x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to _________ |
Delaware | 52-1762325 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Technology Park Drive | ||
Westford, Massachusetts | 01886 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Emerging growth company o |
Class | Outstanding at July 27, 2018 | |
Common Stock, $.01 par value | 11,098,493 |
Page | ||
PART I: Financial Information | ||
PART II: Other Information | ||
June 30, 2018 | December 30, 2017 | |||||||
(In thousands, except share and per share amounts) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 60,177 | $ | 75,425 | ||||
Restricted cash (Note 1) | 975 | 1,421 | ||||||
Accounts receivable, less allowances of $3,120 and $2,879 (Note 1) | 88,223 | 89,624 | ||||||
Inventories (Note 1) | 96,261 | 84,933 | ||||||
Unbilled revenues | 2,183 | 2,374 | ||||||
Other current assets | 15,397 | 12,246 | ||||||
Total Current Assets | 263,216 | 266,023 | ||||||
Property, Plant, and Equipment, at Cost | 167,382 | 165,231 | ||||||
Less: accumulated depreciation and amortization | 87,495 | 85,508 | ||||||
Property, Plant, and Equipment, at Cost, Net | 79,887 | 79,723 | ||||||
Other Assets | 14,353 | 14,311 | ||||||
Intangible Assets, Net (Note 1) | 122,242 | 133,036 | ||||||
Goodwill (Note 1) | 261,488 | 268,001 | ||||||
Total Assets | $ | 741,186 | $ | 761,094 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities: | ||||||||
Current maturities of long-term obligations (Note 5) | $ | 665 | $ | 696 | ||||
Accounts payable | 35,069 | 35,461 | ||||||
Customer deposits | 41,601 | 30,103 | ||||||
Accrued payroll and employee benefits | 25,500 | 29,616 | ||||||
Advanced billings | 11,463 | 7,316 | ||||||
Other current liabilities | 26,487 | 29,038 | ||||||
Total Current Liabilities | 140,785 | 132,230 | ||||||
Long-Term Obligations (Notes 5 and 13) | 206,231 | 241,384 | ||||||
Long-Term Deferred Income Taxes | 26,484 | 29,085 | ||||||
Other Long-Term Liabilities | 26,001 | 25,891 | ||||||
Commitments and Contingencies (Note 12) | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued | — | — | ||||||
Common stock, $.01 par value, 150,000,000 shares authorized; 14,624,159 shares issued | 146 | 146 | ||||||
Capital in excess of par value | 101,842 | 103,221 | ||||||
Retained earnings | 361,262 | 342,893 | ||||||
Treasury stock at cost, 3,528,550 and 3,613,838 shares | (86,464 | ) | (88,554 | ) | ||||
Accumulated other comprehensive items (Note 8) | (36,853 | ) | (26,715 | ) | ||||
Total Kadant Stockholders' Equity | 339,933 | 330,991 | ||||||
Noncontrolling interest | 1,752 | 1,513 | ||||||
Total Stockholders' Equity | 341,685 | 332,504 | ||||||
Total Liabilities and Stockholders' Equity | $ | 741,186 | $ | 761,094 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2018 | July 1, 2017 | June 30, 2018 | July 1, 2017 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Revenues (Notes 1 and 11) | $ | 154,913 | $ | 110,242 | $ | 304,106 | $ | 213,099 | ||||||||
Costs and Operating Expenses: | ||||||||||||||||
Cost of revenues | 86,749 | 57,390 | 169,863 | 111,230 | ||||||||||||
Selling, general, and administrative expenses | 45,132 | 38,970 | 90,908 | 73,590 | ||||||||||||
Research and development expenses | 2,728 | 2,222 | 5,597 | 4,369 | ||||||||||||
Restructuring costs (Note 2) | 569 | — | 1,339 | — | ||||||||||||
135,178 | 98,582 | 267,707 | 189,189 | |||||||||||||
Operating Income | 19,735 | 11,660 | 36,399 | 23,910 | ||||||||||||
Interest Income | 122 | 102 | 305 | 206 | ||||||||||||
Interest Expense | (1,850 | ) | (392 | ) | (3,582 | ) | (740 | ) | ||||||||
Other Expense, Net (Note 7) | (245 | ) | (217 | ) | (491 | ) | (421 | ) | ||||||||
Income Before Provision for Income Taxes | 17,762 | 11,153 | 32,631 | 22,955 | ||||||||||||
Provision for Income Taxes (Note 4) | 5,271 | 2,955 | 9,132 | 5,690 | ||||||||||||
Net Income | 12,491 | 8,198 | 23,499 | 17,265 | ||||||||||||
Net Income Attributable to Noncontrolling Interest | (142 | ) | (102 | ) | (292 | ) | (218 | ) | ||||||||
Net Income Attributable to Kadant | $ | 12,349 | $ | 8,096 | $ | 23,207 | $ | 17,047 | ||||||||
Earnings per Share Attributable to Kadant (Note 3): | ||||||||||||||||
Basic | $ | 1.11 | $ | 0.74 | $ | 2.10 | $ | 1.55 | ||||||||
Diluted | $ | 1.08 | $ | 0.72 | $ | 2.04 | $ | 1.52 | ||||||||
Weighted Average Shares (Note 3): | ||||||||||||||||
Basic | 11,092 | 11,001 | 11,067 | 10,976 | ||||||||||||
Diluted | 11,400 | 11,296 | 11,371 | 11,250 | ||||||||||||
Cash Dividends Declared per Common Share | $ | 0.22 | $ | 0.21 | $ | 0.44 | $ | 0.42 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2018 | July 1, 2017 | June 30, 2018 | July 1, 2017 | |||||||||||||
(In thousands) | ||||||||||||||||
Net Income | $ | 12,491 | $ | 8,198 | $ | 23,499 | $ | 17,265 | ||||||||
Other Comprehensive Items: | ||||||||||||||||
Foreign currency translation adjustment | (15,776 | ) | 8,655 | (10,440 | ) | 13,687 | ||||||||||
Pension and other post-retirement liability adjustments (net of tax provision of $75, $11, $109 and $60) | 212 | 81 | 329 | 163 | ||||||||||||
Deferred (loss) gain on cash flow hedges (net of tax (benefit) provision of ($55), $1, ($47) and $16) | (173 | ) | 7 | (80 | ) | 34 | ||||||||||
Other Comprehensive Items | (15,737 | ) | 8,743 | (10,191 | ) | 13,884 | ||||||||||
Comprehensive (Loss) Income | (3,246 | ) | 16,941 | 13,308 | 31,149 | |||||||||||
Comprehensive Income Attributable to Noncontrolling Interest | (46 | ) | (219 | ) | (239 | ) | (381 | ) | ||||||||
Comprehensive (Loss) Income Attributable to Kadant | $ | (3,292 | ) | $ | 16,722 | $ | 13,069 | $ | 30,768 |
Six Months Ended | ||||||||
June 30, 2018 | July 1, 2017 | |||||||
(In thousands) | ||||||||
Operating Activities | ||||||||
Net income attributable to Kadant | $ | 23,207 | $ | 17,047 | ||||
Net income attributable to noncontrolling interest | 292 | 218 | ||||||
Net income | 23,499 | 17,265 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 11,943 | 6,531 | ||||||
Stock-based compensation expense | 3,610 | 2,736 | ||||||
Provision for losses on accounts receivable | 438 | 84 | ||||||
Loss on the sale of property, plant, and equipment | 54 | 30 | ||||||
Other items, net | (869 | ) | 2,161 | |||||
Contributions to U.S. pension plan | — | (540 | ) | |||||
Changes in current assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable | (974 | ) | (476 | ) | ||||
Unbilled revenues | 2,228 | (2,968 | ) | |||||
Inventories | (14,238 | ) | (6,147 | ) | ||||
Other current assets | (2,781 | ) | (2,652 | ) | ||||
Accounts payable | 4,039 | 3,363 | ||||||
Other current liabilities | 8,622 | 5,989 | ||||||
Net cash provided by operating activities | 35,571 | 25,376 | ||||||
Investing Activities | ||||||||
Purchases of property, plant, and equipment | (10,211 | ) | (3,435 | ) | ||||
Proceeds from sale of property, plant, and equipment | 213 | 50 | ||||||
Acquisition | — | (165 | ) | |||||
Net cash used in investing activities | (9,998 | ) | (3,550 | ) | ||||
Financing Activities | ||||||||
Repayment of debt | (46,838 | ) | (11,235 | ) | ||||
Proceeds from issuance of debt | 16,000 | 8,000 | ||||||
Dividends paid | (4,756 | ) | (4,388 | ) | ||||
Tax withholding payments related to stock-based compensation | (3,641 | ) | (2,206 | ) | ||||
Proceeds from issuance of Company common stock | 742 | — | ||||||
Payment of debt issuance costs | — | (1,147 | ) | |||||
Other financing activities | (258 | ) | (215 | ) | ||||
Net cash used in financing activities | (38,751 | ) | (11,191 | ) | ||||
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash | (2,516 | ) | 3,777 | |||||
(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash | (15,694 | ) | 14,412 | |||||
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 76,846 | 73,569 | ||||||
Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 61,152 | $ | 87,981 |
(In thousands, except share amounts) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Items | Noncontrolling Interest | Total Stockholders' Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
Balance at December 31, 2016 | 14,624,159 | $ | 146 | $ | 101,405 | $ | 321,050 | 3,686,532 | $ | (90,335 | ) | $ | (49,637 | ) | $ | 1,650 | $ | 284,279 | ||||||||||||||||
Net income | — | — | — | 17,047 | — | — | — | 218 | 17,265 | |||||||||||||||||||||||||
Dividends declared | — | — | — | (4,621 | ) | — | — | — | — | (4,621 | ) | |||||||||||||||||||||||
Activity under stock plans | — | — | (1,104 | ) | — | (66,694 | ) | 1,634 | — | — | 530 | |||||||||||||||||||||||
Other comprehensive items | — | — | — | — | — | — | 13,721 | 163 | 13,884 | |||||||||||||||||||||||||
Balance at July 1, 2017 | 14,624,159 | $ | 146 | $ | 100,301 | $ | 333,476 | 3,619,838 | $ | (88,701 | ) | $ | (35,916 | ) | $ | 2,031 | $ | 311,337 | ||||||||||||||||
Balance at December 30, 2017 | 14,624,159 | $ | 146 | $ | 103,221 | $ | 342,893 | 3,613,838 | $ | (88,554 | ) | $ | (26,715 | ) | $ | 1,513 | $ | 332,504 | ||||||||||||||||
Net income | — | — | — | 23,207 | — | — | — | 292 | 23,499 | |||||||||||||||||||||||||
Adoption of ASU No. 2014-09 (Note 1) | — | — | — | 119 | — | — | — | — | 119 | |||||||||||||||||||||||||
Adoption of ASU No. 2016-16 (Note 1) | — | — | — | (75 | ) | — | — | — | — | (75 | ) | |||||||||||||||||||||||
Dividends declared | — | — | — | (4,882 | ) | — | — | — | — | (4,882 | ) | |||||||||||||||||||||||
Activity under stock plans | — | — | (1,379 | ) | — | (85,288 | ) | 2,090 | — | — | 711 | |||||||||||||||||||||||
