10q10k10q10k.net

What changed in KADANT INC's 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of KADANT INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+256 added−266 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-28)

Top changes in KADANT INC's 2024 10-K

256 paragraphs added · 266 removed · 193 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

47 edited+8 added−5 removed41 unchanged
Biggest changeIn addition, within our Flow Control, Industrial Processing, and Material Handling segments, no single customer accounted for more than 10% of each of the respective segment's revenue. Approximately 55% in 2022, 58% in 2021, and 55% in 2020, of our consolidated revenue were to customers outside the United States, principally in Europe, Asia and Canada.
Biggest changeDependency on a Single Customer No single customer accounted for 10% or more of our consolidated revenue in any of the past three years. In addition, within our Flow Control, Industrial Processing, and Material Handling segments, no single customer accounted for more than 10% of each of the respective segment's revenue.
Our systems and equipment are also used to efficiently and effectively distribute steam in a wide variety of industrial processing applications. Doctoring, Cleaning, & Filtration We develop, manufacture, and market a wide range of doctoring, cleaning, and filtration systems and related consumables that continuously clean rolls to keep paper machines and other industrial processes running efficiently.
Our systems and equipment are also used to efficiently and effectively distribute steam in a variety of industrial processing applications. Doctoring, Cleaning, & Filtration We develop, manufacture, and market a wide range of doctoring, cleaning, and filtration systems and related consumables that continuously clean rolls to keep paper machines and other industrial processes running efficiently.
Our principal doctoring, cleaning, and filtration products include: – Doctor systems and holders: Our doctor systems clean papermaking rolls to maintain the efficient operation of paper machines and other equipment by placing a blade against the roll at a constant and uniform pressure.
Our principal doctoring, cleaning, and filtration products include: – Doctor systems and holders: Our doctor systems clean papermaking rolls to maintain the efficient operation of paper machines and other equipment by placing a blade against the roll at constant and uniform pressure.
Colwell previously served as the president of Kadant Carmanah Design, a division of our subsidiary Kadant Canada Corp., from 2013 to 2019. Carmanah, which is part of our wood processing business, designs and manufactures equipment for the oriented strand board industry. Mr.
Colwell previously served as the president of Kadant Carmanah Design (Carmanah), a division of our subsidiary Kadant Canada Corp., from 2013 to 2019. Carmanah, which is part of our wood processing business, designs and manufactures equipment for the oriented strand board industry. Mr.
A doctor system consists of the structure supporting the blade and the blade holder. – Doctor blades: We manufacture doctor and scraper blades made of a variety of materials including metal, bi-metal, or synthetic materials that perform a variety of functions including cleaning, creping, web removal, flaking, and applying coatings.
A doctor system consists of the structure supporting the blade and the blade holder. – Doctor blades: We manufacture doctor and scraper blades made of a variety of materials including metal, bi-metal, and synthetic materials that perform a variety of functions including cleaning, creping, web removal, flaking, and applying coatings.
The Material Handling segment consists of our conveying and vibratory, baling, and fiber-based product lines. Conveying and Vibratory Equipment We develop, manufacture, and market conveying and vibratory equipment and systems to various process industries, including mining, aggregates, food processing, packaging, and pulp and paper.
The Material Handling segment consists of our conveying and vibratory, baling, and fiber-based product lines. Conveying and Vibratory Equipment We develop, manufacture, and market conveying and vibratory equipment and systems to various process industries, including mining, aggregates, food processing, packaging, and paper.
Flow Control Segment We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on various dates ranging from 2023 to 2050, related to fluid handling and doctoring, cleaning, and filtration equipment. From time to time, we enter into licenses with other companies for products that serve the pulp, papermaking, converting, and paper recycling industries.
Flow Control Segment We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on various dates ranging from 2025 to 2050, related to fluid handling and doctoring, cleaning, and filtration equipment. From time to time, we enter into licenses with other companies for products that serve the pulp, papermaking, converting, and paper recycling industries.
We operate research and development facilities in the United States, Europe, and Canada, and focus our product innovations on process industry challenges and the need for improved fiber processing, heat transfer, roll and fabric cleaning, fluid handling, timber harvesting, wood processing, and secondary material handling.
We operate research and development facilities in the United States, Europe, and Canada, and focus our product innovations on process industry challenges and the need for improved fiber processing, heat transfer, roll and fabric cleaning, fluid handling, wood processing, and secondary material handling.
Material Handling Segment We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on various dates ranging from 2023 to 2041, related to various aspects of conveyor belt systems and conveying apparatus, and baling equipment.
Material Handling Segment We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on various dates ranging from 2024 to 2041, related to various aspects of conveyor belt systems and conveying apparatus, and baling equipment.
Westerhout 58 Vice President (2021) Mr. Powell has been our chief executive officer and a director since July 2019 and our president since April 2019. He served as an executive vice president and a co-chief operating officer from March 2018 to March 2019.
Westerhout 59 Vice President (2021) Mr. Powell has been our chief executive officer and a director since July 2019 and our president since April 2019. He served as an executive vice president and a co-chief operating officer from March 2018 to March 2019.
Everyone is valued and appreciated for their distinct contributions to the growth and sustainability of our business. We strive to cultivate a culture of diversity and inclusion that supports and enhances our ability to recruit, develop and retain talent at every level. As of December 31, 2022, we had approximately 3,100 full-time employees worldwide.
Everyone is valued and appreciated for their distinct contributions to the growth and sustainability of our business. We strive to cultivate a culture of diversity and inclusion that supports and enhances our ability to recruit, develop and retain talent at every level. As of December 30, 2023, we had approximately 3,100 full-time employees worldwide.
Kadant Inc. trades on the New York Stock Exchange under the ticker symbol "KAI." Unless otherwise noted, references to 2022, 2021, and 2020 in this Annual Report on Form 10-K are to our fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, respectively.
Kadant Inc. trades on the New York Stock Exchange under the ticker symbol "KAI." Unless otherwise noted, references to 2023, 2022, and 2021 in this Annual Report on Form 10-K are to our fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.
Of our full-time employees, approximately 46% were in North America, 32% were in Europe and 19% were in Asia. Other than certain of our Canadian employees and typical works co uncils outside of the U.S., none of our employees are represented by labor unions or covered by a collective bargaining agreement.
Of our full-time employees, approximately 45% were in North America, 32% were in Europe and 20% were in Asia. Other than certain of our Canadian employees and typical works co uncils outside of the U.S., none of our employees are represented by labor unions or covered by a collective bargaining agreement.
We license one of our two significant product brand names, Link-Belt®, from a third party pursuant to a trademark license agreement. Approximately a quarter of our Material Handling segment revenue in 2022 was generated by sales of conveying equipment under the Link-Belt® name.
We license one of our two significant product brand names, Link-Belt®, from a third party pursuant to a trademark license agreement. Approximately 31% of our Material Handling segment revenue in 2023 was generated by sales of conveying equipment under the Link-Belt® name.
Doctoring and cleaning systems are also used in other process industries such as carbon fiber, textiles and food processing.
Doctoring and cleaning systems are also used in other process industries such as carbon fiber, textiles, food, and metals.
We expect that one significant driver of our growth over the next several years will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry. In recent years, we have acquired several businesses and continue to pursue acquisition opportunities.
We expect that a significant driver of our long-term growth will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry. We have acquired several businesses in recent years and continue to pursue acquisition opportunities.
Sales and Marketing We market and sell our engineered products, services, and systems to process industries using a combination of a direct sales force and independent sales agents and distributors depending on the market and product being sold. Technical service personnel, product specialists, and independent sales agents and distributors are utilized in certain markets and with certain product lines.
Sales and Marketing We market and sell our engineered products, services, and systems to process industries using a combination of direct sales, independent sales agents, and distributors depending on the market and product being sold. Technical service personnel, product specialists, and other subject matter experts are utilized in certain markets and with certain product lines.
He previously served as our vice president from July 2019 to July 2022 with supervisory responsibility for our stock-preparation business, which is part of our Industrial Processing segment, and our baling product 7 Table of Contents Kadant Inc. line, which is part of our Material Handling segment. Prior to July 2019, Mr.
He previously served as our vice president from July 2019 to July 2022 with supervisory responsibility for our stock-preparation business, which is part of our Industrial Processing segment, and our baling product line, which is part of our Material Handling segment. Prior to July 2019, Mr.
Industrial Processing Segment We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on various dates ranging from 2023 to 2040, related to stock-preparation and wood processing systems and equipment.
Industrial Processing Segment We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on various dates ranging from 2024 to 2042, related to stock-preparation and wood processing systems and equipment.
In addition to internal product development activities, our research centers allow customers to simulate their own operating conditions and applications to identify and quantify opportunities for improvement. Our research and development expenses were $12.7 million in 2022, $11.4 million in 2021, and $11.3 million in 2020.
In addition to internal product development activities, our research centers allow customers to simulate their own operating conditions and applications to identify and quantify opportunities for improvement. Our research and development expenses were $13.6 million in 2023, $12.7 million in 2022, and $11.4 million in 2021.
Our principal fluid-handling systems and equipment include: – Rotary joints: Our mechanical devices, used with rotating shafts, allow the transfer of pressurized fluid from a stationary source into and out of rotating machinery for heating, cooling, or the transfer of fluid power. – Syphons: Our devices, installed inside rotating cylinders, are used to remove fluids from the rotating cylinders through rotary joints or unions located on either end of the cylinder. – Turbulator® bars: Our steel or stainless steel axial bars, installed on the inside of cylinders, are used to induce turbulence in the condensate layer to improve the uniformity and rate of heat transfer through the cylinders. – Expansion joints: Our rubber, metal, fabric and other materials are used to compensate for movement due to thermal expansion, vibration and other causes. – Engineered steam and condensate systems: Our steam systems control the flow of steam from the boiler to steam-heated rolls or processing machinery, collect condensed steam, and return it to the boiler to improve energy efficiency during the manufacturing process.
Our principal fluid-handling systems and equipment include: – Rotary joints: Our mechanical sealing devices, used with rotating shafts, allow the transfer of pressurized fluid from a stationary source into and out of rotating machinery for heating, cooling, or the transfer of fluid power. – Syphons: Our devices, installed inside rotating cylinders, are used to remove fluids from the rotating cylinders through rotary joints or unions located on either end of the cylinder. – Turbulator® bars: Our steel or stainless steel axial bars, installed on the inside of cylinders, are used to induce turbulence in the condensate layer to improve the uniformity and rate of heat transfer through the cylinders. – Expansion joints: Our rubber, metal, fabric, and polytetrafluoroethylene (PTFE) expansion joints are used to compensate for movement in industrial piping systems due to thermal expansion, vibration and other causes. – Engineered steam and condensate systems: Our steam systems and advanced controls manage the flow of steam from the boiler to steam-heated rolls or processing machinery, collect condensed steam, and return it to the boiler to facilitate efficient energy utilization during the manufacturing process.
In addition, a significant portion of our business is generated from our worldwide customer base. To maintain this base, we have emphasized our global presence, local support, and problem-solving relationship with our customers.
In addition, a significant portion of our business is generated from our worldwide customer base. 4 Table of Contents Kadant Inc. To maintain this base, we have emphasized our global presence, local support, and problem-solving relationship with our customers.
Our success primarily depends on the following factors: 4 Table of Contents Kadant Inc. – Technical expertise and process knowledge; – Product innovation; – Product quality, reliability, and performance; – Operating efficiency of our products; – Customer service and support; – Relative price of our products; and – Total cost of ownership of our products.
Our success primarily depends on the following factors: – Technical expertise and process knowledge; – Product innovation; – Product quality, reliability, and performance; – Operating efficiency of our products; – Customer service and support; – Relative price of our products; and – Total cost of ownership of our products.
Business Segments and Products We report our financial results by combining operating entities into three reportable operating segments: Flow Control, Industrial Processing, and Material Handling. See Note 12 , Business Segment and Geographical Information, in the accompanying consolidated financial statements for financial information regarding our segments.
Business Segments and Products We report our financial results by combining operating entities into three reportable operating segments: Flow Control, Industrial Processing, and Material Handling. See Note 12 , Business Segment and Geographical Information, in the accompanying consolidated financial statements for financial information regarding our segments. 1 Table of Contents Kadant Inc.
Industrial Processing Segment Through our Industrial Processing segment, we provide equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products and alternative fuel industries, among others. In addition, we provide industrial automation and digitization solutions to process industries.
Industrial Processing Segment Through our Industrial Processing segment, we provide equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products and alternative fuel industries, among others. 2 Table of Contents Kadant Inc. In addition, we provide industrial automation and digitization solutions to process industries.
Information about our Executive Officers The following table summarizes certain information concerning our executive officers as of February 17, 2023: Name Age Present Title (Fiscal Year First Became Executive Officer) Jeffrey L. Powell 64 President and Chief Executive Officer (2009) Michael J. McKenney 61 Executive Vice President and Chief Financial Officer (2002) Stacy D.
Information about our Executive Officers The following table summarizes certain information concerning our executive officers as of February 16, 2024: Name Age Present Title (Fiscal Year First Became Executive Officer) Jeffrey L. Powell 65 President and Chief Executive Officer (2009) Michael J. McKenney 62 Executive Vice President and Chief Financial Officer (2002) Stacy D.
Our principal conveying and vibratory products include: – Vibratory equipment: feeders, screens, and flow aides utilized in the feeding of rugged and non-rugged materials as well as in mixing, blending, and packaging of fragile materials with speed and precision. – Conveying equipment: transport idlers, power terminal units, and electric controls, used to transport bulk materials in harsh above- and below-ground mining environments; and screw conveyors and bucket elevators used for material handling operations in agricultural, food, and paper markets.
