $10.2 million and a $2.0 million increase in ~~operating income,~~interest expense, offset in part by a ~~$11.8~~$2.4 million ~~increase~~decrease in provision for income ~~taxes~~taxes. Net income in the first six months of 2022 included a $15.1 million after-tax gain on the sale of a building related to the China Transaction (see discussions above for further details).

Table of Contents

KADANT INC.

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

~~Table of Contents~~

~~KADANT INC.~~

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 Nine Months Ended
(In thousands, except percentages) October 1,
2022 October 2,
2021 October 1,
2022 October 2,
2021
Net Income Attributable to Kadant $ 27,487 $ 20,461 $ 94,849 $ 59,886
Net Income Attributable to Noncontrolling Interest 184 237 672 635
Provision for Income Taxes 9,746 6,742 33,075 21,252
Interest Expense, Net 1,450 1,265 3,671 3,321
Other Expense, Net 19 23 60 71
Operating Income 38,886 28,728 132,327 85,165
Gain on Sale (a) — — (20,190) —
Acquisition Costs 410 718 486 2,619
Indemnification Asset Reversal (b) — — 575 —
Impairment and Restructuring Costs 72 — 254 —
Acquired Backlog Amortization (c) — 604 703 691
Acquired Profit in Inventory Amortization (d) — 2,216 (218) 2,216
Adjusted Operating Income (non-GAAP measure)
39,368 32,266 113,937 90,691
Depreciation and Amortization 8,456 8,591 25,684 23,906
Adjusted EBITDA (non-GAAP measure)
$ 47,824 $ 40,857 $ 139,621 $ 114,597
Adjusted EBITDA Margin (non-GAAP measure)
21.3% 20.5% 20.8% 20.2%

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

Three Months Ended Nine Months Ended
(In thousands) October 1,
2022 October 2,
2021 October 1,
2022 October 2,
2021
Cash Provided by Operating Activities $ 24,897 $ 37,932 $ 67,462 $ 101,410
Less: Capital Expenditures (e) (6,376) (3,370) (16,191) (7,688)
Free Cash Flow (non-GAAP measure)
$ 18,521 $ 34,562 $ 51,271 $ 93,722


	Three Months Ended				Six Months Ended
(In thousands, except percentages)	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Net Income Attributable to Kadant	$	29,734	$	26,170	$	57,809	$	67,362
Net Income Attributable to Noncontrolling Interest	212		239		396		488
Provision for Income Taxes	11,182		9,951		20,945		23,329
Interest Expense, Net	1,929		1,089		4,000		2,221
Other Expense, Net	21		19		42		41
Operating Income	43,078		37,468		83,192		93,441
Gain on Sale (a)	—		—		—		(20,190)
Acquisition Costs	—		—		—		76
Indemnification Asset Reversals (b)	177		—		177		575
Other Costs	74		—		74		182
Acquired Backlog Amortization (c)	—		—		—		703
Acquired Profit in Inventory Amortization (d)	—		—		—		(218)
Adjusted Operating Income (non-GAAP measure)	43,329		37,468		83,443		74,569
Depreciation and Amortization	8,237		8,486		16,683		17,228
Adjusted EBITDA (non-GAAP measure)	$	51,566	$	45,954	$	100,126	$	91,797
Adjusted EBITDA Margin (non-GAAP measure)	21.0%		20.7%		21.1%		20.5%

(a) ~~Consists of~~Represents a $20.2 million pre-tax gain on the ~~sale of a Chinese facility~~China Transaction in our Industrial Processing ~~segment pursuant to a relocation plan (as discussed above).~~segment.

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

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

(e) Includes capital expenditures of $2.2 million and $5.4 million in the three and nine months ended October 1, 2022, respectively, associated with the construction of a new manufacturing facility in China (as discussed below).

~~Liquidity and Capital Resources~~

Consolidated working capital was $188.0 million at October 1, 2022, compared with $162.4 million at January 1, 2022. Cash and cash equivalents were $72.9 million at October 1, 2022, compared with $91.2 million at January 1, 2022, which included cash and cash equivalents held by our foreign subsidiaries o~~f $70.7~~ ~~million at October 1, 2022 and $83.8 million at January 1, 2022.~~

Table of Contents

KADANT INC.