Other comprehensive items | — | — | — | — | — | — | (10,138 | ) | (53 | ) | (10,191 | ) | ||||||||||||||||||||||
Balance at June 30, 2018 | 14,624,159 | $ | 146 | $ | 101,842 | $ | 361,262 | 3,528,550 | $ | (86,464 | ) | $ | (36,853 | ) | $ | 1,752 | $ | 341,685 |
Six Months Ended | ||||||||
(In thousands) | June 30, 2018 | July 1, 2017 | ||||||
Cash Paid for Interest | $ | 4,268 | $ | 366 | ||||
Cash Paid for Income Taxes, Net of Refunds | $ | 14,808 | $ | 7,076 | ||||
Non-Cash Investing Activities: | ||||||||
Estimated post-closing adjustment (a) | $ | 237 | $ | — | ||||
Non-cash additions to property, plant and equipment | $ | 1,033 | $ | 390 | ||||
Non-Cash Financing Activities: | ||||||||
Issuance of Company common stock upon vesting of restricted stock units | $ | 3,264 | $ | 2,814 | ||||
Dividends declared but unpaid | $ | 2,442 | $ | 2,311 |
(In thousands) | June 30, 2018 | July 1, 2017 | December 30, 2017 | December 31, 2016 | ||||||||||||
Cash and cash equivalents | $ | 60,177 | $ | 85,840 | $ | 75,425 | $ | 71,487 | ||||||||
Restricted cash | 975 | 2,141 | 1,421 | 2,082 | ||||||||||||
Total Cash, Cash Equivalents, and Restricted Cash | $ | 61,152 | $ | 87,981 | $ | 76,846 | $ | 73,569 |
June 30, 2018 | December 30, 2017 | |||||||
(In thousands) | ||||||||
Raw Materials and Supplies | $ | 45,522 | $ | 38,952 | ||||
Work in Process | 24,722 | 18,203 | ||||||
Finished Goods | 26,017 | 27,778 | ||||||
$ | 96,261 | $ | 84,933 |
(In thousands) | Gross | Currency Translation | Accumulated Amortization | Net | ||||||||||||
June 30, 2018 | ||||||||||||||||
Definite-Lived | ||||||||||||||||
Customer relationships | $ | 113,283 | $ | (3,058 | ) | $ | (33,555 | ) | $ | 76,670 | ||||||
Product technology | 46,501 | (1,351 | ) | (21,733 | ) | 23,417 | ||||||||||
Tradenames | 5,227 | (345 | ) | (1,747 | ) | 3,135 | ||||||||||
Other | 13,744 | (96 | ) | (11,277 | ) | 2,371 | ||||||||||
178,755 | (4,850 | ) | (68,312 | ) | 105,593 | |||||||||||
Indefinite-Lived | ||||||||||||||||
Tradenames | 16,600 | 49 | — | 16,649 | ||||||||||||
Acquired Intangible Assets | $ | 195,355 | $ | (4,801 | ) | $ | (68,312 | ) | $ | 122,242 | ||||||
(In thousands) | Gross | Currency Translation | Accumulated Amortization | Net | ||||||||||||
December 30, 2017 | ||||||||||||||||
Definite-Lived | ||||||||||||||||
Customer relationships | $ | 113,301 | $ | (621 | ) | $ | (28,789 | ) | $ | 83,891 | ||||||
Product technology | 46,501 | (737 | ) | (19,841 | ) | 25,923 | ||||||||||
Tradenames | 5,227 | (262 | ) | (1,504 | ) | 3,461 | ||||||||||
Other | 13,754 | (35 | ) | (10,863 | ) | 2,856 | ||||||||||
178,783 | (1,655 | ) | (60,997 | ) | 116,131 | |||||||||||
Indefinite-Lived | ||||||||||||||||
Tradenames | 16,600 | 305 | — | 16,905 | ||||||||||||
Acquired Intangible Assets | $ | 195,383 | $ | (1,350 | ) | $ | (60,997 | ) | $ | 133,036 |
(In thousands) | Papermaking Systems Segment | Wood Processing Systems Segment | Total | |||||||||
Balance at December 30, 2017 | ||||||||||||
Gross balance | $ | 247,014 | $ | 106,496 | $ | 353,510 | ||||||
Accumulated impairment losses | (85,509 | ) | — | (85,509 | ) | |||||||
Net balance | 161,505 | 106,496 | 268,001 | |||||||||
2018 Adjustments | ||||||||||||
Acquisitions (a) | (282 | ) | (75 | ) | (357 | ) | ||||||
Currency translation | (3,280 | ) | (2,876 | ) | (6,156 | ) | ||||||
Total 2018 adjustments | (3,562 | ) | (2,951 | ) | (6,513 | ) | ||||||
Balance at June 30, 2018 | ||||||||||||
Gross balance | 243,452 | 103,545 | 346,997 | |||||||||
Accumulated impairment losses | (85,509 | ) | — | (85,509 | ) | |||||||
Net balance | $ | 157,943 | $ | 103,545 | $ | 261,488 |
Six Months Ended | ||||||||
(In thousands) | June 30, 2018 | July 1, 2017 | ||||||
Balance at December 30, 2017 | $ | 5,498 | $ | 3,843 | ||||
Provision charged to expense | 1,656 | 1,209 | ||||||
Usage | (881 | ) | (1,056 | ) | ||||
Currency translation | (192 | ) | 224 | |||||
Balance at June 30, 2018 | $ | 6,081 | $ | 4,220 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | July 1, | June 30, | July 1, | |||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues by Product Line: | ||||||||||||||||
Papermaking Systems: | ||||||||||||||||
Stock-Preparation | $ | 56,376 | $ | 46,178 | $ | 101,859 | $ | 87,331 | ||||||||
Doctoring, Cleaning, & Filtration | 29,543 | 27,033 | 56,765 | 52,383 | ||||||||||||
Fluid-Handling | 32,531 | 22,520 | 65,417 | 44,567 | ||||||||||||
Papermaking Systems | $ | 118,450 | $ | 95,731 | $ | 224,041 | $ | 184,281 | ||||||||
Wood Processing Systems | 33,152 | 11,393 | 72,293 | 21,336 | ||||||||||||
Fiber-based Products | 3,311 | 3,118 | 7,772 | 7,482 | ||||||||||||
$ | 154,913 | $ | 110,242 | $ | 304,106 | $ | 213,099 | |||||||||
Revenues by Product Type: | ||||||||||||||||
Parts and Consumables | $ | 94,857 | $ | 70,040 | $ | 190,842 | $ | 140,484 | ||||||||
Capital | 60,056 | 40,202 | 113,264 | 72,615 | ||||||||||||
$ | 154,913 | $ | 110,242 | $ | 304,106 | $ | 213,099 | |||||||||
Revenues by Geography: | ||||||||||||||||
North America | $ | 75,375 | $ | 51,557 | $ | 152,991 | $ | 101,723 | ||||||||
Europe | 45,032 | 33,952 | 86,525 | 66,703 | ||||||||||||
Asia | 25,502 | 16,545 | 45,650 | 28,443 | ||||||||||||
Rest of World | 9,004 | 8,188 | 18,940 | 16,230 | ||||||||||||
$ | 154,913 | $ | 110,242 | $ | 304,106 | $ | 213,099 |
Three Months Ended | Six Months Ended | |||||||
June 30, | June 30, | |||||||
(In thousands) | 2018 | 2018 | ||||||
Timing of Revenue Recognition: | ||||||||
Point in Time | $ | 145,998 | $ | 288,003 | ||||
Over Time | 8,915 | 16,103 | ||||||
$ | 154,913 | $ | 304,106 |
June 30, 2018 | December 30, 2017 | |||||||
(In thousands) | ||||||||
Balances from Contracts with Customers: | ||||||||
Accounts receivable | $ | 88,223 | $ | 89,624 | ||||
Contract assets | 2,183 | 2,374 | ||||||
Contract liabilities | 54,525 | 38,702 |
(In thousands) | Severance | Relocation | Other (a) | Total | ||||||||||||
Balance at December 30, 2017 | $ | 203 | $ | — | $ | — | $ | 203 | ||||||||
(Reversal) provision | (55 | ) | 1,018 | 376 | 1,339 | |||||||||||
Usage | — | (1,015 | ) | (356 | ) | (1,371 | ) | |||||||||
Currency translation | (11 | ) | (3 | ) | — | (14 | ) | |||||||||
Balance at June 30, 2018 | $ | 137 | $ | — | $ | 20 | $ | 157 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2018 | July 1, 2017 | June 30, 2018 | July 1, 2017 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Amounts Attributable to Kadant: | ||||||||||||||||
Net Income | $ | 12,349 | $ | 8,096 | $ | 23,207 | $ | 17,047 | ||||||||
Basic Weighted Average Shares | 11,092 | 11,001 | 11,067 | 10,976 | ||||||||||||
Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares | 308 | 295 | 304 | 274 | ||||||||||||
Diluted Weighted Average Shares | 11,400 | 11,296 | 11,371 | 11,250 | ||||||||||||
Basic Earnings per Share | $ | 1.11 | $ | 0.74 | $ | 2.10 | $ | 1.55 | ||||||||
Diluted Earnings per Share | $ | 1.08 | $ | 0.72 | $ | 2.04 | $ | 1.52 |
June 30, 2018 | December 30, 2017 | |||||||
(In thousands) | ||||||||
Revolving Credit Facility, due 2022 | $ | 202,205 | $ | 237,011 | ||||
Obligations Under Capital Lease, due 2018 to 2022 | 4,362 | 4,633 | ||||||
Other Borrowings, due 2018 to 2023 | 329 | 436 | ||||||
Total | 206,896 | 242,080 | ||||||
Less: Current Maturities of Long-Term Obligations | (665 | ) | (696 | ) | ||||
Long-Term Obligations | $ | 206,231 | $ | 241,384 |
Three Months Ended June 30, 2018 | Three Months Ended July 1, 2017 | |||||||||||||||||||||||
(In thousands, except percentages) | U.S. Pension | Non-U.S. Pension | Other Post-Retirement | U.S. Pension | Non-U.S. Pension | Other Post-Retirement | ||||||||||||||||||
Service Cost | $ | 175 | $ | 35 | $ | 53 | $ | 147 | $ | 33 | $ | 53 | ||||||||||||
Interest Cost | 298 | 30 | 43 | 302 | 26 | 45 | ||||||||||||||||||
Expected Return on Plan Assets | (322 | ) | (11 | ) | (1 | ) | (328 | ) | (9 | ) | — | |||||||||||||
Recognized Net Actuarial Loss | 135 | 15 | 34 | 108 | 9 | 27 | ||||||||||||||||||
Amortization of Prior Service Cost | — | 2 | 22 | 13 | 1 | 23 | ||||||||||||||||||
$ | 286 | $ | 71 | $ | 151 | $ | 242 | $ | 60 | $ | 148 | |||||||||||||
The weighted average assumptions used to determine net periodic benefit cost are as follows: | ||||||||||||||||||||||||
Discount Rate | 3.51 | % | 3.80 | % | 3.64 | % | 4.03 | % | 3.47 | % | 4.11 | % | ||||||||||||
Expected Long-Term Return on Plan Assets | 4.50 | % | 7.43 | % | 7.43 | % | 5.00 | % | 7.72 | % | 7.72 | % | ||||||||||||
Rate of Compensation Increase | 3.00 | % | 3.69 | % | 3.07 | % | 3.00 | % | 3.44 | % | 3.06 | % |
Six Months Ended June 30, 2018 | Six Months Ended July 1, 2017 | |||||||||||||||||||||||
(In thousands, except percentages) | U.S. Pension | Non-U.S. Pension | Other Post-Retirement | U.S. Pension | Non-U.S. Pension | Other Post-Retirement | ||||||||||||||||||
Service Cost | $ | 350 | $ | 71 | $ | 106 | $ | 343 | $ | 65 | $ | 88 | ||||||||||||
Interest Cost | 596 | 60 | 86 | 616 | 50 | 84 | ||||||||||||||||||
Expected Return on Plan Assets | (644 | ) | (22 | ) | (2 | ) | (663 | ) | (17 | ) | — | |||||||||||||
Recognized Net Actuarial Loss | 270 | 31 | 68 | 221 | 18 | 40 | ||||||||||||||||||
Amortization of Prior Service Cost | — | 4 | 44 | 26 | 2 | 44 | ||||||||||||||||||
Net Periodic Benefit Cost | $ | 572 | $ | 144 | $ | 302 | $ | 543 | $ | 118 | $ | 256 | ||||||||||||
