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Nature of Operations and Summary of Significant Accounting Policies | 3 Months Ended
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Mar. 30, 2024
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 March 30, 2024, its results of operations, comprehensive income, cash flows, and stockholders' equity for the three-month periods ended March 30, 2024 and April 1, 2023. 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 30, 2023 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 30, 2023 (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 quarter ended March 30, 2024. Supplemental Cash Flow Information
|  | Three Months Ended
(In thousands) |  | March 30, 2024 |  | April 1, 2023
Cash Paid for Interest |  | $ | 4,484 |  |  | $ | 2,161 |
Cash Paid for Income Taxes, Net of Refunds |  | $ | 7,313 |  |  | $ | 9,558 |
Non-Cash Investing Activities: |  |  |  |
Fair value of assets acquired |  | $ | 266,061 |  |  | $ | — |
Cash paid for businesses acquired |  | (238,306) |  |  | — |
Liabilities assumed and noncontrolling interests acquired |  | $ | 27,755 |  |  | $ | — |
Purchases of property, plant, and equipment in accounts payable |  | $ | 1,342 |  |  | $ | 299 |
|  | Three Months Ended
(In thousands) |  | March 30, 2024 |  | April 1, 2023
Non-Cash Financing Activities: |  |  |  |
Issuance of Company common stock upon vesting of restricted stock units |  | $ | 4,703 |  |  | $ | 4,246 |
Dividends declared but unpaid |  | $ | 3,758 |  |  | $ | 3,394 |
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 these restrictions will expire over the next twelve months. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the accompanying condensed consolidated balance sheet that are shown in aggregate in the accompanying condensed consolidated statement of cash flows:
(In thousands) |  | March 30, 2024 |  | April 1, 2023 |  | December 30, 2023 |  | December 31, 2022
Cash and cash equivalents |  | $ | 81,440 |  |  | $ | 81,183 |  |  | $ | 103,832 |  |  | $ | 76,371 |
Restricted cash |  | 1,178 |  |  | 4,324 |  |  | 2,621 |  |  | 3,354 |
Total Cash, Cash Equivalents, and Restricted Cash |  | $ | 82,618 |  |  | $ | 85,507 |  |  | $ | 106,453 |  |  | $ | 79,725 |
Inventories The components of inventories are as follows:
|  | March 30, 2024 |  | December 30, 2023
(In thousands) |  |
Raw Materials |  | $ | 70,695 |  |  | $ | 66,738 |
Work in Process |  | 41,180 |  |  | 32,147 |
Finished Goods (includes $3,581 and $5,182 at customer locations) |  | 60,083 |  |  | 53,792 |
|  | $ | 171,958 |  |  | $ | 152,677 |
Intangible Assets, Net Acquired intangible assets by major asset class are as follows:
(In thousands) |  | Gross |  | Accumulated Amortization |  | Currency Translation |  | Net
March 30, 2024 |  |  |  |  |  |  |  |
Definite-Lived |  |  |  |  |  |  |  |
Customer relationships |  | $ | 318,271 |  |  | $ | (113,072) |  |  | $ | (6,733) |  |  | $ | 198,466 |
Product technology |  | 82,276 |  |  | (45,051) |  |  | (2,632) |  |  | 34,593 |
Tradenames |  | 14,489 |  |  | (4,441) |  |  | (419) |  |  | 9,629 |
Other |  | 22,020 |  |  | (18,589) |  |  | (616) |  |  | 2,815 |
|  | 437,056 |  |  | (181,153) |  |  | (10,400) |  |  | 245,503 |
Indefinite-Lived |  |  |  |  |  |  |  |
Tradenames |  | 29,059 |  |  | — |  |  | (731) |  |  | 28,328 |
Acquired Intangible Assets |  | $ | 466,115 |  |  | $ | (181,153) |  |  | $ | (11,131) |  |  | $ | 273,831 |
(In thousands) |  | Gross |  | Accumulated Amortization |  | Currency Translation |  | Net
December 30, 2023 |  |  |  |  |  |  |  |
Definite-Lived |  |  |  |  |  |  |  |
Customer relationships |  | $ | 218,959 |  |  | $ | (108,519) |  |  | $ | (5,562) |  |  | $ | 104,878 |
Product technology |  | 67,576 |  |  | (43,786) |  |  | (2,367) |  |  | 21,423 |
Tradenames |  | 7,039 |  |  | (4,262) |  |  | (388) |  |  | 2,389 |
Other |  | 20,320 |  |  | (17,715) |  |  | (604) |  |  | 2,001 |
|  | 313,894 |  |  | (174,282) |  |  | (8,921) |  |  | 130,691 |
Indefinite-Lived |  |  |  |  |  |  |  |
Tradenames |  | 29,059 |  |  | — |  |  | (464) |  |  | 28,595 |
Acquired Intangible Assets |  | $ | 342,953 |  |  | $ | (174,282) |  |  | $ | (9,385) |  |  | $ | 159,286 |
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. Intangible assets associated with the Company's 2024 acquisitions totaled $123,150,000, which primarily related to customer relationships and product technology. See Note 2, Acquisitions, for further details. 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 30, 2023 |  |  |  |  |  |  |  |
Gross balance |  | $ | 120,782 |  |  | $ | 212,732 |  |  | $ | 144,108 |  |  | $ | 477,622 |
Accumulated impairment losses |  | — |  |  | (85,538) |  |  | — |  |  | (85,538) |
Net balance |  | 120,782 |  |  | 127,194 |  |  | 144,108 |  |  | 392,084 |
2024 Activity |  |  |  |  |  |  |  |
Acquisitions (Note 2) |  | — |  |  | 34,058 |  |  | 38,468 |  |  | 72,526 |
Fair value adjustment |  | — |  |  | (22) |  |  | — |  |  | (22) |
Currency translation |  | (1,792) |  |  | (1,911) |  |  | (968) |  |  | (4,671) |
Total 2024 activity |  | (1,792) |  |  | 32,125 |  |  | 37,500 |  |  | 67,833 |
Balance at March 30, 2024 |  |  |  |  |  |  |  |
Gross balance |  | 118,990 |  |  | 244,857 |  |  | 181,608 |  |  | 545,455 |
Accumulated impairment losses |  | — |  |  | (85,538) |  |  | — |  |  | (85,538) |
Net balance |  | $ | 118,990 |  |  | $ | 159,319 |  |  | $ | 181,608 |  |  | $ | 459,917 |
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:
|  | Three Months Ended
(In thousands) |  | March 30, 2024 |  | April 1, 2023