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 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Cash Provided by Operating Activities	$	22,478	$	18,797	$	59,344	$	42,565
Less: Capital Expenditures (a)	(8,777)		(6,947)		(13,246)		(9,815)
Free Cash Flow (non-GAAP measure)	$	13,701	$	11,850	$	46,098	$	32,750

(a) Includes $3.1 million and $3.3 million in the three and six months ended July 1, 2023, respectively, and $3.1 million and $3.2 million in the three and six months ended July 2, 2022, respectively, related to the China Transaction.

Liquidity and Capital Resources

Consolidated working capital was $222.4 million at July 1, 2023, compared with $201.9 million at December 31, 2022. Cash and cash equivalents were $66.7 million at July 1, 2023, compared with $76.4 million at December 31, 2022, which included cash and cash equivalents held by our foreign subsidiaries of $62.0 million at July 1, 2023 and $75.8 million at December 31, 2022.

Cash Flows

Cash flow information in the first ~~nine~~six months of 2023 and 2022 ~~and 2021 was~~is as follows:


		Nine Months Ended					Six Months Ended
(In thousands)	(In thousands)	October 1, 2022		October 2, 2021		(In thousands)	July 1, 2023		July 2, 2022
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	$	67,462	$	101,410	Net Cash Provided by Operating Activities	$	59,344	$	42,565
Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(13,923)		(148,587)		Net Cash Used in Investing Activities	(12,902)		(7,894)
Net Cash (Used in) Provided by Financing Activities		(62,112)		66,714
Net Cash Used in Financing Activities						Net Cash Used in Financing Activities	(56,551)		(45,388)
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	(10,474)		(2,513)		Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	579		(5,418)
(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash		$	(19,047)	$	17,024
Decrease in Cash, Cash Equivalents, and Restricted Cash						Decrease in Cash, Cash Equivalents, and Restricted Cash	$	(9,530)	$	(16,135)

Operating Activities

Cash provided by operating activities ~~decreased~~increased to ~~$67.5~~$59.3 million in the first ~~nine~~six months of ~~2022~~2023 from ~~$101.4~~$42.6 million in the first ~~nine~~six months of ~~2021~~2022 primarily due to ~~the timing of investments~~a reduction in cash used for working capital. Our operating cash flows are primarily generated from cash received from customers, offset by cash payments for items such as inventory, employee compensation, operating leases, income taxes and interest payments on outstanding debt obligations.

~~Cash~~During the first six months of 2023, cash provided by ~~net~~ income ~~in the first nine months of 2022~~ was offset in part by investments in working capital. Increases in inventory ~~and accounts receivable~~ used cash of ~~$54.5~~$10.8 million ~~including $33.8 million for inventory~~ primarily related to capital equipment orders that will ship in 2023 and early 2024. Decreases in accounts payable used cash of $9.4 million primarily due to the ~~fourth quarter~~timing of payments. In addition, an increase in accounts receivable used cash of $4.0 million mainly due to our revenue growth and the timing of shipments.

During the first six months of 2022, cash provided by income was offset in part by investments in working capital. Increases in inventory used cash of $26.8 million primarily related to capital equipment orders that shipped in 2022 and ~~first half~~early 2023. In addition, an increase in accounts receivable associated with our revenue growth used cash of ~~2023.~~$12.3 million. These uses of cash were offset in part by ~~$16.2~~$9.3 million of cash ~~provided by~~received from customer deposits.

~~Cash provided by operating activities in the first nine months of 2021 was due to cash provided by net income and working capital. Cash provided by working capital in 2021 included~~ ~~$19.8~~ ~~million from accounts payable related to inventory purchases for increased order activity and~~ ~~$19.6~~ million in customer deposits for capital equipment orders. These sources of cash were offset in part by cash used of $32.9 million for accounts receivable and inventory as a result of revenue growth and to support increased demand.

Investing Activities

Cash used in investing activities was ~~$13.9~~$12.9 million in the first ~~nine~~six months of ~~2022,~~2023, compared with ~~$148.6~~$7.9 million in the first ~~nine~~six months of ~~2021. Cash used in investing activities~~2022. Capital expenditures were $13.2 million in the first ~~nine~~six months of 2023 and $9.8 million in the first six months of 2022, ~~included~~including capital ~~expenditures of $16.2 million, which included $5.4 million for~~ expenditures associated with the construction of aour new manufacturing facility in ~~China. This use~~China of $3.3 million in the first six months of 2023 and $3.2 million in the first six months of 2022. In addition, we received $1.9 million of cash ~~was partially offset by proceeds received~~ from the sale of assets ~~of $2.1 million. Cash used in investing activities~~ in the first ~~nine~~six months of ~~2021 included $141.5 million for acquisitions and $7.7 million for capital expenditures.~~2022.

