Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with the consolidated financial statements and related notes set forth in Item 8, "Financial Statements and Supplementary Data." The following discussion also contains forward-looking statements, including the outlook for our business, that involve a number of risks and uncertainties. See Part I, "Forward-Looking Statements," for a discussion of the forward-looking statements contained below and Part I, Item 1A, "Risk Factors," for a discussion of certain risks that could cause our actual results to differ materially from the results anticipated in such forward-looking statements.
A detailed discussion of the year-over-year results for 2024 compared with 2023 can be found in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 28, 2024, filed with the SEC.
Overview
Company Background
We are a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing®. Our products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping our 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 our businesses.
Our financial results are reported in three reportable segments consisting of our Flow Control segment, Industrial Processing segment, and Material Handling segment. We have aggregated our operating segments into reportable segments where they contained similar products and economic characteristics, and shared similar types of customers, and production and distribution methods. Our Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration operating segments and our Industrial Processing segment consists of our wood processing and fiber processing operating segments. See Note 11, Business Segment and Geographical Information, in the accompanying consolidated financial statements for a description of and financial information on our reportable segments.
Industry and Business Overview
Our consolidated bookings increased 5% to a record $1.034 billion in 2025 compared to 2024, driven by strong demand for our parts and consumables products and contributions from our recent acquisitions. Demand for our capital equipment products in 2025 was consistent with the prior year, as market uncertainty impacted our customers' capital investment decisions. This uncertainty was driven by escalating tariff rates and economic policies impacting manufacturers’ operating costs. Persistent tariff uncertainty and ongoing trade negotiations continue to impact market conditions. This evolving trade environment has resulted in longer quote-to-order conversion times for capital orders. While customers continue to invest in maintenance and mission-critical equipment, those with discretion over project timing are deferring capital expenditures pending greater clarity regarding input costs and broader economic conditions. This impact is more pronounced in our Industrial Processing segment, where average capital order values are significantly higher than in our other segments.
From a geographic perspective, volatility in tariffs and trade policies has contributed to market uncertainty in North America, leading to cautious spending by manufacturers. In Europe, cost pressures and ongoing economic uncertainty related to trade tensions and geopolitical risks continue to impact market activity. In China, although government-led initiatives to stimulate domestic demand and manufacturing activity have been implemented, escalating trade tensions with the United States are generally expected to have a negative impact.
Overall, we anticipate higher bookings in 2026 compared to 2025, especially in our Industrial Processing segment where customer delays associated with pending orders from 2025 have resulted in a number of capital orders in the pipeline. We continue to see long-term strength in our end markets as customers rely on our products to enhance productivity through more efficient production processes. In addition, we anticipate growth opportunities resulting from both proposed and enacted legislation in the United States and internationally that is designed to stimulate investment.
An overview of our business by reportable segment is as follows:
•Flow Control – Our Flow Control segment bookings increased 4% in 2025 compared to 2024. This increase was primarily driven by strong demand for our parts and consumables products, especially in North America, partially offset by weaker demand for our capital equipment products in all regions. While quote activity related to capital projects remains strong, there have been delays in the timing for securing orders as customers remain cautious regarding their capital spending decisions. In certain European markets, excess production capacity and declining demand have resulted in the closure of several mills, adversely affecting demand for our capital equipment products. We expect steady demand in our Flow Control segment in 2026 and long-term strength in our end markets.
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•Industrial Processing – Our Industrial Processing segment bookings increased 6% in 2025 compared to 2024, while organic bookings remained flat as strong performance at our wood processing product line was offset by weaker results in our fiber processing product line. Within our wood processing product line, capital equipment bookings increased 66% in 2025 compared to 2024, primarily driven by demand from the engineered wood industry in North America, where customers select our products for their ability to maximize wood fiber utilization. Despite these positive results, overall demand for our capital equipment in the wood processing product line was constrained by uncertain market conditions. While quote activity for large capital projects remains active, economic and tariff-related uncertainty has led to a lengthening in quote-to-order times as customers await improved market conditions, with some customers delaying capital orders into 2026. Capital bookings at our fiber processing product line decreased 26% in 2025 compared to 2024 due to constrained capital spending related to macroeconomic conditions. These conditions have resulted in the deferral of capital orders into 2026. Tariff-related uncertainty has had a greater impact in this segment due to higher average capital order values and our customers’ ability to delay the timing of large capital projects. Despite these factors, demand for our aftermarket parts in our Industrial Processing segment has remained strong as customers prioritize maintenance spending. We expect steady demand for our aftermarket parts to continue in 2026. In addition, we anticipate a strengthening in demand for our capital equipment products in this segment in 2026, supported by the expected receipt of several large capital orders currently in the pipeline.
•Material Handling – Our Material Handling segment bookings increased 6% in 2025 compared to 2024, due to increased demand for our capital equipment products at our conveying and vibratory business. This increase was driven by underground mineral mining projects where customers placed substantial equipment orders to meet their operational requirements, partially offset by a decrease in demand for parts and consumables. In addition, there was higher demand at our baling business for both capital equipment and aftermarket products. In 2026, we expect steady demand for aftermarket parts and increased demand for capital equipment products in this segment.
Our global operations have been and continue to be impacted by complex market conditions fueled by tariff-related uncertainty, inflationary pressures, and geopolitical tensions. We expect our operating environment to continue to be challenging, resulting in continued uncertainty for 2026. However, we believe that the fundamentals of our business remain strong, supported by our solid market position in key product lines, experienced global operations teams, and the long-term strength of our end markets. For more information related to these challenges, and other factors impacting our business, please see Part I, Item 1A, "Risk Factors."
International Sales
Approximately half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada. As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies. To mitigate the impact of foreign currency fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred. Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies. We currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the U.S. dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S. dollar.
Global Trade
The United States has imposed tariffs in the past and more recently proposed and implemented new tariffs on certain countries and imports, which has and will continue to increase the cost of some of the parts and equipment we import. In addition, foreign countries have implemented and may in the future implement additional retaliatory tariffs in response to these actions by the United States, which have negatively impacted and may in the future negatively impact our operations. Although we are working to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs. For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A, "Risk Factors."
Acquisitions
We expect that a significant driver of our long-term growth will be through the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry. We have acquired several businesses in recent years and continue to pursue acquisition opportunities. See Note 2, Acquisitions, in the accompanying consolidated financial statements for further details.
On July 9, 2025, we acquired Babbini S.p.A and G.P.S. Engineering S.r.l (collectively, Babbini), two Italy-based companies specializing in industrial dewatering and engineered power transmission solutions, for approximately $16.5 million, net of cash acquired. On October 7, 2025, we acquired Clyde Industries Holdings, Inc. and its subsidiaries (collectively, Clyde Industries), a manufacturer of highly engineered boiler efficiency and cleaning system technologies for $173.7 million, net of
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cash acquired. Babbini and Clyde Industries are part of our Industrial Processing segment. We funded these acquisitions primarily through borrowings under our revolving credit facility.
We expect several synergies in connection with the acquisitions, including expansion of product sales into new markets by leveraging our global sales network and relationships, as well as broadening our product portfolio, strengthening our position in the various markets served, and realizing the value of the acquired workforce.
On January 29, 2026, we entered into a definitive agreement to acquire the shares of voestalpine BÖHLER Profil GmbH & Co KG and voestalpine BÖHLER Profil VerwaltungsGmbH (collectively, voestalpine BÖHLER Profil), a global supplier of tailor-made special profiles with complex geometries and high-performance industrial knives, for approximately 157.0 million euros in cash, subject to certain customary adjustments. The closing of this acquisition is subject to receipt of certain Austrian regulatory approvals and the satisfaction of customary closing conditions, and will be financed primarily through borrowings under our revolving credit facility. Upon closing, voestalpine BÖHLER Profil will become part of our Industrial Processing segment and its name will change to Kadant Profil GmbH & Co KG.
Results of Operations
2025 Compared to 2024
Revenue
The following table presents changes in revenue by segment between 2025 and 2024, and those changes excluding the effect of acquisitions and foreign currency translation, which we refer to as change in organic revenue. Organic revenue excludes the effect of acquisitions for the four quarterly reporting periods following the date of the acquisition. The presentation of the change in organic revenue is a non-GAAP measure. We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding GAAP measure.