The weighted average assumptions used to determine net periodic benefit cost are as follows: | ||||||||||||||||||||||||
Discount Rate | 3.51 | % | 3.80 | % | 3.64 | % | 4.03 | % | 3.43 | % | 4.12 | % | ||||||||||||
Expected Long-Term Return on Plan Assets | 4.50 | % | 7.43 | % | 7.43 | % | 5.00 | % | 7.72 | % | 7.72 | % | ||||||||||||
Rate of Compensation Increase | 3.00 | % | 3.69 | % | 3.07 | % | 3.00 | % | 3.42 | % | 3.07 | % |
(In thousands) | Foreign Currency Translation Adjustment | Unrecognized Prior Service Cost on Retirement Benefit Plans | Net Actuarial Loss on Retirement Benefit Plans | Deferred Gain (Loss) on Cash Flow Hedges | Total | |||||||||||||||
Balance at December 30, 2017 | $ | (17,501 | ) | $ | (319 | ) | $ | (8,974 | ) | $ | 79 | $ | (26,715 | ) | ||||||
Other comprehensive (loss) income before reclassifications | (10,387 | ) | 1 | 14 | (79 | ) | (10,451 | ) | ||||||||||||
Reclassifications from AOCI | — | 36 | 278 | (1 | ) | 313 | ||||||||||||||
Net current period other comprehensive (loss) income | (10,387 | ) | 37 | 292 | (80 | ) | (10,138 | ) | ||||||||||||
Balance at June 30, 2018 | $ | (27,888 | ) | $ | (282 | ) | $ | (8,682 | ) | $ | (1 | ) | $ | (36,853 | ) | |||||
Three Months Ended | Six Months Ended | |||||||||||||||||
(In thousands) | June 30, 2018 | July 1, 2017 | June 30, 2018 | July 1, 2017 | Statement of Income Line Item | |||||||||||||
Retirement Benefit Plans: (a) | ||||||||||||||||||
Recognized net actuarial loss | $ | (184 | ) | $ | (144 | ) | $ | (369 | ) | $ | (279 | ) | Other expense, net | |||||
Amortization of prior service cost | (24 | ) | (37 | ) | (48 | ) | (72 | ) | Other expense, net | |||||||||
Total expense before income taxes | (208 | ) | (181 | ) | (417 | ) | (351 | ) | ||||||||||
Income tax benefit | 51 | 64 | 103 | 123 | Provision for income taxes | |||||||||||||
(157 | ) | (117 | ) | (314 | ) | (228 | ) | |||||||||||
Cash Flow Hedges: (b) | ||||||||||||||||||
Interest rate swap agreements | (17 | ) | (6 | ) | (22 | ) | (18 | ) | Interest expense | |||||||||
Forward currency-exchange contracts | 24 | — | 24 | (11 | ) | Cost of revenues | ||||||||||||
Total income (expense) before income taxes | 7 | (6 | ) | 2 | (29 | ) | ||||||||||||
Income tax (provision) benefit | (2 | ) | 3 | (1 | ) | 11 | Provision for income taxes | |||||||||||
5 | (3 | ) | 1 | (18 | ) | |||||||||||||
Total Reclassifications | $ | (152 | ) | $ | (120 | ) | $ | (313 | ) | $ | (246 | ) |
(a) | Included in the computation of net periodic benefit cost. See Note 7 for additional information. |
(b) | See Note 9 for additional information. |
June 30, 2018 | December 30, 2017 | |||||||||||||||||
Balance Sheet Location | Asset (Liability) (a) | Notional Amount (b) | Asset (Liability) (a) | Notional Amount | ||||||||||||||
(In thousands) | ||||||||||||||||||
Derivatives Designated as Hedging Instruments: | ||||||||||||||||||
Derivatives in an Asset Position: | ||||||||||||||||||
2015 Swap Agreement (c) | Other Long-Term Assets | $ | 209 | $ | 10,000 | $ | 126 | $ | 10,000 | |||||||||
Derivatives in a Liability Position: | ||||||||||||||||||
2018 Swap Agreement (c) | Other Long-Term Liabilities | $ | (210 | ) | $ | 15,000 | $ | — | $ | — | ||||||||
Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||||
Derivatives in an Asset Position: | ||||||||||||||||||
Forward currency-exchange contracts | Other Current Assets | $ | — | $ | — | $ | 17 | $ | 1,244 | |||||||||
Derivatives in a Liability Position: | ||||||||||||||||||
Forward currency-exchange contracts | Other Current Liabilities | $ | (52 | ) | $ | 2,712 | $ | (16 | ) | $ | 2,049 |
(a) | See Note 10 for the fair value measurements relating to these financial instruments. |
(b) | The total 2018 notional amounts are indicative of the level of the Company's recurring derivative activity. |
(c) | The asset or liability balance represents the settlement value received from or paid to the counterparty in the event of early termination. |
(In thousands) | Interest Rate Swap Agreements | Forward Currency- Exchange Contracts | Total | |||||||||
Unrealized Gain, Net of Tax, at December 30, 2017 | $ | 79 | $ | — | $ | 79 | ||||||
Loss (gain) reclassified to earnings (a) | 17 | (18 | ) | (1 | ) | |||||||
(Loss) gain recognized in AOCI | (97 | ) | 18 | (79 | ) | |||||||
Unrealized Loss, Net of Tax, at June 30, 2018 | $ | (1 | ) | $ | — | $ | (1 | ) |
• | Level 1—Quoted prices in active markets for identical assets or liabilities. |
• | Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. |
• | Level 3—Unobservable inputs based on the Company's own assumptions. |
(In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
June 30, 2018 | ||||||||||||||||
Assets: | ||||||||||||||||
Money market funds and time deposits | $ | 3,579 | $ | — | $ | — | $ | 3,579 | ||||||||
2015 Swap Agreement | $ | — | $ | 209 | $ | — | $ | 209 | ||||||||
Banker's acceptance drafts (a) | $ | — | $ | 10,735 | $ | — | $ | 10,735 | ||||||||
Liabilities: | ||||||||||||||||
Forward currency-exchange contracts | $ | — | $ | 52 | $ | — | $ | 52 | ||||||||
2018 Swap Agreement | $ | — | $ | 210 | $ | — | $ | 210 |
December 30, 2017 | ||||||||||||||||
Assets: | ||||||||||||||||
Money market funds and time deposits | $ | 17,728 | $ | — | $ | — | $ | 17,728 | ||||||||
Forward currency-exchange contracts | $ | — | $ | 17 | $ | — | $ | 17 | ||||||||
2015 Swap Agreement | $ | — | $ | 126 | $ | — | $ | 126 | ||||||||
Banker's acceptance drafts (a) | $ | — | $ | 15,960 | $ | — | $ | 15,960 | ||||||||
Liabilities: | ||||||||||||||||
Forward currency-exchange contracts | $ | — | $ | 16 | $ | — | $ | 16 |
(a) | Included in accounts receivable in the accompanying condensed consolidated balance sheet. |
June 30, 2018 | December 30, 2017 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Long-term Debt Obligations: | ||||||||||||||||
Revolving credit facility | $ | 202,205 | $ | 202,205 | $ | 237,011 | $ | 237,011 | ||||||||
Capital lease obligations | 3,843 | 3,843 | 4,101 | 4,101 | ||||||||||||
Other borrowings | 183 | 183 | 272 | 272 | ||||||||||||
$ | 206,231 | $ | 206,231 | $ | 241,384 | $ | 241,384 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | July 1, | June 30, | July 1, | |||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues: | ||||||||||||||||
Papermaking Systems (a) | $ | 118,450 | $ | 95,731 | $ | 224,041 | $ | 184,281 | ||||||||
Wood Processing Systems (b) | 33,152 | 11,393 | 72,293 | 21,336 | ||||||||||||
Fiber-based Products | 3,311 | 3,118 | 7,772 | 7,482 | ||||||||||||
$ | 154,913 | $ | 110,242 | $ | 304,106 | $ | 213,099 | |||||||||
Income Before Provision for Income Taxes: | ||||||||||||||||
Papermaking Systems (c) | $ | 20,899 | $ | 17,264 | $ | 35,483 | $ | 31,563 | ||||||||
Wood Processing Systems (d) | 5,313 | (411 | ) | 12,676 | 2,093 | |||||||||||
Corporate and Fiber-based Products (e) | (6,477 | ) | (5,193 | ) | (11,760 | ) | (9,746 | ) | ||||||||
Total operating income | 19,735 | 11,660 | 36,399 | 23,910 | ||||||||||||
Interest expense, net (f) | (1,728 | ) | (290 | ) | (3,277 | ) | (534 | ) | ||||||||
Other expense, net | (245 | ) | (217 | ) | (491 | ) | (421 | ) | ||||||||
$ | 17,762 | $ | 11,153 | $ | 32,631 | $ | 22,955 | |||||||||
Capital Expenditures: | ||||||||||||||||
Papermaking Systems | $ | 3,840 | $ | 1,293 | $ | 8,489 | $ | 2,777 | ||||||||
Wood Processing Systems | 1,184 | 105 | 1,560 | 291 | ||||||||||||
Other | 36 | 315 | 162 | 367 | ||||||||||||
$ | 5,060 | $ | 1,713 | $ | 10,211 | $ | 3,435 | |||||||||
(a) | Includes $5,430,000 in the three-month period ended June 30, 2018 and $11,330,000 in the six-month period ended June 30, 2018 from 2017 acquisitions. |
- | Stock-Preparation: custom-engineered systems and equipment, as well as standard individual components, for baling, pulping, de-inking, screening, cleaning, and refining primarily recycled fiber for preparation for entry into the paper machine, and recausticizing and evaporation equipment and systems used in the production of virgin pulp. Our baling equipment is also used to compress a variety of other secondary materials to prepare them for transport or storage; | |
- | Doctoring, Cleaning, & Filtration: doctoring, cleaning, and filtration systems and related consumables that keep paper machines and other industrial processes running efficiently; doctor blades made of a variety of materials to perform functions including cleaning, creping, web removal, flaking, and the application of coatings; and systems and equipment used to continuously clean fabrics and rolls, drain water from pulp mixtures, form the sheet or web, and filter the process water for reuse. Doctoring and cleaning systems are also used in other process industries such as carbon fiber, textiles and food processing; and | |
- | Fluid-Handling: rotary joints, precision unions, steam and condensate systems, components, and controls used to transfer fluids, power, and data in numerous process industries and expansion joints used in industrial piping systems. |
- | Debarkers: ring and rotary debarkers and related parts and consumables that employ mechanical abrasion or log-to-log contact to efficiently remove bark from logs of all shapes and species; | |
- | Stranders: disc and ring stranders and related parts and consumables that cut batch-fed logs into strands for OSB production; | |
- | Chippers: disc, drum, and veneer chippers and related parts and consumables are high quality, robust chipper systems for waste-wood and whole-log applications found in pulp woodrooms, chip plants, sawmill, and planer mill sites; and | |
