KADANT INC [KAI] Filings

10-Q 1 kai-20240629.htm KAI FORM 10-Q 2Q 2024 kai-20240629

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 29, 2024


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

For the transition period from ________ to _________

Commission file number 001-11406

KADANT INC.

(Exact name of registrant as specified in its charter)


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

One Technology Park Drive

Westford, Massachusetts 01886

(Address of principal executive offices, including zip code)

(978) 776-2000

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

KAI

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of July 26, 2024, the registrant had 11,744,564 shares of common stock outstanding.

Table of Contents

Kadant Inc.

Report on Form 10-Q

For the Quarterly Period Ended June 29, 2024

Table of Contents


		Page
PART I: Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheet as of June 29 , 2024 and December 30, 2023	3

	Condensed Consolidated Statement of Income for the three- and six-month periods ended June 29 , 2024 and July 1, 2023	4

	Condensed Consolidated Statement of Comprehensive Income for the three- and six-month periods ended June 29, 2024 and July 1, 2023	5

	Condensed Consolidated Statement of Cash Flows for the s ix -month periods ended June 2 9 , 2024 and July 1, 2023	6

	Condensed Consolidated Statement of Stockholders' Equity for the three- and six-month periods ended June 29 , 2024 and July 1, 2023	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II: Other Information

Item 1A.	Risk Factors	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

Table of Contents

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

KADANT INC.

Condensed Consolidated Balance Sheet

(Unaudited)


	June 29, 2024		December 30, 2023
(In thousands, except share and per share amounts)
Assets
Current Assets:
Cash and cash equivalents	$	73,805	$	103,832
Restricted cash	1,373		2,621
Accounts receivable, net of allowances of $4,253 and $4,090	149,689		133,929
Inventories	173,513		152,677
Contract assets	15,144		8,366
Other current assets	41,808		38,757
Total Current Assets	455,332		440,182
Property, Plant, and Equipment, net of accumulated depreciation of $139,055 and $132,846	174,182		140,504
Other Assets	58,788		43,609
Intangible Assets, Net (Notes 1 and 2)	289,695		159,286
Goodwill (Notes 1 and 2)	478,035		392,084
Total Assets	$	1,456,032	$	1,175,665

Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term obligations (Note 6)	$	3,233	$	3,209
Accounts payable	54,415		42,104
Accrued payroll and employee benefits	38,251		41,855
Customer deposits	48,391		62,641
Advanced billings	11,007		12,194
Other current liabilities	46,681		52,406
Total Current Liabilities	201,978		214,409
Long-Term Obligations (Note 6)	342,035		107,666
Long-Term Deferred Income Taxes	41,250		36,398
Other Long-Term Liabilities	52,383		40,952

Commitments and Contingencies (Note 12)

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	124,892		124,940
Retained earnings	811,595		763,131
Treasury stock at cost, 2,879,638 and 2,915,978 shares	(70,563)		(71,453)
Accumulated other comprehensive items (Note 8)	(58,359)		(43,062)
Total Kadant Stockholders' Equity	807,711		773,702
Noncontrolling interests (Note 2)	10,675		2,538
Total Stockholders' Equity	818,386		776,240
Total Liabilities and Stockholders' Equity	$	1,456,032	$	1,175,665

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Income

(Unaudited)


	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
(In thousands, except per share amounts)
Revenue (Notes 1 and 11)	$	274,765	$	245,053	$	523,740	$	474,811

Costs and Operating Expenses:
Cost of revenue	152,878		138,503		290,891		266,215
Selling, general, and administrative expenses	70,004		59,990		140,309		118,552
Research and development expenses	3,482		3,408		7,212		6,778
Other costs (Note 3)	—		74		—		74
	226,364		201,975		438,412		391,619
Operating Income	48,401		43,078		85,328		83,192
Interest Income	368		316		979		615
Interest Expense	(5,201)		(2,245)		(9,870)		(4,615)
Other Expense, Net	(2)		(21)		(32)		(42)
Income Before Provision for Income Taxes	43,566		41,128		76,405		79,150
Provision for Income Taxes (Note 5)	11,992		11,182		19,846		20,945
Net Income	31,574		29,946		56,559		58,205
Net Income Attributable to Noncontrolling Interests	(283)		(212)		(579)		(396)
Net Income Attributable to Kadant	$	31,291	$	29,734	$	55,980	$	57,809