Revenue by reportable segment in 2025 and 2024 is as follows:
(Non-GAAP)Change in Organic Revenue
Consolidated revenue was consistent with 2024, while organic revenue decreased 4% primarily due to weaker demand for our capital equipment products, especially at our Industrial Processing segment. Uncertainty related to the cost of capital and global trade, together with volatile input costs, contributed to a significant slowdown in the timing of securing large capital orders. As a result, revenue from capital equipment products decreased 16% in 2025 compared to 2024. From a geographic perspective, organic revenue was impacted by softening demand across most regions due to weak macroeconomic conditions fueled by trade tensions and geopolitical issues. While customers delayed large capital expenditures, the demand for our parts and consumables products was strong and represented a record 71% of revenue in 2025.
Revenue at our Flow Control segment increased 3% in 2025, while organic revenue remained flat compared to 2024 due to lower demand for our capital equipment products, especially in North America, as a result of challenging market conditions. Ongoing mill closures, production curtailments, and merger activity have contributed to weak market conditions in the pulp and paper industry. This decrease was offset by higher demand for parts and consumables products, with strength in North America offsetting weaker market conditions in Europe.
Revenue at our Industrial Processing segment decreased 5% in 2025, and organic revenue decreased 12% due to reduced demand for our capital equipment products primarily at our wood processing businesses. This was driven by weak conditions in the housing market attributable to limited supply and affordability challenges. The weaker demand for lumber and elevated import costs drove mill closures and curtailments. While there is active quote activity for large capital projects, economic uncertainty has increased the time for securing orders with certain orders being delayed to 2026. Revenue from capital equipment products also decreased in 2025 at our fiber processing businesses across most regions, especially in China, where trade tensions were further compounded by sluggish economic conditions, resulting in more cautious capital spending. Given the delay in committing to major capital expenditures, many customers focused their spending on critical parts and maintenance. As a result, demand for our parts and consumables products in this segment remained strong, with an 11% increase in 2025 compared to 2024.
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Revenue at our Material Handling segment increased 4% in 2025, driven by higher demand at our baling businesses for both capital equipment and parts and consumables products, primarily attributable to our baling business in Europe, where public policies support higher recycling rates.
Gross Profit Margin
Gross profit margin by reportable segment in 2025 and 2024 is as follows:
Consolidated gross profit margin increased to 45.2% in 2025 from 44.3% in 2024 due to an increase in the proportion of higher-margin parts and consumables revenue, which increased to 71% of consolidated revenue in 2025 compared to 66% in 2024. Gross profit margin included amortization expense related to acquired profit in inventory of $1.5 million, which lowered gross profit margin by 0.2 percentage points in 2025, compared to expense of $5.2 million, which lowered gross profit margin by 0.4 percentage points in 2024.
Within our reportable segments, gross profit margin:
•Decreased to 52.3% at our Flow Control segment from 52.5% in 2024 due to lower margins achieved on our capital equipment products, which was partially offset by the inclusion of $2.0 million of amortization expense related to acquired profit in inventory in 2024, which decreased gross profit margin in 2024 by 0.5 percentage points.
•Increased to 43.0% at our Industrial Processing segment from 41.8% in 2024 due to an increase in the proportion of higher-margin parts and consumables revenue in 2025, partially offset by lower margins achieved on our capital equipment products.
•Increased to 38.1% at our Material Handling segment from 36.3% in 2024 due to higher margins achieved on our capital equipment products in 2025 and, to a lesser extent, the inclusion of $1.0 million of amortization expense related to acquired profit in inventory in the 2024 period, which decreased gross profit margin in 2024 by 0.5 percentage points.
Selling, General, and Administrative Expenses
Selling, general, and administrative (SG&A) expenses by reportable segment and corporate in 2025 and 2024 are as follows:
Consolidated as a Percentage of Revenue 28.7% 26.6%
Consolidated SG&A expenses increased $21.9 million, or 8%, in 2025 compared to 2024 primarily due to the inclusion of $13.2 million of SG&A expenses from acquisitions and higher compensation-related costs. In addition, the weakening of the U.S. dollar resulted in a $4.4 million increase in SG&A expenses, including $2.2 million from the unfavorable effect of foreign currency translation and a $2.2 million shift from foreign currency gains in the 2024 period to losses in the 2025 period.
Within our reportable segments and corporate, SG&A expenses:
•Increased $5.3 million at our Flow Control segment principally due to the inclusion of $4.5 million of SG&A expenses from acquisitions and the impact of the weakening of the U.S. dollar, which resulted in a $2.6 million increase in SG&A expenses, including $1.4 million from the unfavorable effect of foreign currency translation and a $1.2 million shift from foreign currency gains in the 2024 period to losses in the 2025 period. These increases were partially offset by a decrease of $1.4 million in acquisition-related costs.
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•Increased $11.9 million at our Industrial Processing segment principally due to the inclusion of $7.7 million of SG&A expenses from acquisitions and a $3.2 million increase in acquisition costs.
•Increased $1.3 million at our Material Handling segment, including increases of $1.6 million in compensation expense, $1.0 million of SG&A expenses from acquisitions, $0.9 million in selling-related costs, and $0.6 million from the unfavorable effect of foreign currency translation. These increases were partially offset by a decrease of $2.6 million in acquisition-related costs.
•Increased $3.5 million at Corporate principally due to a $2.2 million increase in compensation expense and a $1.3 million increase in insurance expense.
Other Costs, Net
The components of other costs, net in 2025 and 2024 are as follows:
Restructuring and Impairment Costs $ 442 $ —
•In 2025, within our Industrial Processing segment, we incurred restructuring costs of $0.1 million, primarily consisting of severance costs associated with the termination of two employees in connection with the closure of a small business in Europe, and an impairment charge of $0.3 million associated with previously acquired technology that will no longer be utilized.
•In 2025, we recognized land remediation costs of $0.9 million associated with the prior-period sale of a manufacturing facility and land use rights at one of our Chinese subsidiaries included within our Industrial Processing segment.
•In 2024, we recognized a loss of $0.7 million within our Flow Control segment from the recognition of a currency translation adjustment associated with the liquidation of a small foreign subsidiary.
Interest Expense
Interest expense decreased 22% to $15.6 million in 2025 from $20.0 million in 2024 due to debt repayments and a lower weighted average interest rate. We expect interest expense to increase significantly in 2026 as a result of the borrowing incurred in 2025 to fund our most recent acquisition and the anticipated borrowing in 2026 to fund our pending acquisition.
Provision for Income Taxes
Our provision for income taxes decreased to $39.9 million in 2025 from $40.5 million in 2024. Our effective tax rate of 27.8% in 2025 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries. These items were partially offset by foreign tax credits. Our effective tax rate of 26.5% in 2024 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.
Net Income
Net income decreased to $103.7 million in 2025 from $112.6 million in 2024 due to a $14.0 million decrease in operating income, offset in part by a $4.5 million decrease in interest expense and a $0.6 million decrease in income taxes (see discussions above for further details).
Non-GAAP Key Performance Indicators
In addition to the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including organic revenue (defined as revenue excluding the effect of acquisitions and foreign currency translation), adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin (defined as adjusted EBITDA divided by revenue), and free cash flow (defined as net cash provided by operating activities less capital expenditures).
We use organic revenue in order to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods (see discussion in Revenue above). Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude amortization expense related to acquired intangible assets, profit in inventory and backlog (collectively, purchase accounting expenses); acquisition costs; restructuring and impairment costs; and other income or
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expense, as indicated. We exclude acquisition-related purchase accounting expenses to provide a more meaningful and consistent comparison of our operating results over time and with peer companies. While we have a history of acquisition activity, such transactions do not occur on a predictable cycle, and the size and nature of these transactions will vary. We believe it is important for investors to understand that these intangible assets were recorded as part of purchase accounting and that they contribute to revenue generation. We also exclude other items as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs, expenditures or income, or none at all. Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities.
We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them additional measures of our performance.
Our non-GAAP financial measures are not meant to be considered superior to or a substitute for the results of operations or cash flows prepared in accordance with GAAP. In addition, our non-GAAP financial measures have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.
A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin from net income attributable to Kadant is as follows:
Net Income Attributable to Noncontrolling Interests 1,712 956 737
Profit in Inventory Amortization Expense (a) 1,504 5,189 —
Backlog Amortization Expense (b) 855 3,252 —
Indemnification Asset Reversal, Net (c) 559 158 102
Adjusted EBITDA Margin (non-GAAP measure) 20.6% 21.8% 21.0%
A reconciliation of free cash flow from net cash provided by operating activities is as follows:
(a) Represents expense within cost of revenue associated with amortization of acquired profit in inventory.