- | Logging machinery: feller bunchers, log loaders, and swing yarders that are used to harvest and gather timber for lumber production. |
Three Months Ended | Less: Currency Translation | (Non-GAAP) Adjusted Total | ||||||||||||||||||||||
(In thousands) | June 30, 2018 | July 1, 2017 | Total Increase | Less: Acquisitions | Increase (Decrease) | |||||||||||||||||||
Stock-Preparation | $ | 56,376 | $ | 46,178 | $ | 10,198 | $ | 2,943 | $ | — | $ | 7,255 | ||||||||||||
Doctoring, Cleaning, & Filtration | 29,543 | 27,033 | 2,510 | 561 | — | 1,949 | ||||||||||||||||||
Fluid-Handling | 32,531 | 22,520 | 10,011 | 758 | 5,430 | 3,823 | ||||||||||||||||||
Papermaking Systems | 118,450 | 95,731 | 22,719 | 4,262 | 5,430 | 13,027 | ||||||||||||||||||
Wood Processing Systems | 33,152 | 11,393 | 21,759 | 398 | 23,440 | (2,079 | ) | |||||||||||||||||
Fiber-based Products | 3,311 | 3,118 | 193 | — | — | 193 | ||||||||||||||||||
$ | 154,913 | $ | 110,242 | $ | 44,671 | $ | 4,660 | $ | 28,870 | $ | 11,141 |
Three Months Ended | ||||||
June 30, 2018 | July 1, 2017 | |||||
Papermaking Systems | 45.3 | % | 48.2 | % | ||
Wood Processing Systems | 38.9 | % | 44.9 | % | ||
Fiber-based Products | 50.0 | % | 52.3 | % | ||
Consolidated Gross Margin | 44.0 | % | 47.9 | % |
Three Months Ended | ||||||||||||
(In thousands) | June 30, 2018 | July 1, 2017 | Increase | |||||||||
Papermaking Systems | $ | 30,070 | $ | 26,777 | $ | 3,293 | ||||||
Wood Processing Systems | 6,978 | 5,413 | 1,565 | |||||||||
Corporate and Other | 8,084 | 6,780 | 1,304 | |||||||||
$ | 45,132 | $ | 38,970 | $ | 6,162 |
Six Months Ended | Less: Currency Translation | (Non-GAAP) Adjusted Total | ||||||||||||||||||||||
(In thousands) | June 30, 2018 | July 1, 2017 | Total Increase | Less: Acquisitions | Increase (Decrease) | |||||||||||||||||||
Stock-Preparation | $ | 101,859 | $ | 87,331 | $ | 14,528 | $ | 6,399 | $ | — | $ | 8,129 | ||||||||||||
Doctoring, Cleaning, & Filtration | 56,765 | 52,383 | 4,382 | 1,762 | — | 2,620 | ||||||||||||||||||
Fluid-Handling | 65,417 | 44,567 | 20,850 | 2,357 | 11,330 | 7,163 | ||||||||||||||||||
Papermaking Systems | 224,041 | 184,281 | 39,760 | 10,518 | 11,330 | 17,912 | ||||||||||||||||||
Wood Processing Systems | 72,293 | 21,336 | 50,957 | 865 | 52,310 | (2,218 | ) | |||||||||||||||||
Fiber-based Products | 7,772 | 7,482 | 290 | — | — | 290 | ||||||||||||||||||
$ | 304,106 | $ | 213,099 | $ | 91,007 | $ | 11,383 | $ | 63,640 | $ | 15,984 |
Six Months Ended | ||||||
June 30, 2018 | July 1, 2017 | |||||
Papermaking Systems | 45.4 | % | 48.0 | % | ||
Wood Processing Systems | 39.2 | % | 43.6 | % | ||
Fiber-based Products | 53.5 | % | 53.9 | % | ||
Consolidated Gross Margin | 44.1 | % | 47.8 | % |
Six Months Ended | ||||||||||||
(In thousands) | June 30, 2018 | July 1, 2017 | Increase | |||||||||
Papermaking Systems | $ | 60,826 | $ | 52,962 | $ | 7,864 | ||||||
Wood Processing Systems | 14,277 | 7,254 | 7,023 | |||||||||
Corporate and Other | 15,805 | 13,374 | 2,431 | |||||||||
$ | 90,908 | $ | 73,590 | $ | 17,318 |
– | agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; |
– | foreign customers may have longer payment cycles; |
– | foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs, adopt other restrictions on foreign trade, impose currency restrictions or enact other protectionist or anti-trade measures; |
– | environmental and other regulations can adversely impact our ability to operate our facilities; |
– | disruption from climate change, natural disaster, fires, war, terrorist activity, and other force majeure events beyond our control; |
– | worsening economic conditions may result in worker unrest, labor actions, and potential work stoppages; |
– | political unrest may disrupt commercial activities of ours or our customers; |
– | it may be difficult to repatriate funds, due to unfavorable domestic and foreign tax consequences or other restrictions or limitations imposed by foreign governments; and |
– | the protection of intellectual property in foreign countries may be more difficult to enforce. |
Exhibit Number | ||
Description of Exhibit | ||
10.1* | ||
31.1* | ||
31.2* | ||
32** | ||
101.INS* | XBRL Instance Document. | |
101.SCH* | XBRL Taxonomy Extension Schema Document. | |
101.CAL* | XBRL Taxonomy Calculation Linkbase Document. | |
101.LAB* | XBRL Taxonomy Label Linkbase Document. | |
101.PRE* | XBRL Taxonomy Presentation Linkbase Document. | |
101.DEF* | XBRL Taxonomy Definition Linkbase Document. |
* | Filed herewith. | ||
** | Furnished herewith. |
KADANT INC. | |
Date: August 8, 2018 | /s/ Michael J. McKenney |
Michael J. McKenney | |
Executive Vice President and Chief Financial Officer | |
(Principal Financial Officer) |
Notional Amount | USD 15,000,000 | |
Trade Date: | May 16, 2018 | |
Effective Date | May 16, 2018 | |
Termination Date | June 30, 2023 | |
Fixed Amounts | ||
Fixed Rate Payer | Counterparty | |
Fixed Rate Payer Payment Dates | Payment Dates as specified in the Notional Schedule | |
Fixed Rate | 3.15 percent | |
Fixed Rate Day Count Fraction | Actual/360 | |
Business Days for Fixed Amounts | London, New York | |
Floating Amounts | ||
Floating Rate Payer | Citizens | |
Floating Rate Payer Payment Dates | Payment Dates as specified in the Notional Schedule | |
Floating Rate Option | USD-LIBOR-BBA-Bloomberg- provided, however, that if the Floating Rate Option for any Calculation period is less than 0.00%, then the Floating Rate Option for such calculation shall be deemed to be 0.00%. |
Interpolation | Applicable 0.00% | |
Floor Rate | ||
Designated Maturity | 3 Month, with the exception of the initial Calculation Period which will be a Linear Interpolation of the 1 month and 2 month rates. | |
Floating Rate for the Initial Calculation Period | N/A | |
Spread | N/A | |
Floating Rate Day Count Fraction | Actual/360 | |
Compounding | N/A | |
Reset Dates | The first day of each Calculation Period | |
Business Days for Floating Amounts | London, New York | |
Calculation Agent | As per The Agreement | |
Other Details N/A | ||
Account Details | ||
Payments to the Counterparty: | ||
Bank Name: Wells Fargo Bank | ||
Account Number: 4162079339 | ||
Account Name: Kadant, Inc. | ||
ABA Number: 121000248 | ||
Offices | ||
The Office of Citizens for the Transaction is : | Boston | |
The Office of the Counterparty for the Transaction is : | Westford |
Notional Schedule | |||
Date | Notional | ||
May 16, 2018 | - | June 29, 2018 | 15,000,000.00 |
June 29, 2018 | - | September 28, 2018 | 15,000,000.00 |
September 28, 2018 | - | December 28, 2018 | 15,000,000.00 |
December 28, 2018 | - | March 29, 2019 | 15,000,000.00 |
March 29, 2019 | - | June 28, 2019 | 15,000,000.00 |
June 28, 2019 | - | September 27, 2019 | 15,000,000.00 |
September 27, 2019 | - | December 27, 2019 | 15,000,000.00 |
December 27, 2019 | - | March 27, 2020 | 15,000,000.00 |
March 27, 2020 | - | June 26, 2020 | 15,000,000.00 |
June 26, 2020 | - | September 25, 2020 | 15,000,000.00 |
September 25, 2020 | - | December 31, 2020 | 15,000,000.00 |
December 31, 2020 | - | April 1, 2021 | 15,000,000.00 |
April 1, 2021 | - | July 2, 2021 | 15,000,000.00 |
July 2, 2021 | - | October 1, 2021 | 15,000,000.00 |
October 1, 2021 | - | December 31, 2021 | 15,000,000.00 |
December 31, 2021 | - | April 1, 2022 | 15,000,000.00 |
April 1, 2022 | - | July 1, 2022 | 15,000,000.00 |
July1, 2022 | - | September 30, 2022 | 15,000,000.00 |
September 30, 2022 | - | December 30, 2022 | 15,000,000.00 |
December 30, 2022 | - | March 31, 2023 | 15,000,000.00 |
March 31, 2023 | - | June 30, 2023 | 15,000,000.00 |
1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2018 of Kadant Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 8, 2018 | /s/ Jonathan W. Painter |
Jonathan W. Painter | |
Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2018 of Kadant Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 8, 2018 | /s/ Michael J. McKenney |
Michael J. McKenney | |
Chief Financial Officer |
Dated: August 8, 2018 | /s/ Jonathan W. Painter |
Jonathan W. Painter | |
Chief Executive Officer | |
/s/ Michael J. McKenney | |
Michael J. McKenney | |
Chief Financial Officer |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jul. 27, 2018 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | KADANT INC | |
Entity Central Index Key | 0000886346 | |
Current Fiscal Year End Date | --12-29 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 11,098,493 |
Condensed Consolidated Balance Sheet (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 30, 2017 |
---|---|---|
Current Assets: | ||
Accounts receivable, allowances | $ 3,120 | $ 2,879 |
Stockholders' Equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, authorized (in shares) | 5,000,000 | 5,000,000 |
Preferred stock, issued (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized (in shares) | 150,000,000 | 150,000,000 |
Common stock, issued (in shares) | 14,624,159 | 14,624,159 |
Treasury stock (in shares) | 3,528,550 | 3,613,838 |
Condensed Consolidated Statement of Income - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Income Statement [Abstract] | ||||
Revenues | $ 154,913 | $ 110,242 | $ 304,106 | $ 213,099 |
Costs and Operating Expenses: | ||||
Cost of revenues | 86,749 | 57,390 | 169,863 | 111,230 |
Selling, general, and administrative expenses | 45,132 | 38,970 | 90,908 | 73,590 |