Table of Contents

KADANT INC.

Financing Activities

Cash used in financing activities was ~~$62.1~~$56.6 million in the first ~~nine~~six months of ~~2022,~~2023, compared with ~~cash provided by financing activities of $66.7~~$45.4 million in the first ~~nine~~six months of ~~2021. Repayment~~2022. Repayments of short- and long-term obligations ~~was $69.5~~were $46.1 million in the first ~~nine~~six months of ~~2022,~~2023 compared to repayments of short- and long-term obligations of $51.4 million, partially offset by borrowings under our revolving credit facility of ~~$21.6 million compared to borrowings under our revolving credit facility of $151.9~~$16.5 million in the first ~~nine~~six months of ~~2021, partially offset by repayment of short- and long-term obligations of $72.7 million.~~2022. Cash dividends paid to stockholders were ~~$9.0~~$6.4 million in the first ~~nine~~six months of ~~2022~~2023 and ~~$8.6~~$5.9 million in the first ~~nine~~six months of ~~2021.~~2022. In addition, taxes paid related to the vesting of equity awards was $3.9 million in the first six months of 2023 compared to $4.6 million in the first ~~nine~~six months of ~~2022 compared to $3.4 million in the first nine months of 2021.~~2022.

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 ~~$10.5~~$0.6 million ~~reduction~~increase in cash, cash equivalents, and restricted cash in the first ~~nine~~six months of ~~2022~~2023 was primarily attributable to the weakening of the U.S. dollar against the euro, and to a lesser extent, the Mexican peso, and Brazilian real, partially offset by the strengthening of the U.S. dollar against the ~~euro and~~ Chinese ~~renminbi and, to a lesser extent, the British pound sterling.~~renminbi.

Borrowing Capacity and Debt Obligations

~~We entered into an~~Our unsecured multi-currency revolving credit facility ~~dated as of~~originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement)~~. As~~ matures on November 30, 2027 and has a total borrowing capacity of ~~October~~$400 million. At July 1, ~~2022, the outstanding balance under the Credit Agreement was $195.0 million, which included $71.0~~2023, we had $257.3 million of ~~euro-denominated borrowings. As of October 1, 2022, we have a~~ borrowing capacity

~~Table of Contents~~

~~KADANT INC.~~

available under ~~the~~our Credit Agreement, ~~of $206.3 million~~ in addition to a ~~$150.0~~$200 million uncommitted, unsecured incremental borrowing facility. Under our debt agreements, our leverage ratio must be less than 3.75 or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than ~~4.00.~~4.25. As of ~~October~~July 1, ~~2022,~~2023, our leverage ratio was ~~0.94~~0.51 and we were in compliance with our debt covenants. ~~We expect to renew our Credit Agreement prior to its maturity date of 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 ~~19, 2022,~~18, 2023, our board of directors approved the repurchase of up to $50 million of our equity securities during the period from May ~~19, 2022~~18, 2023 to May ~~19, 2023.~~18, 2024. We have not repurchased any shares of our common stock under this authorization or under our previous ~~$20~~$50 million authorization ~~which~~that expired on May ~~20, 2022.~~19, 2023.

We paid cash dividends of ~~$9.0~~$6.4 million in the first ~~nine~~six months of ~~2022.~~2023. On ~~September 8, 2022,~~May 18, 2023, we declared a quarterly cash dividend of ~~$0.26~~$0.29 per share totaling ~~$3.0~~$3.4 million that will be paid on ~~November~~August 10, ~~2022.~~2023. Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change. The declaration of cash dividends is subject to our compliance with the covenant in our Credit Agreement related to our consolidated leverage ratio.

We plan to make expenditures of approximately ~~$11~~$25 to ~~$13~~$27 million during the remainder of ~~2022~~2023 for property, plant, and equipment, including $6$5 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 $11 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 Costs, Net, in the accompanying condensed consolidated financial statements for additional information regarding the relocation of our Chinese manufacturing facility.~~China.