Earnings per Share Attributable to Kadant (Note 4)
Basic	$	2.66	$	2.54	$	4.77	$	4.94
Diluted	$	2.66	$	2.54	$	4.76	$	4.94

Weighted Average Shares (Note 4)
Basic	11,743		11,704		11,734		11,693
Diluted	11,766		11,723		11,755		11,709

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)


	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
(In thousands)
Net Income	$	31,574	$	29,946	$	56,559	$	58,205
Other Comprehensive Items:
Foreign currency translation adjustment	(5,202)		(400)		(15,424)		5,173
Post-retirement liability adjustments, net (net of tax of $1, $(1), $1 and $(3))	2		(2)		3		(8)
Deferred gain (loss) on cash flow hedges (net of tax of $—, $(18), $13 and $(32))	—		(59)		38		(98)
Other comprehensive items	(5,200)		(461)		(15,383)		5,067
Comprehensive Income	26,374		29,485		41,176		63,272
Comprehensive Income Attributable to Noncontrolling Interests	(269)		(213)		(493)		(432)
Comprehensive Income Attributable to Kadant	$	26,105	$	29,272	$	40,683	$	62,840

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)


	Six Months Ended
	June 29, 2024		July 1, 2023
(In thousands)
Operating Activities
Net income attributable to Kadant	$	55,980	$	57,809
Net income attributable to noncontrolling interests	579		396

Net income	56,559		58,205
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,730		16,683
Stock-based compensation expense	5,299		4,886
Provision for losses on accounts receivable	311		123


Other items, net	1,899		1,461
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	(7,282)		(4,002)
Contract assets	(5,062)		2,790
Inventories	225		(10,808)
Other assets	(2,339)		211
Accounts payable	13,985		(9,364)
Customer deposits	(17,744)		464
Other liabilities	(18,684)		(1,305)


Net cash provided by operating activities	50,897		59,344

Investing Activities
Acquisitions, net of cash acquired (Note 2)	(291,575)		277
Purchases of property, plant, and equipment	(11,245)		(13,246)
Proceeds from sale of property, plant, and equipment	1,302		97

Other investing activities	—		(30)
Net cash used in investing activities	(301,518)		(12,902)

Financing Activities
Proceeds from issuance of long-term obligations (Note 6)	295,211		—
Repayment of short- and long-term obligations	(59,089)		(46,143)
Tax withholding payments related to stock-based compensation	(5,868)		(3,915)
Dividends paid	(7,153)		(6,430)
Proceeds from issuance of Company common stock	1,605		—
Dividend paid to noncontrolling interest	(1,346)		—
Acquisition of subsidiary shares from noncontrolling interest (Note 2)	(523)		—
Other financing activities	—		(63)
Net cash provided by (used in) financing activities	222,837		(56,551)

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash	(3,491)		579

Decrease in Cash, Cash Equivalents, and Restricted Cash	(31,275)		(9,530)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	106,453		79,725
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	75,178	$	70,195

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

under the heading Supplemental Cash Flow Information for further details.

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

Table of Contents

KADANT INC.

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited)


	Three Months Ended June 29, 2024
(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 Interests		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at March 30, 2024	14,624,159	$	146	$	122,253	$	784,062	2,881,213	$	(70,601)	$	(53,173)	$	12,081	$	794,768
Net income	—	—		—		31,291		—	—		—		283		31,574
Dividend declared – Common Stock, $0.32 per share	—	—		—		(3,758)		—	—		—		—		(3,758)
Activity under stock plans	—	—		2,833		—		(1,575)	38		—		—		2,871

Acquisition of subsidiary shares (Note 2)	—	—		(194)		—		—	—		—		(329)		(523)
Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(1,346)		(1,346)
Other comprehensive items	—	—		—		—		—	—		(5,186)		(14)		(5,200)
Balance at June 29, 2024	14,624,159	$	146	$	124,892	$	811,595	2,879,638	$	(70,563)	$	(58,359)	$	10,675	$	818,386