(b) Represents intangible amortization expense associated with acquired backlog.
(c) Represents the reversal of indemnification assets related to the release of tax reserves associated with uncertain tax positions.
(d) Includes land remediation costs of $0.9 million, restructuring costs of $0.1 million, and impairment costs of $0.3 million in our Industrial Processing segment in 2025, a loss of $0.7 million from the recognition of a cumulative translation adjustment associated with the liquidation of a small foreign subsidiary in our Flow Control segment in 2024, and restructuring and impairment costs of $0.8 million in our Flow Control segment in 2023.
(e) Includes capital expenditures of $7.4 million in 2023 related to a new manufacturing facility in China.
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Liquidity and Capital Resources
Consolidated working capital was $313.8 million at January 3, 2026, compared with $250.8 million at December 28, 2024. Cash and cash equivalents were $119.6 million at January 3, 2026, compared with $94.7 million at December 28, 2024, which included cash and cash equivalents held by our foreign subsidiaries of $100.3 million at January 3, 2026 and $73.8 million at December 28, 2024.
Cash Flow
Cash flow information is as follows:
Net Cash Provided by Operating Activities $ 171,328 $ 155,265
Net Cash Provided by Financing Activities 54,012 159,914
Operating Activities
Cash provided by operating activities increased to $171.3 million in 2025 from $155.3 million in 2024 primarily due to a reduction in cash used for working capital. Our operating cash flows are primarily generated from cash received from customers, offset by cash payments for items such as inventory, employee compensation, operating leases, income taxes, and interest payments on outstanding debt obligations.
Significant operating cash outflows associated with working capital in 2025 resulted from inventory, accounts payable and other liabilities. Purchases of inventory used cash of $12.9 million, a decrease in accounts payable used cash of $7.2 million due to reduced spending levels for capital equipment projects, and other liabilities used cash of $23.2 million primarily related to incentive compensation payments. These uses of cash were offset in part by a decrease in accounts receivable of $13.5 million due to timing of shipments, cash received from contract assets of $12.2 million related to contracts accounted for on an over time basis, and cash received from customer deposits of $9.4 million due to the timing of capital equipment orders.
Significant operating cash outflows associated with working capital in 2024 resulted from accounts receivable, customer deposits and other liabilities. A decrease in customer deposits used cash of $29.8 million due to a reduction in capital equipment orders and an increase in accounts receivable and contract assets used cash of $9.8 million primarily due to our revenue growth. Other liabilities used cash of $21.2 million primarily due to cash outflows from incentive compensation and operating lease payments. These uses of cash were offset in part by cash provided from the shipment of inventory of $24.0 million and increases in accounts payable of $10.6 million related to inventory purchases and the timing of payments.
Investing Activities
Cash used in investing activities was $205.4 million in 2025 compared with $319.1 million in 2024. Consideration paid for acquisitions, net of cash acquired, was $190.0 million in 2025 and $300.3 million in 2024. Additionally, capital expenditures were $17.0 million in 2025 and $21.0 million in 2024.
Financing Activities
Cash provided by financing activities was $54.0 million in 2025 compared with $159.9 million in 2024. Borrowings under our revolving credit facility were $199.0 million in 2025 and $305.2 million in 2024, and were primarily used to fund our acquisitions. Repayments of short- and long-term obligations were $123.4 million in 2025 and $124.5 million in 2024. Cash dividends paid to stockholders were $15.8 million in 2025 and $14.7 million in 2024. In addition, taxes paid related to the vesting of equity awards were $6.1 million in 2025 compared to $5.9 million in 2024.
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash
The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries. The $6.8 million increase in cash, cash equivalents, and restricted cash in 2025 related to exchange rates was primarily attributable to the weakening of the U.S. dollar against the euro and, to a lesser extent, the Swedish krona, the Chinese renminbi, and the Canadian dollar. The $6.5 million decrease in cash, cash equivalents and restricted cash in 2024 was primarily attributable to the strengthening of the U.S. dollar against the euro and the Canadian dollar and, to a lesser extent, the Brazilian real and Mexican peso.
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Borrowing Capacity and Debt Obligations
On September 26, 2025, we entered into an eighth amendment and joinder (Eighth Amendment) to our unsecured multi-currency revolving credit facility, originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement). The Eighth Amendment, among other things, increased our aggregate borrowing capacity from $400.0 million to $750.0 million and extended the maturity date from November 30, 2027 to September 26, 2030. In addition to the increased committed borrowing capacity, an uncommitted, unsecured incremental borrowing facility of $200.0 million continues to be available under the Credit Agreement. In 2025, we borrowed $199.0 million under our revolving credit facility, which was primarily used to fund our acquisitions.
As of January 3, 2026, our outstanding balance under the Credit Agreement was $366.7 million, which included $92.7 million of euro-denominated borrowings. We also had $383.2 million of available borrowing capacity, along with a $200.0 million uncommitted, unsecured incremental borrowing facility. Borrowings under our revolving credit facility bear variable rates of interest and adjust frequently based on prevailing market rates and the terms of our Credit Agreement. Under our debt agreements, our leverage ratio must be less than 3.75 to 1 or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than 4.25 to 1. As of January 3, 2026, our leverage ratio was 1.33 and we were in compliance with our debt covenants. See Note 6, Long-Term Obligations, in the accompanying consolidated financial statements for additional information regarding our debt obligations.
On January 29, 2026, we entered into a definitive agreement to acquire the shares of voestalpine BÖHLER Profil for approximately 157.0 million euros in cash, subject to certain customary adjustments. The closing of this acquisition is subject to receipt of certain Austrian regulatory approvals and the satisfaction of customary closing conditions, and will be financed primarily through borrowings under our revolving credit facility.
Additional Liquidity and Capital Resources
In addition to the obligations on our consolidated balance sheet at January 3, 2026, which include, but are not limited to, long-term obligations (Note 6), unrecognized tax benefits (Note 5), leases (Note 9), and contingent consideration associated with a 2024 acquisition (Note 2), we have outstanding letters of credit and bank guarantees of $16.4 million at January 3, 2026, primarily relating to customer deposit guarantees and performance obligations (Note 7).
On May 15, 2025, our board of directors approved the repurchase of up to $50.0 million of our equity securities during the period from May 15, 2025 to May 15, 2026. We have not repurchased any shares of our common stock under this authorization or under our previous $50.0 million authorization that expired on May 16, 2025.
We paid cash dividends of $15.8 million in 2025. On November 13, 2025, we declared a quarterly cash dividend of $0.34 per share totaling $4.0 million that was paid on February 5, 2026. Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change. The declaration of cash dividends is also subject to our compliance with the covenant in our Credit Agreement related to our consolidated leverage ratio.
We plan to make capital expenditures of approximately $23.0 to $27.0 million during 2026 for property, plant, and equipment.
As of January 3, 2026, we had approximately $150.9 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest $93.1 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any. In 2025, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future. The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately $2.9 million.
We believe that our existing cash and cash equivalents, along with cash generated from operations and our existing borrowing capacity will be sufficient to meet the capital requirements of our operations for the next 12 months and the foreseeable future.
Application of Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Our actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies and estimates are defined as those that entail significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. For a discussion on the application of these estimates and other accounting policies, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, in the accompanying consolidated financial statements. We believe that our most critical accounting
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policies and estimates upon which our financial position depends, and which involve the most complex or subjective decisions or assessments, are those described below.
Income Taxes
We operate in numerous countries under many legal forms and, as a result, are subject to the jurisdiction of numerous domestic and non-U.S. tax authorities, as well as to tax agreements and treaties among these governments. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits. Changes in tax laws, regulations, agreements and treaties, currency-exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current tax and deferred tax balances and our results of operations.
We compute our provision for income taxes using the asset and liability method, and we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for tax loss or credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates that are expected to apply to taxable income in the years in which we expect to realize those deferred tax assets and liabilities. We estimate the degree to which our deferred tax assets on deductible temporary differences and tax loss or credit carryforwards will result in an income tax benefit based on the expected profitability by tax jurisdiction, and we provide a valuation allowance for these deferred tax assets if it is more likely than not that they will not be realized in the future. If it were to become more likely than not that these deferred tax assets would be realized, we would reverse the related valuation allowance. Should our actual future taxable income by tax jurisdiction vary from our estimates, additional valuation allowances or reversals thereof may be necessary. When assessing the need for a valuation allowance in a tax jurisdiction, we evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. As part of this evaluation, we consider our cumulative three-year history of earnings before income taxes, taxable income in prior carryback years, future reversals of existing taxable temporary differences, prudent and feasible tax planning strategies, and expected future results of operations. At year-end 2025, we maintained a valuation allowance predominantly in certain foreign jurisdictions due to the uncertainty of future profitability in those jurisdictions. Our tax valuation allowance was $8.7 million at year-end 2025.
