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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 1, 2022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to _________
Commission file number 001-11406
KADANT INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 52-1762325 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
One Technology Park Drive
Westford, Massachusetts 01886
(Address of principal executive offices, including zip code)
(978) 776-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $.01 par value | | KAI | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2022, the registrant had 11,663,601 shares of common stock outstanding.
Kadant Inc.
Quarterly Report on Form 10-Q
for the Period Ended October 1, 2022
Table of Contents
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PART I: Financial Information |
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PART II: Other Information |
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PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
KADANT INC.
Condensed Consolidated Balance Sheet
(Unaudited)
| | | | | | | | | | | | | | |
| | 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 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KADANT INC.
Condensed Consolidated Statement of Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
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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 | |
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Weighted Average Shares (Note 3) | | | | | | | | |
Basic | | 11,662 | | | 11,580 | | | 11,651 | | | 11,571 | |
Diluted | | 11,700 | | | 11,668 | | | 11,681 | | | 11,644 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KADANT INC.
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KADANT INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | October 1, 2022 | | October 2, 2021 |
(In thousands) | | |
Operating Activities | | | | |
Net income attributable to Kadant | | $ | 94,849 | | | $ | 59,886 | |
Net income attributable to noncontrolling interest | | 672 | | | 635 | |
| | | | |
Net income | | 95,521 | | | 60,521 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 26,387 | | | 24,597 | |
Stock-based compensation expense | | 6,576 | | | 6,230 | |
Provision for losses on accounts receivable | | 685 | | | 116 | |
Gain on the sale of assets (Note 2) | | (20,190) | | | — | |
Noncash impairment costs (Note 2) | | 182 | | | — | |
Other items, net | | 8,260 | | | 2,262 | |
Changes in assets and liabilities, net of effects of acquisitions: | | | | |
Accounts receivable | | (20,700) | | | (22,305) | |
Unbilled revenue | | (8,528) | | | (487) | |
Inventories | | (33,784) | | | (10,553) | |
Other assets | | (4,560) | | | (10,209) | |
Accounts payable | | (262) | | | 19,822 | |
Customer deposits | | 16,163 | | | 19,613 | |
Other liabilities | | 1,712 | | | 11,803 | |
| | | | |
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Net cash provided by operating activities | | 67,462 | | | 101,410 | |
| | | | |
Investing Activities | | | | |
Acquisitions, net of cash acquired | | 138 | | | (141,538) | |
Purchases of property, plant, and equipment | | (16,191) | | | (7,688) | |
Proceeds from sale of property, plant, and equipment | | 2,091 | | | 102 | |
| | | | |
Other | | 39 | | | 537 | |
Net cash used in investing activities | | (13,923) | | | (148,587) | |
| | | | |
Financing Activities | | | | |
Repayment of short- and long-term obligations | | (69,460) | | | (72,723) | |
Proceeds from issuance of short- and long-term obligations | | 21,554 | | | 151,944 | |
Tax withholding payments related to stock-based compensation | | (4,607) | | | (3,388) | |
Dividends paid | | (8,969) | | | (8,559) | |
Dividend paid to noncontrolling interest | | (630) | | | (560) | |
Net cash (used in) provided by financing activities | | (62,112) | | | 66,714 | |
| | | | |
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash | | (10,474) | | | (2,513) | |
| | | | |
(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash | | (19,047) | | | 17,024 | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | | 94,161 | | | 66,640 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 75,114 | | | $ | 83,664 | |
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.
KADANT INC.
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
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| | 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 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KADANT INC.
Condensed Consolidated Statement of Stockholders' Equity (continued)
(Unaudited)
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| | 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.
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 1, 2022, its results of operations, comprehensive income, and stockholders' equity for the three- and nine-month periods ended October 1, 2022 and October 2, 2021 and its cash flows for the nine-month periods ended October 1, 2022 and October 2, 2021. Interim results are not necessarily indicative of results for a full year or for any other interim period.