As of ~~October~~July 1, ~~2022,~~2023, we had approximately ~~$219.8~~$269.9 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest ~~$198.2~~$223.8 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 ~~2022,~~2023, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future. The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately ~~$3.5 million~~.$3.7 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 borrowing capacity and continued access to debt markets, will be sufficient to meet the capital requirements of our operations for the next 12 months and 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 ~~2022~~2023 compared with those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations ~~set forth~~under the heading Liquidity and Capital Resources in Part II, Item 7, of our Annual 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,

Table of Contents

KADANT INC.

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~~Management's Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations under the ~~section captioned "Application~~heading Application of Critical Accounting ~~Estimates"~~Estimates in Part II, Item 7, of our Annual Report. There have been no material changes to these critical accounting policies since the end of fiscal ~~2021~~2022 that warrant disclosure.

~~Recent Accounting Pronouncements~~

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

~~Table of Contents~~

~~KADANT INC.~~

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.

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 1, ~~2022.~~2023. 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 1, ~~2022,~~2023, our Chief Executive Officer and Chief Financial Officer concluded that as of ~~October~~July 1, ~~2022,~~2023, our disclosure controls and procedures were effective at the reasonable assurance level.

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 1, ~~2022~~2023 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~~ "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" ~~and~~ "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," ~~careful~~Careful consideration should be given to the ~~risk~~ factors ~~disclosed~~discussed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, 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~~

Item 5 – Other Information

Director 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.~~Officer Trading Arrangements

Our business and operations have been and may continue to be 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 closuresNone of our ~~facilities~~directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the facilities of our customers, suppliers or other vendors in our supply chain, potentially including single source suppliers, and other disruptions in the supply chain. In addition, the COVID-19 pandemic has impacted and other disease outbreaks could impact global trade and reduce demand for our products, and adversely affect the U.S. or global economy and capital markets.quarter ended July 1, 2023.

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 “shelter-in-place,” and initially created significant disruption of the financial markets. The COVID-19 pandemic has adversely affected, and may adversely affect in the future, our business and results of operations, as government authorities have imposed, and may in the future impose, temporary mandatory closures of our 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 policy resulted in the closure of one of our manufacturing facilities in China for a period of time and such policy heightens the risk that our facilities in China may be closed by government authorities in the future as a

3331

Table of Contents

KADANT INC.

result of any COVID cases in a particular geographic area, which could cause disruptions to our business that could adversely impact our financial results. Additionally, our financial results have been adversely 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 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 have incurred costs and may incur costs in the future related to COVID-19, such as increased employee benefit costs, if our employees contract COVID-19 and require hospitalization or other costly medical treatment, 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, particularly as a result of China's zero-COVID policy, 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 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.

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

~~Table of Contents~~

~~KADANT INC.~~

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 has and may in the future adversely impact our revenues, gross margins and financial results. The United States, the European Union, and many other countries have imposed sanctions on Russia, individuals in Russia and Russian businesses, including several large banks. In 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. The current conflict between Russia and Ukraine may also have the effect of heightening other risks disclosed in our Annual Report, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on 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


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).

3532

Table of Contents

KADANT INC.

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 9, ~~2022~~2023			/s/ Michael J. McKenney
			Michael J. McKenney
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

3633


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


		Page
PART I: Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheet as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 ~~(unaudited)~~	3

	Condensed Consolidated Statement of Income for the three- and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021 (unaudited)~~2022	4

	Condensed Consolidated Statement of Comprehensive Income for the three- and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021 (unaudited)~~2022	5

	Condensed Consolidated Statement of Cash Flows for the ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021 (unaudited)~~2022	6

	Condensed Consolidated Statement of Stockholders' Equity for the three- and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021 (unaudited)~~2022	7

	Notes to Condensed Consolidated Financial Statements ~~(unaudited)~~	98

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2221

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3331

Item 4.	Controls and Procedures	3331

PART II: Other Information

Item 1A.	Risk Factors	3331

Item 5.	Other Information	31

Item 6.	Exhibits	3532


		Nine Months Ended						Six Months Ended
		October 1, 2022			October 2, 2021			July 1, 2023		July 2, 2022
(In thousands)	(In thousands)			(In thousands)
Operating Activities	Operating Activities								Operating Activities
Net income attributable to Kadant	Net income attributable to Kadant	$	94,849		$	59,886	Net income attributable to Kadant	$	57,809	$	67,362
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	672			635		Net income attributable to noncontrolling interest	396		488