In the ordinary course of business there are inherent uncertainties and judgements required in quantifying our income tax positions. It is our policy to provide for uncertain tax positions and the related interest and penalties based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. On a quarterly basis, we evaluate our uncertain tax positions against various factors, including changes in facts or circumstances, tax laws, or the status of audits by tax authorities. We believe that we have appropriately accounted for any liability for unrecognized tax benefits, and at year-end 2025, our liability for these unrecognized tax benefits, including an accrual for the related interest and penalties, totaled $17.3 million. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period may be affected.
We intend to repatriate the distributable reserves of select foreign subsidiaries back to the United States and, during 2025, we recorded $0.6 million of tax expense associated with these foreign earnings that we plan to repatriate in 2026. Except for these select foreign subsidiaries, we intend to reinvest indefinitely the earnings of our international subsidiaries in order to support the current and future capital needs of their operations, including the repayment of our foreign debt.
In December 2021, the OECD released the Pillar Two Rules. Since the release of the Pillar Two Rules, the OECD has issued multiple 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 Pillar Two Rules into their domestic laws, with certain rules coming into effect for fiscal years beginning in 2024. 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. In 2025, we incurred Pillar Two top-up tax that was assessed under the Undertaxed Profits Rule (UTPR). The related UTPR top-up tax was recorded within our provision for income taxes in 2025 and did not have a material impact on our effective tax rate or consolidated financial statements. In January 2026, the OECD released additional administrative guidance (Side-by-Side package) introducing new safe harbors. The package includes an elective Side-by Side safe harbor that, subject to adoption into local law, may exempt eligible U.S. parented multinational groups from the application of certain aspects of the global minimum tax regime for fiscal years beginning on or after January 1, 2026. We continue to evaluate the applicability of available safe harbors, monitor developments in OECD guidance and local-country implementation, and assess the potential impact on our future Pillar Two compliance obligations and effective tax rate.
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Revenue Recognition
Approximately 90% of our revenue is recognized at a point in time following the transfer of control of the goods or service to the customer, primarily relating to our products that require minimal customization for the customer. The remaining portion of our revenue is recognized on an over time basis using an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation. Most revenue recognized on an over time basis is for large capital products that are highly customized for the customer and, as a result, would include significant cost to rework in the event of cancellation. The over time basis of accounting requires significant judgment in determining applicable contract costs and the corresponding revenue to be recognized, which could be different if there were to be changes to the circumstances of the contract. When adjustments to revenue and costs are required, the adjustments are included in earnings in the period of the change. Judgment is also required for contracts involving variable consideration and multiple performance obligations.
Valuation of Goodwill and Intangible Assets
We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination, including the determination of the fair value of intangible assets acquired, which represents a significant portion of the purchase price in many of our acquisitions. We estimate the fair value of intangible assets primarily using the multi-period excess earnings and relief-from-royalty valuation methods, which are based on projections of discounted cash flows or royalty payments avoided that we expect from the identifiable intangible assets of the acquired businesses. Our valuation models incorporate significant assumptions, including future revenue growth rates, customer attrition rates, gross and operating margins, discount rates and royalty rates. The determination of the allocation of the purchase price for the fair value of intangible assets acquired requires significant judgment as does the determination as to whether such intangibles are amortizable or non-amortizable and, if amortizable, the amortization period of the intangible asset.
We evaluate the recoverability of goodwill and indefinite-lived intangible assets as of the first day of our fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired. Potential impairment indicators include a significant decline in sales, earnings, or cash flows, material adverse changes in the business climate, and a significant decline in the market capitalization due to a sustained decrease in our stock price. We are permitted to first assess qualitative factors to determine whether the quantitative impairment test is necessary. If the qualitative impairment analysis (Step 0) results in a determination that the fair value of a reporting unit or an indefinite lived intangible asset is more likely than not less than its carrying amount, we perform a quantitative impairment analysis (Step 1). We may bypass the qualitative assessment and proceed directly to the quantitative assessment. Estimates of discounted future cash flows arising from intangible assets acquired require assumptions related to revenue and operating income growth rates, discount rates, and other factors. Different assumptions from those made in our analysis could materially affect projected cash flows and our evaluation of goodwill and indefinite-lived intangible assets for impairment.
At September 28, 2025 (the first day of the fourth quarter of 2025), we performed a qualitative impairment analysis on our goodwill and indefinite-lived intangible assets. Based on these analyses, we determined goodwill and indefinite-lived intangible assets were not impaired. Goodwill totaled $497.1 million and indefinite-lived intangible assets totaled $28.9 million at September 28, 2025. During the fourth quarter, we recognized goodwill of $55.8 million in connection with the Clyde Industries acquisition. At year-end 2025, no factors were identified that would alter the conclusions of our September 28, 2025 analysis. Goodwill totaled $555.6 million and indefinite-lived intangible assets totaled $29.0 million at year-end 2025.
Definite-lived intangible assets are evaluated for impairment if events or changes in circumstances indicate that the carrying value of an asset might be impaired, such as a significant reduction in cash flows associated with the assets. Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset. No indicators of impairment were identified in 2025 and 2024. Definite-lived intangible assets were $321.4 million at year-end 2025.
A material adverse change in the business climate including a prolonged economic downturn and weakness in demand for our products could negatively affect the revenue and profitability assumptions used in our assessment of goodwill and intangible assets, which may result in impairment charges. Any future impairment charges could have a material adverse effect on our results of operations in the period in which an impairment is determined to exist.
Inventories
We value our inventory at the lower of the actual cost (on a first-in, first-out; or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead. The valuation of inventory requires us to make judgments, based on currently available information, about the forecasted usage of and demand for each particular product or product line. Assumptions about future dispositions of inventory are inherently uncertain and, although we make every effort to ensure the accuracy of our forecasts of future product usage and demand, any changes in those assumptions may result in a write-down of inventory in the period in which inventory is deemed excessive or obsolete, which could adversely affect our results of operations.
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Recent Accounting Pronouncements
See Note 1, Nature of Operations and Summary of Significant Accounting Policies, under the heading Recent Accounting Pronouncements, in the accompanying consolidated financial statements for further details.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which could affect our future results of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities. From time to time, we have entered into swap agreements to hedge a portion of our exposure to variable rate long-term debt. Additionally, we use short-term forward contracts to manage certain exposures to foreign currencies. We enter into forward currency-exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies. We do not engage in extensive foreign currency hedging activities. However, when we do enter into foreign currency hedging activities, the purpose is to protect our functional currency cash flows related to these commitments from fluctuations in foreign exchange rates. Our forward currency-exchange contracts hedge transactions primarily denominated in U.S. dollars, Canadian dollars, and euros. Gains and losses arising from forward contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. We do not hold or engage in transactions involving derivative instruments for purposes other than risk management.
Interest Rates
Our exposure to changes in interest rates relates primarily to our long-term debt. Our borrowings under the Credit Agreement of $366.7 million at year-end 2025 bear variable rates of interest, which adjust frequently based on prevailing market rates. Assuming year-end borrowing levels, a 10% increase in interest rates on our variable-rate debt would have increased our annual pre-tax interest expense by $1.2 million in 2025.
Currency Exchange Rates
We generally view our investment in foreign subsidiaries in a functional currency other than our reporting currency as long-term. Our investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The functional currencies of our foreign subsidiaries are principally denominated in euros, British pounds sterling, Mexican pesos, Canadian dollars, Chinese renminbi, Brazilian reals, and Swedish krona. The effect of changes in foreign exchange rates on our net investment in foreign subsidiaries is reflected in the "accumulated other comprehensive items" component of stockholders' equity. A 10% decrease in functional currencies relative to the U.S. dollar, would have resulted in a reduction in stockholders' equity of $87.2 million at year-end 2025.