Our principal conveying and vibratory products include: – Vibratory equipment: feeders, screens, and flow aides utilized in the feeding of rugged and non-rugged materials as well as in mixing, blending, and packaging of fragile materials with speed and precision. – Conveying equipment: transport idlers, power terminal units, and electric controls, used to transport bulk materials in harsh above- and below-ground mining environments; and screw conveyors and feeders, slide gates, and bucket elevators used for material handling operations in the agricultural, food, chemical, and paper industries, among others. 3 Table of Contents Kadant Inc.
Mitchell was a principal at NewDelta Partners, an investment banking and strategic advisory firm, and investment director at 3i, a global private equity firm where she was responsible for investing in technology companies. Ms.
Mitchell was a principal at NewDelta Partners, an investment banking and strategic advisory firm, and investment director at 3i, a global private equity firm where she was responsible for investing in technology companies. 7 Table of Contents Kadant Inc. Ms.
Our rotary debarkers and related parts and consumables employ a combination of mechanical abrasion and log-to-log contact to efficiently remove bark from logs of all shapes and species. – Stranders: Our disc and ring stranders and related parts and consumables cut batch-fed and tree-length logs into strands for OSB production and are used to manage strands in real time using our proprietary conveying and feeding equipment. – Chippers: Our disc, drum, and veneer chippers and related parts and consumables are high-quality, robust chipper systems for waste-wood and whole-log applications found in pulp woodrooms, chip plants, and sawmill and planer mill sites. – Logging machinery: Our log loaders and swing yarders are used to gather timber for lumber production. – Industrial Automation and Control: We provide industrial automation, process technology, and project management services to help industrial companies digitally transform their operations.
Our rotary debarkers and related parts and consumables employ a combination of mechanical abrasion and log-to-log contact to efficiently remove bark from logs of all shapes and species. – Stranders: Our disc and ring stranders and related parts and consumables cut batch-fed and tree-length logs into strands for OSB production and are used to manage strands in real time using our proprietary conveying and feeding equipment. – Chippers: Our disc, drum, and veneer chippers and related parts and consumables are high-quality, robust chipper systems for waste-wood and whole-log applications found in pulp woodrooms, chip plants, and sawmill and planer mill sites. – Engineered knife systems: Our equipment includes custom chipping, planing, and flaking products and systems used in sawmills, pulp mills, chip plants and other applications. – Industrial automation and control: We provide industrial automation, process technology, and project management services to help industrial companies digitally transform their operations.
A typical paper machine has between three and 12 fabrics. These fabrics can easily become contaminated with fiber, fillers, pitch, and dirt that can have a detrimental effect on paper machine performance and paper quality.
These fabrics can easily become contaminated with fiber, fillers, pitch, and dirt that can have a detrimental effect on paper machine performance and paper quality.
Flow Control Segment Through our Flow Control segment, we provide custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors.
Flow Control Segment Through our Flow Control segment, we provide custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors. The Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration product lines.
The Industrial Processing segment consists of our wood processing and stock-preparation product lines. 2 Table of Contents Kadant Inc. Wood Processing We develop, manufacture, and market debarkers, stranders, chippers, logging machinery, and related equipment used in the harvesting and production of lumber and oriented strand board (OSB). In addition, we provide industrial automation and digitization solutions to process industries.
The Industrial Processing segment consists of our wood processing and stock-preparation product lines. Wood Processing We develop, manufacture, and market debarkers, stranders, chippers, and related equipment used in the production of lumber, oriented strand board (OSB) and other wood products. In addition, we provide industrial automation and digitization solutions to process industries.
Our compensation and benefits program is designed to attract and retain talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders.
Compensation and Benefits As part of these efforts, we strive to offer a competitive compensation and benefits program. Our compensation and benefits program is designed to attract and retain talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders.
Krause 46 Senior Vice President, General Counsel, and Secretary (2018) Dara F. Mitchell 54 Senior Vice President, Corporate Development (2021) Deborah S. Selwood 54 Senior Vice President and Chief Accounting Officer (2015) Peter J. Flynn 72 Senior Vice President (2019) Thomas Andrew Blanchard 64 Vice President (2021) Michael C. Colwell 57 Vice President (2019) Fredrik H.
Krause 47 Senior Vice President, General Counsel, and Secretary (2018) Dara F. Mitchell 55 Senior Vice President, Corporate Development (2021) Deborah S. Selwood 55 Senior Vice President and Chief Accounting Officer (2015) Peter J. Flynn 73 Senior Vice President (2019) Thomas Andrew Blanchard 65 Vice President (2021) Michael C. Colwell 58 Vice President (2019) Fredrik H.
Backlog Our backlog of firm orders by segment are as follows: (In millions) December 31, 2022 January 1, 2022 Flow Control $ 80.2 $ 73.1 Industrial Processing 197.8 185.2 Material Handling 67.3 51.6 $ 345.3 $ 309.9 We anticipate that the majority of the backlog at year-end 2022 will be shipped within 24 months.
Backlog Our backlog of firm orders by segment are as follows: (In millions) December 30, 2023 December 31, 2022 Flow Control $ 79.6 $ 80.2 Industrial Processing 176.5 197.8 Material Handling 54.3 67.3 $ 310.4 $ 345.3 We anticipate that the majority of the backlog at year-end 2023 will be shipped within 12 months.
Industrial Processing Segment Our Industrial Processing segment is subject to seasonal variations, with demand for our wood processing products tending to be greater during the building and timber harvesting season, which generally occurs in the second and third quarters in North America.
Seasonal Influences Flow Control Segment There are no material seasonal influences on this segment's sales of products and services. Industrial Processing Segment Our Industrial Processing segment is subject to seasonal variations, with demand for our wood processing products tending to be greater during the building season, which generally occurs in the second and third quarters in North America.
A typical doctor blade has a life ranging from eight hours to two months, depending on the application. – Shower and fabric-conditioning systems: Our shower and fabric-conditioning systems assist in the removal of contaminants that collect on paper machine fabrics used to convey the paper web through the forming, pressing, and drying sections of the paper machine.
A typical doctor blade has a life ranging from eight hours to two months, depending on the application. – Cleaning showers and fabric-conditioning systems: Our cleaning shower and fabric-conditioning systems assist in the removal of contaminants that collect on paper machine fabrics and roll surfaces. A typical paper machine has between three and 12 fabrics and multiple rolls.
Our shower and fabric-conditioning systems assist in the removal of these contaminants. – Formation systems: We supply structures that drain, purify, and recycle process water from the pulp mixture during paper sheet and web formation. – Water-filtration systems: We offer a variety of filtration systems and strainers that remove contaminants from process water before reuse and recover reusable fiber for recycling back into the pulp mixture.
Our cleaning shower and fabric-conditioning systems assist in the removal of these contaminants. – Forming systems and wear surfaces: We supply structures that drain, purify, and recycle process water from the pulp mixture during paper sheet and web formation.
The SEC maintains a website that contains reports, proxy and information statements, and other information that are filed electronically by issuers with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov.
Available Information We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC) under the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements, and other information that are filed electronically by issuers with the SEC.
We offer comprehensive, locally relevant benefits to all eligible employees which include, among other benefits: – Comprehensive health insurance coverage; – Retirement benefits; – Life insurance and disability benefits; and – Leave and wellness benefits. Safety We maintain a safety-first culture grounded on the premise of eliminating workplace incidents, risks and hazards.
We offer comprehensive, locally relevant benefits to all eligible employees which include, among other benefits: 6 Table of Contents Kadant Inc. – Comprehensive health insurance coverage; – Retirement benefits; – Life insurance and disability benefits; and – Leave and wellness benefits.
Baling We develop, manufacture, and market individual components and equipment for baling recyclable and waste materials to prepare them for secondary processing, transport, or storage.
Baling We develop, manufacture, and market individual components and equipment for baling recyclable and waste materials to prepare them for secondary processing, transport, or storage. Our principal baling products include horizontal channel balers, vertical balers, conveyors, compactors, and bale wrapping machines used in the processing of recyclable and waste materials.
Our fiber-based products business experiences fluctuations in sales, usually in the third quarter, when sales decline due to the seasonality of the agricultural and home lawn and garden markets. Human Capital Resources Talent, Development, Diversity and Inclusion The attraction, retention and development of exceptional employees is critical to our continued success.
Our fiber-based products business experiences fluctuations in sales, usually in the third quarter, when sales decline due to the seasonality of the agricultural and home lawn and garden markets. Human Capital Resources At Kadant, our culture is based on responsible and safe practices, supported by an engaged and empowered workforce.
We have created and implemented processes to help eliminate safety events by reducing their frequency and severity. Our commitment to safety is reinforced by our robust safety program and training. We believe that our employees are the core of our business, and we intend to continue building upon our culture to drive sustainable performance across the business.
We have created and implemented processes to help eliminate safety events by reducing their frequency and severity. Our commitment to safety is reinforced by our robust safety program and training. Talent, Development, Diversity and Inclusion The attraction, retention and development of exceptional employees is critical to our continued success.
We have numerous programs to attract and retain our talent, including leadership and executive development programs as well as technical and other training. We partner with vocational schools, community colleges, universities and associations to promote future careers in manufacturing through training and apprenticeship programs.
We partner with vocational schools, community colleges, universities and associations to promote future careers in manufacturing through training and apprenticeship programs. We also have a well-established performance management and talent development process in which managers provide regular feedback and coaching to develop employees.
The Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration product lines. 1 Table of Contents Kadant Inc. Fluid-Handling We develop, manufacture and market fluid-handling systems and equipment used in industrial piping systems to compensate for movement and to efficiently transfer fluid, power, and data.
Fluid-Handling We develop, manufacture and market fluid-handling systems and equipment used in industrial piping systems to compensate for movement and to efficiently transfer fluid, power, and data. Our products are used primarily in the production of fiber-based packaging, metals, food, energy, chemicals, textiles, plastics and rubber.
Our management team places significant focus and attention on matters concerning our human capital, particularly their diversity, capability development, and succession planning. Accordingly, we regularly review talent development and succession plans for each of our functions and operating segments, to identify and develop a pipeline of talent to maintain business operations.
Accordingly, we regularly review talent development and succession plans for each of our functions and operating segments, to identify and develop a pipeline of talent to maintain business operations. We have numerous programs to attract and retain our talent, including leadership and executive development programs as well as technical and other training.
These materials are primarily used as carriers in agricultural, home lawn and garden, professional lawn, turf and ornamental applications, and for oil and grease absorption. Dependency on a Single Customer No single customer accounted for 10% or more of our consolidated revenues in any of the past three years.
Fiber-based Products We manufacture and sell biodegradable, absorbent granules derived from papermaking by-products. These materials are primarily used as carriers in agricultural, home lawn and garden, professional lawn, turf and ornamental applications, and for oil and grease absorption.
Removed
Our products are used primarily in the dryer section of the papermaking process and during the production of corrugated packaging, metals, plastics, pharmaceuticals, energy, rubber, textiles, chemicals, and food. Expansion joints are used in industrial piping systems.
Added
On January 1, 2024, we acquired Key Knife, Inc. and certain of its affiliates (collectively, Key Knife) pursuant to a securities purchase agreement dated December 22, 2023, for approximately $156.0 million in cash, subject to certain customary adjustments.
Removed
Our principal baling products include: 3 Table of Contents Kadant Inc. – Balers and related equipment: Our equipment includes horizontal channel balers, vertical balers, conveyors, compactors, and bale wrapping machines used in the processing of recyclable and waste materials. Fiber-based Products We manufacture and sell biodegradable, absorbent granules derived from papermaking by-products.
Added
Key Knife is a global supplier of engineered knife systems for custom chipping, planing, and flaking solutions for wood products industries and is part of our Industrial Processing segment. On January 24, 2024, we acquired all of the outstanding equity securities of KWS Manufacturing Company, Ltd. (KWS), for approximately $84.0 million in cash, subject to certain customary adjustments.
Removed
Seasonal Influences Flow Control Segment There are no material seasonal influences on this segment's sales of products and services.
Added
KWS is a leading manufacturer of conveying equipment for the bulk material handling industry and is part of our Material Handling segment. See Note 2 , Acquisitions, and Note 15 , Subsequent Events, in the accompanying consolidated financial statements for further details regarding our acquisitions.
Removed
We also have a well-established performance management and talent development process in which managers provide regular feedback and coaching to develop employees. Compensation and Benefits As part of these efforts, we strive to offer a competitive compensation and benefits program.
Added
Our wear surfaces are used to remove water from the paper web as it travels across the structures in the forming section of the paper machine. – Water-filtration systems: We offer a variety of filtration systems and strainers that remove contaminants from process water before reuse and recover reusable fiber for recycling back into the pulp mixture.
Removed
For more information, please reference our Corporate Sustainability Report, which is available at www.kadant.com. 6 Table of Contents Kadant Inc. Available Information We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC) under the Exchange Act.
Added
Approximately 53% in 2023, 55% in 2022, and 58% in 2021, of our consolidated revenue were to customers outside the United States, principally in Europe, Asia and Canada.
Added
We believe that our employees are the core of our business, and we devote significant time and resources to their training and development. For more information, please reference our Corporate Sustainability Report, which is available at www.kadant.com. Safety We maintain a safety-first culture grounded on the premise of eliminating workplace incidents, risks and hazards.
Added
Subsequent to year-end 2023, with the acquisitions of Key Knife and KWS, we added approximately 300 full-time employees in North America. Our management team places significant focus and attention on matters concerning our human capital, particularly their diversity, capability development, and succession planning.