Net income	Net income	95,521			60,521		Net income	58,205		67,850
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	26,387			24,597		Depreciation and amortization	16,683		17,931
Stock-based compensation expense	Stock-based compensation expense	6,576			6,230		Stock-based compensation expense	4,886		4,536
Provision for losses on accounts receivable		685			116
Gain on the sale of assets (Note 2)		(20,190)			—
Noncash impairment costs (Note 2)		182			—
Gain on sale of assets (Note 2)							Gain on sale of assets (Note 2)	—		(20,190)

Other items, net	Other items, net	8,260			2,262		Other items, net	1,584		7,579
Changes in 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	(20,700)			(22,305)		Accounts receivable	(4,002)		(12,336)
Unbilled revenue		(8,528)			(487)
Contract assets							Contract assets	2,790		(3,694)
Inventories	Inventories	(33,784)			(10,553)		Inventories	(10,808)		(26,816)
Other assets	Other assets	(4,560)			(10,209)		Other assets	211		3,589
Accounts payable	Accounts payable	(262)			19,822		Accounts payable	(9,364)		(287)
Customer deposits	Customer deposits	16,163			19,613		Customer deposits	464		9,329
Other liabilities	Other liabilities	1,712			11,803		Other liabilities	(1,305)		(4,926)

Net cash provided by operating activities	Net cash provided by operating activities	67,462			101,410		Net cash provided by operating activities	59,344		42,565

Investing Activities	Investing Activities						Investing Activities
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	138			(141,538)		Acquisitions, net of cash acquired	277		(62)
Purchases of property, plant, and equipment	Purchases of property, plant, and equipment	(16,191)			(7,688)		Purchases of property, plant, and equipment	(13,246)		(9,815)
Proceeds from sale of property, plant, and equipment	Proceeds from sale of property, plant, and equipment	2,091			102		Proceeds from sale of property, plant, and equipment	97		1,942

Other		39			537
Other investing activities							Other investing activities	(30)		41
Net cash used in investing activities	Net cash used in investing activities	(13,923)			(148,587)		Net cash used in investing activities	(12,902)		(7,894)

Financing Activities	Financing Activities						Financing Activities
Proceeds from issuance of short- and long-term obligations							Proceeds from issuance of short- and long-term obligations	—		16,516
Repayment of short- and long-term obligations	Repayment of short- and long-term obligations	(69,460)			(72,723)		Repayment of short- and long-term obligations	(46,143)		(51,379)
Proceeds from issuance of short- and long-term obligations		21,554			151,944
Tax withholding payments related to stock-based compensation	Tax withholding payments related to stock-based compensation	(4,607)			(3,388)		Tax withholding payments related to stock-based compensation	(3,915)		(4,589)
Dividends paid	Dividends paid	(8,969)			(8,559)		Dividends paid	(6,430)		(5,936)
Dividend paid to noncontrolling interest		(630)			(560)
Net cash (used in) provided by financing activities		(62,112)			66,714

Other financing activities							Other financing activities	(63)		—
Net cash used in financing activities							Net cash used in financing activities	(56,551)		(45,388)

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	(10,474)			(2,513)		Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	579		(5,418)

(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash		(19,047)			17,024
Decrease in Cash, Cash Equivalents, and Restricted Cash							Decrease in Cash, Cash Equivalents, and Restricted Cash	(9,530)		(16,135)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	94,161			66,640		Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	79,725		94,161
Cash, Cash Equivalents, and Restricted Cash at End of Period	Cash, Cash Equivalents, and Restricted Cash at End of Period	$	75,114		$	83,664	Cash, Cash Equivalents, and Restricted Cash at End of Period	$	70,195	$	78,026


		October 1, 2022				January 1, 2022					July 1, 2023		December 31, 2022
(In thousands)	(In thousands)			(In thousands)
Raw Materials	Raw Materials			$	65,529				$	59,177		Raw Materials	$	73,075	$	71,040
Work in Process	Work in Process	38,520				29,448		Work in Process			45,428		38,612
Finished Goods	Finished Goods	52,518				45,731		Finished Goods			57,877		54,020
		$	156,567			$	134,356				$	176,380	$	163,672