At year-end 2025, we had $92.7 million of euro-denominated borrowings outstanding. The translation of our foreign-denominated debt impacts our borrowing capacity available under our Credit Agreement, which is calculated in U.S. dollars. A 10% increase in the euro foreign exchange rate against the U.S. dollar would have decreased our borrowing capacity by approximately $9.3 million at year-end 2025.
Item 8. Financial Statements and Supplementary Data
This data is submitted as a separate section to this report and incorporated herein by reference. See Item 15, "Exhibits and Financial Statement Schedules."
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures at year-end 2025. The term "disclosure controls and procedures," as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and
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management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the evaluation of our disclosure controls and procedures at year-end 2025, our Chief Executive Officer and Chief Financial Officer concluded that at year-end 2025, our disclosure controls and procedures were effective at the reasonable assurance level.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting at year-end 2025. In making this assessment, our management used the criteria set forth in "Internal Control—Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management believes that at year-end 2025 our internal control over financial reporting was effective based on the criteria issued by COSO.
Our audited consolidated financial statements include the results of the acquisitions of Clyde Industries and Babbini since their dates of acquisition, including total assets of $251,413,000 and total revenue of $27,836,000 as of and for the fiscal year ended January 3, 2026, but management has excluded these acquisitions from its assessment of the effectiveness of internal control over financial reporting as of January 3, 2026.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our independent registered public accountants, KPMG LLP, have issued an audit report on our internal control over financial reporting, which is included herein on pages F-2 and F-3 and incorporated into this Item 9A by reference.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended January 3, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Insider Trading Arrangements
None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fiscal quarter ended January 3, 2026.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Information about our Directors
This information will be included under the heading "Election of Directors" in our 2026 proxy statement and is incorporated in this report by reference, except for the information concerning executive officers, which is included under the heading "Information about our Executive Officers" in Part I, Item 1 of this report.
Insider Trading Policies
We have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, or the Company itself, that we believe are reasonably designed to promote compliance with insider trading laws, rule and regulations, and any listing standards applicable to us. See Exhibit 19, Insider Trading Policies and Procedures, in the "Exhibit Index"in Part IV of this report.
Section 16(a) Beneficial Ownership Reporting Compliance
The information required under Item 405 of Regulation S-K will be included under the heading "Stock Ownership–Delinquent Section 16(a) Reports" in our 2026 proxy statement and is incorporated in this report by reference.
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Corporate Governance
The information required under Items 406 and 407 of Regulation S-K will be included under the heading "Corporate Governance" in our 2026 proxy statement and is incorporated in this report by reference.
Item 11. Executive Compensation
This information will be included under the headings "Executive Compensation," "Corporate Governance - Compensation Committee Interlocks and Insider Participation," and "Compensation Discussion and Analysis" in our 2026 proxy statement and is incorporated in this report by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This information will be included under the heading "Stock Ownership" in our 2026 proxy statement and is incorporated in this report by reference.
The following table provides information about the securities authorized for issuance under our equity compensation plans at year-end 2025:
Equity Compensation Plan Information
Equity compensation plans not approved by security holders — $ — —
(a)Consists of shares of our common stock issuable upon the vesting of restricted stock units and performance-based restricted stock units under the Amended and Restated 2006 Equity Incentive Plan.
(b)Shares of restricted stock units and performance-based restricted stock units outstanding on January 3, 2026 had a weighted average grant date fair value of $314.88.
(c)Includes an aggregate of 52,883 shares of common stock issuable under our employees' stock purchase plan in connection with current and future offering periods under the plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
This information will be included under the heading "Corporate Governance" in our 2026 proxy statement and is incorporated in this report by reference.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm is KPMG LLP, located in Boston, Massachusetts, auditor firm ID:185. The information required by this item will be included under the heading "Independent Registered Public Accounting Firm" in our 2026 proxy statement and is incorporated in this report by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)The following documents are filed as part of this report:
(1)Consolidated Financial Statements (see Index on Page F-1 of this report):
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to Consolidated Financial Statements
(2)All schedules are omitted because they are not applicable or not required, or because the required information is shown either in the consolidated financial statements or in the notes thereto.
(3)Exhibits filed herewith or incorporated in this report by reference are set forth in the "Exhibit Index" beginning on page 39. This list of exhibits identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.
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(b) Exhibits
ExhibitNumber Description of Exhibit
39
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Kadant Inc.
ExhibitNumber Description of Exhibit
40
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Kadant Inc.
ExhibitNumber Description of Exhibit
21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP, Independent Registered Public Accounting Firm.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
* Management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
Not applicable.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KADANT INC.
Date: March 3, 2026 By: /s/ Jeffrey L. Powell
Jeffrey L. Powell
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey L. Powell, Michael J. McKenney and Deborah S. Selwood, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on March 3, 2026.
Signature Title
By: /s/ Jeffrey L. Powell Chief Executive Officer, President and Director
Jeffrey L. Powell (Principal Executive Officer)
By: /s/ Michael J. McKenney Executive Vice President and Chief Financial Officer
Michael J. McKenney (Principal Financial Officer)
By: /s/ Deborah S. Selwood Senior Vice President and Chief Accounting Officer
Deborah S. Selwood (Principal Accounting Officer)
By: /s/ Jonathan W. Painter Director and Chairman of the Board
Jonathan W. Painter
By: /s/ John M. Albertine Director
John M. Albertine
By: /s/ Thomas C. Leonard Director
Thomas C. Leonard
By: /s/ Rebecca Martinez O'Mara Director
Rebecca Martinez O'Mara
By: /s/ Erin L Russell Director
Erin L. Russell
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Annual Report on Form 10-K
Index to Consolidated Financial Statements and Schedule
The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be included in Item 8:
Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet as of January 3, 2026 and December 28, 2024 F-4
Notes to Consolidated Financial Statements F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Kadant Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Kadant Inc. and subsidiaries (the Company) as of January 3, 2026 and December 28, 2024, the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for each of the fiscal years in the three-year period ended January 3, 2026, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of January 3, 2026, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 3, 2026 and December 28, 2024, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 3, 2026, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2026 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Clyde Industries Holdings, Inc. (Clyde Industries) and Babbini S.p.A and G.P.S. Engineering S.r.l (collectively, Babbini) during 2025, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of January 3, 2026, Clyde Industries' and Babbini's internal control over financial reporting associated with total assets of $251,413,000 and total revenues of $27,836,000 included in the consolidated financial statements of the Company as of and for the fiscal year ended January 3, 2026. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Clyde Industries and Babbini.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F-2
Report of Independent Registered Public Accounting Firm (continued)
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of customer relationships intangible asset acquired in the Clyde Industries business combination
As discussed in Note 2 to the consolidated financial statements, the Company acquired Clyde Industries for $173,730,000 on October 7, 2025. As part of the transaction, the Company recognized intangible assets acquired with estimated fair values of $87,400,000, a portion of which related to customer relationships. The Company determined the fair value of the customer relationships using the multi-period excess earnings methodology.
We identified the assessment of the valuation of the customer relationships intangible asset acquired in the Clyde Industries business combination as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate certain assumptions in the valuation of the customer relationships intangible asset, specifically the future revenue growth rates, gross margins, and discount rate. Additionally, evaluating the discount rate required the involvement of valuation professionals with specialized skills and knowledge. Minor changes in these assumptions could have had a significant impact on the Company’s estimate of fair value of the customer relationships intangible asset.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s acquisition date valuation process, including controls related to the development of the future revenue growth rates, gross margins, and discount rate assumptions. We evaluated the future revenue growth rates and gross margins by comparing them to the historical financial results of the acquired business. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rate by comparing it to the discount rate that was independently developed using publicly available market data for comparable peer companies.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Boston, Massachusetts
March 3, 2026
F-3
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Kadant Inc. 2025 Financial Statements
Consolidated Balance Sheet
Assets
Current Assets:
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term obligations (Note 6) $ 3,129 $ 3,376
Accrued payroll and employee benefits 47,348 43,815
Accrued warranty and installation costs 11,848 10,664
Commitments and Contingencies (Note 7)
Stockholders' Equity (Notes 3 and 4):
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued — —
Accumulated other comprehensive items (Note 13) (35,349) (72,368)
The accompanying notes are an integral part of these consolidated financial statements.