Balance at Beginning of Year |  | $ | 8,154 |  |  | $ | 7,283 |
Provision charged to expense |  | 1,069 |  |  | 1,425 |
Usage |  | (724) |  |  | (1,068) |
Acquisitions |  | 475 |  |  | — |
Currency translation |  | (150) |  |  | 87 |
Balance at End of Period |  | $ | 8,824 |  |  | $ | 7,727 |
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 |  |
|  | March 30, |  | April 1, |  |  |  |
(In thousands) |  | 2024 |  | 2023 |  |  |  |
Point in Time |  | $ | 216,493 |  |  | $ | 204,239 |  |  |  |  |
Over Time |  | 32,482 |  |  | 25,519 |  |  |  |  |
|  | $ | 248,975 |  |  | $ | 229,758 |  |  |  |  |
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 |  |
|  | March 30, |  | April 1, |  |  |  |
(In thousands) |  | 2024 |  | 2023 |  |  |  |
Revenue by Product Type: |  |  |  |  |  |  |  |
Parts and consumables |  | $ | 171,130 |  |  | $ | 151,563 |  |  |  |  |
Capital |  | 77,845 |  |  | 78,195 |  |  |  |  |
|  | $ | 248,975 |  |  | $ | 229,758 |  |  |  |  |
Revenue by Geography (based on customer location): |  |  |  |  |  |  |
North America |  | $ | 156,491 |  |  | $ | 132,453 |  |  |  |  |
Europe |  | 55,787 |  |  | 54,157 |  |  |  |  |
Asia |  | 22,554 |  |  | 27,770 |  |  |  |  |
Rest of world |  | 14,143 |  |  | 15,378 |  |  |  |  |
|  | $ | 248,975 |  |  | $ | 229,758 |  |  |  |  |
See Note 1 1, Business Segment Information, for information on the disaggregation of revenue by reportable operating segment. The following table presents contract balances from contracts with customers:
|  | March 30, 2024 |  | December 30, 2023
(In thousands) |  |
Contract Assets |  | $ | 10,673 |  |  | $ | 8,366 |
Contract Liabilities |  | $ | 78,856 |  |  | $ | 79,397 |
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 $33,666,000 in the first quarter of 2024 and $27,016,000 in the first quarter of 2023 that was included in the contract liabilities balance at the beginning of 2024 and 2023, 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 $37,026,000 as of March 30, 2024. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 88% of which is expected to occur within the next twelve months and the remaining 12% thereafter. 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 $6,723,000 at March 30, 2024 and $10,826,000 at December 30, 2023, 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 In accordance with Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740), the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which these differences are expected to reverse. A tax valuation allowance is established, as needed, to reduce deferred tax assets to the amount expected to be realized. In the period in which it becomes more likely than not that some or all of the deferred tax assets will be realized, the valuation allowance will be adjusted. It is the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. At March 30, 2024, the Company believes that it has appropriately accounted for any liability for unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established, the statute of limitations expires for a tax jurisdiction year, or the Company is required to pay amounts in excess of the liability, its effective tax rate in a given financial statement period may be affected. In December 2021, the Organisation for Economic Co-operation and Development (OECD) released model rules introducing a new 15% global minimum tax for large multinational enterprises with an annual global revenue exceeding 750,000,000 euros (Pillar Two Rules). Since the release of the Pillar Two Rules, the OECD has issued three tranches of administrative guidance, as well as guidance on transitional safe harbor relief. Various countries, including the member states of the European Union, have adopted the Pillar Two Rules into their domestic laws, with certain rules coming into effect for fiscal years beginning in 2024. Some countries are in the process of drafting legislation for adoption in future years. While the Pillar Two Rules serve as a framework for implementing the minimum tax, countries may enact domestic laws that vary slightly from the Pillar Two Rules and may also adjust domestic tax incentives to align with the Pillar Two Rules on different timelines. The Company is monitoring developments of the Pillar Two Rules and is evaluating the potential impact they may have on the jurisdictions in which it operates. 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. Segment Reporting - Improving Reportable Segment Disclosures (Topic 280). In November 2023, the FASB issued ASU No. 2023-07, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. Under this ASU, a company is required to enhance its segment disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. This ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. This ASU is effective for the Company's fiscal year ending December 28, 2024, and interim periods beginning in fiscal 2025, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements. Income Taxes - Improvements to Income Tax Disclosures (Topic 740). In December 2023, the FASB issued ASU No. 2023-09, to improve income tax disclosure requirements, primarily through enhanced disclosures related to the income tax rate reconciliation and income taxes paid. This ASU is effective for fiscal 2025, with early adoption permitted, and may be applied retrospectively. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements.

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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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