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Nature of Operations and Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2023
Accounting Policies [Abstract] |
Nature of Operations and Summary of Significant Accounting Policies | Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Kadant Inc. was incorporated in Delaware in November 1991 and trades on the New York Stock Exchange under the ticker symbol "KAI." Kadant Inc. (together with its subsidiaries, the Company) is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing. Its products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of the Company's three reportable operating segments: Flow Control, Industrial Processing, and Material Handling. Interim Financial Statements The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at September 30, 2023, its results of operations, comprehensive income, and stockholders' equity for the three- and nine-month periods ended September 30, 2023 and October 1, 2022 and its cash flows for the nine-month periods ended September 30, 2023 and October 1, 2022. Interim results are not necessarily indicative of results for a full year or for any other interim period. The condensed consolidated balance sheet presented as of December 31, 2022 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (Annual Report). The condensed consolidated financial statements and related notes are presented as permitted by the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-Q and do not contain certain information included in the annual consolidated financial statements and related notes of the Company. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report. Use of Estimates and Critical Accounting Policies The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its condensed consolidated financial statements or in the application of accounting policies, if business conditions were different, or if the Company were to use different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's condensed consolidated financial statements. Note 1 to the consolidated financial statements in the Annual Report describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2023. Supplemental Cash Flow Information
|  | Nine Months Ended
(In thousands) |  | September 30, 2023 |  | October 1, 2022
Cash Paid for Interest |  | $ | 6,341 |  |  | $ | 3,907 |
Cash Paid for Income Taxes, Net of Refunds |  | $ | 34,037 |  |  | $ | 28,692 |
Non-Cash Investing Activities: |  |  |  |
Reduction in fair value of assets acquired |  | $ | (270) |  |  | $ | (1,768) |
Cash received for acquired businesses |  | 277 |  |  | 138 |
Increase (decrease) in liabilities assumed |  | $ | 7 |  |  | $ | (1,630) |
Purchase of property with outstanding loan receivable |  | — |  |  | $ | 1,397 |
Purchases of property, plant, and equipment in accounts payable |  | $ | 749 |  |  | $ | 36 |
|  | Nine Months Ended
(In thousands) |  | September 30, 2023 |  | October 1, 2022
Non-Cash Financing Activities: |  |  |  |
Issuance of Company common stock upon vesting of restricted stock units |  | $ | 4,951 |  |  | $ | 5,295 |
Dividends declared but unpaid |  | $ | 3,395 |  |  | $ | 3,032 |
Restricted Cash The Company's restricted cash generally serves as collateral for bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business and for certain banker's acceptance drafts issued to vendors. The majority of 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) |  | September 30, 2023 |  | October 1, 2022 |  | December 31, 2022 |  | January 1, 2022
Cash and cash equivalents |  | $ | 76,793 |  |  | $ | 72,936 |  |  | $ | 76,371 |  |  | $ | 91,186 |
Restricted cash |  | 2,260 |  |  | 2,178 |  |  | 3,354 |  |  | 2,975 |
Total Cash, Cash Equivalents, and Restricted Cash |  | $ | 79,053 |  |  | $ | 75,114 |  |  | $ | 79,725 |  |  | $ | 94,161 |
Inventories The components of inventories are as follows:
|  | September 30, 2023 |  | December 31, 2022
(In thousands) |  |
Raw Materials |  | $ | 67,647 |  |  | $ | 71,040 |
Work in Process |  | 41,883 |  |  | 38,612 |
Finished Goods |  | 54,816 |  |  | 54,020 |
|  | $ | 164,346 |  |  | $ | 163,672 |
Intangible Assets, Net Gross intangible assets were $342,742,000 at September 30, 2023 and $343,130,000 at December 31, 2022. Intangible assets are recorded at fair value at the date of acquisition. Subsequent impairment charges are reflected as a reduction in the gross balance, as applicable. Definite-lived intangible assets are stated net of accumulated amortization and currency translation in the accompanying condensed consolidated balance sheet. The Company amortizes definite-lived intangible assets over lives that have been determined based on the anticipated cash flow benefits of the intangible asset. Accumulated amortization was $169,804,000 at September 30, 2023 and $155,834,000 at December 31, 2022. Goodwill The changes in the carrying amount of goodwill by segment are as follows:
(In thousands) |  | Flow Control |  | Industrial Processing |  | Material Handling |  | Total
Balance at December 31, 2022 |  |  |  |  |  |  |  |
Gross balance |  | $ | 118,309 |  |  | $ | 209,919 |  |  | $ | 142,765 |  |  | $ | 470,993 |
Accumulated impairment losses |  | — |  |  | (85,538) |  |  | — |  |  | (85,538) |
Net balance |  | 118,309 |  |  | 124,381 |  |  | 142,765 |  |  | 385,455 |
2023 Activity |  |  |  |  |  |  |  |
Acquisition adjustments |  | — |  |  | — |  |  | 4 |  |  | 4 |
Currency translation |  | (609) |  |  | (224) |  |  | (309) |  |  | (1,142) |
Total 2023 activity |  | (609) |  |  | (224) |  |  | (305) |  |  | (1,138) |
Balance at September 30, 2023 |  |  |  |  |  |  |  |
Gross balance |  | 117,700 |  |  | 209,695 |  |  | 142,460 |  |  | 469,855 |
Accumulated impairment losses |  | — |  |  | (85,538) |  |  | — |  |  | (85,538) |
Net balance |  | $ | 117,700 |  |  | $ | 124,157 |  |  | $ | 142,460 |  |  | $ | 384,317 |
Warranty Obligations The Company's contracts covering the sale of its products include warranty provisions that provide assurance to its customers that the products will comply with agreed-upon specifications during a defined period of time. The Company provides for the estimated cost of product warranties at the time of sale based on historical occurrence rates and repair costs, as well as knowledge of any specific warranty problems that indicate projected warranty costs may vary from historical patterns. The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications. The Company's liability for warranties is included in other current liabilities in the accompanying condensed consolidated balance sheet. The changes in the carrying amount of product warranty obligations are as follows:
|  | Nine Months Ended
(In thousands) |  | September 30, 2023 |  | October 1, 2022
Balance at Beginning of Year |  | $ | 7,283 |  |  | $ | 7,298 |
Provision charged to expense |  | 4,879 |  |  | 3,637 |
Usage |  | (3,391) |  |  | (3,361) |
Currency translation |  | (90) |  |  | (877) |
Balance at End of Period |  | $ | 8,681 |  |  | $ | 6,697 |
Revenue Recognition Most of the Company’s revenue relates to products and services that require minimal customization and is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. The remaining portion of the Company’s revenue is recognized over time based on an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation. Contracts are accounted for on an over time basis when they include products which have no alternative use and an enforceable right to payment over time. Most of the contracts recognized on an over time basis are for large capital equipment projects. These projects are highly customized for the customer and, as a result, would include a significant cost to rework in the event of cancellation. The following table presents revenue by revenue recognition method:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | October 1, |  | September 30, |  | October 1,
(In thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Point in Time |  | $ | 216,956 |  |  | $ | 201,557 |  |  | $ | 643,430 |  |  | $ | 603,117 |
Over Time |  | 27,226 |  |  | 22,953 |  |  | 75,563 |  |  | 69,522 |
|  | $ | 244,182 |  |  | $ | 224,510 |  |  | $ | 718,993 |  |  | $ | 672,639 |
The Company disaggregates its revenue from contracts with customers by reportable operating segment, product type and geography as this best depicts how its revenue is affected by economic factors. The following table presents the disaggregation of revenue by product type and geography:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | October 1, |  | September 30, |  | October 1,
(In thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Revenue by Product Type: |  |  |  |  |  |  |  |
Parts and consumables |  | $ | 149,564 |  |  | $ | 141,857 |  |  | $ | 454,209 |  |  | $ | 433,781 |
Capital |  | 94,618 |  |  | 82,653 |  |  | 264,784 |  |  | 238,858 |
|  | $ | 244,182 |  |  | $ | 224,510 |  |  | $ | 718,993 |  |  | $ | 672,639 |
Revenue by Geography (based on customer location): |  |  |  |  |  |  |
North America |  | $ | 133,780 |  |  | $ | 126,699 |  |  | 401,618 |  |  | 375,115 |
Europe |  | 66,491 |  |  | 57,409 |  |  | 181,273 |  |  | 174,264 |
Asia |  | 27,393 |  |  | 26,953 |  |  | 88,030 |  |  | 87,916 |
Rest of world |  | 16,518 |  |  | 13,449 |  |  | 48,072 |  |  | 35,344 |
|  | $ | 244,182 |  |  | $ | 224,510 |  |  | $ | 718,993 |  |  | $ | 672,639 |
See Note 10, Business Segment Information, for information on the disaggregation of revenue by reportable operating segment. The following table presents contract balances from contracts with customers:
|  | September 30, 2023 |  | December 31, 2022
(In thousands) |  |
Contract Assets |  | $ | 12,113 |  |  | $ | 14,898 |
Contract Liabilities |  | $ | 83,035 |  |  | $ | 82,413 |
Contract assets represent unbilled revenue associated with revenue recognized on contracts accounted for on an over time basis, which will be billed in future periods based on the contract terms. Contract liabilities consist of short- and long-term customer deposits, advanced billings, and deferred revenue. Deferred revenue is included in other current liabilities, and long-term customer deposits are included in other long-term liabilities in the accompanying condensed consolidated balance sheet. Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met. The majority of the contract liabilities relate to advance payments on contracts accounted for at a point in time. These advance payments will be recognized as revenue when the Company's performance obligations have been satisfied, which typically occurs when the product has shipped and control of the asset has transferred to the customer. The Company recognized revenue of $9,613,000 in the third quarter of 2023 and $11,912,000 in the third quarter of 2022, and $56,841,000 in the first nine months of 2023 and $59,813,000 in the first nine months of 2022 that was included in the contract liabilities balance at the beginning of 2023 and 2022, respectively. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital equipment contracts require longer lead times and could take up to 24 months to complete. For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations was $47,568,000 as of September 30, 2023. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 74% of which is expected to occur within the next twelve months and the remaining 26% after the third quarter of 2024. Banker's Acceptance Drafts Included in Accounts Receivable The Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date. These drafts, which totaled $8,558,000 at September 30, 2023 and $5,729,000 at December 31, 2022, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date. Recent Accounting Pronouncements Not Yet Adopted Business Combinations - Joint Venture Formations (Topic 805), Recognition and Initiation Measurement. In August 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-05, to address the diversity in practice on the accounting treatment of joint venture formations. Under this ASU, a joint venture is required to apply a new basis of accounting at its formation date by valuing the net assets contributed at fair value for both business and asset transactions. The value of the net assets in total is then allocated to individual assets and liabilities by applying Topic 805 with certain exceptions. This new guidance is effective for joint ventures with a formation date on or after January 1, 2025 and is required to be applied prospectively. Additionally, joint ventures with a formation date prior to January 1, 2025, have an option to elect to apply the guidance retrospectively, provided adequate information is available. The impact of the adoption of this ASU on the Company's consolidated financial statements will be dependent upon joint ventures formed in future periods.

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- Definition The entire disclosure for the business description and accounting policies concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 235 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//235/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 275 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//275/tableOfContent + Details
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