Added
The public can obtain any documents that we file with the SEC at www.sec.gov.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

59 edited+5 added−23 removed156 unchanged
Biggest changeInternational revenues and operations are subject to a number of risks which vary by geographic region, including the following: – agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; – foreign customers may have longer payment cycles; – foreign countries may impose additional withholding taxes or otherwise tax our foreign income; – economic sanctions, trade embargoes, tariffs, currency restrictions or other adverse trade regulations; – environmental and other regulations can adversely impact our ability to operate our facilities; – disruption from climate change, natural disaster, including earthquakes and/or tornadoes, fires, war, terrorist activity, and other force majeure events beyond our control; – changes in zoning laws that may require relocation of our manufacturing operations; – disruption from fast-spreading health epidemics and pandemics which have and may continue to result in widespread interruption of our business operations and those of our customers, supplier and vendors; – worsening economic conditions may result in worker unrest, labor actions, and potential work stoppages; – political and/or civil unrest may disrupt commercial activities of ours or our customers; – fluctuations in foreign currency exchange rates and foreign interest rates beyond our control; – it may be difficult to repatriate funds, due to unfavorable domestic and foreign tax consequences or other restrictions or limitations imposed by foreign governments; – the protection of intellectual property in foreign countries may be more difficult to enforce; and – any continuing effects on cross border trade and labor, and political and regulatory volatility resulting from the United Kingdom's exit from the European Union.
Biggest changeInternational revenues and operations are subject to a number of risks which vary by geographic region, including the following: – agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; – foreign customers may have longer payment cycles; – foreign countries may impose additional withholding taxes or otherwise tax our foreign income; – economic sanctions, trade embargoes, tariffs, currency restrictions or other adverse trade regulations; – environmental and other regulations can adversely impact our ability to operate our facilities; – disruption from climate change, natural disaster, including earthquakes and/or tornadoes, fires, war, terrorist activity, and other force majeure events beyond our control; – changes in zoning laws that may require relocation of our manufacturing operations; 15 Table of Contents Kadant Inc. – disruption from fast-spreading health epidemics and pandemics which have and may continue to result in widespread interruptions or restrictions on our employees' and other service providers' ability to travel, temporary closures of our facilities or the facilities of our customers, suppliers or other vendors in our supply chain, potentially including single source suppliers, other disruptions in the supply chain, and related issues, similar to what occurred during the COVID-19 pandemic; – worsening economic conditions may result in worker unrest, labor actions, and potential work stoppages; – political and/or civil unrest may disrupt commercial activities of ours or our customers; – fluctuations in foreign currency exchange rates and foreign interest rates beyond our control; – it may be difficult to repatriate funds, due to unfavorable domestic and foreign tax consequences or other restrictions or limitations imposed by foreign governments; – competition, especially in China, has increased as new companies enter the market and existing competitors expand their product lines and manufacturing operations; – the protection of intellectual property in foreign countries may be more difficult to enforce; and – any continuing effects on cross border trade and labor, and political and regulatory volatility resulting from the United Kingdom's exit from the European Union.
Other factors that could affect our share price and quarterly operating results include: 20 Table of Contents Kadant Inc. – changes in the assumptions used for revenue recognized over time; – fluctuations in revenues due to customer-initiated delays in product shipments; – failure of a customer to comply with an order's contractual obligations or inability of a customer to provide financial assurances of performance; – adverse changes in demand for and market acceptance of our products; – failure of our products to pass contractually agreed upon acceptance tests, which could delay or prohibit recognition of revenues under applicable accounting guidelines; – competitive pressures resulting in lower sales prices for our products; – adverse changes in the process industries we serve; – delays or problems in our introduction of new products or in the manufacture of our products; – our competitors' announcements of new products, services, or technological innovations; – contractual liabilities incurred by us related to guarantees of our product performance; – increased costs of raw materials or supplies, including the cost of energy; – changes in the timing of product orders; – changes in the estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, or expenses; – the impact of acquisition accounting and the treatment of acquisition and restructuring costs as period costs; – fluctuations in our outstanding indebtedness and associated interest expense; – fluctuations in our effective tax rate; – fluctuations in foreign currency exchange rates; – the operating and share price performance of companies that investors consider to be comparable to us; and – changes in global financial markets and global economies and general market conditions.
Other factors that could affect our share price and quarterly operating results include: – changes in the assumptions used for revenue recognized over time; – fluctuations in revenues due to customer-initiated delays in product shipments; – failure of a customer to comply with an order's contractual obligations or inability of a customer to provide financial assurances of performance; – adverse changes in demand for and market acceptance of our products; – failure of our products to pass contractually agreed upon acceptance tests, which could delay or prohibit recognition of revenues under applicable accounting guidelines; – competitive pressures resulting in lower sales prices for our products; – adverse changes in the process industries we serve; – delays or problems in our introduction of new products or in the manufacture of our products; – our competitors' announcements of new products, services, or technological innovations; – contractual liabilities incurred by us related to guarantees of our product performance; – increased costs of raw materials or supplies, including the cost of energy; – changes in the timing of product orders; – changes in the estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, or expenses; – the impact of acquisition accounting and the treatment of acquisition and restructuring costs as period costs; – fluctuations in our outstanding indebtedness and associated interest expense; – fluctuations in our effective tax rate; – fluctuations in foreign currency exchange rates; – the operating and share price performance of companies that investors consider to be comparable to us; and – changes in global financial markets and global economies and general market conditions. 20 Table of Contents Kadant Inc.
Our failure to comply with any of these restrictions or covenants may result in an event of default under our Credit Agreement, the Note Purchase Agreement, our swap agreement and other loan and note obligations, which could permit acceleration of the debt under those instruments and require us to repay the debt before its scheduled due date.
Our failure to comply with any of these restrictions or covenants may result in an event of default under our Credit Agreement, the Note Purchase Agreement and other loan and note obligations, which could permit acceleration of the debt under those instruments and require us to repay the debt before its scheduled due date.
In addition, many countries are implementing legislation and other guidance to align their international tax rules with the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentation rules, and nexus-based tax incentive practices.
In addition, many countries are implementing legislation and other guidance to align their international tax rules with the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentation rules, and nexus-based tax incentive practices.
In general, as significant capacity additions come online and the economic growth rate slows, paper producers have deferred and could in the future defer further investments or the delivery of previously-ordered equipment until the market absorbs the new production. Large capital equipment projects require a significant investment and may require our customers to secure financing from external sources.
In general, as significant capacity additions come online and the economic growth rate slows, our customers have deferred and could in the future defer further investments or the delivery of previously-ordered equipment until the market absorbs the new production. Large capital equipment projects require a significant investment and may require our customers to secure financing from external sources.
Our major foreign currency translation exposures involve the currencies in Europe, China, Brazil, Canada, and Mexico. For example, China's central bank has previously devalued the renminbi to boost the Chinese economy, which had a negative translation impact on our consolidated revenues and may in the future have a negative translation impact if this recurs.
Our major foreign currency translation exposures involve the currencies in Europe, China, Brazil, Canada, and Mexico. For example, China's central bank has previously devalued the renminbi to boost the Chinese economy, which had a negative translation impact on our consolidated revenue and may in the future have a negative translation impact if this recurs.
Cyclicality for original equipment sales is driven primarily by price volatility of the commodities that are mined using SMH’s equipment, including coal, salt, aggregates, potash, copper, iron ore and trona, or their substitutes, as well as product life cycles, competitive pressures and other economic factors affecting the mining industry, such as company consolidation, increased regulation and competition affecting demand for commodities, and the broader economy, including changes in government monetary or fiscal policies and from market expectations with respect to such policies.
Cyclicality for original equipment sales is driven primarily by price volatility of the commodities that are mined using SMH’s equipment, including coal, salt, 10 Table of Contents Kadant Inc. aggregates, potash, copper, iron ore and trona, or their substitutes, as well as product life cycles, competitive pressures and other economic factors affecting the mining industry, such as company consolidation, increased regulation and competition affecting demand for commodities, and the broader economy, including changes in government monetary or fiscal policies and from market expectations with respect to such policies.
A number of factors may cause our effective tax rate to fluctuate, including: changes in tax rates in various jurisdictions; unanticipated 13 Table of Contents Kadant Inc. changes in the amount of profit in jurisdictions in which the statutory tax rates may be higher or lower than the U.S. tax rate; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to income taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes, including impairments of goodwill in connection with acquisitions; and changes in available tax credits or our ability to utilize foreign tax credits.
A number of factors may cause our effective tax rate to fluctuate, including: changes in tax rates in various jurisdictions; unanticipated changes in the amount of profit in jurisdictions in which the statutory tax rates may be higher or lower than the U.S. tax rate; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to income taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes, including impairments of goodwill in connection with acquisitions; and changes in available tax credits or our ability to utilize foreign tax credits.
In addition, if a ransomware attack or other cybersecurity incident occurs, either internally or at our vendors or third-party technology service providers, we could be prevented from accessing our data or systems, which may cause interruptions or delays in our business operations, cause us to incur remediation costs, subject us to demands to pay a ransom, or damage our reputation, regardless of whether we pay the ransom amount.
In addition, if a ransomware attack or other cybersecurity incident occurs, either internally or at our vendors or third-party technology service providers, we could be prevented from accessing our data or systems, which may cause interruptions or 11 Table of Contents Kadant Inc. delays in our business operations, cause us to incur remediation costs, subject us to demands to pay a ransom, or damage our reputation, regardless of whether we pay the ransom amount.
Our Wood Processing product line can be materially impacted by changes to the global timber supply. Changes in the environment that affect natural resources such as timber may have significant effects on the sales of wood processing equipment by our Industrial Processing segment. Approximately 22% of our revenue in 2022 was from our Wood Processing product line.
Our Wood Processing product line can be materially impacted by changes to the global timber supply. Changes in the environment that affect natural resources such as timber may have significant effects on the sales of wood processing equipment by our Industrial Processing segment. Approximately 21% of our revenue in 2023 was from our Wood Processing product line.
Operating globally subjects us to various risks that may adversely affect our results of operations in the future. Policies of the Chinese government may negatively impact our business. We operate significant manufacturing facilities in China. In 2022, our sales to China were $85.5 million, or 9%, of our revenue.
Operating globally subjects us to various risks that may adversely affect our results of operations in the future. Policies of the Chinese government may negatively impact our business. We operate significant manufacturing facilities in China. In 2023, our sales to China were $81.5 million, or 9%, of our revenue.
Approximately 7% of our revenue in 2022 was from customers producing newsprint and printing and writing grades of paper. Significant declines in the production of printing and writing paper grades have also led to a drop in the construction of recycled tissue mills, as those mills use printing and writing grades of waste paper as their fiber source.
Approximately 4% of our revenue in 2023 was from customers producing newsprint and printing and writing grades of paper. Significant declines in the production of printing and writing paper grades have also led to a drop in the construction of recycled tissue mills, as those mills use printing and writing grades of waste paper as their fiber source.
If the United States were to withdraw from or materially modify the USMCA or impose significant tariffs or taxes on goods imported into the United States, the cost of our products could significantly increase or no longer be priced competitively, which in turn could have a material adverse effect on our business and results of operations. 17 Table of Contents Kadant Inc.
If the United States were to withdraw from or materially modify the USMCA or impose significant tariffs or taxes on goods imported into the United States, the cost of our products could significantly increase or no longer be priced competitively, which in turn could have a material adverse effect on our business and results of operations.
Changes in component prices, such as energy, 10 Table of Contents Kadant Inc. chemicals, wood-based fibers, and nonfiber alternatives can change the competitive position of OSB relative to other available alternatives and could increase substitution. Our customers' OSB production can be adversely affected by lower-cost producers of other wood panel products and substitutes for wood building products.
Changes in component prices, such as energy, chemicals, wood-based fibers, and nonfiber alternatives can change the competitive position of OSB relative to other available alternatives and could increase substitution. Our customers' OSB production can be adversely affected by lower-cost producers of other wood panel products and substitutes for wood building products.
New environmental and health legislation or administrative regulations relating to mining or affecting demand for mined materials or more stringent interpretations of existing laws and regulations, may require SMH’s customers to significantly change or curtail their operations. The mining industry has also encountered increased scrutiny as it relates to safety regulations.
New environmental and health legislation or administrative regulations relating to mining or affecting demand for mined materials or more stringent interpretations of existing laws and regulations, may require SMH’s customers to significantly change or curtail their operations. The mining industry has also 18 Table of Contents Kadant Inc. encountered increased scrutiny as it relates to safety regulations.
We believe these measures reduce, but cannot eliminate, the risk of an information security incident. Any significant security incidents could have an adverse impact on sales, harm our reputation and cause us to incur legal liability and increased costs to address such events and related security concerns. 12 Table of Contents Kadant Inc.
We believe these measures reduce, but cannot eliminate, the risk of an information security incident. Any significant security incidents could have an adverse impact on sales, harm our reputation and cause us to incur legal liability and increased costs to address such events and related security concerns.
Reductions in demand levels in any of these areas can negatively impact our business. As companies in 8 Table of Contents Kadant Inc. our customers' industries consolidate operations in response to market weakness, they frequently reduce capacity, increase downtime, defer maintenance and upgrades, and postpone or even cancel capacity additions or expansion projects.
Reductions in demand levels in any of these areas can negatively impact our business. As companies in our customers' industries consolidate operations in response to market weakness, they frequently reduce capacity, increase downtime, defer maintenance and upgrades, and postpone or even cancel capacity additions or expansion projects.
As a percentage of our Industrial Processing segment revenues, the two largest OSB customers accounted for 13% in 2022, 11% in 2021, and 9% in 2020. The loss of one or more of these OSB customers to a competitor could adversely affect our revenues and profitability. In addition, the market for building products is highly competitive.