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Kadant Inc. 2025 Financial Statements
Consolidated Statement of Income
Costs and Operating Expenses:
Net Income Attributable to Noncontrolling Interests (1,712) (956) (737)
Earnings per Share Attributable to Kadant (Note 12)
Weighted Average Shares (Note 12)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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Kadant Inc. 2025 Financial Statements
Consolidated Statement of Comprehensive Income
Other Comprehensive Items:
Foreign currency translation adjustments:
Reclassification adjustment for loss included in net income — 658 —
The accompanying notes are an integral part of these consolidated financial statements.
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Kadant Inc. 2025 Financial Statements
Consolidated Statement of Cash Flows
Operating Activities
Net income attributable to noncontrolling interests 1,712 956 737
Provision for losses on accounts receivable 737 721 531
Other income (Note 8) — — (841)
Changes in assets and liabilities, net of effects of acquisitions:
Investing Activities
Proceeds from sale of property, plant, and equipment 250 1,289 1,637
Financing Activities
Proceeds from issuance of long-term obligations (Note 6) 199,033 305,211 —
Proceeds from issuance of Company common stock 4,573 1,605 —
Dividends paid to noncontrolling interests (1,698) (1,346) —
Acquisition of subsidiary shares from noncontrolling interest (Note 2) — (523) —
Payment of debt issuance costs (2,641) — (8)
See Note 1, Nature of Operations and Summary of Significant Accounting Policies,
under the heading Supplemental Cash Flow Information for further details.
The accompanying notes are an integral part of these consolidated financial statements.
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Kadant Inc. 2025 Financial Statements
Consolidated Statement of Stockholders' Equity
(In thousands, except share and per share amounts) Common Stock Treasury Stock
Shares Amount Shares Amount
Dividend paid to noncontrolling interest — — — — — — — (1,346) (1,346)
Noncontrolling interests acquired (Note 2) — — — — — — — 9,319 9,319
Acquisition of subsidiary shares (Note 2) — — (194) — — — — (329) (523)
Dividends paid to noncontrolling interests — — — — — — — (1,698) (1,698)
The accompanying notes are an integral part of these consolidated financial statements.
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
1. 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 segments consisting of the Flow Control segment, Industrial Processing segment, and Material Handling segment.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include the accounts of its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
Noncontrolling Interests
In connection with the Company's January 2024 acquisition of Key Knife, Inc. and certain of its affiliates (collectively, Key Knife), the Company acquired a 45% interest in two of Key Knife's subsidiaries. Under a put and purchase option as outlined in the securities purchase agreement, the seller can demand the Company purchase, or the Company can demand that the seller sell to the Company, the remaining interest in the subsidiary where the Company holds a noncontrolling interest at any time after December 31, 2027. In May 2024, the Company acquired the remaining shares in one of the two subsidiaries. See Note 2, Acquisitions, for additional information about the Company's acquisition of Key Knife.
In addition, one of the Company's foreign subsidiaries that manufactures fluid-handling products is part of a joint venture agreement with an Italian company in which each holds a 50% ownership interest. The agreement provides the Company's subsidiary with the option to purchase the remaining 50% interest in the joint venture.
Fiscal Year
The Company's fiscal quarters and fiscal year typically consist of 13 and 52 weeks, respectively, with its fiscal year ending on the Saturday closest to December 31. As a result of the difference between the fiscal and calendar periods, a 53rd week is added to the Company's fiscal year every five or six years, resulting in a 14-week fourth quarter. The Company's fiscal year ended January 3, 2026 (fiscal 2025) contained 53 weeks, while its fiscal years ended December 28, 2024 (fiscal 2024) and December 30, 2023 (fiscal 2023) each included 52 weeks. Each quarter of fiscal 2025, 2024 and 2023 consisted of 13 weeks, except for the fourth quarter of fiscal 2025, which consisted of 14 weeks.
Use of Estimates and Critical Accounting Policies
The preparation of consolidated 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 consolidated 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 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 consolidated financial statements.
Critical accounting policies are defined as those that entail significant judgments and estimates, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies upon which its financial position depends, and which involve the most complex or subjective decisions or assessments, concern income taxes, revenue recognition, the valuation of goodwill and intangible assets, and inventories. A discussion of the application of these and other accounting policies is included within this note.
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606). Most of the Company’s revenue is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. Most of the Company’s parts and consumables products and its capital products with minimal customization are accounted for at a point in time. The Company has made a policy election to not treat the obligation to ship as a separate performance obligation under the contract and, as a result, the associated shipping costs are reflected in cost of revenue when revenue is recognized.
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.
The following table presents revenue by revenue recognition method:
The transaction price includes estimated variable consideration where applicable. Such variable consideration relates to certain performance guarantees and rights to return the product. The Company estimates variable consideration as the most likely amount to which it expects to be entitled based on the terms of the contracts with customers and historical experience, where relevant. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation based on the relative stand-alone selling price.
The Company disaggregates its revenue from contracts with customers by reportable 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:
Revenue by Product Type:
Revenue by Geography (based on customer location):
See Note 11, Business Segment and Geographical Information, for information on the disaggregation of revenue by reportable segment.
The following table presents contract balances from contracts with customers:
Contract assets in the accompanying consolidated balance sheet 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
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
long-term liabilities in the accompanying 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 $38,223,000 in 2025 and $70,943,000 in 2024 that was included in the contract liabilities balance at the beginning of 2025 and 2024, respectively. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital 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 as of year-end 2025 was $29,153,000. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 77% of which is expected to occur within the next twelve months and the remaining 23% after January 2, 2027.
Customers in China will often settle their accounts receivable with banker's acceptance drafts, in which case cash settlement will be delayed until the drafts mature or are settled prior to maturity. For customers outside of China, final payment for the majority of the Company's products is received in the quarter following the product shipment. Certain of the Company's contracts include a longer period before final payment is due, which is typically within one year of final shipment or transfer of control to the customer.
The Company includes in revenue amounts invoiced for shipping and handling with the corresponding costs reflected in cost of revenue. Provisions for discounts, warranties, returns and other adjustments are provided for in the period in which the related sale was recorded. Sales taxes, value-added taxes, and certain excise taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable arise from sales on credit to customers, are recorded at the invoiced amount, and do not bear interest. The Company establishes an allowance for credit losses to reduce accounts receivable to the net amount expected to be collected. The Company exercises judgment in determining its allowance for credit losses, which is based on its historical collection and write-off experience, adjusted for current macroeconomic trends and conditions, credit policies, specific customer collection issues, and accounts receivable aging. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and each customer's current creditworthiness. The Company continuously monitors collections and payments from its customers. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. In some instances, the Company utilizes letters of credit to mitigate its credit exposure.
The changes in the allowance for credit losses are as follows:
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 $9,115,000 at year-end 2025 and $5,299,000 at year-end 2024, are included in accounts receivable in the accompanying 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.
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
Note Receivable
The Company entered into several agreements with the local government in China, which became effective in 2022, to sell its then existing manufacturing building and land use rights at one of its subsidiaries in China and relocate to a new facility. The Company received a 31% down payment, with the remaining balance due on the earlier of the sale of the property by the local government or two years from the effective date of the agreements. To date, the local government in China has made various interim payments and the outstanding receivable was $13,577,000 at year-end 2025, which is included in other current assets in the accompanying consolidated balance sheet. The Company expects this receivable will be repaid in full, although the timing is uncertain.
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 the 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. While the Company engages in extensive product quality programs and processes, the Company's warranty obligation is affected by product failure rates, repair costs, service delivery costs incurred in correcting a product failure, and supplier warranties on parts delivered to the Company. Should these factors or actual results differ from the Company's estimates, revisions to the estimated warranty liability would be required.
The changes in the carrying amount of product warranty obligations are as follows:
Leases
In accordance with ASC 842, Leases (ASC 842), the Company determines whether an arrangement is, or contains, a lease at inception. Operating lease liabilities are included in other current liabilities and other long-term liabilities and the corresponding right-of-use (ROU) assets are included in other assets in the accompanying consolidated balance sheet. Classification of operating lease liabilities as either current or noncurrent is based on the expected timing of payments due under the Company’s lease obligations.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities with original contract terms greater than 12 months are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Operating leases with an original term of 12 months or less are not recorded in the accompanying consolidated balance sheet.
In determining the present value of future lease payments, the Company utilizes either the rate implicit in the lease if that rate is readily determinable or its incremental secured borrowing rate commensurate with the term of the underlying lease. Lease terms may include the effect of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company recognizes operating lease expense for lease payments on a straight-line basis over the lease term. Variable lease costs are not included in fixed lease payments and, as a result, are excluded from the measurement of the ROU assets and lease liabilities. The Company expenses all variable lease costs as incurred.