	Six Months Ended June 29, 2024
(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 Interests		Total Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance at December 30, 2023	14,624,159	$	146	$	124,940	$	763,131	2,915,978	$	(71,453)	$	(43,062)	$	2,538	$	776,240
Net income	—	—		—		55,980		—	—		—		579		56,559
Dividends declared – Common Stock, $0.64 per share	—	—		—		(7,516)		—	—		—		—		(7,516)
Activity under stock plans	—	—		146		—		(36,340)	890		—		—		1,036
Noncontrolling interests acquired (Note 2)	—	—		—		—		—	—		—		9,319		9,319
Acquisition of subsidiary shares (Note 2)	—	—		(194)		—		—	—		—		(329)		(523)
Dividend paid to noncontrolling interest	—	—		—		—		—	—		—		(1,346)		(1,346)
Other comprehensive items	—	—		—		—		—	—		(15,297)		(86)		(15,383)
Balance at June 29, 2024	14,624,159	$	146	$	124,892	$	811,595	2,879,638	$	(70,563)	$	(58,359)	$	10,675	$	818,386


	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

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 June 29, 2024, its results of operations, comprehensive income, and stockholders' equity for the three- and six-month periods ended June 29, 2024 and July 1, 2023, and its cash flows for the six-month periods ended June 29, 2024 and July 1, 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 December 30, 2023 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (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.

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 six months ended June 29, 2024.

Supplemental Cash Flow Information


	Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023
Cash Paid for Interest	$	9,703	$	4,443
Cash Paid for Income Taxes, Net of Refunds	$	23,286	$	23,792

Non-Cash Investing Activities:
Fair value of assets acquired (adjusted)	$	341,105	$	(270)
Cash (paid) received for businesses acquired (a)	(299,892)		277
Liabilities assumed (reduced) and noncontrolling interests acquired	$	41,213	$	(7)

(a) Includes estimated post-closing adjustments, net.

Table of Contents

KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023
Purchases of property, plant, and equipment in accounts payable	$	618	$	1,134

Non-Cash Financing Activities:
Issuance of Company common stock upon vesting of restricted stock units	$	5,140	$	4,717
Dividends declared but unpaid	$	3,758	$	3,395

Restricted Cash

The Company's restricted cash generally serves as collateral 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 and for certain banker's acceptance drafts issued to vendors. The majority of these restrictions will expire over the next twelve months.

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


(In thousands)	June 29, 2024		July 1, 2023		December 30, 2023		December 31, 2022
Cash and cash equivalents	$	73,805	$	66,725	$	103,832	$	76,371
Restricted cash	1,373		3,470		2,621		3,354
Total Cash, Cash Equivalents, and Restricted Cash	$	75,178	$	70,195	$	106,453	$	79,725

Inventories

The components of inventories are as follows:


	June 29, 2024		December 30, 2023
(In thousands)
Raw Materials	$	71,453	$	66,738
Work in Process	38,916		32,147
Finished Goods (includes $3,350 and $5,182 at customer locations)	63,144		53,792
	$	173,513	$	152,677

Intangible Assets, Net

Acquired intangible assets by major asset class are as follows:


(In thousands)	Gross		Accumulated Amortization		Currency Translation		Net
June 29, 2024
Definite-Lived
Customer relationships	$	332,804	$	(117,776)	$	(7,127)	$	207,901
Product technology	87,576		(46,365)		(2,721)		38,490
Tradenames	16,253		(4,640)		(429)		11,184
Other	23,860		(19,356)		(620)		3,884
	460,493		(188,137)		(10,897)		261,459
Indefinite-Lived
Tradenames	29,059		—		(823)		28,236
Acquired Intangible Assets	$	489,552	$	(188,137)	$	(11,720)	$	289,695

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


(In thousands)	Gross		Accumulated Amortization		Currency Translation		Net
December 30, 2023
Definite-Lived
Customer relationships	$	218,959	$	(108,519)	$	(5,562)	$	104,878
Product technology	67,576		(43,786)		(2,367)		21,423
Tradenames	7,039		(4,262)		(388)		2,389
Other	20,320		(17,715)		(604)		2,001
	313,894		(174,282)		(8,921)		130,691
Indefinite-Lived
Tradenames	29,059		—		(464)		28,595
Acquired Intangible Assets	$	342,953	$	(174,282)	$	(9,385)	$	159,286

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. Intangible assets associated with the Company's 2024 acquisitions totaled $146,588,000. See Note 2, Acquisitions, for further details.