As a percentage of our Industrial Processing segment revenues, the two largest OSB customers together accounted for 10% in 2023, 13% in 2022, and 11% in 2021. The loss of one or more of these OSB customers to a competitor could adversely affect our revenues and profitability. In addition, the market for building products is highly competitive.
Despite our security measures and internal controls, our information technology and infrastructure may be vulnerable to unauthorized access or attacks by nation states, hackers or cyber criminals or breaches due to employee error, malfeasance or other disruptions, such as business email compromises, phishing and other cyber-related fraud.
Despite our security measures and internal controls, our information technology and infrastructure has been and may in the future be vulnerable to unauthorized access or attacks by nation states, hackers or cyber criminals or breaches due to employee error, malfeasance or other disruptions, such as business email compromises, phishing and other cyber-related fraud.
The demand for capital equipment is variable and depends on a number of factors, including consumer demand for end products, existing manufacturing capacity, the level of capital spending by our customers and economic conditions. As a consequence, our bookings and revenues for capital projects tend to be variable and hard to predict.
The demand for capital equipment is variable and depends on a number of factors, including 8 Table of Contents Kadant Inc. consumer demand for end products, existing manufacturing capacity, the level of capital spending by our customers and economic conditions. As a consequence, our bookings and revenues for capital projects tend to be variable and hard to predict.
In addition, we may experience a loss if the contract is canceled, or the customer does not fulfill its obligations under the contract, prior to the receipt of a letter of credit or final payments covering the remaining balance of the contract, which could represent a significant portion of the total order.
In addition, we may experience a loss if the contract is canceled, or the customer does not fulfill its obligations under the contract, prior to the receipt of a letter of credit or final payments covering the remaining balance of the contract, which could represent a significant 16 Table of Contents Kadant Inc. portion of the total order.
Changes in economic conditions affecting the global mining industry can occur abruptly and unpredictably, which may have significant effects on the sale of equipment by our subsidiary, SMH, which is in our Material Handling segment. Approximately 4% of our revenue in 2022 was from SMH's mining customers.
Changes in economic conditions affecting the global mining industry can occur abruptly and unpredictably, which may have significant effects on the sale of equipment by our subsidiary, SMH, which is in our Material Handling segment. Approximately 6% of our consolidated revenue in 2023 was from SMH's mining customers.
If the third party were to terminate that license agreement, we would lose the right to use the Link-Belt® trademark in the marketplace and cease to benefit from any of its associated goodwill. Effects of climate change may adversely impact our business.
If the third party were to terminate that license agreement, we would lose the right to use the Link-Belt® trademark in the marketplace and cease to benefit from any of its associated goodwill. 14 Table of Contents Kadant Inc. Effects of climate change may adversely impact our business.
We may incur impairment charges to write down the value of our goodwill and acquired intangible assets in the future if the assets are not deemed recoverable, which could have a material adverse effect on our operating results.
We may incur impairment charges to write down the value of our goodwill and acquired intangible assets in the future if the assets are not deemed recoverable, which could have a material adverse effect on our operating results. 9 Table of Contents Kadant Inc.
Alternative sources of supply could be more expensive, or in some cases, we could be unable to locate such alternative sources. We believe our current sources of raw materials, commodities and critical components will generally be sufficient for our needs in the foreseeable future.
Alternative sources of supply could be more expensive, or in some cases, we could be unable to locate such alternative sources. 12 Table of Contents Kadant Inc. We believe our current sources of raw materials, commodities and critical components will generally be sufficient for our needs in the foreseeable future.
We manufacture capital equipment and systems used in process industries, including the paper, fluid handling, wood processing and material handling industries. Approximately 37% of our revenue in 2022 was from the sale of capital equipment to be used in process industries.
We manufacture capital equipment and systems used in process industries, including the paper, fluid handling, wood processing and material handling industries. Approximately 38% of our revenue in 2023 was from the sale of capital equipment to be used in process industries.
As a result, they may be able to adapt more quickly to new or emerging technologies, such as those related to factory digitalization, the industrial internet of things, and smart technology, and changes in customer requirements, or to devote greater resources to the promotion and sale of their services and products. Competitors' technologies may prove to be superior to ours.
As a result, they may be able to adapt more quickly to new or emerging technologies, such as those related to factory digitalization, the industrial internet of things, smart technology and artificial intelligence, and changes in customer requirements, or to devote greater resources to the promotion and sale of their services and products.
If we fail to enable the effective transfer of knowledge and facilitate smooth transitions for key personnel, the operating results and 14 Table of Contents Kadant Inc. future growth for our business could be adversely affected, and the morale and productivity of the workforce could be disrupted.
If we fail to enable the effective transfer of knowledge and facilitate smooth transitions for key personnel, the operating results and future growth for our business could be adversely affected, and the morale and productivity of the workforce could be disrupted.
For example, we received a request by local Chinese authorities to relocate one of our facilities, and have negotiated with the Chinese government regarding the relocation of such facility. Such relocation, and any relocations required in the future, may increase our costs and could have a material impact on our manufacturing operations.
For example, in 2022, we received a request by local Chinese authorities to relocate one of our facilities and, after negotiations with the Chinese government, completed the relocation of the facility in 2023. Such relocation, and any relocations required in the future, may increase our costs and could have a material impact on our manufacturing operations.
In addition, coal combustion typically generates significant greenhouse gas emissions and governmental and private sector goals and mandates 11 Table of Contents Kadant Inc. to reduce greenhouse gas emissions may increasingly affect the mix of electricity generation sources.
In addition, coal combustion typically generates significant greenhouse gas emissions and governmental and private sector goals and mandates to reduce greenhouse gas emissions may increasingly affect the mix of electricity generation sources.
In addition, our inability to borrow funds under our Credit Agreement would have significant consequences for our business, including reducing funds available for acquisitions and other investments in our business; and impacting our ability to pay dividends and meet other financial obligations.
In addition, our inability to borrow funds under our Credit Agreement would have significant consequences for our business, including reducing funds 19 Table of Contents Kadant Inc. available for acquisitions and other investments in our business; and impacting our ability to pay dividends and meet other financial obligations.
The conflict between Russia and Ukraine may also have the effect of heightening other risks disclosed in this Annual Report on Form 10-K, any of which could materially and adversely affect our business and results of operations.
The conflict between Russia and Ukraine, as well as other conflicts such as those in the Middle East, may also have the effect of heightening other risks disclosed in this Annual Report on Form 10-K, any of which could materially and adversely affect our business and results of operations.
Capacity growth and investment can be uneven and the larger paper producers have delayed, and may in the future delay, additional new capacity start-ups in reaction to softer market conditions.
Capacity growth and investment can be uneven and our customers have delayed, and may in the future delay, additional new capacity start-ups in reaction to softer market conditions.
In addition, our manufacture of certain products is concentrated in specific geographic locations. As a result of such concentration, we may be disproportionately exposed to the impact of any disruptions, regulations or delays that impact those geographic locations, which may negatively impact our ability to manufacture products produced in those locations and have an adverse effect on our business results.
As a result of such concentration, we may be disproportionately exposed to the impact of any disruptions, regulations or delays that impact those geographic locations, which may negatively impact our ability to manufacture products produced in those locations and have an adverse effect on our business results. 13 Table of Contents Kadant Inc.
Chinese containerboard producers have been looking to build capacity for fiber in Southeast Asia, with the intent to ship pulp back to 16 Table of Contents Kadant Inc. China for further processing.
Chinese containerboard producers have been looking to build capacity for fiber in Southeast Asia, with the intent to ship pulp back to China for further processing.
In 2022, our sales to Russia were $9.2 million, or 1% of our revenue. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets.
In 2023, our sales to Russia were $4.0 million, or less than 1% of our revenue. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts 17 Table of Contents Kadant Inc. and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets.
These conditions have resulted, and may in the future result, in a number of structural changes in process industries, including decreased spending, mill closures, consolidations, and bankruptcies, all of which negatively affect our business, revenue, and profitability.
These conditions, as well as other global events such as wars or global health crises, have resulted, and may in the future result, in a number of structural changes in process industries, including decreased spending, mill closures, consolidations, and bankruptcies, all of which negatively affect our business, revenue, and profitability.
Implementation of such new regulations could increase our costs or require us to modify our operations and negatively impact our business and results of operations. Since 2020, we have set annual goals related to environmental, social and governance (ESG) issues.
We also see the potential for higher energy costs driven by climate change regulations. Implementation of such new regulations could increase our costs or require us to modify our operations and negatively impact our business and results of operations. Since 2020, we have set annual goals related to environmental, social and governance (ESG) issues.
Demand for electricity and steel is affected by the global level of economic activity and economic growth. The pursuit of the most cost-effective form of electricity generation continues to take place throughout the world and coal-fired electricity generation faces intense price competition from other energy sources, particularly natural gas.
The pursuit of the most cost-effective form of electricity generation continues to take place throughout the world and coal-fired electricity generation faces intense price competition from other energy sources, particularly natural gas.
Changes in our tax provision or exposure to additional income tax liabilities could affect our profitability. We derive a significant portion of our revenue and earnings from our international operations, and are subject to income and other taxes in the United States and numerous foreign jurisdictions.
We derive a significant portion of our revenue and earnings from our international operations, and are subject to income and other taxes in the United States and numerous foreign jurisdictions.
We are subject to claims in the ordinary course of business. It is not always possible to prevent or detect activities giving rise to claims, and the precautions we take may not be effective in all cases. We maintain insurance policies that provide limited coverage for some, but not all, potential risks and liabilities associated with our business.
Our insurance coverage may be inadequate or expensive. We are subject to claims in the ordinary course of business. It is not always possible to prevent or detect activities giving rise to claims, and the precautions we take may not be effective in all cases.
Equipment and operating systems necessary for our manufacturing businesses may break down, perform poorly, or fail. Any such disruption could cause losses in efficiencies, delays in shipments of our products and the loss of sales and customers, and insurance proceeds may not adequately compensate us for our losses.
Any such disruption could cause losses in efficiencies, delays in shipments of our products and the loss of sales and customers, and insurance proceeds may not adequately compensate us for our losses.
Financial and economic turmoil affecting the worldwide economy or the banking system and financial markets, in particular due to political or economic developments, could cause the expectations for our business to differ materially in the future.
Financial and economic turmoil affecting the worldwide economy or the banking system and financial markets, in particular due to political or economic developments, have negatively affected, and may in the future negatively affect, our business and cause our results of operations to differ materially from our current expectations.
Stock markets in general and our common stock in particular experience significant price and volume volatility from time to time.
Risks Related to Ownership of our Capital Stock Our share price fluctuates and experiences price and volume volatility. Stock markets in general and our common stock in particular experience significant price and volume volatility from time to time.
We may not be able to access credit facilities in the future, complete transactions as intended, or otherwise obtain the benefit of the arrangements we have entered into with such financial parties, which could adversely affect our business and results of operations. Risks Related to Ownership of our Capital Stock Our share price fluctuates and experiences price and volume volatility.
These conditions could result in financial instability, bankruptcy, or other adverse effects at these financial institutions or counterparties. We may not be able to access credit facilities in the future, complete transactions as intended, or otherwise obtain the benefit of the arrangements we have entered into with such financial parties, which could adversely affect our business and results of operations.
Even if we successfully move our manufacturing processes, there is no assurance that the cost savings and efficiencies we anticipate will be achieved. Changes in zoning laws in China are requiring us to relocate certain of our manufacturing facilities.
Even if we successfully move our manufacturing processes, there is no assurance that the cost savings and efficiencies we anticipate will be achieved. Further, changes in zoning laws have impacted and may continue to impact our manufacturing and other operations.
A portion of our Material Handling segment is dependent on continued demand for coal, which is subject to economic and environmental risks. Approximately 4% and 2% of the Material Handling segment's 2022 revenues came from its thermal and metallurgical coal-mining customers, respectively. Many of these customers supply coal for the generation of electricity and/or steel production.
A portion of our Material Handling segment is dependent on continued demand for coal, which is subject to economic and environmental risks. Approximately 3% and 4% of our Material Handling segment's 2023 revenue came from its thermal and metallurgical coal-mining customers, respectively, which represented in aggregate less than 2% of our consolidated revenue.
If we have not responded in a satisfactory manner and demonstrated our commitment to addressing climate change, investors and customers' willingness to invest in, spend money with and otherwise provide capital to us may also be impacted. 15 Table of Contents Kadant Inc. Our insurance coverage may be inadequate or expensive.
There is a risk that we may not be able to meet the goals that we set and strive to meet. If we have not responded in a satisfactory manner and demonstrated our commitment to addressing climate change, investors and customers' willingness to invest in, spend money with and otherwise provide capital to us may also be impacted.
We may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage.
As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all.
New regulations promulgated in reaction to climate change could result in increased manufacturing costs associated with air pollution control or energy requirements, and increased or new monitoring, recordkeeping, and reporting of greenhouse gas emissions. We also see the potential for higher energy costs driven by climate change regulations.
Environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify product designs, or incur other expenses. New regulations promulgated in reaction to climate change could result in increased manufacturing costs associated with air pollution control or energy requirements, and increased or new monitoring, recordkeeping, and reporting of greenhouse gas emissions.
In addition, the Tax Cuts and Jobs Act of 2017 (2017 Tax Act) places certain limitations on the deductibility of interest expense as a percentage of adjusted taxable income.
The majority of our existing indebtedness bears interest at floating rates, and as a result, our interest payment obligations on our indebtedness will fluctuate if interest rates increase or decrease. In addition, the Tax Cuts and Jobs Act of 2017 (2017 Tax Act) places certain limitations on the deductibility of interest expense as a percentage of adjusted taxable income.
We have relationships with many financial institutions, including lenders under our credit facilities and insurance underwriters, and from time to time we execute transactions with counterparties in the financial industry, such as our interest rate swap agreement and other hedging transactions.
We have relationships with many financial institutions, including lenders under our credit facilities and insurance underwriters, and from time to time we execute transactions with counterparties in the financial industry, such as hedging transactions. In addition, our subsidiaries in China often hold banker's acceptance drafts that are received from customers in the normal course of business.
Climate change could also affect demand for our products by our customers that are affected by weather and weather-driven events, including seasonal changes in outdoor working conditions and rainfall levels. Climate change has also been cited as contributing to the increased likelihood around the world of hot and dry conditions in which wildfires and the destructive mountain pine beetle thrive.
Climate change could also affect demand for our products by our customers that are affected by weather and weather-driven events, including seasonal changes in outdoor working conditions and rainfall levels.
We expect that one significant driver of our growth over the next several years will be the acquisition of technologies and businesses that complement or augment our existing products and services or may involve entry into a new process industry.
Implementing our acquisition strategy involves risks, and our failure to successfully implement this strategy could have a material adverse effect on our business. We expect that a significant driver of our long-term growth will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry.
As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. In addition, certain risks generally are not fully insurable. Even where insurance coverage applies, insurers may contest their obligations to make payments.
In addition, certain risks generally are not fully insurable. Even where insurance coverage applies, insurers may contest their obligations to make payments.
Some countries intend to implement laws based on Pillar Two proposals, which may adversely impact our provision for income taxes, net income and cash flows. If we are unable to successfully manage our manufacturing operations, our ability to deliver products to our customers could be disrupted and our business, financial condition and results of operations could be adversely affected.
If we are unable to successfully manage our manufacturing operations, our ability to deliver products to our customers could be disrupted and our business, financial condition and results of operations could be adversely affected. Equipment and operating systems necessary for our manufacturing businesses may break down, perform poorly, or fail.
These financial institutions or counterparties could be adversely affected by volatile conditions in the financial markets, economic downturns, and difficult economic conditions. These conditions could result in financial instability, bankruptcy, or other adverse effects at these financial institutions or counterparties.
These drafts may be discounted or used to pay vendors prior to the scheduled maturity date or submitted to an acceptance bank for payment at the scheduled maturity date. These financial institutions or counterparties could be adversely affected by volatile conditions in the financial markets, economic downturns, and difficult economic conditions.
We maintain a cybersecurity insurance policy that provides limited coverage for some, but not all potential risks and liabilities associated with cyberattacks and other events, which may not be fully insurable.
We maintain insurance policies that provide limited coverage for some, but not all, potential risks and liabilities associated with our business. We may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented.
Our current products, those under development, and our ability to develop new technologies may not be sufficient to enable us to compete effectively. Competition, especially in China, has increased as new companies enter the market and existing competitors expand their product lines and manufacturing operations.
Competitors' technologies may prove to be superior to ours. Our current products, those under development, and our ability to develop new technologies may not be sufficient to enable us to compete effectively. Changes to tax laws and regulations could affect our profitability.
Removed
We have significant international sales and operations and face risks related to health epidemics and pandemics, including the COVID-19 pandemic, which has presented and may continue to present challenges to our business and results of operations.
Added
Many of these customers supply coal for the generation of electricity and/or steel production. Demand for electricity and steel is affected by the global level of economic activity and economic growth.
Removed
Our business and operations have been and may continue to be challenged by the effects of the COVID-19 pandemic and may be challenged by other adverse public health developments, including disruptions or restrictions on our employees’ and other service providers’ ability to travel, temporary closures of our facilities or the facilities of our customers, suppliers or other vendors in our supply chain, potentially including single source suppliers, and other disruptions in the supply chain.
Added
The OECD also released model rules introducing a new 15% global minimum tax for large multinational corporations with an annual global revenue exceeding 750.0 million euros (Pillar Two Rules).
Removed
In addition, the COVID-19 pandemic has impacted and other disease outbreaks could impact global trade, and adversely affect the U.S. or global economy and capital markets. The COVID-19 pandemic negatively affected the global economy, disrupted global supply chains, resulted in significant travel and transport restrictions and created significant volatility in the financial markets.
Added
Various countries, including the member states of the European Union, have implemented legislation adopting the Pillar Two Rules, which may negatively impact our provision for income taxes, net income and cash flows.
Removed
China's previous zero-COVID policy has resulted in the closure of one of our manufacturing facilities in China for a period of time and such policy, if reinstituted in the future, heightens the risk that our facilities in China may be closed by government authorities as a result of any COVID-19 cases in a particular geographic area, which could cause disruptions to our business that could adversely impact our financial results.
Added
In addition, our manufacture of certain products is concentrated in specific geographic locations.
Removed
With China ceasing its zero-COVID policy, our facilities in China are managing COVID-19 cases in its employee population, which has had and may continue to have an adverse effect on our operations.
Added
Climate change has also been cited as contributing to the increased likelihood around the world of hot and dry conditions in which wildfires and invasive species, like the destructive mountain pine beetle, thrive.
Removed
Additionally, our financial results have been adversely impacted and may be adversely impacted in the future by decreased levels of bookings, customer-requested delays on certain capital projects and service work, customer downtime and shutdowns, and visitation restrictions at customer facilities, all of which have affected and may adversely affect in the future our ability to recognize revenue for sales of our products and services.
Removed
We have incurred costs and may incur costs in the future related to pandemics, such as increased employee benefit costs, if our employees require hospitalization or other costly medical treatment.
Removed
The future impact of pandemics could include further disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. The COVID-19 pandemic has evolved and continues to evolve rapidly.
Removed
As a result, we cannot reasonably estimate the scope of the impact of this or other pandemics, including the potential impact of emerging variants or the response of government authorities to any such variants or other developments, on our business and any adverse effect and impact that pandemics may ultimately have on our business.
Removed
The impact of COVID-19 could worsen if new and more virulent or transmissible variants emerge, resulting in a resurgence of COVID-19 infections in affected regions.
Removed
In addition, travel, commercial and other similar restrictions put in place by various government authorities in response to COVID-19 have contributed to global supply disruptions and we have, and may in the future, incur costs to mitigate such disruptions, which could be significant.
Removed
New information may emerge concerning the severity of COVID-19 or any of its variants, the pace and method through which it is transmitted, contained and/or treated, and the nature of the approach of the local governments in the jurisdictions in which we operate to handling the outbreak, any of which could impact our employees, operations, suppliers, customers and/or operating and financial results, including our ability to determine our quarterly results.
Removed
We operate in 20 countries and the government responses in each of those countries have differed and resulted in varying levels of containment of COVID-19, degree and duration of closures, and nature of safety precautions, all of which we have and will continue to manage.
Removed
The impact of pandemics and potential actions by government authorities in response to them may also have the effect of heightening other risks disclosed in this Annual Report on Form 10-K, any of which could materially and adversely affect our business and results of operations.
Removed
Although we have worked and continue to work diligently to ensure that our global facilities can operate with minimal disruption, mitigate the impact of the outbreak on our employees’ health and safety, and address the supply chain impact on ourselves and our customers, the full extent to which COVID-19 has affected and will continue to affect the global economy and our results will depend on future developments and factors that cannot be predicted. 9 Table of Contents Kadant Inc.
Removed
Implementing our acquisition strategy involves risks, and our failure to successfully implement this strategy could have a material adverse effect on our business.

… 7 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

6 edited+0 added−0 removed2 unchanged
Biggest changeIn addition, in Sidney, British Columbia, Canada, we lease the land associated with our building under a long-term lease, which expires in 2032. Our principal engineering and manufacturing facilities are located in Vitry-le-Francois, France; Jining, China; Lebanon, Ohio, United States; Sidney, British Columbia, Canada; Lohja, Finland and Surrey, British Columbia, Canada.
Biggest changeIn addition, in Sidney, British Columbia, Canada, we lease the land associated with our building under a long-term lease, which expires in 2032. Our principal engineering and manufacturing facilities are located in Jining, China; Vitry-le-François, France; Lebanon, Ohio, United States; Sidney, British Columbia, Canada; Lohja, Finland; Surrey, British Columbia, Canada and Tualatin, Oregon, United States.
Our principal engineering and manufacturing facilities are located in Valinhos, Brazil; Three Rivers, Michigan, United States; Anderson, South Carolina, United States; Huckeswagen, Germany; Auburn, Massachusetts, United States; Weesp, The Netherlands; Wuxi, China; Moers, Germany; Guadalajara, Mexico; Bury, England; Huskvarna, Sweden; Kamienna Gora, Poland and Eltmann, Germany.
Our principal engineering and manufacturing facilities are located in Valinhos, Brazil; Three Rivers, Michigan, United States; Anderson, South Carolina, United States; Hückeswagen, Germany; Auburn, Massachusetts, United States; Weesp, The Netherlands; Wuxi, China; Moers, Germany; Guadalajara, Mexico; Bury, England; Huskvarna, Sweden and Kamienna Gora, Poland.
The location and general character of our principal properties as of year-end 2022 are as follows: Flow Control Segment We own approximately 1,033,000 square feet and lease approximately 212,000 square feet, under leases expiring on various dates ranging from 2023 to 2028, of manufacturing, engineering, and office space.
The location and general character of our principal properties are as follows: Flow Control Segment We own approximately 1,013,000 square feet and lease approximately 212,000 square feet, under leases expiring on various dates ranging from 2024 to 2028, of manufacturing, engineering, and office space.
Material Handling Segment We own approximately 230,000 square feet and lease approximately 519,000 square feet, under leases expiring on various dates ranging from 2023 to 2034. Our principal manufacturing and office space is located in Saltillo, Mississippi, United States; Georgsmarienhutte, Germany; Crown Point, Indiana, United States; Green Bay, Wisconsin, United States and Alfreton, England.
Material Handling Segment We own approximately 342,000 square feet and lease approximately 519,000 square feet, under leases expiring on various dates ranging from 2024 to 2034. Our principal manufacturing and office space is located in Saltillo, Mississippi, United States; Georgsmarienhütte, Germany; Burleson, Texas, United States; Crown Point, Indiana, United States; Green Bay, Wisconsin, United States and Alfreton, England.
Corporate We lease approximately 18,000 square feet in Westford, Massachusetts, United States, for our corporate headquarters under a lease expiring in 2026. Item 3. Legal Proceedings Not applicable. Item 4. Mine Safety Disclosures Not applicable. PART II
Corporate We lease approximately 18,000 square feet in Westford, Massachusetts, United States, for our corporate headquarters under a lease that expires in 2026. 22 Table of Contents Kadant Inc. Item 3. Legal Proceedings Not applicable. Item 4. Mine Safety Disclosures Not applicable. PART II
Industrial Processing Segment We own approximately 859,000 square feet and lease approximately 532,000 square feet, under leases expiring on various dates ranging from 2023 to 2027 of manufacturing, engineering, and office space. In addition, in China, we lease the land associated with our future-planned facility under a long-term lease, which expires in 2071.
Industrial Processing Segment We own approximately 1,356,000 square feet and lease approximately 154,000 square feet, under leases expiring on various dates ranging from 2024 to 2028 of manufacturing, engineering, and office space. In addition, in China, we lease the land associated with our building under a long-term lease, which expires in 2071.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 22 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 22 Item 6. [Reserved] 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 23 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 23 Item 6. [Reserved] 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−0 removed1 unchanged
Biggest changeBecause our fiscal year ends on a Saturday, the graph values are calculated using the last trading day prior to the end of our fiscal year. 12/30/2017 12/29/2018 12/28/2019 1/2/2021 1/1/2022 12/31/2022 Kadant Inc. 100.00 81.54 107.44 144.62 237.77 184.48 Russell 3000 100.00 94.76 124.15 150.08 188.60 152.37 Dow Jones U.S. Industrial Machinery TSM 100.00 84.34 114.71 133.84 166.44 145.27
Biggest changeBecause our fiscal year ends on a Saturday, the graph values are calculated using the last trading day prior to the end of our fiscal year. 12/29/2018 12/28/2019 1/2/2021 1/1/2022 12/31/2022 12/30/2023 Kadant Inc. $ 100.00 $ 131.76 $ 177.36 $ 291.60 $ 226.24 $ 359.00 Russell 3000 100.00 131.02 158.39 199.03 160.80 202.54 Dow Jones U.S.
Issuer Purchases of Equity Securities On May 19, 2022, our board of directors approved the repurchase of up to $50 million of our equity securities during the period from May 19, 2022 to May 19, 2023.
Issuer Purchases of Equity Securities On May 18, 2023, our board of directors approved the repurchase of up to $50.0 million of our equity securities during the period from May 18, 2023 to May 18, 2024.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Price of Common Stock Our common stock trades on the New York Stock Exchange under the symbol "KAI." The closing market price on the New York Stock Exchange for our common stock on February 17, 2023 was $218.55 per share.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Price of Common Stock Our common stock trades on the New York Stock Exchange under the symbol "KAI." The closing market price on the New York Stock Exchange for our common stock on February 16, 2024 was $339.08 per share.
We have not repurchased any shares of our common stock under this authorization or under our previous $20 million authorization, which expired on May 20, 2022.
We have not repurchased any shares of our common stock under this authorization or under our previous $50.0 million authorization, which expired on May 19, 2023.
Holders of Common Stock As of February 17, 2023, we had approximately 1,864 holders of record of our common stock. This does not include holdings in street or nominee name. 22 Table of Contents Kadant Inc.
Holders of Common Stock As of February 16, 2024, we had approximately 1,771 holders of record of our common stock. This does not include holdings in street or nominee name.