The condensed consolidated balance sheet presented as of January 1, 2022 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the Annual Report). The condensed consolidated financial statements and related notes are presented as permitted by the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-Q and do not contain certain information included in the annual consolidated financial statements and related notes of the Company. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the 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 months ended October 1, 2022.
Supplemental Cash Flow Information | | | | | | | | | | | | | | |
| | Nine Months Ended |
(In thousands) | | October 1, 2022 | | October 2, 2021 |
Cash Paid for Interest | | $ | 3,907 | | | $ | 3,091 | |
Cash Paid for Income Taxes, Net of Refunds | | $ | 28,692 | | | $ | 19,320 | |
| | | | |
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 | |
Restricted Cash
The Company's restricted cash generally serves as collateral for certain banker's acceptance drafts issued to vendors and for bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business. The majority of the bank guarantees will expire over the next twelve months.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's condensed consolidated balance sheet that are shown in aggregate in the accompanying condensed consolidated statement of cash flows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | October 1, 2022 | | October 2, 2021 | | January 1, 2022 | | January 2, 2021 |
Cash and cash equivalents | | $ | 72,936 | | | $ | 82,600 | | | $ | 91,186 | | | $ | 65,682 | |
Restricted cash | | 2,178 | | | 1,064 | | | 2,975 | | | 958 | |
Total Cash, Cash Equivalents, and Restricted Cash | | $ | 75,114 | | | $ | 83,664 | | | $ | 94,161 | | | $ | 66,640 | |
Inventories
The components of inventories are as follows:
| | | | | | | | | | | | | | |
| | October 1, 2022 | | January 1, 2022 |
(In thousands) | | |
Raw Materials | | $ | 65,529 | | | $ | 59,177 | |
Work in Process | | 38,520 | | | 29,448 | |
Finished Goods | | 52,518 | | | 45,731 | |
| | $ | 156,567 | | | $ | 134,356 | |
Intangible Assets, Net
Gross intangible assets were $340,947,000 at October 1, 2022 and January 1, 2022. Intangible assets are recorded at fair value at the date of acquisition. Subsequent impairment charges are reflected as a reduction in the gross balance, as applicable. Definite-lived intangible assets are stated net of accumulated amortization and currency translation in the accompanying condensed consolidated balance sheet. The Company amortizes definite-lived intangible assets over lives that have been determined based on the anticipated cash flow benefits of the intangible asset. Accumulated amortization was $151,001,000 at October 1, 2022 and $135,327,000 at January 1, 2022.
KADANT INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 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.
Warranty Obligations
The Company's contracts covering the sale of its products include warranty provisions that provide assurance to its customers that the products will comply with agreed-upon specifications during a defined period of time. The Company provides for the estimated cost of product warranties at the time of sale based on historical occurrence rates and repair costs, as well as knowledge of any specific warranty problems that indicate projected warranty costs may vary from historical patterns. The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications.
The Company's liability for warranties is included in other current liabilities in the accompanying condensed consolidated balance sheet.
The changes in the carrying amount of product warranty obligations are as follows:
| | | | | | | | | | | | | | |
| | Nine Months Ended |
(In thousands) | | October 1, 2022 | | October 2, 2021 |
Balance at Beginning of Year | | $ | 7,298 | | | $ | 7,064 | |
Provision charged to expense | | 3,637 | | | 3,289 | |
Usage | | (3,361) | | | (3,106) | |
Acquisitions | | — | | | 429 | |
Currency translation | | (877) | | | (210) | |
Balance at End of Period | | $ | 6,697 | | | $ | 7,466 | |
Revenue Recognition
Most of the Company’s revenue relates to products and services that require minimal customization and is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. The remaining portion of the Company’s revenue is recognized over time based on an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation. Contracts are accounted for on an over time basis when they include products which have no alternative use and an enforceable right to payment over time. Most of the contracts recognized on an over time basis are for large capital projects. These projects are highly customized for the customer and, as a result, would include a significant cost to rework in the event of cancellation.