Goodwill

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


(In thousands)	Flow Control		Industrial Processing		Material Handling		Total
Balance at December 30, 2023
Gross balance	$	120,782	$	212,732	$	144,108	$	477,622
Accumulated impairment losses	—		(85,538)		—		(85,538)
Net balance	120,782		127,194		144,108		392,084
2024 Activity
Acquisitions (Note 2)	14,498		37,037		40,560		92,095
Fair value adjustment	—		(22)		—		(22)
Currency translation	(2,201)		(2,655)		(1,266)		(6,122)
Total 2024 activity	12,297		34,360		39,294		85,951
Balance at June 29, 2024
Gross balance	133,079		247,092		183,402		563,573
Accumulated impairment losses	—		(85,538)		—		(85,538)
Net balance	$	133,079	$	161,554	$	183,402	$	478,035

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.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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:


	Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023
Balance at Beginning of Year	$	8,154	$	7,283
Provision charged to expense	2,048		3,154
Usage	(1,326)		(2,335)
Acquisitions	472		—
Currency translation	(219)		97
Balance at End of Period	$	9,129	$	8,199

Revenue Recognition

Most of the Company’s revenue relates to products and services that require minimal customization and is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. The remaining portion of the Company’s revenue is recognized over time based on an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation. Contracts are accounted for on an over time basis when they include products which have no alternative use and an enforceable right to payment over time. Most of the contracts recognized on an over time basis are for large capital 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.

The following table presents revenue by revenue recognition method:


	Three Months Ended				Six Months Ended
	June 29,		July 1,		June 29,		July 1,
(In thousands)	2024		2023		2024		2023
Point in Time	$	245,735	$	222,235	$	462,228	$	426,474
Over Time	29,030		22,818		61,512		48,337
	$	274,765	$	245,053	$	523,740	$	474,811

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

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


	Three Months Ended				Six Months Ended
	June 29,		July 1,		June 29,		July 1,
(In thousands)	2024		2023		2024		2023
Revenue by Product Type:
Parts and consumables	$	172,745	$	153,082	$	343,875	$	304,645
Capital	102,020		91,971		179,865		170,166
	$	274,765	$	245,053	$	523,740	$	474,811
Revenue by Geography (based on customer location):
North America	$	172,543	$	135,385	329,034		267,838
Europe	63,193		60,625		118,980		114,782
Asia	24,970		32,867		47,524		60,637
Rest of world	14,059		16,176		28,202		31,554
	$	274,765	$	245,053	$	523,740	$	474,811

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

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents contract balances from contracts with customers:


	June 29, 2024		December 30, 2023
(In thousands)
Contract Assets	$	15,144	$	8,366
Contract Liabilities	$	61,829	$	79,397

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 $23,473,000 in the second quarter of 2024 and $20,212,000 in the second quarter of 2023, and $57,139,000 in the first six months of 2024 and $47,228,000 in the first six months of 2023 that was included in the contract liabilities balance at the beginning of 2024 and 2023, 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 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 was $27,262,000 as of June 29, 2024. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 78% of which is expected to occur within the next twelve months and the remaining 22% thereafter.

Banker's Acceptance Drafts Included in Accounts Receivable

The Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date. These drafts, which totaled $7,574,000 at June 29, 2024 and $10,826,000 at December 30, 2023, 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.

Income Taxes

In accordance with Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740), the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which these differences are expected to reverse. A tax valuation allowance is established, as needed, to reduce deferred tax assets to the amount expected to be realized. In the period in which it becomes more likely than not that some or all of the deferred tax assets will be realized, the valuation allowance will be adjusted.

It is the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. At June 29, 2024, the Company believes that it has appropriately accounted for any liability for unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established, the statute of limitations expires for a tax jurisdiction year, or the Company is required to pay amounts in excess of the liability, its effective tax rate in a given financial statement period may be affected.

In December 2021, the Organisation for Economic Co-operation and Development (OECD) released model rules introducing a new 15% global minimum tax for large multinational enterprises with an annual global revenue exceeding 750,000,000 euros (Pillar Two Rules). Since the release of the Pillar Two Rules, the OECD has issued four tranches of administrative guidance, as well as guidance on transitional safe harbor relief. Various countries, including the member states of the European Union, have adopted the Pillar Two Rules into their domestic laws, with certain rules coming into effect for fiscal years beginning in 2024. Some countries are in the process of drafting legislation for adoption in future years. While the Pillar

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Two Rules serve as a framework for implementing the minimum tax, countries may enact domestic laws that vary slightly from the Pillar Two Rules and may also adjust domestic tax incentives to align with the Pillar Two Rules on different timelines. The Company is monitoring developments of the Pillar Two Rules and is evaluating the potential impact they may have on the jurisdictions in which it operates.

Recent Accounting Pronouncements Not Yet Adopted

Business Combinations - Joint Venture Formations (Topic 805), Recognition and Initiation Measurement. In August 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-05, to address the diversity in practice on the accounting treatment of joint venture formations. Under this ASU, a joint venture is required to apply a new basis of accounting at its formation date by valuing the net assets contributed at fair value for both business and asset transactions. The value of the net assets in total is then allocated to individual assets and liabilities by applying Topic 805 with certain exceptions. This new guidance is effective for joint ventures with a formation date on or after January 1, 2025 and is required to be applied prospectively. Additionally, joint ventures with a formation date prior to January 1, 2025, have an option to elect to apply the guidance retrospectively, provided adequate information is available. The impact of the adoption of this ASU on the Company's consolidated financial statements will be dependent upon joint ventures formed in future periods.

Segment Reporting - Improving Reportable Segment Disclosures (Topic 280). In November 2023, the FASB issued ASU No. 2023-07, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. Under this ASU, a company is required to enhance its segment disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. This ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. This ASU is effective for the Company's fiscal year ending December 28, 2024, and interim periods beginning in fiscal 2025, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements.

Income Taxes - Improvements to Income Tax Disclosures (Topic 740). In December 2023, the FASB issued ASU No. 2023-09, to improve income tax disclosure requirements, primarily through enhanced disclosures related to the income tax rate reconciliation and income taxes paid. This ASU is effective for fiscal 2025, with early adoption permitted, and may be applied retrospectively. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements.

2. Acquisitions

The Company’s acquisitions have been accounted for using the acquisition method of accounting and the results of the acquired businesses are included in its condensed consolidated financial statements from the date of acquisition. Historically, acquisitions have been made at prices above the fair value of identifiable net assets, resulting in goodwill. Acquisition costs were $940,000 in the second quarter of 2024 and $2,064,000 in the first six months of 2024 and are included in selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income. The Company expects several synergies in connection with the acquisitions described below, including expansion of product sales into new markets by leveraging its global sales network and relationships, broadening its product portfolio, and strengthening its position in each segment's markets. The Company funded the acquisitions primarily through borrowings under its revolving credit facility.

Key Knife, Inc.

On January 1, 2024, the Company acquired Key Knife Inc. and certain of its affiliates (collectively, Key Knife) pursuant to a securities purchase agreement dated December 22, 2023, for $153,386,000, net of cash acquired. The Company paid $156,925,000 at closing and $2,372,000 as a post-closing adjustment in the second quarter of 2024. Key Knife is a global supplier of engineered knife systems for custom chipping, planing, and flaking solutions for wood products industries, with revenue of approximately $65,000,000 for the twelve months ended September 30, 2023, and is part of the Company's Industrial Processing segment. Goodwill from the Key Knife acquisition was $37,037,000, of which $30,002,000 is expected to be deductible for tax purposes over 15 years. In addition, separately identifiable intangible assets acquired were $91,620,000, of which $77,300,000 is expected to be deductible for tax purposes over 15 years.

As part of the acquisition, the Company acquired a 45% interest in two of Key Knife's subsidiaries, increasing its noncontrolling interest liability by $9,319,000 based on the income valuation approach. Under a put and purchase option as outlined in the securities purchase agreement, the seller can demand the Company purchase, or the Company can demand that the seller sell to the Company, the remaining interest in these subsidiaries at any time after December 31, 2027. The purchase

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

price would be based on a total enterprise value as defined in the original purchase agreement. See Other Acquisitions below for additional information.

KWS Manufacturing Company, Ltd.

On January 24, 2024, the Company acquired all of the outstanding equity securities of KWS Manufacturing Company, Ltd. (KWS) for $81,247,000, subject to a post-closing adjustment. The Company paid $81,009,000 at closing and assumed a $238,000 overdraft. KWS is a leading manufacturer of conveying equipment for the bulk material handling industry, with revenue of approximately $45,000,000 for the twelve months ended September 30, 2023, and is part of the Company's Material Handling segment. Goodwill from the KWS acquisition was $38,717,000 and separately identifiable intangibles assets were $28,500,000, both of which are expected to be fully deductible for tax purposes over 15 years.

Dynamic Sealing Technologies LLC

On May 31, 2024, the Company acquired all of the outstanding equity securities of Dynamic Sealing Technologies LLC and affiliates (collectively, DSTI) for $53,661,000, net of cash acquired and subject to a post-closing adjustment. DSTI is a leading manufacturer of engineered fluid sealing and transfer solutions for rotating applications, with revenue of approximately $25,000,000 for the twelve months ended March 31, 2024, and is part of the Company's Flow Control segment. Goodwill from the DSTI acquisition was $14,498,000, of which $14,169,000 is expected to be deductible for tax purposes over 15 years. In addition, separately identifiable intangible assets acquired were $23,490,000, all of which are expected to be deductible for tax purposes over 15 years.

Other Acquisitions

On May 2, 2024, the Company acquired a service business in Germany, which is included in the Company's Material Handling segment, for $3,281,000, net of cash acquired and subject to a post-closing adjustment.

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

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Purchase Price Allocation

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


(In thousands)	Total
Cash and Cash Equivalents	$	10,016
Accounts Receivable	11,995
Inventories	25,033
Other Current Assets	3,203
Property, Plant, and Equipment	38,758
Other Assets	13,417
Definite-Lived Intangible Assets
Customer relationships	113,833
Product technology	20,000
Tradenames	9,215
Other	3,540
Goodwill	92,095
Total assets acquired	341,105

Accounts Payable	3,060
Customer Deposits	2,890
Other Current Liabilities	7,807
Long-Term Deferred Income Taxes	5,331
Other Long-Term Liabilities	12,806
Total liabilities assumed	31,894
Noncontrolling interests acquired	9,319
Net assets and noncontrolling interests acquired	$	299,892

Purchase Price:
Cash Paid	$	301,591
Estimated Remaining Post-closing Adjustments, Net	(1,699)
	$	299,892

The final purchase accounting and purchase price allocations remain subject to change as the Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed and the valuation of acquired intangibles, which may result in adjustments to the assets and liabilities, including goodwill. Measurement period adjustments were not material to the Company's financial position or results of operations in the second quarter of 2024.

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

Revenue and operating income for the three- and six-month periods ended June 29, 2024 associated with the 2024 acquisitions from their respective acquisition dates, are as follows:


	Three Months Ended		Six Months Ended
	June 29, 2024		June 29, 2024
(In thousands)
Revenue	$	27,302	$	51,598
Operating Income, including acquisition-related costs (a)	$	1,439	$	1,124

(a) Acquisition-related costs include acquired profit in inventory and backlog amortization expense and acquisition costs.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Unaudited Supplemental Pro Forma Information

Had the Key Knife, KWS, and DSTI acquisitions been completed as of the beginning of 2023, the Company’s pro forma results of operations for the three- and six-month periods ended June 29, 2024 and July 1, 2023 would have been as follows:


	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
(In thousands, except per share amounts)
Revenue	$	277,971	$	279,073	$	535,332	$	542,850
Net Income Attributable to Kadant	$	31,760	$	27,895	$	58,733	$	51,499
Earnings per Share Attributable to Kadant
Basic	$	2.70	$	2.38	$	5.01	$	4.40
Diluted	$	2.70	$	2.38	$	5.00	$	4.40

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

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

•Pre-tax charge to cost of revenue of $998,000 in the three months ended July 1, 2023 and $3,564,000 in the six months ended July 1, 2023 and reversal of $529,000 in the three months ended June 29, 2024 and $2,860,000 in the six months ended June 29, 2024 for the sale of inventory revalued at the date of acquisition.

•Pre-tax charge to SG&A expenses of $973,000 in the three months ended July 1, 2023 and $2,025,000 in the six months ended July 1, 2023 and reversal of $569,000 in the three months ended June 29, 2024 and $1,211,000 in the six months ended June 29, 2024 for intangible asset amortization related to acquired backlog.

•Pre-tax charge to SG&A expenses of $2,064,000 in the six months ended July 1, 2023 and reversal of $940,000 in the three months ended June 29, 2024 and $2,064,000 in the six months ended June 29, 2024 for acquisition costs.

•Estimated tax effects related to the pro forma adjustments.

These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have resulted had the acquisitions occurred as of the beginning of 2023, or that may result in the future.

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

3. Restructuring and Other Costs

Restructuring Costs

The Company initiated a restructuring plan within its Flow Control segment in the third quarter of 2023 to consolidate a small manufacturing operation into a larger facility in Germany. As part of this restructuring plan, the Company incurred restructuring and impairment costs totaling $400,000, including severance costs of $335,000 for the termination of 10 employees, facility and other closure costs of $29,000, and asset write-downs of $36,000.

The Company also incurred restructuring costs within its Flow Control segment of $366,000 in the fourth quarter of 2023 related to the termination of a contract at one of its operations in Germany.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


(In thousands)	Severance Costs		Contract Termination Costs		Total

2023 Restructuring Plans
Balance at December 30, 2023	$	201	$	313	$	514

Usage	(195)		(303)		(498)
Currency translation	(6)		(10)		(16)
Balance at June 29, 2024	$	—	$	—	$	—

Other Costs

The Company incurred costs of $74,000 in the three- and six-month periods ended July 1, 2023 within its Industrial Processing segment related to the write-down of certain fixed assets that were not moved to a new manufacturing facility in China and facility moving costs.

4. Earnings per Share

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


	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
(In thousands, except per share amounts)
Net Income Attributable to Kadant	$	31,291	$	29,734	$	55,980	$	57,809

Basic Weighted Average Shares	11,743		11,704		11,734		11,693
Effect of Restricted Stock Units and Employee Stock Purchase Plan Shares	23		19		21		16
Diluted Weighted Average Shares	11,766		11,723		11,755		11,709

Basic Earnings per Share	$	2.66	$	2.54	$	4.77	$	4.94

Diluted Earnings per Share	$	2.66	$	2.54	$	4.76	$	4.94

The effect of outstanding and unvested restricted stock units (RSUs) of the Company’s common stock totaling 25,000 shares in the second quarter of 2024, 26,000 shares in the second quarter of 2023, 29,000 in the first six months of 2024 and 32,000 in the first six months of 2023 were not included in the computation of diluted EPS for the respective periods as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods.

5. Provision for Income Taxes

The provision for income taxes was $19,846,000 in the first six months of 2024 and $20,945,000 in the first six months of 2023.

The effective tax rate of 26% in the first six months of 2024 was higher than the Company’s statutory rate of 21% primarily due to the distribution of the Company’s worldwide earnings, nondeductible expenses, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries. These items were offset in part by foreign tax credits and net excess income tax benefits from stock-based compensation arrangements.