Added
Industrial Machinery TSM 100.00 136.01 158.69 197.34 172.24 219.97

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

67 edited+47 added−42 removed41 unchanged
Biggest changeWithin our operating segments, gross profit margin: • Increased to 52.0% at our Flow Control segment from 51.0% in 2021 due to the inclusion of $3.1 million of amortization of acquired profit in inventory, which lowered gross profit margin in 2021 by 1.1 percentage points. • Decreased to 39.2% from 40.1% at our Industrial Processing segment due to the impact of lower-margin capital equipment revenue at our wood processing businesses and the inclusion of $0.7 million of benefits received from government employee retention assistance programs, which increased gross profit margin in the 2021 period by 0.2 percentage points. • Remained flat at 34.4% at our Material Handling segment.
Biggest changeWithin our operating segments, gross profit margin: • Decreased to 51.8% at our Flow Control segment from 52.0% in 2022 primarily due to higher margins achieved on our capital equipment products, offset by a decrease in margins for our parts and consumables products. • Increased to 40.2% at our Industrial Processing segment from 39.2% in 2022 primarily due to higher margins achieved on our parts and consumable products and, to a lesser extent, an increase in the proportion of higher-margin stock-preparation parts and consumables revenue. • Increased to 35.7% at our Material Handling segment from 34.4% in 2022 primarily due to higher margins achieved for our parts and consumables products, partially offset by a decrease in the proportion of higher-margin conveying and vibratory parts and consumables products revenue.
We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure. 25 Table of Contents Kadant Inc.
We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, 25 Table of Contents Kadant Inc. especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure.
Among other things, this 30 Table of Contents Kadant Inc. amendment extended the maturity date to November 30, 2027, and increased our uncommitted, unsecured incremental borrowing facility from $150 million to $200 million. We have a total borrowing capacity of $400 million under our Credit Agreement.
Among other things, this amendment extended the maturity date to November 30, 2027, and increased our uncommitted, unsecured incremental borrowing facility from $150.0 million to $200.0 million. 30 Table of Contents Kadant Inc. We have a total borrowing capacity of $400.0 million under our Credit Agreement.
Our non-GAAP financial measures are not meant to be considered superior to or a substitute for the results of operations or cash flow prepared in accordance with GAAP.
Our non-GAAP financial measures are not meant to be considered superior to or a substitute for the results of operations or cash flows prepared in accordance with GAAP.
Non-GAAP Key Performance Indicators In addition to the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including organic revenue (defined as revenue excluding the effect of foreign currency translation and acquisitions), adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin (defined as adjusted EBITDA divided by revenue), and free cash flow (defined as net cash provided by operating activities less capital expenditures).
Non-GAAP Key Performance Indicators In addition to the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including organic revenue (defined as revenue excluding the effect of foreign currency translation and acquisitions), adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, 28 Table of Contents Kadant Inc. adjusted EBITDA margin (defined as adjusted EBITDA divided by revenue), and free cash flow (defined as net cash provided by operating activities less capital expenditures).
Recent Accounting Pronouncements See Note 1 , Nature of Operations and Summary of Significant Accounting Policies, under the heading Recently Adopted Accounting Pronouncements , in the accompanying consolidated financial statements for further details.
Recent Accounting Pronouncements See Note 1 , Nature of Operations and Summary of Significant Accounting Policies, under the heading Recent Accounting Pronouncements Not Yet Adopted , in the accompanying consolidated financial statements for further details.
Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits.
Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and 31 Table of Contents Kadant Inc. assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits.
We believe that we have appropriately accounted for any liability for unrecognized tax benefits, and at year-end 2022, our liability for these unrecognized tax benefits, including an accrual for the related interest and penalties, totaled $12.2 million.
We believe that we have appropriately accounted for any liability for unrecognized tax benefits, and at year-end 2023, our liability for these unrecognized tax benefits, including an accrual for the related interest and penalties, totaled $13.2 million.
Most revenue recognized on an over time basis is for large capital products that are highly customized for the customer and, as a result, would include significant cost to rework in the 32 Table of Contents Kadant Inc. event of cancellation.
Most revenue recognized on an over time basis is for large capital products that are highly customized for the customer and, as a result, would include significant cost to rework in the event of cancellation.
Valuation of Goodwill and Intangible Assets We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination, including the determination of the fair value of intangible assets acquired, which represents a significant portion of the purchase price in many of our acquisitions.
Valuation of Goodwill and Intangible Assets We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination, including the determination of the fair value of intangible assets acquired, which represents a significant portion 32 Table of Contents Kadant Inc. of the purchase price in many of our acquisitions.
For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A , "Risk Factors." Acquisitions We expect that one significant driver of our growth over the next several years will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry.
For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A , "Risk Factors." Acquisitions We expect that a significant driver of our long-term growth will be through the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry.
The preparation of these consolidated financial 31 Table of Contents Kadant Inc. statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.
Increases in inventories and accounts receivable used cash of $54.6 million, including $36.1 million for inventory primarily related to capital equipment orders that will ship in 2023. These uses of cash were offset in part by $14.4 million of cash provided by customer deposits.
Increases in inventories and accounts receivable used cash of $54.6 million, including $36.1 million for inventory primarily related to capital equipment orders that shipped in 2023. These uses of cash were offset in part by $14.4 million of cash received from customer deposits.
We intend to repatriate the distributable reserves of select foreign subsidiaries back to the United States and, during 2022, we recorded $0.8 million of net tax expense associated with these foreign earnings that we plan to repatriate in 2023.
We intend to repatriate the distributable reserves of select foreign subsidiaries back to the United States and, during 2023, we recorded $0.7 million of tax expense associated with these foreign earnings that we plan to repatriate in 2024.
In addition, our non-GAAP financial measures have limitations 28 Table of Contents Kadant Inc. associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.
In addition, our non-GAAP financial measures have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.
Th e $7.0 million reduction in cash, cash equivalents and restricted cash in 2022 was primarily attributable to the strengthening of the U.S. dollar against the Chinese renminbi, euro, and British pound sterling.
The $7.0 million reduction in cash, cash equivalents and restricted cash in 2022 related to exchange rates was primarily attributable to the strengthening of the U.S. dollar against the Chinese renminbi, euro, and British pound sterling.
In 2022, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future. The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately $4.1 million.
In 2023, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future. The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately $5.2 million.
Under our debt agreements, our leverage ratio must be less than 3.75 or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than 4.25. As of December 31, 2022, our leverage ratio was 0.74 and we were in compliance with our debt covenan ts.
Under our debt agreements, our leverage ratio must be less than 3.75 or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than 4.25. As of December 30, 2023, our leverage ratio was 0.27 and we were in compliance with our debt covenants.
Except for these select foreign subsidiaries, we intend to reinvest indefinitely the earnings of our international subsidiaries in order to support the current and future capital needs of their operations, including the repayment of our foreign debt.
Except for these select foreign subsidiaries, we intend to reinvest indefinitely the earnings of our international subsidiaries in order to support the current and future capital needs of their operations, including the repayment of our foreign debt. In December 2021, the OECD released the Pillar Two Rules.
We evaluate the recoverability of goodwill and indefinite-lived intangible assets as of the end of each fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired.
Beginning in 2023, we evaluate the recoverability of goodwill and indefinite-lived intangible assets as of the first day of our fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired.
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash T he exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiari es.
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries.
As of December 31, 2022, we had approximately $248.1 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest $229.0 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any.
As of December 30, 2023, we had approximately $285.0 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest $253.5 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any.
Impairment and Restructuring Costs During 2022, we recorded impairment costs of $0.7 million within our Industrial Processing segment. The impairment costs included $0.5 million primarily related to the write-down of inventory at our business in Russia and $0.2 million related to the write-down of certain fixed assets that will not be moved to the new manufacturing facility in China.
Other Impairment Costs • Impairment costs of $0.7 million in 2022 within our Industrial Processing segment consisted of $0.5 million primarily related to the write-down of inventory at our business in Russia and $0.2 million associated with the China Transaction related to the write-down of certain fixed assets that were not moved to the new manufacturing facility.
A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin from net income attributable to Kadant is as follows: (In thousands, except percentages) December 31, 2022 January 1, 2022 January 2, 2021 Net Income Attributable to Kadant $ 120,928 $ 84,043 $ 55,196 Net Income Attributable to Noncontrolling Interest 802 838 543 Provision for Income Taxes 43,906 27,171 17,948 Interest Expense, Net 5,574 4,554 7,242 Other Expense, Net 72 104 195 Operating Income 171,282 116,710 81,124 Gain on Sale (a) (20,190) (515) — Acquisition Costs 668 3,655 485 Indemnification Asset Reversals (b) 1,316 — — Impairment and Restructuring Costs 1,334 980 2,979 Acquired Backlog Amortization (c) 703 1,326 544 Acquired Profit in Inventory Amortization (d) (218) 4,284 — Adjusted Operating Income (non-GAAP measure) 154,895 126,440 85,132 Depreciation and Amortization 34,233 32,976 30,790 Adjusted EBITDA (non-GAAP measure) $ 189,128 $ 159,416 $ 115,922 Adjusted EBITDA Margin (non-GAAP measure) 20.9% 20.3% 18.3% A reconciliation of free cash flow from net cash provided by operating activities is as follows: (In thousands) December 31, 2022 January 1, 2022 January 2, 2021 Net Cash Provided by Operating Activities $ 102,625 $ 162,420 $ 92,884 Less: Capital Expenditures (e) (28,199) (12,771) (7,595) Free Cash Flow (non-GAAP measure) $ 74,426 $ 149,649 $ 85,289 (a) Includes a $20.2 million gain on the China Transaction in our Industrial Processing segment.
A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin from net income attributable to Kadant is as follows: (In thousands, except percentages) December 30, 2023 December 31, 2022 January 1, 2022 Net Income Attributable to Kadant $ 116,069 $ 120,928 $ 84,043 Net Income Attributable to Noncontrolling Interest 737 802 838 Provision for Income Taxes 42,210 43,906 27,171 Interest Expense, Net 6,640 5,574 4,554 Other Expense, Net 101 72 104 Operating Income 165,757 171,282 116,710 Gain on Sale and Other Income (a) (841) (20,190) (515) Acquisition Costs 1,442 668 3,655 Indemnification Asset Reversals (b) 102 1,316 — Relocation Costs 798 — — Restructuring and Impairment Costs 766 1,334 980 Acquired Backlog Amortization (c) — 703 1,326 Acquired Profit in Inventory Amortization (d) — (218) 4,284 Adjusted Operating Income (non-GAAP measure) 168,024 154,895 126,440 Depreciation and Amortization 33,297 34,233 32,976 Adjusted EBITDA (non-GAAP measure) $ 201,321 $ 189,128 $ 159,416 Adjusted EBITDA Margin (non-GAAP measure) 21.0 % 20.9 % 20.3% A reconciliation of free cash flow from net cash provided by operating activities is as follows: (In thousands) December 30, 2023 December 31, 2022 January 1, 2022 Net Cash Provided by Operating Activities $ 165,545 $ 102,625 $ 162,420 Less: Capital Expenditures (e) (31,850) (28,199) (12,771) Free Cash Flow (non-GAAP measure) $ 133,695 $ 74,426 $ 149,649 (a) Includes a $20.2 million gain in 2022 on the China Transaction in our Industrial Processing segment.
It is our policy to provide for uncertain tax positions and the related interest and penalties based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
In the ordinary course of business there are inherent uncertainties and judgements required in quantifying our income tax positions. It is our policy to provide for uncertain tax positions and the related interest and penalties based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
See Note 2 , Acquisitions, in the accompanying consolidated financial statements for further details. Results of Operations 2022 Compared to 2021 Revenue The following table presents changes in revenue by segment between 2022 and 2021, and those changes excluding the effect of foreign currency translation and acquisitions, which we refer to as change in organic revenue.
Results of Operations 2023 Compared to 2022 Revenue The following table presents changes in revenue by segment between 2023 and 2022, and those changes excluding the effect of foreign currency translation and acquisitions, which we refer to as change in organic revenue.
(e) Includes capital expenditures of $10.4 million in 2022 associated with the China Transaction. 2021 Compared to 2020 A detailed discussion of the year-over-year results of operations for 2021 compared with 2020 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC.
A detailed discussion of the year-over-year results for 2022 compared with 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC.
Provision for Income Taxes Our provision for income taxes increased to $43.9 million in 2022 from $27.2 million in 2021. The effective tax rate of 27% in 2022 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, and state taxes.
The effective tax rate of 27% in both 2023 and 2022 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.
Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset.
Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset. No indicators of impairment were identified in 2023 and 2022. Definite-lived intangible assets were $130.7 million at year-end 2023.
At year-end 2022, we continued to maintain a valuation allowance in the United States against certain of our state operating loss carryforwards due to the uncertainty of future profitability in these state jurisdictions in the United States, and we maintained valuation allowances in certain foreign jurisdictions because of the uncertainty of future profitability.
At year-end 2023, we maintained a valuation allowance against a portion of our state operating loss carryforwards in the United States and a valuation allowance in certain foreign jurisdictions due to the uncertainty of future profitability in the state and those foreign jurisdictions. Our tax valuation allowance was $7.8 million at year-end 2023.
At year-end 2022, we had $214.1 million of borrowing capacity available under our Credit Agreement, in addition to the $200 million uncommitted, unsecured incremental borrowing facility.
As of December 30, 2023, we had $301.1 million of borrowing capacity available under our Credit Agreement, in addition to the $200.0 million uncommitted, unsecured incremental borrowing facility.
Revenue at our Material Handling segment increased 19% in 2022, while organic revenue increased 15%, due to higher demand for both capital equipment and parts and consumables products at our vibratory and conveying business in North America resulting from strong demand across all industries.