Research and development expenses | 2,728 | 2,222 | 5,597 | 4,369 |
Restructuring costs | 569 | 0 | 1,339 | 0 |
Total Costs and Operating Expenses | 135,178 | 98,582 | 267,707 | 189,189 |
Operating Income | 19,735 | 11,660 | 36,399 | 23,910 |
Interest Income | 122 | 102 | 305 | 206 |
Interest Expense | (1,850) | (392) | (3,582) | (740) |
Other Expense, Net | (245) | (217) | (491) | (421) |
Income Before Provision for Income Taxes | 17,762 | 11,153 | 32,631 | 22,955 |
Provision for Income Taxes | 5,271 | 2,955 | 9,132 | 5,690 |
Net Income | 12,491 | 8,198 | 23,499 | 17,265 |
Net Income Attributable to Noncontrolling Interest | (142) | (102) | (292) | (218) |
Net Income Attributable to Kadant | $ 12,349 | $ 8,096 | $ 23,207 | $ 17,047 |
Earnings per Share Attributable to Kadant: | ||||
Basic (in dollars per share) | $ 1.11 | $ 0.74 | $ 2.10 | $ 1.55 |
Diluted (in dollars per share) | $ 1.08 | $ 0.72 | $ 2.04 | $ 1.52 |
Weighted Average Shares: | ||||
Basic (in shares) | 11,092 | 11,001 | 11,067 | 10,976 |
Diluted (in shares) | 11,400 | 11,296 | 11,371 | 11,250 |
Cash Dividends Declared per Common Share (in dollars per share) | $ 0.22 | $ 0.21 | $ 0.44 | $ 0.42 |
Condensed Consolidated Statement of Comprehensive (Loss) Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net Income | $ 12,491 | $ 8,198 | $ 23,499 | $ 17,265 |
Other Comprehensive Items: | ||||
Foreign currency translation adjustment | (15,776) | 8,655 | (10,440) | 13,687 |
Pension and other post-retirement liability adjustments (net of tax provision of $75, $11, $109 and $60) | 212 | 81 | 329 | 163 |
Deferred (loss) gain on cash flow hedges (net of tax (benefit) provision of ($55), $1, ($47) and $16) | (173) | 7 | (80) | 34 |
Other Comprehensive Items | (15,737) | 8,743 | (10,191) | 13,884 |
Comprehensive (Loss) Income | (3,246) | 16,941 | 13,308 | 31,149 |
Comprehensive Income Attributable to Noncontrolling Interest | (46) | (219) | (239) | (381) |
Comprehensive (Loss) Income Attributable to Kadant | $ (3,292) | $ 16,722 | $ 13,069 | $ 30,768 |
Condensed Consolidated Statement of Comprehensive (Loss) Income (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
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Other Comprehensive Items: | ||||
Pension and other post-retirement liability adjustments, tax effect | $ 75 | $ 11 | $ 109 | $ 60 |
Deferred (loss) gain on cash flow hedges, tax effect | $ (55) | $ 1 | $ (47) | $ 16 |
Nature of Operations and Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Operations and Summary of Significant Accounting Policies | Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Kadant Inc. was incorporated in Delaware in November 1991 and currently trades on the New York Stock Exchange under the ticker symbol "KAI." Kadant Inc. and its subsidiaries' (collectively, the Company) operations include two reportable operating segments, Papermaking Systems and Wood Processing Systems, and a separate product line, Fiber-based Products. Through its Papermaking Systems segment, the Company develops, manufactures, and markets a range of equipment and products for the global papermaking, paper recycling, recycling and waste management, and other process industries. The Company's principal products include custom-engineered stock-preparation systems and equipment for the preparation of wastepaper for conversion into recycled paper and balers and related equipment used in the processing of recyclable and waste materials; fluid-handling systems and equipment used in industrial piping systems to compensate for movement and to efficiently transfer fluid, power, and data; doctoring systems and equipment and related consumables important to the efficient operation of paper machines and other industrial processes; and filtration and cleaning systems essential for draining, purifying, and recycling process water and cleaning fabrics, belts, and rolls in various process industries. Through its Wood Processing Systems segment, the Company develops, manufactures, and markets stranders, debarkers, chippers, and logging machinery used in the harvesting and production of lumber and oriented strand board. Through this segment, the Company also provides refurbishment and repair of pulping equipment for the pulp and paper industry. Through its Fiber-based Products business, the Company manufactures and sells biodegradable, absorbent granules derived from papermaking by-products for use primarily as carriers for agricultural, home lawn and garden, and professional lawn, turf and ornamental applications, as well as for oil and grease absorption. Interim Financial Statements The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at June 30, 2018 and its results of operations and comprehensive (loss) income for the three- and six-month periods ended June 30, 2018 and July 1, 2017, and its cash flows and stockholders' equity for the six-month periods ended June 30, 2018 and July 1, 2017. Interim results are not necessarily indicative of results for a full year or for any other interim period. The condensed consolidated balance sheet presented as of December 30, 2017 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. The condensed consolidated financial statements and related notes are presented as permitted by the Securities and Exchange Commission (SEC) rules and regulations for Form 10-Q and do not contain certain information included in the annual consolidated financial statements and related notes of the Company. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017, filed with the SEC. Financial Statement Presentation Certain reclassifications have been made to prior periods to conform with current reporting. As a result of the adoption of the Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, certain components of net benefit cost have been reclassified from operating income to non-operating expenses and included in other expense, net in the condensed consolidated statement of income in the 2017 period. In addition, as a result of the adoption of the FASB's ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, the change in restricted cash has been reclassified from financing activities and exchange rate effect on cash and included in cash, cash equivalents, and restricted cash in the condensed consolidated statement of cash flows in the 2017 period. Effective at the beginning of fiscal 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (Topic 606), using a modified retrospective method. See Recently Adopted Accounting Pronouncements in this note for further discussion. Results for fiscal 2018 are presented under Topic 606, while prior period amounts are not adjusted and are reported under the Company's prior method of reporting revenue recognition in accordance with Accounting Standards Codification (ASC), Revenue Recognition (Topic 605) (Topic 605). The impact on any financial statement line item arising from the application of Topic 606 versus Topic 605 on the Company's results for the second quarter and first six months of 2018 is not material. Use of Estimates and Critical Accounting Policies The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. 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 revenue recognition, income taxes, the valuation of goodwill and intangible assets, inventories, and pension obligations. A discussion of the application of these and other accounting policies is included in Notes 1 and 3 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017, and in Revenue Recognition and Recently Adopted Accounting Pronouncements, Revenue from Contracts with Customers (Topic 606), in this note. Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its condensed consolidated financial statements or in the application of accounting policies, if business conditions were different, or if the Company were to use different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's condensed consolidated financial statements. Supplemental Cash Flow Information
(a) Represents an estimated post-closing purchase price adjustment related to the 2017 acquisition of certain assets of Unaflex, LLC, which is expected to be settled in 2018. Restricted Cash The Company's restricted cash serves as collateral for bank guarantees primarily associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business. The majority of the bank guarantees will expire over the next twelve months. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's condensed consolidated balance sheet that are shown in aggregate in the accompanying condensed consolidated statement of cash flows:
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 banker's acceptance drafts are noninterest-bearing obligations of the issuing bank and mature within six months of the origination date. The Company's 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 $10,735,000 at June 30, 2018 and $15,960,000 at December 30, 2017, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date. Inventories The components of inventories are as follows:
Intangible Assets, Net Acquired intangible assets by major asset class are as follows:
Intangible assets are initially recorded at fair value at the date of acquisition and are stated net of accumulated amortization and currency translation in the accompanying condensed consolidated balance sheet. The Company amortizes definite-lived intangible assets over lives that have been determined based on the anticipated cash flow benefits of the intangible asset. Goodwill The changes in the carrying amount of goodwill by segment are as follows:
(a) Relates to a purchase price allocation adjustment primarily for inventory valuation and a purchase price adjustment for acquisitions completed in 2017. The purchase price allocations for the Company's 2017 acquisitions were finalized in the second quarter of 2018, except for the purchase price allocation for the August 2017 acquisition of Unaflex, LLC, which will be finalized in the third quarter of 2018. Warranty Obligations The changes in the carrying amount of accrued warranty costs included in other current liabilities in the accompanying condensed consolidated balance sheet are as follows:
Revenue Recognition Effective at the beginning of fiscal 2018, the Company adopted Topic 606, using a modified retrospective method. See Recently Adopted Accounting Pronouncements in this note for further discussion. Results for fiscal 2018 are presented under Topic 606, while prior period amounts are not adjusted and are reported in accordance with Topic 605. The impact on any financial statement line item arising from the application of Topic 606 versus Topic 605 on the Company's results for the second quarter and first six months of 2018 is not material. Approximately 94% in the second quarter of 2018 and 95% in the first six months of 2018 of the Company’s revenue was recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. The majority of the Company’s parts and consumables products and 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 accrued when revenue is recognized. The remaining 6% in the second quarter of 2018 and 5% in the first six months of 2018 of the Company’s revenue was recognized on an over time basis 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. The majority of the contracts recognized on an over time basis are for large capital projects within the Company's Stock-Preparation product line and, to a lesser extent, its Fluid-Handling and Doctoring, Cleaning, and Filtration product lines. 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 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. The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications. The Company disaggregates its revenue from contracts with customers by product line, product type, and geography as this best depicts how its revenue is affected by economic factors as shown below:
The following table presents revenue by revenue recognition method:
The following tables present the balances from contracts with customers:
Contract assets represent unbilled revenue associated with revenue recognized on contracts accounted for on an over time basis. Unbilled amounts will be billed in future periods based on the contract terms. Contract liabilities consist of customer deposits and advanced billings in addition to deferred revenue, which is included in other current liabilities in the accompanying condensed consolidated balance sheet. Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met. The majority of the contract liabilities relate to advanced 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 been delivered and control of the asset has transferred to the customer. The company recognized revenue of $2,788,000 in the second quarter of 2018 and $30,113,000 in the first six months of 2018 that was included in the contract liabilities balance at the beginning of fiscal 2018. Customers in China will often settle their accounts receivable with a banker's acceptance draft, in which case cash settlement will be delayed until the banker's acceptance draft matures or is 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. Recently Adopted Accounting Pronouncements Revenue from Contracts with Customers (Topic 606), Section A-Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). In May 2014, the FASB issued ASU No. 2014-09, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company adopted this ASU using the modified retrospective transition approach effective at the beginning of fiscal 2018. The guidance applies to all new contracts initiated in fiscal 2018. For existing contracts that have remaining obligations as of the beginning of fiscal 2018, any difference between the recognition criteria in this ASU and the Company's previous revenue recognition practices under Topic 605 was recognized using a cumulative-effect adjustment that increased retained earnings by $119,000. The increase in retained earnings primarily related to contracts, which meet the over time criteria under the new revenue standard and, as a result, the portion of the contract completed as of the beginning of fiscal 2018 was recognized immediately in retained earnings. Partially offsetting this increase was a reduction of retained earnings associated with certain contracts which were previously accounted for under the percentage-of-completion method of accounting, but do not meet the requirements for over time recognition under Topic 606. Amounts previously recognized in fiscal 2017 based on the percentage-of-completion method of accounting were deferred at the beginning of fiscal 2018 and will be recognized along with the remaining revenue and costs in fiscal 2018 when control of the asset has been transferred to the customer. The Company has implemented certain modifications to its existing internal controls to support the recognition criteria and disclosure requirements of this ASU. See Revenue Recognition in this note for further disclosures required by this ASU. Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued ASU No. 2016-15, which simplifies the diversity in practice related to the presentation and classification of certain cash receipts and cash payments in the statement of cash flows under Topic 230. The Company adopted this ASU at the beginning of fiscal 2018 with no impact on the Company's condensed consolidated statement of cash flows. Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued ASU No. 2016-16, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. The Company adopted this ASU at the beginning of fiscal 2018 on a modified retrospective basis, which resulted in an immaterial adjustment to retained earnings. The impact of the adoption of this standard on future periods will be dependent on future asset transfers, which generally occur in connection with acquisitions and other business structuring activities. Statement of Cash Flows (Topic 230), Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18, which requires inclusion of restricted cash and restricted cash equivalents within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this ASU at the beginning of fiscal 2018. Prior period amounts related to the Company's cash flows from financing activities, exchange rate effect on cash, and cash, cash equivalents, and restricted cash were restated as required by this ASU, which did not have a material effect on the Company's statement of cash flows. See Restricted Cash in this note for further disclosures required by this ASU. Business Combinations (Topic 805), Clarifying the Definition of a Business. In January 2017, the FASB issued ASU No. 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company adopted this ASU on a prospective basis at the beginning of fiscal 2018. The adoption of this ASU will impact how the Company assesses acquisitions and disposals of businesses in the future. Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. In March 2017, the FASB issued ASU No. 2017-07, which requires employers to include only the service cost component of net periodic pension cost and net periodic post-retirement benefit cost in costs and operating expenses in the same income statement line item as the related employees' compensation costs. The other components of net benefit cost are to be included in non-operating expenses. The Company adopted this ASU at the beginning of fiscal 2018 and prior period amounts were reclassified with no impact on the Company’s condensed consolidated net income. As a result of the adoption, the Company reclassified $217,000 in the second quarter of 2017 and $421,000 in the first six months of 2017 from operating income to other expense, net in the accompanying condensed consolidated statement of income. Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting. In May 2017, the FASB issued ASU No. 2017-09, which provides clarity on which changes to the terms or conditions of share-based payment awards require entities to apply the modification accounting provisions required in Topic 718. The Company adopted this ASU on a prospective basis at the beginning of fiscal 2018. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements. Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. In March 2018, the FASB issued ASU No. 2018-05, an amendment to the December 2017 SEC Staff Accounting Bulletin No. 118 (SAB 118), which allowed SEC registrants to record provisional amounts in earnings due to the complexities involved in accounting for the December 22, 2017 enactment of The Tax Cuts and Jobs Act of 2017 (2017 Tax Act). While the Company’s accounting for certain tax effects is incomplete, it has determined reasonable estimates for those effects and has recorded provisional amounts in the condensed consolidated financial statements as of June 30, 2018 and December 30, 2017. Recent Accounting Pronouncements Not Yet Adopted Leases (Topic 842). In February 2016, the FASB issued ASU No. 2016-02, which requires a lessee to recognize a right-of-use asset and a lease liability for operating leases, initially measured at the present value of the future lease payments, in its balance sheet. This ASU also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This new guidance is effective for the Company in fiscal 2019 using the modified retrospective transition method and early adoption is permitted. The Company is assessing the practical expedients allowed under this new guidance as well as reviewing the impact on its systems, processes and controls to account for its leases. The Company has not completed its evaluation but believes this standard will have a significant impact on its balance sheet, but is not expected to have a material impact on the Company’s results of operations or cash flows. As of the end of fiscal 2017, the Company had approximately $8.1 million of future lease payments due after fiscal 2018. The actual impact of this new standard will depend on the total amount of the Company’s lease commitments as of the adoption date. Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU No. 2016-13, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining lives. This new guidance is effective for the Company in fiscal 2020 with early adoption permitted beginning in fiscal 2019. The Company is currently evaluating the effects that the adoption of this ASU will have on its condensed consolidated financial statements. Derivatives and Hedging (Topic 815), Targeted Improvements in Accounting for Hedging Activity. In August 2017, the FASB issued ASU No. 2017-12, which provides improvements to current hedge accounting to better portray the economic results of an entity’s risk management activities and to simplify the application of current hedge accounting guidance. This new guidance is effective on a prospective basis for the Company in fiscal 2019. Early adoption is permitted. The Company does not believe that adoption of this ASU will have a material effect on its condensed consolidated financial statements. Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued ASU No. 2018-02, which allows a reclassification from accumulated other comprehensive items (AOCI) to retained earnings for stranded tax effects resulting from the 2017 Tax Act. The reclassification is elective and would allow the income tax effects on items that were originally recorded in AOCI be reclassified from AOCI to retained earnings. This ASU is effective for the Company in fiscal year 2019 and interim periods therein and should be applied either at the beginning of the period of adoption or retrospectively to each period in which the income tax effects of the 2017 Tax Act are recognized. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of this ASU will have on its condensed consolidated financial statements. |
Restructuring Costs |
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Restructuring Costs [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Costs | Restructuring Costs In 2017, the Company constructed a 160,000 square foot manufacturing facility in the United States that integrates its U.S. and Swedish Papermaking stock-preparation product lines into a single manufacturing facility to achieve economies of scale and greater efficiencies. As a result of the consolidation and integration of these facilities, the Company developed a restructuring plan totaling approximately $1,745,000, primarily related to costs for the relocation of machinery and equipment and administrative offices, severance, and abandonment of leased facilities in the Papermaking Systems segment. As a result of this plan, the Company recorded restructuring charges of $203,000 in 2017 associated with severance costs for the reduction of four employees in the United States and six employees in Sweden. In the first six months of 2018, the Company recorded additional restructuring costs of $1,339,000 related to this plan, including $1,018,000 for the relocation of machinery and equipment and administrative offices, $376,000 associated with employee retention costs and abandonment of excess facility and other closure costs, and a reversal of $55,000 of severance costs no longer required. The Company expects to record additional restructuring charges of approximately $203,000 in the second half of 2018 primarily for relocation and moving expenses. A summary of the changes in accrued restructuring costs included in other accrued expenses in the accompanying condensed consolidated balance sheet are as follows:
(a) Includes employee retention costs that are accrued ratably over the period through which employees must work to qualify for a payment and facility closure and clean-up costs associated with the U.S. and Sweden stock-preparation operations. The Company expects to complete this restructuring plan and pay all accrued restructuring costs in 2018. |
Earnings per Share |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share | Earnings per Share Basic and diluted earnings per share (EPS) are calculated as follows:
Restricted stock units (RSUs) totaling 34,000 shares of common stock in the second quarter of 2018, 19,000 in the second quarter of 2017, 32,000 in the first six months of 2018 and 29,000 in the first six months of 2017 were not included in the computation of diluted EPS, as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods. |
Provision for Income Taxes |
6 Months Ended |
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Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Provision for Income Taxes | Provision for Income Taxes The 2017 Tax Act was signed into law on December 22, 2017 and its provisions are generally effective for tax years beginning January 1, 2018. The most significant impacts of the 2017 Tax Act to the Company include a decrease in the federal corporate income tax rate from 35% to 21% and a one-time mandatory transition tax on deemed repatriation of previously tax-deferred and unremitted foreign earnings. On December 22, 2017, the SEC staff issued SAB 118 to provide guidance on accounting for the 2017 Tax Act’s impact. In accordance with SAB 118, the Company recognized the provisional tax impacts related to the remeasurement of its deferred income tax assets and liabilities and the one-time mandatory transition tax on deemed repatriation of unremitted foreign earnings in the three months ended December 30, 2017. In the first six months of 2018, the Company recorded an additional provisional net income tax expense of $792,000, which included the impact of state taxes for the one-time mandatory transition tax, primarily due to a 2018 tax law change associated with the 2017 Tax Act that impacted the provisional amount initially recorded. Additional work is still necessary to finalize the provisional tax impacts of the 2017 Tax Act, including the completion of a more detailed analysis of the Company’s historical foreign earnings and the understanding and application of anticipated additional regulatory guidance regarding the provisions of the 2017 Tax Act that may be issued by the Internal Revenue Service and state and local jurisdictions. Any subsequent adjustment to the provisional amounts will be recorded to current tax expense in the quarter of 2018 in which the analysis is complete. The provision for income taxes was $9,132,000 in the first six months of 2018 and $5,690,000 in the first six months of 2017. The effective tax rate of 28% in the first six months of 2018 was higher than the Company's 2018 statutory tax rate of 21% primarily due to the global intangible low-taxed income (GILTI) provisions of the 2017 Tax Act, the distribution of the Company's worldwide earnings, and a change in estimate to the federal and state provisional net income tax expense initially recorded in 2017 for the 2017 Tax Act. This incremental tax expense was offset in part by a decrease in tax related to the net excess income tax benefits from stock-based compensation arrangements, the release of tax reserves, and a change in estimate for foreign income tax that the Company had previously accrued on certain distributed earnings. With the enactment of the 2017 Tax Act, the Company is now providing for the cost of repatriating the earnings of certain foreign subsidiaries on a recurring basis, resulting in $426,000 of incremental tax expense in the first six months of 2018. The effective tax rate of 25% in the first six months of 2017 was lower than the Company's 2017 statutory tax rate of 35% primarily due to the distribution of the Company's worldwide earnings and the net excess income tax benefits from stock-based compensation arrangements, offset in part by an increase in tax related to non-deductible expenses and unrecognized tax benefits. The Company has elected to account for GILTI as a current period expense when incurred (the period cost method). Because of the complexity of the GILTI tax rules and the lack of legislative guidance, the Company continues to evaluate the provisions of the 2017 Tax Act and the application of ASC 740, Income Taxes. The final impact on the Company from the 2017 Tax Act’s GILTI tax legislation may differ from the estimate calculated by the Company. Such differences could be material, due to, among other things, changes in interpretations of the 2017 Tax Act, future legislative action to address questions that arise because of the 2017 Tax Act, changes in accounting standards for income taxes or related interpretations in response to the 2017 Tax Act, or any updates or changes to estimates the Company has utilized to calculate the GILTI inclusion. |