The effective tax rate of 26% in the first six months of 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.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

6. Long-Term Obligations

Long-term obligations are as follows:


	June 29, 2024		December 30, 2023
(In thousands)
Revolving Credit Facility, due 2027	$	333,322	$	98,761
Senior Promissory Notes, due 2024 to 2028	8,330		8,330
Finance Leases, due 2024 to 2029	1,954		1,789
Other Borrowings, due 2024 to 2028	1,662		1,995
Total	345,268		110,875
Less: Current Maturities of Long-Term Obligations	(3,233)		(3,209)
Long-Term Obligations	$	342,035	$	107,666

See Note 10, 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's unsecured multi-currency revolving credit facility, originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement) matures on November 30, 2027 and has a borrowing capacity of $400,000,000, in addition to an uncommitted, unsecured incremental borrowing facility of $200,000,000. 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), Term CORRA, and RFR, as applicable and defined, plus an applicable margin of 1.0% to 2.25%. The margin is determined based upon the ratio of the Company's total debt, net of unrestricted cash up to $50,000,000, to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. 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%.

Obligations under the Credit Agreement, which includes customary events of default under such financing arrangements, may be accelerated upon the occurrence of an event of default. 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, 4.25 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.

During the first six months of 2024, the Company borrowed an aggregate of $295,200,000 under the Credit Agreement, which was primarily used to fund the Company's 2024 acquisitions. See Note 2, Acquisitions, for further details.

As of June 29, 2024, the outstanding balance under the Credit Agreement was $333,322,000, which included $73,322,000 of euro-denominated borrowings. The Company had $66,883,000 of borrowing capacity available as of June 29, 2024, which was calculated by translating its foreign-denominated borrowings using the administrative agent's borrowing date foreign exchange rates, in addition to the $200,000,000 uncommitted, unsecured incremental borrowing facility.

The weighted average interest rate for the outstanding balance under the Credit Agreement was 6.30% as of June 29, 2024 and 5.24% as of year-end 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.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Debt Compliance

As of June 29, 2024, the Company was in compliance with the covenants related to its debt obligations.

7. Stock-Based Compensation

The Company recognized stock-based compensation expense of $2,884,000 in the second quarter of 2024, $2,648,000 in the second quarter of 2023, $5,299,000 in the first six months of 2024 and $4,886,000 in the first six months of 2023 within 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 $13,840,000 at June 29, 2024, which will be recognized over a weighted average period of 1.9 years.

Non-Employee Director RSUs

On May 15, 2024, the Company granted an aggregate of 3,030 RSUs to its non-employee directors with an aggregate grant date fair value of $849,000, of which 50% vested on June 1, 2024, 25% will vest on the last day of the third fiscal quarter of 2024 and the remaining 25% will vest on the last day of the fourth fiscal quarter of 2024 subject to continued service as a director on the applicable vesting dates.

Performance-based RSUs

On March 6, 2024, the Company granted performance-based RSUs to certain of its officers, which represented, in aggregate, the right to receive 18,643 shares (target RSU amount), with an aggregate grant date fair value of $5,917,000. 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 2024 fiscal year, these performance-based RSUs will be forfeited. The Company recognizes compensation expense based on the probable number of performance-based RSUs expected to vest. Following the 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 2025, 2026, and 2027, provided that the officer is employed by the Company on the applicable vesting dates.

Time-based RSUs

On March 6, 2024, the Company granted time-based RSUs representing 14,109 shares to certain of its officers and employees with an aggregate grant date fair value of $4,461,000. These time-based RSUs vest in three equal annual installments on March 10 of 2025, 2026, and 2027, provided that a recipient is employed by the Company on the applicable vesting dates.

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KADANT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

8. 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		Pension and Other Post-Retirement Benefit Liability Adjustments		Deferred Loss on Cash Flow Hedges		Total
Balance at December 30, 2023	$	(43,013)	$	(11)	$	(38)	$	(43,062)
Other comprehensive items before reclassifications	(15,338)		7		—		(15,331)
Reclassifications from AOCI	—		(4)		38		34
Net current period other comprehensive items	(15,338)		3		38		(15,297)
Balance at June 29, 2024	$	(58,351)	$	(8)	$	—	$	(58,359)

9. Derivatives