Revenue at our Material Handling segment increased 19% in 2023 due to higher demand for our capital equipment products and, to a lesser extent, parts and consumables products at our conveying and vibratory business in North America.
Our operating cash flows are primarily generated from cash received from customers, offset by cash payments for items such as inventory, employee compensation, operating leases, income taxes and interest payments on outstanding debt obligations. Cash provided by operating activities in 2022 was due to cash provided by net income, offset in part by investments in working capital.
Our operating cash flows are primarily generated from cash received from customers, offset by cash payments for items such as inventory, employee compensation, operating leases, income taxes, and interest payments on outstanding debt obligations. During 2023, significant cash inflows associated with working capital related to inventory, other liabilities and unbilled revenue.
Variable interest rates have been assumed to remain constant through the end of the term at the rates that existed as of year-end 2022. Application of Critical Accounting Estimates Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
Application of Critical Accounting Estimates Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
To mitigate the impact of foreign currency fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred. Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies.
Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies.
Cash and cash equivalents were $76.4 million at December 31, 2022, compared with $91.2 million at January 1, 2022, which included cash and cash equivalents held by our foreign subsidiaries of $75.8 million at December 31, 2022 and $83.8 million at January 1, 2022. 29 Table of Contents Kadant Inc.
Cash and cash equivalents were $103.8 million at December 30, 2023, compared with $76.4 million at December 31, 2022, which included cash and cash equivalents held by our foreign subsidiaries of $94.6 million at December 30, 2023 and $75.8 million at December 31, 2022.
As a result, we recognized a gain on the China Transaction of $20.2 million, or $15.1 million, net of deferred taxes of $5.1 million, in the first quarter of 2022.
As a result, we recognized a gain on the China Transaction of $20.2 million, or $15.1 million, net of deferred taxes of $5.0 million, in the first quarter of 2022. Our subsidiary, which is part of the Industrial Processing segment, relocated to its new facility during the third quarter of 2023.
These increases were partially offset by a $4.8 million favorable effect of foreign currency translation and a decrease of $2.6 million in incremental acquisition-related costs. • Increased $1.1 million at our Industrial Processing segment due to increased compensation and selling-related costs, an indemnification asset reversal related to the release of tax reserves of $0.6 million, and the inclusion of benefits received from government employee retention assistance programs of $0.5 million in 2021.
These increases were partially offset by a $1.0 million favorable effect of foreign currency translation and the inclusion of an indemnification asset reversal related to the release of tax reserves of $0.6 million in 2022. • Increased $2.9 million at our Material Handling segment due to increased compensation expense associated with existing and new personnel and increased selling-related costs, partially offset by a decrease of $0.5 million in acquisition-related costs. • Increased $3.5 million at Corporate due to annual wage increases and consulting costs.
See Note 8 , Gain on Sale and Other Costs, Net in the accompanying consolidated financial statements for further details. Interest Expense Interest expense increased to $6.5 million in 2022 from $4.8 million in 2021 primarily due to a higher weighted-average interest rate, offset in part by lower average debt outstanding in 2022 compared with 2021.
Interest Expense Interest expense increased to $8.4 million in 2023 from $6.5 million in 2022 primarily due to a higher weighted-average interest rate, offset in part by lower average debt outstanding in 2023 compared with 2022.
See Note 12 , Business Segment and Geographical Information, in the accompanying consolidated financial statements for a description and financial information of our reportable operating segments. Industry and Business Overview Our bookings increased 7% to a record $958.2 million in 2022 led by strong parts and consumables bookings, especially within our Flow Control segment.
See Note 12 , Business Segment and Geographical Information, in the accompanying consolidated financial statements for a description and financial information of our reportable operating segments. Industry and Business Overview Bookings were $917.4 million in 2023, including record parts and consumables bookings, which represented 64% of consolidated bookings.
Cash Flows Cash flow information is as follows: (In thousands) December 31, 2022 January 1, 2022 Net Cash Provided by Operating Activities $ 102,625 $ 162,420 Net Cash Used in Investing Activities (29,520) (154,475) Net Cash (Used in) Provided by Financing Activities (80,569) 22,808 Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash (6,972) (3,232) (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash $ (14,436) $ 27,521 Operating Activities Cash provided by operating activities decreased to $102.6 million in 2022 from $162.4 million in 2021 due to the timing of investments in working capital.
Cash Flow Cash flow information is as follows: (In thousands) December 30, 2023 December 31, 2022 Net Cash Provided by Operating Activities $ 165,545 $ 102,625 Net Cash Used in Investing Activities (30,790) (29,520) Net Cash Used in Financing Activities (111,111) (80,569) Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash 3,084 (6,972) Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash $ 26,728 $ (14,436) Operating Activities Cash provided by operating activities increased to $165.5 million in 2023 from $102.6 million in 2022 primarily due to a reduction in cash used for working capital.
Gain on Sale and Other Costs, Net A summary of the items included in gain on sale and other costs, net is as follows: (In thousands) December 31, 2022 January 1, 2022 Gain on Sale of Assets $ (20,190) $ (515) Impairment Costs 731 804 Restructuring Costs 603 176 $ (18,856) $ 465 Gain on Sale of Assets We entered into several agreements with the local government in China to sell the existing manufacturing building and land use rights at one of our subsidiaries in China for $25.2 million and relocate to a new facility (China Transaction).
Gain on Sale of Assets We entered into several agreements with the local government in China to sell our then existing manufacturing building and land use rights of one of our subsidiaries in China for $25.2 million and relocate to a new facility (China Transaction).
International Sales More than half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada. As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies.
As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies. To mitigate the impact of foreign currency fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred.
Gross Profit Margin Gross profit margin by segment in 2022 and 2021 is as follows: December 31, 2022 January 1, 2022 Flow Control 52.0% 51.0% Industrial Processing 39.2% 40.1% Material Handling 34.4% 34.4% Consolidated 43.1% 42.9% Consolidated gross profit margin increased to 43.1% in 2022 compared with 42.9% in 2021.
Gross Profit Margin Gross profit margin by segment in 2023 and 2022 is as follows: December 30, 2023 December 31, 2022 Basis Point Change Flow Control 51.8% 52.0% (20) bps Industrial Processing 40.2% 39.2% 100 bps Material Handling 35.7% 34.4% 130 bps Consolidated 43.5% 43.1% 40 bps Consolidated gross profit margin increased to 43.5% in 2023 compared with 43.1% in 2022 due to higher margins achieved on parts and consumable products, especially at our Material Handling segment.
Investing Activities Cash used in investing activities was $29.5 million in 2022 compared to $154.5 million in 2021. Cash used in investing activities in 2022 included capital expenditures of $28.2 million, which included $10.4 million for expenditures associated with the construction of a new manufacturing facility in China, and $3.5 million for acquisitions.
Investing Activities Cash used in investing activities was $30.8 million in 2023 compared to $29.5 million in 2022. Capital expenditures were $31.9 million in 2023 and $28.2 million in 2022, including capital expenditures associated with the China Transaction of $7.4 million in 2023 and $10.4 million in 2022.
Inventories We value our inventory at the lower of the actual cost (on a first-in, first-out; or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead. The valuation of inventory requires us to make judgments, based on currently available information, about the forecasted usage of and demand for each particular product or product line.
The valuation of inventory requires us to make judgments, based on currently available information, about the forecasted usage of and demand for each particular product or product line.
At year-end 2022 and 2021, we performed a qualitative impairment analysis (Step 0) for our reporting units. Based on these analyses, we determined goodwill and indefinite-lived intangible assets were not impaired. Goodwill totaled $385.5 million and indefinite-lived intangible assets totaled $28.3 million at year-end 2022.
At October 1, 2023 (the first day of the fourth quarter of 2023), we performed a quantitative impairment analysis on our goodwill and indefinite-lived intangible assets. Based on these analyses, we determined goodwill and indefinite-lived intangible assets were not impaired. Goodwill totaled $384.3 million and indefinite-lived intangible assets totaled $28.2 million at October 1, 2023.
We expect our operating environment to continue to be challenging as central banks work to address inflationary pressures, which creates more uncertainty for the latter half of 2023. We believe that the fundamentals of our business remain strong, particularly given our high backlog levels, solid global operations team, and ongoing strength in the markets we serve.
We expect our operating environment to continue to be challenging, which creates continued uncertainty for 2024. However, we believe that the fundamentals of our business remain strong, particularly given our solid market position in key product lines, strong global operations teams, and long-term strength of our end markets.
Net Income Net income increased to $121.7 million in 2022 from $84.9 million in 2021 primarily due to a $54.6 million increase in operating income, offset in part by a $16.7 million increase in provision for income taxes (see discussions above for further details).
Net Income Net income decreased to $116.8 million in 2023 from $121.7 million in 2022 primarily due to a $5.5 million decrease in operating income and a $1.9 million increase in interest expense, offset in part by a $1.7 million decrease in provision for income taxes.
We use organic revenue in order to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods (see discussion in Revenue above). Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude impairment and restructuring costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and certain gains or losses.
We use organic revenue in order to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods (see discussion in Revenue above).
In 2022, we had net debt repayments of $63.4 million, which consisted of repayments of short- and long-term obligations of $85.5 million, partially offset by short- and long-term borrowings of $22.1 million, primarily under our revolving credit facility.
Financing Activities Cash used in financing activities was $111.1 million in 2023 compared to $80.6 million in 2022. Repayments of short- and long-term obligations were $94.0 million in 2023 compared to repayments of short- and long-term obligations of $85.5 million, partially offset by borrowings under our revolving credit facility of $22.1 million in 2022.
Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses by segment in 2022 and 2021 is as follows: (In thousands, except percentages) December 31, 2022 % of Revenue January 1, 2022 % of Revenue Increase % Change Flow Control $ 86,458 25 % $ 76,730 27 % $ 9,728 13 % Industrial Processing 61,885 17 % 60,802 18 % 1,083 2 % Material Handling 40,067 20 % 38,575 23 % 1,492 4 % Corporate 35,995 N/A 32,680 N/A 3,315 10 % Consolidated $ 224,405 25 % $ 208,787 27 % $ 15,618 7 % Consolidated SG&A expenses as a percentage of revenue decreased to 25% in 2022 from 27% in 2021 principally due to the increase in revenue.
Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses by segment in 2023 and 2022 is as follows: (In thousands, except percentages) December 30, 2023 December 31, 2022 Increase % Change Flow Control $ 87,427 $ 86,458 $ 969 1% Industrial Processing 66,384 61,885 4,499 7% Material Handling 43,008 40,067 2,941 7% Corporate 39,445 35,995 3,450 10% Consolidated $ 236,264 $ 224,405 $ 11,859 5% Consolidated as a Percentage of Revenue 25% 25% Consolidated SG&A expenses as a percentage of revenue was 25% in both 2023 and 2022.
During the fourth quarter of 2021, we initiated a restructuring plan within our Flow Control segment to eliminate a redundant ceramic blade manufacturing operation that resulted from our acquisition of Clouth. The plan consisted of severance costs related to the termination of five employees, and facility and other closure costs.
Restructuring and impairment costs related to this plan consisted of severance costs for the termination of 10 employees, facility and other closure costs, and asset-write downs. • Restructuring costs of $0.4 million in 2023 within our Flow Control segment related to the termination of a contract at one of our operations in Germany. 2021 Restructuring Plan • Restructuring costs of $0.6 million in 2022 within our Flow Control segment related to our 2021 restructuring plan to eliminate a redundant ceramic blade manufacturing operation in France.
The $3.2 million reduction i n cash, cash equivalents and restricted cash in 2021 was primarily attributable to the strengthening of the U.S. dollar against the euro and Swedish krona, offset in part by the weakening of the U.S. dollar against the Chinese renminbi.
The $3.1 million increase in cash, cash equivalents, and restricted cash in 2023 related to exchange rates was primarily attributable to the weakening of the U.S. dollar against the euro, the Canadian dollar, and Mexican peso.
Record orders for our wood processing business products in 2021 were fueled by a robust U.S. housing market and high demand for lumber, OSB and plywood, which drove new capital equipment investment. As we look forward, there is uncertainty as to how governmental efforts to control inflation may impact this segment's end markets.
This was fueled by a robust U.S. housing market and high demand for lumber, OSB and plywood, which drove new capital equipment investment. Demand in our wood processing business returned to and has continued at a more typical level. While there is still a healthy level of quote activity, there has been an increase in the quote to order times.
These increases were partially offset by a $3.4 million favorable effect of foreign currency translation. • Increased $1.5 million at our Material Handling segment principally due to the inclusion of an incremental $3.1 million of SG&A expenses from Balemaster, offset in part by a $1.6 million favorable effect of foreign currency translation. • Increased $3.3 million at Corporate primarily due to increased compensation expense and travel costs.
These increases were partially offset by a decrease in bad debt expense, acquisition costs, and the inclusion of an indemnification asset reversal related to the release of tax reserves of $0.7 million in 2022. • Increased $4.5 million at our Industrial Processing segment principally due to increased compensation expense associated with existing and new personnel, incremental travel and trade show costs, and $1.1 million of acquisition costs.
Liquidity and Capital Resources Consolidated working capital was $201.9 million at December 31, 2022, compared with $162.4 million at January 1, 2022.
(e) Includes capital expenditures of $7.4 million in 2023 and $10.4 million in 2022 associated with the China Transaction. 29 Table of Contents Kadant Inc. Liquidity and Capital Resources Consolidated working capital was $225.8 million at December 30, 2023, compared with $201.9 million at December 31, 2022.
