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.

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.

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

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

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.


(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

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

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.


	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


	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

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.

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.