		Nine Months Ended					Six Months Ended
(In thousands)	(In thousands)	October 1, 2022		October 2, 2021		(In thousands)	July 1, 2023		July 2, 2022
Balance at Beginning of Year	Balance at Beginning of Year	$	7,298	$	7,064	Balance at Beginning of Year	$	7,283	$	7,298
Provision charged to expense	Provision charged to expense	3,637		3,289		Provision charged to expense	3,154		2,657
Usage	Usage	(3,361)		(3,106)		Usage	(2,335)		(2,548)
Acquisitions		—		429

Currency translation	Currency translation	(877)		(210)		Currency translation	97		(429)
Balance at End of Period	Balance at End of Period	$	6,697	$	7,466	Balance at End of Period	$	8,199	$	6,978


	Three Months Ended October 1, 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 July 2, 2022	14,624,159	$	146	$	114,825	$	613,146	2,962,186	$	(72,586)	$	(51,379)	$	2,012	$	606,164
Net income	—	—		—		27,487		—	—		—		184		27,671
Dividend declared – Common Stock, $0.26 per share	—	—		—		(3,032)		—	—		—		—		(3,032)
Activity under stock plans	—	—		1,982		—		(1,628)	40		—		—		2,022
Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(630)		(630)
Other comprehensive items	—	—		—		—		—	—		(22,580)		(111)		(22,691)
Balance at October 1, 2022	14,624,159	$	146	$	116,807	$	637,601	2,960,558	$	(72,546)	$	(73,959)	$	1,455	$	609,504

	Nine Months Ended October 1, 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	—	—		—		94,849		—	—		—		672		95,521
Dividends declared – Common Stock, $0.78 per share	—	—		—		(9,096)		—	—		—		—		(9,096)
Activity under stock plans	—	—		919		—		(42,861)	1,050		—		—		1,969



Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(630)		(630)
Other comprehensive items	—	—		—		—		—	—		(43,609)		(267)		(43,876)
Balance at October 1, 2022	14,624,159	$	146	$	116,807	$	637,601	2,960,558	$	(72,546)	$	(73,959)	$	1,455	$	609,504


	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	—	—		—		—		—	—		—		653		653
Purchase of shares of noncontrolling interest	—	—		—		—		—	—		—		(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	—	—		—		—		—	—		—		653		653
Purchase of shares of noncontrolling interest	—	—		—		—		—	—		—		(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


(In thousands)	Foreign Currency Translation Adjustment		Post-Retirement Benefit Liability Adjustments		Deferred Gain (Loss) on Cash Flow Hedges		Total
Balance at January 1, 2022	$	(29,096)	$	(792)	$	(462)	$	(30,350)
Other comprehensive items before reclassifications	(44,179)		45		334		(43,800)
Reclassifications from AOCI	—		19		172		191
Net current period other comprehensive items	(44,179)		64		506		(43,609)
Balance at October 1, 2022	$	(73,275)	$	(728)	$	44	$	(73,959)


(In thousands)	Interest Rate Swap Agreement		Forward Currency- Exchange Contract		Total
Unrealized Loss, Net of Tax, at January 1, 2022	$	(429)	$	(33)	$	(462)
Loss reclassified to earnings (a)	172		—		172
Gain (loss) recognized in AOCI	363		(29)		334
Unrealized Gain (Loss), Net of Tax, at October 1, 2022	$	106	$	(62)	$	44


		Fair Value as of October 1, 2022									Fair Value as of July 1, 2023
(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	$	13,520	$	—	$	—	$	13,520	Money market funds and time deposits	$	4,541	$	—	$	—	$	4,541

Banker's acceptance drafts (a)	Banker's acceptance drafts (a)	$	—	$	6,755	$	—	$	6,755	Banker's acceptance drafts (a)	$	—	$	3,550	$	—	$	3,550
2018 Swap Agreement		$	—	$	140	$	—	$	140

Liabilities:	Liabilities:									Liabilities:

Forward currency-exchange contracts (b)		$	—	$	96	$	—	$	96
Forward currency-exchange contracts										Forward currency-exchange contracts	$	—	$	53	$	—	$	53


	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