KADANT INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents revenue by revenue recognition method:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | October 1, | | October 2, | | October 1, | | October 2, |
(In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Point in Time | | $ | 201,557 | | | $ | 181,407 | | | $ | 603,117 | | | $ | 511,303 | |
Over Time | | 22,953 | | | 18,382 | | | 69,522 | | | 56,760 | |
| | $ | 224,510 | | | $ | 199,789 | | | $ | 672,639 | | | $ | 568,063 | |
The Company disaggregates its revenue from contracts with customers by reportable operating segment, product type and geography as this best depicts how its revenue is affected by economic factors.
The following table presents the disaggregation of revenue by product type and geography:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | October 1, | | October 2, | | October 1, | | October 2, |
(In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Revenue by Product Type: | | | | | | | | |
Parts and consumables | | $ | 141,857 | | | $ | 131,225 | | | $ | 433,781 | | | $ | 374,307 | |
Capital | | 82,653 | | | 68,564 | | | 238,858 | | | 193,756 | |
| | $ | 224,510 | | | $ | 199,789 | | | $ | 672,639 | | | $ | 568,063 | |
Revenue by Geography (based on customer location): | | | | | | | | |
North America | | $ | 126,699 | | | $ | 105,384 | | | 375,115 | | | 307,243 | |
Europe | | 57,409 | | | 58,813 | | | 174,264 | | | 159,281 | |
Asia | | 26,953 | | | 25,504 | | | 87,916 | | | 72,046 | |
Rest of world | | 13,449 | | | 10,088 | | | 35,344 | | | 29,493 | |
| | $ | 224,510 | | | $ | 199,789 | | | $ | 672,639 | | | $ | 568,063 | |
See Note 10, Business Segment Information, for information on the disaggregation of revenue by reportable operating segment. The following table presents contract balances from contracts with customers:
| | | | | | | | | | | | | | |
| | October 1, 2022 | | January 1, 2022 |
(In thousands) | | |
Contract Assets | | $ | 16,064 | | | $ | 8,626 | |
Contract Liabilities | | $ | 80,950 | | | $ | 77,004 | |
Contract assets represent unbilled revenue associated with revenue recognized on contracts accounted for on an over time basis, which will be billed in future periods based on the contract terms. Contract liabilities consist of short- and long-term customer deposits, advanced billings, and deferred revenue. Deferred revenue is included in other current liabilities and long-term customer deposits are included in other long-term liabilities in the accompanying condensed consolidated balance sheet. Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met. The majority of the contract liabilities relate to advance payments on contracts accounted for at a point in time. These advance payments will be recognized as revenue when the Company's performance obligations have been satisfied, which typically occurs when the product has shipped and control of the asset has transferred to the customer.
The Company recognized revenue of $11,912,000 in the third quarter of 2022 and $3,973,000 in the third quarter of 2021, $59,813,000 in the first nine months of 2022 and $31,183,000 in the first nine months of 2021 that was included in the contract liabilities balance at the beginning of 2022 and 2021, respectively. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital contracts require long lead times and could take up to 24 months to complete. For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations as of October 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.
KADANT INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Banker's Acceptance Drafts Included in Accounts Receivable
The Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date. These drafts, which totaled $6,755,000 at October 1, 2022 and $8,049,000 at January 1, 2022, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.
Recent Accounting Pronouncements 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 to occupy its current facility until construction of a new facility is complete. The agreements became effective in the first quarter of 2022 after a 31% down payment was received, including 25% in 2021 and 6% in the first quarter of 2022, and a land use right in a new location was secured. As a result, the Company recognized a gain on the sale of these assets of $20,190,000, or $15,143,000, net of deferred taxes of $5,047,000, in the first quarter of 2022. A receivable of $16,082,000 was recognized for the present value of the remaining amount of the sale proceeds, which is due the earlier of when the government sells the property or within two years from the effective date of the agreements. The receivable outstanding at October 1, 2022 was $14,646,000. This receivable is included in other assets in the accompanying condensed consolidated balance sheet.
Other Costs
During the first quarter of 2022, the Company recognized an impairment charge of $182,000 associated with the 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, 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.
KADANT INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Earnings per Share
Basic and diluted earnings per share (EPS) were calculated as follows: