Kadant Inc. (together with its subsidiaries, the Company) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide. Its products, technologies, and services play an integral role in enhancing process efficiency, optimizing energy utilization, and maximizing productivity in resource-intensive industries.

The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at October 2, 2021, its results of operations, comprehensive income, and stockholders' equity for the three- and nine-month periods ended October 2, 2021 and September 26, 2020 and its cash flows for the nine-month periods ended October 2, 2021 and September 26, 2020. Interim results are not necessarily indicative of results for a full year or for any other interim period.

The condensed consolidated balance sheet presented as of January 2, 2021 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. The condensed consolidated financial statements and related notes are presented as permitted by the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-Q and do not contain certain information included in the annual consolidated financial statements and related notes of the Company. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the SEC.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its condensed consolidated financial statements or in the application of accounting policies, if business conditions were different, or if the Company were to use different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's condensed consolidated financial statements.

Note 1 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the Company’s significant accounting policies during the nine months ended October 2, 2021.

Supplemental Cash Flow Information


	Nine Months Ended
(In thousands)	October 2, 2021		September 26, 2020




Cash Paid for Interest	$	3,091	$	5,518
Cash Paid for Income Taxes, Net of Refunds	$	19,320	$	9,953

Non-Cash Investing Activities:
Fair value of assets acquired	$	185,424	$	9,295
Cash paid for acquired businesses	(149,961)		(7,565)
Liabilities Assumed of Acquired Businesses	$	35,463	$	1,730

Purchases of property, plant, and equipment in accounts payable	$	914	$	101

Non-Cash Financing Activities:
Issuance of Company common stock upon vesting of restricted stock units	$	3,841	$	4,557
Dividends declared but unpaid	$	2,901	$	2,762

The Company's restricted cash generally serves as collateral for certain banker's acceptance drafts issued to vendors and for bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business. The majority of the bank guarantees will expire over the next twelve months.

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


(In thousands)	October 2, 2021		September 26, 2020		January 2, 2021		December 28, 2019
Cash and cash equivalents	$	82,600	$	53,554	$	65,682	$	66,786
Restricted cash	1,064		2,650		958		1,487
Total Cash, Cash Equivalents, and Restricted Cash	$	83,664	$	56,204	$	66,640	$	68,273


(In thousands)	Gross		Accumulated Amortization		Currency Translation		Net
October 2, 2021
Definite-Lived
Customer relationships	$	215,366	$	(75,978)	$	(2,613)	$	136,775
Product technology	67,625		(34,615)		(1,468)		31,542
Tradenames	7,427		(3,278)		(346)		3,803
Other	20,110		(15,463)		(552)		4,095
	310,528		(129,334)		(4,979)		176,215
Indefinite-Lived
Tradenames	29,059		—		54		29,113
Acquired Intangible Assets	$	339,587	$	(129,334)	$	(4,925)	$	205,328

January 2, 2021
Definite-Lived
Customer relationships	$	173,728	$	(65,488)	$	(1,316)	$	106,924
Product technology	56,111		(31,655)		(1,005)		23,451
Tradenames	6,027		(2,946)		(282)		2,799
Other	18,248		(14,369)		(515)		3,364
	254,114		(114,458)		(3,118)		136,538
Indefinite-Lived
Tradenames	24,100		—		327		24,427
Acquired Intangible Assets	$	278,214	$	(114,458)	$	(2,791)	$	160,965

Intangible assets are recorded at fair value at the date of acquisition. Subsequent impairment charges are reflected as a reduction in the gross balance, as applicable. Definite-lived intangible assets are stated net of accumulated amortization and currency translation in the accompanying condensed consolidated balance sheet. The Company amortizes definite-lived intangible assets over lives that have been determined based on the anticipated cash flow benefits of the intangible asset.


(In thousands)	Flow Control		Industrial Processing		Material Handling		Total
Balance at January 2, 2021
Gross balance	$	101,437	$	215,881	$	119,944	$	437,262
Accumulated impairment losses	—		(85,509)		—		(85,509)
Net balance	101,437		130,372		119,944		351,753
2021 Adjustments
Acquisitions (Note 2)	25,349		—		27,699		53,048
Currency translation	(2,417)		(1,351)		(2,126)		(5,894)
Total 2021 adjustments	22,932		(1,351)		25,573		47,154
Balance at October 2, 2021
Gross balance	124,369		214,530		145,517		484,416
Accumulated impairment losses	—		(85,509)		—		(85,509)
Net balance	$	124,369	$	129,021	$	145,517	$	398,907

The Company's contracts covering the sale of its products include warranty provisions that provide assurance to its customers that the products will comply with agreed-upon specifications during a defined period of time. The Company provides for the estimated cost of product warranties at the time of sale based on historical occurrence rates and repair costs, as well as knowledge of any specific warranty problems that indicate projected warranty costs may vary from historical patterns. The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications.


	Nine Months Ended
(In thousands)	October 2, 2021		September 26, 2020
Balance at Beginning of Year	$	7,064	$	6,467
Provision charged to expense	3,289		3,960
Usage	(3,106)		(3,809)
Acquisitions	429		—
Currency translation	(210)		114
Balance at End of Period	$	7,466	$	6,732

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


	Three Months Ended				Nine Months Ended
	October 2,		September 26,		October 2,		September 26,
(In thousands)	2021		2020		2021		2020
Point in Time	$	181,407	$	137,679	$	511,303	$	403,568
Over Time	18,382		16,931		56,760		63,029
	$	199,789	$	154,610	$	568,063	$	466,597

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


	Three Months Ended				Nine Months Ended
	October 2,		September 26,		October 2,		September 26,
(In thousands)	2021		2020		2021		2020
Revenue by Product Type:
Parts and consumables	$	131,225	$	102,729	$	374,307	$	305,087
Capital	68,564		51,881		193,756		161,510
	$	199,789	$	154,610	$	568,063	$	466,597
Revenue by Geography (based on customer location):
North America	$	105,384	$	87,366	307,243		269,907
Europe	58,813		38,951		159,281		112,881
Asia	25,504		18,847		72,046		50,992
Rest of world	10,088		9,446		29,493		32,817
	$	199,789	$	154,610	$	568,063	$	466,597

Contract assets represent unbilled revenue associated with revenue recognized on contracts accounted for on an over time basis, which will be billed in future periods based on the contract terms. Contract liabilities consist of customer deposits, advanced billings, and deferred revenue. Deferred revenue is included in other current liabilities in the accompanying condensed consolidated balance sheet. Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met. The majority of the contract liabilities relate to advance payments on contracts accounted for at a point in time. These advance payments will be recognized as revenue when the Company's performance obligations have been satisfied, which typically occurs when the product has shipped and control of the asset has transferred to the customer.

The Company recognized revenue of $3,973,000 in the third quarter of 2021, $1,656,000 in the third quarter of 2020, $31,183,000 in the first nine months of 2021 and $28,522,000 in the first nine months of 2020 that was included in the contract liabilities balance at the beginning of 2021 and 2020. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital contracts require long lead times and could take up to 24 months to complete. For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations as of October 2, 2021 was $38,135,000. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 70% of which is expected to occur within the next twelve months and the remaining 30% within the following twelve months.

The Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and mature within six months of the origination date. The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date. These drafts, which totaled $7,428,000 at October 2, 2021 and $9,445,000 at January 2, 2021, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date.

Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance, including the recognition of franchise tax, the treatment of a step up in the tax basis of goodwill, and the timing for recognition of enacted changes in tax laws or rates in the interim period annual effective tax rate computation. This new guidance is effective in fiscal 2021, and the transition requirements are primarily prospective. The Company adopted this ASU prospectively at the beginning of fiscal 2021 and its adoption did not have an impact on the condensed consolidated financial statements.