As a lessee, the Company accounts for the lease and non-lease components of its real estate and equipment leases as a single lease component. For vehicle leases, the Company does not combine lease and non-lease components.
See Note 9, Leases, for additional information about the Company's lease obligations.
Income Taxes
In accordance with 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
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
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 January 3, 2026, 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 multiple 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 fiscal 2024. 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.
In 2025, the Company incurred Pillar Two top-up tax that was assessed under the Undertaxed Profits Rule (UTPR). The related UTPR top-up tax was recorded within the Company’s provision for income taxes in 2025 and did not have a material impact on the Company’s effective tax rate or consolidated financial statements. In January 2026, the OECD released additional administrative guidance (Side-by-Side package) introducing new safe harbors. The package includes an elective Side-by-Side safe harbor that, subject to adoption into local law, may exempt eligible U.S. parented multinational groups from the application of certain aspects of the global minimum tax regime for fiscal years beginning on or after January 1, 2026. The Company continues to evaluate the applicability of available safe harbors, monitor developments in OECD guidance and related local-country implementation, and assess the potential impact on the Company’s future Pillar Two compliance obligations and effective tax rate.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions, including 100% bonus depreciation, domestic research cost expensing pursuant to Internal Revenue Code Section 174, and changes to the calculation of the interest expense limitation. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. There is no material impact of the OBBBA provisions to the Company's effective tax rate or consolidated financial statements in 2025. The Company is still evaluating any potential impact to cash tax payments related to the provisions of the OBBBA. The Company will continue to monitor the future impact of the OBBBA on its effective tax rate and consolidated financial statements and continue to monitor any additional clarifications or interpretive guidance related to the OBBBA as it is released.
Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income attributable to Kadant by the weighted average number of shares outstanding during the year. Diluted EPS is computed using the treasury stock method assuming the effect of all potentially dilutive securities, including restricted stock units (RSUs) and employee stock purchase plan shares.
Cash, Cash Equivalents, and Restricted Cash
At year-end 2025 and 2024, cash equivalents included investments in money market funds and highly liquid short-term investments, which had maturities of three months or less at the date of purchase. The carrying amounts of cash equivalents approximate their fair values due to the short-term nature of these instruments.
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 consolidated balance sheet that are shown in aggregate in the consolidated statement of cash flows:
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
Supplemental Cash Flow Information
Non-Cash Investing Activities:
Fair value of noncontrolling interests acquired $ — $ 9,319 $ —
Fair value of contingent consideration acquired $ — $ 1,785 $ —
Non-Cash Financing Activities:
Issuance of Company common stock upon vesting of RSUs $ 5,972 $ 5,576 $ 5,163
See Note 5, Income Taxes, for information on cash paid for income taxes, net of refunds and see Note 9, Leases, for information on cash paid for amounts included in the measurement of lease liabilities.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out; or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead. The Company regularly reviews its quantities of inventories on hand and compares these amounts to the historical and forecasted usage of and demand for each particular product or product line. The Company records a charge to cost of revenue for excess and obsolete inventory to reduce the carrying value of inventories to net realizable value.
The components of inventories are as follows:
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Assets acquired as part of a business combination are initially recorded at fair value. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization primarily using the straight-line method over the estimated useful lives of the property as follows: buildings, 10 to 40 years; machinery and equipment, 2 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. For construction in progress, no provision for depreciation is made until the assets are available and ready for use. Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable.
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
Property, plant, and equipment consist of the following:
Machinery, Equipment, and Leasehold Improvements 217,978 190,615
Less: Accumulated Depreciation and Amortization 173,586 145,359
Depreciation and amortization expense was $22,924,000 in 2025, $20,547,000 in 2024, and $14,849,000 in 2023. See Note 9, Leases, for further details relating to assets under financing leases included in property, plant and equipment in the accompanying consolidated balance sheet.
Intangible Assets, Net
Acquired intangible assets by major asset class are as follows:
(In thousands) Gross AccumulatedAmortization CurrencyTranslation Net
Definite-Lived
Indefinite-Lived
Definite-Lived
Indefinite-Lived
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 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 related to the Company's acquisitions totaled $92,678,000 in 2025 and $154,023,000 in 2024. See Note 2, Acquisitions, for further details. In addition, the Company recognized incremental intangible assets of $200,000 in 2025 related to a prior period acquisition.
As a result of new technology obtained in connection with a 2025 acquisition, the Company determined that certain previously acquired technology was impaired and recognized a non-cash impairment charge of $287,000 in 2025. See Note 8, Other Costs, Net, for further details.
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
Definite-lived intangible assets at year-end 2025 have a weighted average amortization period of 14 years. Amortization of definite-lived intangible assets was $28,295,000 in 2025, $29,040,000 in 2024, and $18,448,000 in 2023 and was included in selling, general, and administrative (SG&A) expenses in the accompanying consolidated statement of income. The estimated future amortization expense of definite-lived intangible assets is $33,396,000 in 2026; $32,110,000 in 2027; $30,930,000 in 2028; $26,105,000 in 2029; $24,808,000 in 2030; and $174,055,000 in the aggregate thereafter.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets of the acquired business at the date of acquisition. The Company’s acquisitions have historically been made at prices above the fair value of the acquired net assets, resulting in goodwill, due to the expectation of synergies from combining the businesses.
The changes in the carrying amount of goodwill by reportable segment are as follows:
(In thousands) Flow Control Industrial Processing Material Handling Total
Balance as of December 30, 2023
Accumulated impairment losses — (85,538) — (85,538)
Measurement period adjustment for 2023 acquisition — (22) — (22)
Accumulated impairment losses — (85,538) — (85,538)
Measurement period adjustment for 2024 acquisitions (173) — 321 148
Balance at January 3, 2026
Accumulated impairment losses — (85,538) — (85,538)
Impairment of Goodwill and Intangible Assets
The Company evaluates the recoverability of goodwill and indefinite-lived intangible assets as of the first day of the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset might be impaired. Potential impairment indicators include a significant decline in sales, earnings, or cash flows, material adverse changes in the business climate, and a significant decline in the market capitalization due to a sustained decrease in the Company's stock price. The Company is permitted to first assess qualitative factors to determine whether the quantitative impairment test is necessary. If the qualitative assessment (Step 0) results in a determination that the fair value of a reporting unit or indefinite-lived intangible asset is more likely than not less than its carrying amount, the Company performs a quantitative impairment analysis (Step 1). The Company may bypass the qualitative assessment and proceed directly to the quantitative assessment.
The Company assesses its definite-lived intangible assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets or asset groups. If these projected cash flows were to be less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
with a corresponding charge to earnings. The impairment loss would be measured based upon the difference between the carrying amounts of the assets and their fair values calculated using projected discounted cash flows.
Goodwill
At September 28, 2025 (the first day of the fourth quarter of fiscal 2025) and September 29, 2024 (the first day of the fourth quarter of fiscal 2024), the Company performed a qualitative goodwill impairment assessment (Step 0) for each of its reporting units, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the asset was not impaired. The impairment analysis included an assessment of certain qualitative factors including, but not limited to, the results of prior fair value calculations, the movement of the Company's share price and market capitalization, the reporting units' and the Company's overall financial performance, and macroeconomic and industry conditions. The Company considered the qualitative factors and weighed the evidence obtained and determined that it was not more likely than not that the fair value of any of the respective reporting unit's assets was less than its carrying amount. Although the Company believes the factors considered in the impairment analysis are reasonable, significant changes in any one of the assumptions used could have produced a different result. At year-end 2025 and 2024, no factors were identified that would alter the conclusions of the September 28, 2025 and September 29, 2024 goodwill impairment analyses.
Goodwill by reporting unit is as follows:
Intangible Assets
At September 28, 2025 and September 29, 2024, the Company performed a qualitative impairment analysis (Step 0) on its indefinite-lived intangible assets and determined that the assets were not impaired. At year-end 2025 and 2024, no factors were identified that would alter the conclusions of the September 28, 2025 and September 29, 2024 indefinite-lived intangible asset impairment analyses.
No triggering events or indicators of impairment were identified in 2025 or 2024 related to the Company's definite-lived intangible assets.