In the third quarter of 2021, we acquired The Clouth Group of Companies (Clouth) for $92.9 million, net of cash acquired plus debt assumed. Clouth, which is included in our Flow Control segment, is a leading manufacturer of doctor blades and related equipment used in the production of paper, packaging, and tissue.
In 2021, we acquired The Clouth Group of Companies, which is part of our Flow Control segment, and East Chicago Machine Tool Corporation, which is part of our Material Handling segment, for an aggregate $146.4 million, net of cash acquired and debt assumed.
In recent years, we have acquired several businesses and continue to pursue acquisition opportunities. On November 14, 2022, we acquired a business in Canada, which is included in our Material Handling segment, for approximately $3.6 million, net of cash acquired.
We have acquired several businesses in recent years and continue to pursue acquisition opportunities. On January 1, 2024, we acquired Key Knife pursuant to a securities purchase agreement dated December 22, 2023, for approximately $156.0 million in cash, subject to certain customary adjustments. Key Knife is part of our Industrial Processing segment.
See Note 6 , Short- and Long-Term Obligations, in the accompanying consolidated financial statements for additional information regarding our debt obligations. Additional Liquidity and Capital Resources On May 19, 2022, our board of directors approved the repurchase of up to $50 million of our equity securities during the period from May 19, 2022 to May 19, 2023.
See Note 6 , Short- and Long-Term Obligations, in the accompanying consolidated financial statements for additional information regarding our debt obligations. In January 2024, we borrowed $230.0 million under our revolving credit facility to fund the acquisitions of Key Knife and KWS.
Increased revenue for both our parts and consumables products and capital equipment was driven by strength in the underlying packaging industry, especially in the U.S., and increased demand in Europe resulting in part from high energy prices as customers sought to optimize energy utilization. Revenue at our Industrial Processing segment increased 8% in 2022, while organic revenue increased 12%.
Revenue at our Flow Control segment increased 4% in 2023 primarily due to higher demand for parts and consumables products and, to a lesser extent, capital equipment products in North America driven by continued strength in the U.S. economy and underlying packaging industry.
We have not repurchased any shares of our common stock under this authorization or our previous $20 million authorization, which expired on May 20, 2022. We paid cash dividends of $12.0 million in 2022. On November 17, 2022, we declared a quarterly cash dividend of $0.26 per share totaling $3.0 million that was paid on February 2, 2023.
We paid cash dividends of $13.2 million in 2023. On November 16, 2023, we declared a quarterly cash dividend of $0.29 per share totaling $3.4 million that was paid on February 1, 2024. Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change.
Within our operating segments, SG&A expenses: • Increased $9.7 million at our Flow Control segment principally due to the inclusion of an incremental $7.8 million of SG&A expenses from Clouth, increased compensation expense and travel costs, indemnification asset reversals of $0.7 million related to the release of tax reserves, and the inclusion of benefits received from government employee retention assistance programs of $0.8 million in 2021.
Within our operating segments, SG&A expenses: • Increased $1.0 million at our Flow Control segment primarily due to annual wage increases, incremental travel and trade show costs, and an unfavorable effect of foreign currency translation of $0.7 million.
Our global operations have been and continue to be impacted by increasingly complex market conditions fueled by inflationary pressures, including the strengthening of the U.S. dollar, geopolitical tensions, labor availability, and lingering global supply chain constraints. Supply chain constraints have resulted in inflationary pressure on material costs, longer lead times, and increased freight costs.
Our global operations have been and continue to be impacted by complex market conditions fueled by inflationary pressures, geopolitical tensions, labor availability, and softening markets. While the U.S. economy has proven more resilient than predicted, growth in the European economy has slowed due to high interest rates and elevated inflation, and China's manufacturing industry has contracted.
Any future impairment charges could have a material adverse effect on our results of operations in the period in which an impairment is determined to exist. See Note 1 , Nature of Operations and Summary of Significant Accounting Policies, under the heading Impairment of Long-Lived Assets , in the accompanying consolidated financial statements for further details regarding impairment costs recorded.
Any future impairment charges could have a material adverse effect on our results of operations in the period in which an impairment is determined to exist. Inventories We value our inventory at the lower of the actual cost (on a first-in, first-out; or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead.
Consolidated SG&A expense also included increases from an incremental $11.3 million of SG&A expenses from acquisitio ns, the inclusion of $1.4 million of benefits received from government employee retention assistance programs in 2021, and $1.3 million from indemnification asset reversals related to the release of tax reserves.
Consolidated SG&A expenses increased $11.9 million, or 5%, in 2023 compared to 2022, which included a decrease of $1.2 million in indemnification asset reversals related to the release of tax reserves. Excluding the decrease in indemnification asset reversals, consolidated SG&A expenses increased $13.1 million, or 6%, primarily due to annual wage increases, as well as incremental travel and consulting costs.
Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change. The declaration of cash dividends is also subject to our compliance with the covenant in our Credit Agreement related to our consolidated leverage ratio.
The declaration of cash dividends is also subject to our compliance with the covenant in our Credit Agreement related to our consolidated leverage ratio. We plan to make capital expenditures of approximately $29.0 to $31.0 million during 2024 for property, plant, and equipment, including $2.0 million related to final payments for the China Transaction.
Removed
Our 2022 bookings included $50.2 million attributable to acquisitions and a $39.8 million unfavorable effect from foreign currency translation. See Acquisitions below for further details. We ended the year with consolidated backlog of $345.3 million, increasing 11% from the end of 2021.
Added
Bookings decreased 4% compared to record bookings in 2022, which included exceptionally strong demand for capital equipment at our Industrial Processing segment in the first half of the year. The bookings decrease occurred across various regions.
Removed
An overview of our business by segment is as follows: • Flow Control – Our Flow Control segment ended a strong year with record bookings for both parts and consumables products and capital equipment. Bookings increased 17% and organic bookings, which excludes an acquisition and an unfavorable foreign currency translation effect, increased 14% compared to 2021.
Added
In Europe, weak macroeconomic conditions impacted demand for our products, including in Germany, Europe’s largest economy, which experienced a more significant decline in industrial production than anticipated. A decline in domestic and foreign confidence in China’s market, along with persistent debt pressures, particularly in the property market, have constrained growth, which has lengthened the timing of capital orders.
Removed
Orders for both parts and consumables products and capital equipment continue to be strong due to the strength in the end markets we serve and as customers seek to optimize energy utilization.
Added
In North America, we experienced steady demand for our capital and aftermarket products following the exceptionally strong demand in the first two quarters of 2022. In 2024, we expect steady demand in our key end markets to continue at current levels, along with healthy contributions from our recent acquisitions.
Removed
We expect to continue to see steady demand in 2023, but comparatively lower than 2022 due to the nearly $200 million of record orders we received in the first half of the year. • Industrial Processing – Our Industrial Processing segment bookings decreased 6% and organic bookings, which excludes an acquisition and an unfavorable foreign currency translation effect, decreased 3% compared to 2021.
Added
An overview of our business by segment is as follows: • Flow Control – Our Flow Control segment bookings remained flat compared to 2022. In North America, there was constrained capital spending as mills took downtime and paper and containerboard producers consolidated or moved locations to align capacity with demand.
Removed
While our parts and consumables bookings experienced a record year, our capital bookings decreased 18% compared to a record 2021 as demand for capital equipment at our wood processing business returned to a more typical level in 2022.
Added
In Europe, there was continued uncertainty in the end markets we serve primarily due to weak macroeconomic conditions caused by elevated inflation and high interest rates.
Removed
Therefore, we expect comparatively lower bookings in 2023 given the high level of bookings we experienced in the first half of 2022. • Material Handling – Our Material Handling segment had record bookings in 2022 for both parts and consumables and capital equipment.
Added
However, many of the end markets in our Flow Control segment remain strong despite the general sluggishness in the manufacturing sector, and we expect bookings in 2024 to remain stable. • Industrial Processing – Our Industrial Processing segment bookings decreased 13% compared to 2022 due to strong demand for our wood processing capital equipment in the first half of 2022.
Removed
Bookings increased 20% and organic bookings, which excludes an acquisition and an unfavorable foreign currency translation effect, increased 13% compared to 2021. We expect this steady demand to continue into 2023 given the anticipated growth trends in recycling and infrastructure investments.

… 76 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+2 added−3 removed1 unchanged
Biggest changeAssuming year-end borrowing levels, a 10% increase in interest rates on our variable-rate debt would have increased our annual pre-tax interest expense by $0.5 million in 2022. A portion of our outstanding variable-rate debt at year-end 2022 was hedg ed with a swap agreement sensitive to changes in the three-month London Interbank Offered Rate (LIBOR) forward curve .
Biggest changeOur borrowings under the Credit Agreement of $98.8 million at year-end 2023 bear variable rates of interest, which adjust frequently based on prevailing market rates. Assuming year-end borrowing levels, a 10% increase in interest rates on our variable-rate debt would have increased our annual pre-tax interest expense by $0.4 million in 2023.
We enter into swap agreements to hedge a portion of our exposure to variable rate long-term debt. Additionally, we use short-term forward contracts to manage certain exposures to foreign currencies. We enter into forward currency-exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies.
From time to time, we have entered into swap agreements to hedge a portion of our exposure to variable rate long-term debt. Additionally, we use short-term forward contracts to manage certain exposures to foreign currencies. We enter into forward currency-exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies.
We do not engage in extensive foreign currency hedging activities. However, when we do enter into foreign currency hedging activities, the purpose is to protect our functional currency cash flows related to these commitments from fluctuations in foreign exchange rates.
We do not engage in extensive foreign currency hedging activities. However, when we do enter into foreign currency hedging activities, the purpose is to protect our functional currency cash flows related to these commitments from fluctuations in foreign exchange rates. Our forward currency-exchange contracts hedge transactions primarily denominated in U.S. dollars, Canadian dollars, and euros.
Our forward currency-exchange contracts hedge transactions 33 Table of Contents Kadant Inc. primarily denominated in U.S. dollars, Canadian dollars, and euros. Gains and losses arising from forward contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. We do not hold or engage in transactions involving derivative instruments for purposes other than risk management.
Gains and losses arising from forward 33 Table of Contents Kadant Inc. contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. We do not hold or engage in transactions involving derivative instruments for purposes other than risk management. Interest Rates Our exposure to changes in interest rates relates primarily to our long-term debt.
The functional currencies of our foreign subsidiaries are principally denominated in euros, British pounds sterling, Mexican pesos, Canadian dollars, Chinese renminbi, Brazilian reals, and Swedish krona. The effect of changes in foreign exchange rates on our net investment in foreign subsidiaries is reflected in the "accumulated other comprehensive items" component of stockholders' equity.
Our investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The functional currencies of our foreign subsidiaries are principally denominated in euros, British pounds sterling, Mexican pesos, Canadian dollars, Chinese renminbi, Brazilian reals, and Swedish krona.
Any adverse change related to foreign currency contracts would have been largely offset by the corresponding change in the fair value of the underlying hedged items.
A 10% adverse change in year-end 2023 foreign currency exchange rates related to our foreign currency exchange contracts would have had an immaterial effect on our results of operations in 2023. Any adverse change related to foreign currency contracts would have been largely offset by the corresponding change in the fair value of the underlying hedged items.
A 10% decrease in functional currencies relative to the U.S. dollar, would have resulted in a reduction in stockholders' equity of $38.6 million at year-end 2022. At year-end 2022, we had $73.1 million of euro-denominated borrowings outstanding. The translation of our foreign-denominated debt impacts our borrowing capacity available under our Credit Agreement, which is calculated in U.S. dollars.
At year-end 2023, we had $75.8 million of euro-denominated borrowings outstanding. The translation of our foreign-denominated debt impacts our borrowing capacity available under our Credit Agreement, which is calculated in U.S. dollars. A 10% increase in the euro foreign exchange rate against the U.S. dollar would have decreased our borrowing capacity by approximately $7.6 million at year-end 2023.
The fair value of forward currency-exchange contracts is the estimated amount that we would pay or receive upon termination of the contracts. A 10% adverse change in year-end 2022 foreign currency exchange rates related to our foreign currency exchange contracts would have had an immaterial effect on our results of operations in 2022.
The fair value of forward currency-exchange contracts is sensitive to fluctuations in foreign currency exchange rates. The fair value of forward currency-exchange contracts is the estimated amount that we would pay or receive upon termination of the contracts.
Removed
Interest Rates Our exposure to changes in interest rates relates primarily to our long-term debt. Our borrowings under the Credit Agreement of $186.1 million at year-end 2022 bear variable rates of interest, which adjust frequently based on prevailing market rates.
Added
In January 2024, we borrowed $230.0 million under our revolving credit facility to fund the Key Knife and KWS acquisitions. As a result, we expect interest expense will increase significantly in 2024. Currency Exchange Rates We generally view our investment in foreign subsidiaries in a functional currency other than our reporting currency as long-term.
Removed
A 10% decrease in the three-month LIBOR forward curve would have increased our unrealized loss by an immaterial amount in 2022. Currency Exchange Rates We generally view our investment in foreign subsidiaries in a functional currency other than our reporting currency as long-term. Our investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates.
Added
The effect of changes in foreign exchange rates on our net investment in foreign subsidiaries is reflected in the "accumulated other comprehensive items" component of stockholders' equity. A 10% decrease in functional currencies relative to the U.S. dollar, would have resulted in a reduction in stockholders' equity of $43.8 million at year-end 2023.
Removed
A 10% negative movement in the euro foreign exchange rates against the U.S. dollar would have decreased our borrowing capacity by approximately $7.9 million at year-end 2022. The fair value of forward currency-exchange contracts is sensitive to fluctuations in foreign currency exchange rates.

Other KAI 10-K year-over-year comparisons