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Employee Benefit Plans

12 Months Ended

Jan. 02, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Plans

The Company maintains stock-based compensation plans primarily for its key employees and directors, although the plans permit awards to others expected to make significant contributions to the future of the Company. The plans authorize the compensation committee of the Company's board of directors (the board committee) to award a variety of stock and stock-based incentives, such as restricted stock, RSUs, nonqualified and incentive stock options, stock bonus shares, or performance-based shares. The award recipients and the terms of awards granted under these plans are determined by the board committee. Upon a change of control, as defined in the plans, all options or other awards become fully vested and all restrictions lapse. The Company had 363,584 shares available for grant under these stock-based compensation plans at year-end 2020. The Company generally issues its common stock out of treasury stock, to the extent available, for share issuances related to its stock-based compensation plans.

The Company recognizes compensation cost for all stock-based awards granted to employees and directors based on the grant date estimate of fair value for those awards. The fair value of RSUs is based on the grant date price of the Company's common stock, reduced by the present value of estimated dividends foregone during the requisite service period.

The components of pre-tax stock-based compensation expense included in SG&A expenses in the accompanying consolidated statement of income are as follows:


(In thousands)	January 2, 2021		December 28, 2019		December 29, 2018
RSU Awards	$	6,453	$	6,616	$	6,838
Employee Stock Purchase Plan Awards	323		199		189
Total	$	6,776	$	6,815	$	7,027

The Company grants RSUs to non-employee directors and certain employees. Holders of RSUs have no voting rights and are not entitled to receive cash dividends.

Non-Employee Director Restricted Stock Units

The Company granted RSU awards consisting of 2,085 RSUs in 2020, 1,858 RSUs in 2019 and 2,700 RSUs in 2018 to each of its incumbent non-employee directors. Half of the RSUs vested on June 1 of each year and the remaining RSUs vested ratably on the last day of the third and fourth fiscal quarters of each year. In addition, the Company granted RSU awards consisting of 1,042 RSUs in July 2020 to its new non-employee director (former executive director), which vested ratably on the last day of the third and fourth fiscal quarters of 2020. Each RSU issued to the directors represents the right to receive one share of the Company's common stock upon vesting.

Performance-Based Restricted Stock Units

The Company grants performance-based RSUs to certain officers of the Company. Each performance-based RSU represents the right to receive one share of the Company's common stock upon vesting. The RSUs are subject to adjustment based on the achievement of a performance measure selected for the fiscal year, which historically has been a specified target for adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) generated from operations. Following the adjustment, the RSUs are subject to additional time-based vesting, and vest in three equal annual installments, provided that the officer is employed by the Company on the applicable vesting dates.

The Company recognizes compensation expense associated with performance-based RSUs ratably over the requisite service period for each separately vesting portion of the award based on the grant date fair value, net of actual forfeitures recorded when they occur, and remeasured each reporting period until the total number of RSUs to be issued is known. Unrecognized compensation expense related to the unvested performance-based RSUs totaled $1,988,000 at year-end 2020, and will be recognized over a weighted average period of 1.4 years.

The performance-based RSU agreements provide for forfeiture in certain events, such as voluntary or involuntary termination of employment, and for acceleration of vesting in certain events, such as death, disability or a change in control of the Company. If death, disability, or a change in control occurs prior to the end of the performance period, the officer will receive the target RSU amount; otherwise, the officer will receive the number of deliverable RSUs based on the achievement of the performance goal, as stated in the RSU agreements.

Time-Based Restricted Stock Units

The Company grants time-based RSUs to its officers and other employees of the Company. Each time-based RSU represents the right to receive one share of the Company's common stock upon vesting. The Company recognizes compensation expense associated with these time-based RSUs ratably over the requisite service period for the entire award based on the grant date fair value, and net of actual forfeitures recorded when they occur. The time-based RSU agreement provides for forfeiture in certain events, such as voluntary or involuntary termination of employment, and for acceleration of vesting in certain events, such as death, disability, or a change in control of the Company. Unrecognized compensation expense related to the time-based RSUs totaled $3,292,000 at year-end 2020, and will be recognized over a weighted average period of 1.8 years.

Vesting of Restricted Stock Units

A summary of the activity of the Company's unvested RSUs in 2020 is as follows:


	Units (In thousands)	Weighted Average Grant- Date Fair Value
Unvested RSUs at December 28, 2019	135	$	86.11
Granted	78	$	88.22
Vested	(92)	$	79.66
Forfeited	(1)	$	87.75
Unvested RSUs at January 2, 2021	120	$	92.42

The weighted average grant date fair value of RSUs granted was $88.22 in 2020, $86.50 in 2019, and $98.12 in 2018. The total fair value of shares vested was $7,343,000 in 2020, $5,452,000 in 2019, and $11,932,000 in 2018.

Stock Options

The Company has not granted stock options since 2013. Prior to 2014, the Company granted nonqualified stock options to its executive officers that vested over three years and were not exercisable until vested. All options awarded in prior periods were granted at an exercise price equal to the fair market value of the Company's common stock on the date of grant. All outstanding stock options are fully vested and expire on the tenth anniversary of the grant date. There was no unrecognized compensation expense related to these stock options at year-end 2020.

A summary of the Company's stock option activity in 2020 is as follows:


(In thousands, except per share amounts)	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (a)
Options Outstanding at December 28, 2019	74	$	24.28
Exercised	(47)	$	24.19
Options Outstanding at January 2, 2021	27	$	24.44	1.8 years	$	3,173
Vested and Exercisable at January 2, 2021	27	$	24.44	1.8 years	$	3,173

(a)The closing price per share on the last trading day prior to year-end 2020 was $140.98.

A summary of the Company's stock option exercises in 2020, 2019 and 2018 are as follows:


(In thousands)	January 2, 2021		December 28, 2019		December 29, 2018
Total Intrinsic Value of Options Exercised	$	4,071	$	16,796	$	515
Cash Received from Options Exercised	$	1,123	$	4,454	$	127

Employee Stock Purchase Plan

The Company's eligible U.S. employees may elect to participate in its employee stock purchase plan. Under the plan, shares of the Company's common stock may be purchased at a 15% discount from the fair market value at the beginning or end of the purchase period, whichever is lower. Shares purchased under the plan are subject to a one-year resale restriction and are purchased through payroll deductions of up to 10% of each participating employee's gross wages. The Company issued 13,062 shares for 2020 (issued in 2020), 13,195 shares for 2019 (issued in 2020), and 10,439 shares for 2018 (issued in 2019) of its common stock under this plan. The Company had 101,873 shares available for grant under the employee stock purchase plan at year-end 2020.

401(k) Savings and Other Defined Contribution Plans

The Company's U.S. subsidiaries participate in the Kadant Inc. 401(k) Retirement Savings Plan sponsored by the Company. Contributions to the plan are made by both the employee and the Company and are immediately vested. Company contributions are based upon the level of employee contributions.

Certain of the Company's subsidiaries offer other retirement plans, the majority of which are defined contribution plans. Company contributions to these plans are based on formulas determined by the Company.

For these plans, the Company contributed and charged to expense $4,501,000 in 2020, $4,412,000 in 2019, and $3,705,000 in 2018. The increase in the Company's contributions in 2019 was primarily due to the acquisition of SMH.

Pension and Other Post-Retirement Benefits Plans

Prior to its termination in 2018, the Company sponsored a noncontributory defined benefit pension plan for eligible employees at one of its U.S. divisions and its corporate office (Retirement Plan). Funds for the Retirement Plan were contributed to a trustee to provide for current service and for any unfunded projected benefit obligation over a reasonable period. Certain of the Company’s non-U.S. subsidiaries also sponsor defined benefit pension plans covering certain employees at those subsidiaries. One of the non-U.S. pension plans also contributes funds to a trustee. The remaining non-U.S. pension plans are unfunded as permitted under their plans and applicable laws. Benefits under the Company’s pension plans are based on years of service and employee compensation.

The Company also provides other post-retirement benefits under plans in the United States and at one of its non-U.S. subsidiaries. Prior to its termination in 2018, the Company provided for a restoration plan (Restoration Plan) for certain executive officers which fully supplemented benefits lost under the Retirement Plan.

In accordance with ASC 715, Compensation-Retirement Benefits (ASC 715), the Company recognizes the funded status of its defined benefit pension and other post-retirement benefit plans as an asset or liability and changes in the funded status through AOCI, net of tax. The amounts in AOCI are recognized as net periodic pension cost pursuant to the Company's accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit cost will be recognized as a component of AOCI, net of tax.

Effective December 28, 2018, the Company's board of directors and its compensation committee approved amendments to freeze and terminate the Retirement Plan and Restoration Plan and, as a result, recognized a curtailment loss of $1,425,000 in 2018, which was reclassified from AOCI and included in other expense, net in the accompanying consolidated statement of income.

In 2019, the Company settled its Retirement Plan obligation, which required adjustment based on the number of plan participants who elected to receive either a lump sum payment or an annuity, and the increased costs to purchase the annuity contracts due to changes in certain market conditions, including a decrease in long-term interest rates in 2019. As a result, the Company recognized a settlement loss of $5,887,000 in 2019, which was included in other expense, net in the accompanying consolidated statement of income, and was calculated as the sum of the unrecognized actuarial loss and $3,839,000 of additional cash to be paid, less the accrued pension liability. In January 2020, the Company settled its Restoration Plan obligation of $2,427,000 by paying a lump sum to its plan participants resulting in a settlement loss of $57,000 in 2019, which was included in other expense, net in the accompanying consolidated statement of income.

The Company does not plan to make any material cash contributions to its pension and post-retirement plans in 2021.

The following table summarizes the change in benefit obligation; the change in plan assets; the unfunded status; and the amounts recognized in the accompanying consolidated balance sheet for the Company's U.S. and non-U.S. pension benefit plans and other post-retirement benefit plans. In accordance with ASU No. 2015-04, Compensation - Retirement Benefits (Topic 715), the Company elects to measure its plan assets and benefit obligations as of December 31.


	U.S. Pension		Non-U.S. Pension				Other Post-Retirement
(In thousands)	December 28, 2019		January 2, 2021		December 28, 2019		January 2, 2021		December 28, 2019
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year	$	29,715	$	4,168	$	3,671	$	3,742	$	3,672
Service cost	—		209		205		6		4
Interest cost	1,134		98		121		39		149
Actuarial loss (gain) (a)	4,039		(94)		393		47		144
Benefits paid	(966)		(286)		(184)		(131)		(232)
Settlement payment	(33,922)		—		—		(2,427)		—
Currency translation	—		239		(38)		(7)		5
Projected benefit obligation at end of year	$	—	$	4,334	$	4,168	$	1,269	$	3,742
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	28,729	$	973	$	726	$	64	$	44
Actual return on plan assets	2,320		37		58		2		4
Employer contributions	3,839		457		340		2,577		246
Benefits paid	(966)		(286)		(184)		(131)		(232)
Settlement payment	(33,922)		—		—		(2,427)		—
Currency translation	—		(35)		33		(3)		2
Fair value of plan assets at end of year	$	—	$	1,146	$	973	$	82	$	64
Unfunded Status	$	—	$	(3,188)	$	(3,195)	$	(1,187)	$	(3,678)
Accumulated Benefit Obligation at End of Year	$	—	$	3,572	$	3,046	$	—	$	—

Amounts Included in the Balance Sheet:
Current liability	$	—	$	(144)	$	(189)	$	(131)	$	(2,569)
Non-current liability	$	—	$	(3,044)	$	(3,006)	$	(1,056)	$	(1,109)

Amounts Included in Accumulated Other Comprehensive Items Before Tax:
Unrecognized net actuarial loss	$	—	$	(900)	$	(1,034)	$	(175)	$	(144)
Unrecognized prior service cost	—		97		(38)		—		—
	$	—	$	(803)	$	(1,072)	$	(175)	$	(144)

(a)The actuarial loss of $4,039,000 in 2019 resulted from the settlement of the Retirement Plan obligation in which participants' lump sum elections were lower than assumed and the cost of annuity contracts increased primarily due to a decline in long-term interest rates.


	U.S. Pension		Non-U.S. Pension				Other Post-Retirement
(In thousands)	December 28, 2019		January 2, 2021		December 28, 2019		January 2, 2021		December 28, 2019
Changes in Amounts Included in Accumulated Other Comprehensive Items Before Tax:
Net actuarial (loss) gain	$	(2,714)	$	230	$	(402)	$	(50)	$	(88)
Amortization of net actuarial loss	32		50		25		16		13
Amortization of prior service cost	—		55		6		—		—
Settlement loss	5,887		—		—		—		—
Currency translation	—		(66)		18		3		—
	$	3,205	$	269	$	(353)	$	(31)	$	(75)

The weighted average assumptions used to determine the benefit obligation are as follows:


	Non-U.S. Pension				Other Post-Retirement

	January 2, 2021		December 28, 2019		January 2, 2021		December 28, 2019
Discount Rate	2.02	%	2.59	%	2.33	%	3.82	%
Rate of Compensation Increase	2.10	%	3.40	%	5.57	%	5.57	%

The discount rates are based on market yields on high-quality corporate or government bonds currently available and expected to be available for the duration of the obligation. For plans that have been closed to new participants, the discount rate is determined based on discounting expected future payments using the FTSE Pension Discount Curve.

The projected benefit obligations and fair values of plan assets for the Company's pension plans with projected benefit obligations in excess of plan assets are as follows:


	Non-U.S. Pension

(In thousands)	January 2, 2021		December 28, 2019
Projected Benefit Obligation	$	4,334	$	4,168
Fair Value of Plan Assets	$	1,146	$	973

The accumulated benefit obligations and fair values of plan assets for the Company's pension plans with accumulated benefit obligations in excess of plan assets are as follows:


	Non-U.S. Pension

(In thousands)	January 2, 2021		December 28, 2019
Accumulated Benefit Obligation	$	2,601	$	2,408
Fair Value of Plan Assets	$	—	$	—

The components of net periodic benefit cost are as follows:


	U.S. Pension				Non-U.S. Pension						Other Post-Retirement

(In thousands)	December 28, 2019		December 29, 2018		January 2, 2021		December 28, 2019		December 29, 2018		January 2, 2021		December 28, 2019		December 29, 2018
Service cost	$	—	$	699	$	209	$	205	$	173	$	6	$	4	$	213
Interest cost	1,134		1,193		98		121		126		39		149		172
Expected return on plan assets	(995)		(1,286)		(60)		(66)		(42)		(3)		(4)		(3)
Amortization of net actuarial loss	32		541		50		25		63		16		13		136
Amortization of prior service cost	—		—		55		6		6		—		—		86
Settlement loss	5,887		—		—		—		—		—		57		—
Curtailment loss	—		1,116		—		—		—		—		—		309
Net Periodic Benefit Cost	$	6,058	$	2,263	$	352	$	291	$	326	$	58	$	219	$	913

The weighted average assumptions used to determine net periodic benefit cost are as follows:


	U.S. Pension				Non-U.S. Pension						Other Post-Retirement

	December 28, 2019		December 29, 2018		January 2, 2021		December 28, 2019		December 29, 2018		January 2, 2021		December 28, 2019		December 29, 2018
Discount Rate	4.10	%	3.51	%	1.73	%	2.58	%	3.49	%	3.82	%	4.33	%	3.58	%
Expected Long-Term Return on Plan Assets	4.10	%	4.50	%	5.89	%	9.22	%	7.43	%	5.89	%	9.22	%	7.43	%
Rate of Compensation Increase	—	%	3.00	%	2.89	%	2.81	%	3.97	%	5.57	%	5.57	%	3.05	%

The expected long-term return on plan assets for the Retirement Plan in fiscal 2019 equals the discount rate, which was valued using the FTSE Pension Discount Curve. The expected long-term rate of return on plan assets for the U.S. pension plan in fiscal 2018 and the non-U.S. pension and other post-retirement plan for all years presented were determined based on the composition of plan investments, historical returns earned and future expectations.

Plan Assets

The fair value of the Company’s non-U.S. pension and other post-retirement plan assets were $1,228,000 at year-end 2020 and $1,037,000 at year end 2019. The assets are invested in a diversified portfolio of government and corporate bonds, which are Level 1 investments and are valued at quoted prices for identical assets in active markets. See N ote 11, Fair Value Measurement and Fair Value of Financial Instruments, for the fair value hierarchy.

Estimated Future Benefit Payments

Expected benefit payments are based on the same assumptions used to measure the Company's benefit obligation at year-end 2020. Estimated future benefit payments during the next five years and in aggregate for the five years thereafter are as follows:


			Other Post-retirement
(In thousands)	Non-U.S. Pension
2021	$	145	$	131
2022	157		119
2023	277		110
2024	306		117
2025	405		92
2026-2029	2,264		426