Business Combinations
The Company's acquisitions have been accounted for using the purchase method of accounting under ASC 805, Business Combinations (ASC 805), and the results of the acquired businesses have been included in its consolidated financial statements from their respective dates of acquisition. The Company accounts for all transactions and events in which it obtains control over a business under ASC 805 by establishing the acquisition date and recognizing the fair value of all assets acquired and liabilities assumed. The Company’s acquisitions have historically been made at prices above the fair value of identifiable net assets, resulting in goodwill, which is primarily attributable to the expected synergies from expansion of product sales into new markets by leveraging the Company's global sales network and relationships, as well as broadening its product portfolio, strengthening its position in the various markets served, and realizing the value of the acquired workforce.
While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, the estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase accounting measurement period, which is generally up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. The Company estimates the fair value of intangible assets primarily using the multi-period excess earnings and relief-from-royalty valuation methods, which are based on projections of discounted cash flows or royalty payments avoided that are expected from the identifiable intangible assets of the acquired businesses. The Company's valuation models incorporate significant assumptions, including future revenue growth rates, customer attrition rates, gross and operating margins, discount rates
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
and royalty rates. Subsequent to the measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined.Acquisition costs are recorded as incurred inSG&A expenses in the accompanying consolidated statement of income and were $4,425,000 in 2025, $2,872,000 in 2024, and $1,442,000 in 2023.
Foreign Currency Translation and Transactions
All assets and liabilities of the Company's foreign subsidiaries are translated at fiscal year-end exchange rates, and revenue and expenses are translated at average exchange rates for each quarter in accordance with ASC 830, Foreign Currency Matters. Resulting translation adjustments are reflected in the "accumulated other comprehensive items" (AOCI) component of stockholders' equity (see Note 13, Accumulated Other Comprehensive Items). Foreign currency transaction gains and losses are included in the accompanying consolidated statement of income and are not material in the three years presented.
Stock-Based Compensation
The Company recognizes compensation expense 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. For time-based RSUs, compensation expense is recognized 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. For performance-based RSUs, compensation expense is recognized 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. Compensation expense related to any modified stock-based awards is based on the fair value for those awards as of the modification date with any remaining incremental compensation expense recognized ratably over the remaining requisite service period.
Recent Accounting Pronouncements
Income Taxes – Improvements to Income Tax Disclosures (Topic 740). In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 year-end 2025, and the Company has elected to adopt this ASU on a prospective basis. See Note 5, Income Taxes, for the Company's enhanced income tax disclosures.
Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Topic 220). In November 2024, the FASB issued ASU No. 2024-03, to disaggregate operating expense into specific categories to provide enhanced transparency into the nature and function of expenses. This ASU is effective for fiscal year-end 2027 and interim periods beginning in fiscal 2028, with early adoption permitted and may be applied retrospectively. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. In July 2025, the FASB issued ASU No. 2025-05, to provide for a practical expedient permitting an entity to assume that conditions at the balance sheet date remained unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets accounted for under ASC 606, Revenue from Contracts with Customers. This ASU is effective for fiscal year 2026, with early adoption permitted. The amendments in this ASU should be applied prospectively. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.
Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. In September 2025, the FASB issued ASU No. 2025-06, which improves the practicality of the guidance by removing all references to software development project stages so that the guidance is neutral to different software development methods. Under this ASU, eligible software development costs will begin capitalization when management has authorized and committed to funding the software project, it is probable that the project will be completed, and the software will be used to perform the function intended. This ASU is effective for fiscal year 2028, with early adoption permitted and may be applied retrospectively. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.
Interim Reporting (Topic 270): Narrow-Scope Improvements. In December 2025, the FASB issued ASU No. 2025-11, which clarifies the guidance to improve the consistency of interim reporting. This ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have had a material impact on the entity. This ASU is effective for fiscal year 2028,
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Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
with early adoption permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.
2. Acquisitions
2025
Babbini S.p.A. and G.P.S Engineering S.r.l
On July 9, 2025, the Company acquired all the outstanding equity securities of Babbini S.p.A and G.P.S. Engineering S.r.l (collectively, Babbini), two Italy-based companies specializing in industrial dewatering and engineered power transmission solutions, for $16,483,000, net of cash acquired. Babbini is part of the Company's Industrial Processing segment. Goodwill from the Babbini acquisition was $1,508,000 and separately identifiable intangible assets were $5,278,000, neither of which is expected to be deductible for tax purposes.
Clyde Industries Holdings, Inc.
On October 7, 2025, the Company acquired all the outstanding equity securities of Clyde Industries Holdings, Inc. and its subsidiaries (collectively, Clyde Industries) for $173,730,000, net of cash acquired. Clyde Industries is a manufacturer of highly engineered boiler efficiency and cleaning system technologies. Clyde Industries is part of the Company's Industrial Processing segment. Goodwill from the Clyde Industries acquisition was $55,789,000 and separately identifiable intangible assets acquired were $87,400,000, neither of which is expected to be deductible for tax purposes.
Purchase Price Allocation
The following table summarizes the aggregate purchase price and estimated fair values of the net assets acquired related to the 2025 acquisitions.
(In thousands) Total
Cash and Cash Equivalents $ 10,304
Accounts Receivable 22,923
Other Current Assets 4,579
Property, Plant and Equipment 23,003
Definite-Lived Intangible Assets
Customer relationships 80,463
Product technology 4,825
Accounts Payable 6,775
Customer Deposits 9,831
Other Current Liabilities 15,625
Long-Term Obligations 91
Deferred Income Taxes 17,037
Other Long-Term Liabilities 5,499
Total liabilities assumed 54,858
Purchase Price:
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Table of Contents
Kadant Inc. 2025 Financial Statements
Notes to Consolidated Financial Statements
The final purchase accounting and purchase price allocations remain subject to change as the Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed, which may result in adjustments to the assets and liabilities, including goodwill. The Company expects the remaining purchase price adjustments will primarily relate to the valuation of acquired intangibles and deferred income taxes.
The weighted-average amortization period for the definite-lived intangible assets related to the 2025 acquisitions is 14 years, including weighted-average amortization periods of 14 years for customer relationships, 13 years for product technology, and 17 years for tradenames.
Revenue and operating income for the year ended January 3, 2026 associated with the 2025 acquisitions from their respective acquisition dates are as follows:
(In thousands) Total
Operating Income (a) $ 1,700
(a) Includes amortization expense associated with acquired profit in inventory of $1,469,000 in 2025.
Unaudited Supplemental Pro Forma Information
The following unaudited pro forma information presents the combined results of the Company, Babbini and Clyde Industries as if the acquisitions had occurred as of the beginning of 2024:
(In thousands, except per share amounts) January 3, 2026 December 28, 2024
Earnings per Share Attributable to Kadant
The historical consolidated pro forma financial information above has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisitions, (ii) expected to have a continuing impact on the Company, and (iii) factually supportable. Pro forma results include adjustments to reflect, among other things, incremental intangible asset amortization to be incurred based on preliminary identifiable asset values and interest expense associated with debt incurred to finance the acquisitions, as well as related income tax effects. Pro forma results include the following non-recurring pro forma adjustments:
•Pre-tax charge to cost of revenue of $3,216,000 in 2024 and reversal of $1,470,000 in 2025 for the sale of inventory revalued at the date of acquisition.
•Pre-tax charge to SG&A expenses of $3,362,000 in 2024 and reversal of $3,362,000 in 2025 for acquisition costs.
•Estimated tax effects related to the pro forma adjustments.
These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have resulted had the acquisitions for Babbini and Clyde Industries been completed as of the beginning of 2024, or that may result in the future.
2024
Key Knife, Inc.
On January 1, 2024, the Company acquired Key Knife pursuant to a securities purchase agreement dated December 22, 2023, for $153,386,000, net of cash acquired. Key Knife is a global supplier of engineered knife systems for custom chipping, planing, and flaking solutions for wood products industries and is part of the Company's Industrial Processing segment. Goodwill from the Key Knife acquisition was $35,894,000, of which $29,158,000 is expected to be deductible for tax purposes over 15 years. In addition, separately identifiable intangible assets acquired were $91,620,000, of which $77,400,000 is expected to be deductible for tax purposes over 15 years.
As part of the acquisition, the Company acquired a 45% interest in two of Key Knife's subsidiaries, increasing its noncontrolling interest liability by $9,319,000 based on the income valuation approach. Under a put and purchase option as outlined in the securities purchase agreement, the seller can demand the Company purchase, or the Company can demand that the seller sell to the Company, the remaining interest in these subsidiaries at any time after December 31, 2027. The