Long-Term Obligations |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Obligations | Long-Term Obligations Long-term obligations are as follows:
See Note 10 for the fair value information related to the Company's long-term obligations. Revolving Credit Facility In 2017, the Company entered into an Amended and Restated Credit Agreement, as amended (the 2017 Credit Agreement), which is a five-year unsecured multi-currency revolving credit facility in the aggregate principal amount of up to $300,000,000. The 2017 Credit Agreement also includes an uncommitted unsecured incremental borrowing facility of up to an additional $100,000,000. The principal on any borrowings is due on March 1, 2022. Borrowing may be denominated in U.S. dollars or certain foreign currencies as defined in the 2017 Credit Agreement. Interest on any loans outstanding accrues and generally is payable quarterly in arrears at one of the following rates selected by the Company: (i) the Base Rate, calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as published by Citizens Bank, and (c) the thirty-day London Inter-Bank Offered Rate (LIBOR) rate, as defined, plus 0.50%; or (ii) the LIBOR rate (with a zero percent floor), as defined, plus an applicable margin of 1% to 2%. The applicable margin is determined based upon the ratio of the Company's total debt, net of certain cash and debt, as defined, to earnings before interest, taxes, depreciation, and amortization (EBITDA), as defined in the 2017 Credit Agreement. For this purpose, total debt net of certain cash and debt is defined as total debt less the sum of (i) unrestricted U.S. cash, and (ii) 65% of unrestricted cash outside of the United States, but no more than an aggregate amount of $30,000,000. The obligations of the Company under the 2017 Credit Agreement may be accelerated upon the occurrence of an event of default under the 2017 Credit Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy- and insolvency-related defaults, defaults relating to such matters as the Employment Retirement Income Security Act (ERISA), unsatisfied judgments, the failure to pay certain indebtedness, and a change of control default. In addition, the 2017 Credit Agreement contains negative covenants applicable to the Company and its subsidiaries, including financial covenants requiring the Company to comply with a maximum consolidated leverage ratio of 3.5 to 1, a minimum consolidated interest coverage ratio of 3 to 1, and restrictions on liens, indebtedness, fundamental changes, dispositions of property, making certain restricted payments (including dividends and stock repurchases), investments, transactions with affiliates, sale and leaseback transactions, swap agreements, changing its fiscal year, arrangements affecting subsidiary distributions, entering into new lines of business, and certain actions related to a discontinued operation. As of June 30, 2018, the Company was in compliance with these covenants. Loans under the 2017 Credit Agreement are guaranteed by certain domestic subsidiaries of the Company pursuant to an Amended and Restated Guarantee Agreement. In addition, one of the Company's foreign subsidiaries entered into a guarantee agreement limited to certain obligations of two foreign subsidiary borrowers. As of June 30, 2018, the outstanding balance under the 2017 Credit Agreement was $202,205,000, including $44,856,000 of Canadian dollar-denominated borrowings and $40,349,000 of euro-denominated borrowings. As of June 30, 2018, the Company had $98,289,000 of borrowing capacity available under its 2017 Credit Agreement, which was calculated by translating its foreign-denominated borrowings using borrowing date foreign exchange rates. The weighted average interest rate for the revolving credit facility was 2.97% as of June 30, 2018. Obligations Under Capital Lease The Company's obligations under capital leases include a sale-leaseback financing arrangement for a manufacturing facility in Germany. Under this arrangement, the quarterly lease payment includes principal, interest, and a payment to the landlord toward a loan receivable. The interest rate on the outstanding obligation is 1.79%. The secured loan receivable, which is included in other assets in the accompanying condensed consolidated balance sheet, was $590,000 at June 30, 2018. The lease arrangement provides for a fixed price purchase option, net of the projected loan receivable, of $1,550,000 at the end of the lease term in 2022. If the Company does not exercise the purchase option for the facility, the Company will receive cash from the landlord to settle the loan receivable. As of June 30, 2018, $4,282,000 was outstanding under this capital lease obligation and $80,000 was outstanding under other capital lease obligations. Commercial Real Estate Loan See Note 13, Subsequent Event, for further details. |
Stock-Based Compensation |
6 Months Ended |
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Jun. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | 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. The Company recognized stock-based compensation expense of $2,146,000 in the second quarter of 2018, $1,441,000 in the second quarter of 2017, $3,610,000 in the first six months of 2018 and $2,736,000 in the first six months of 2017 within selling, general, and administrative (SG&A) expenses in the accompanying condensed consolidated statement of income. Unrecognized compensation expense related to stock-based compensation totaled approximately $8,374,000 at June 30, 2018, and will be recognized over a weighted average period of 1.8 years. On May 16, 2018, the Company granted 10,800 RSUs in the aggregate to its non-employee directors with a grant date fair value of $1,019,000. Half of these RSUs vested on June 1, 2018 and the remaining shares will vest ratably on the last day of the third and fourth fiscal quarters of 2018. |
Retirement Benefit Plans |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Benefit Plans | Retirement Benefit Plans Effective at the beginning of fiscal 2018, the Company retrospectively adopted ASU No. 2017-07. See Recently Adopted Accounting Pronouncements in Note 1 for further discussion. As a result, only the service cost component of net periodic benefit cost is included in operating income. All other components are included in other expense, net in the accompanying condensed consolidated statement of income. The components of net periodic benefit cost are as follows:
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Accumulated Other Comprehensive Items |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Items | Accumulated Other Comprehensive Items Comprehensive (loss) income combines net income and other comprehensive items, which represent certain amounts that are reported as components of stockholders' equity in the accompanying condensed consolidated balance sheet. Changes in each component of AOCI, net of tax, are as follows:
Amounts reclassified from AOCI are as follows:
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Derivatives |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | Derivatives The Company uses derivative instruments primarily to reduce its exposure to changes in currency exchange rates and interest rates. When the Company enters into a derivative contract, the Company makes a determination as to whether the transaction is deemed to be a hedge for accounting purposes. If a contract is deemed a hedge, the Company formally documents the relationship between the derivative instrument and the risk being hedged. In this documentation, the Company specifically identifies the asset, liability, forecasted transaction, cash flow, or net investment that has been designated as the hedged item, and evaluates whether the derivative instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria are not met, the Company does not use hedge accounting for the derivative. The changes in the fair value of a derivative not deemed to be a hedge are recorded currently in earnings. The Company does not hold or engage in transactions involving derivative instruments for purposes other than risk management. ASC 815, Derivatives and Hedging, requires that all derivatives be recognized on the balance sheet at fair value. For derivatives designated as cash flow hedges, the related gains or losses on these contracts are deferred as a component of AOCI. These deferred gains and losses are recognized in the statement of income in the period in which the underlying anticipated transaction occurs. For derivatives designated as fair value hedges, the unrealized gains and losses resulting from the impact of currency exchange rate movements are recognized in earnings in the period in which the exchange rates change and offset the currency gains and losses on the underlying exposures being hedged. The Company performs an evaluation of the effectiveness of the hedge both at inception and on an ongoing basis. The ineffective portion of a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge, are recorded in the accompanying condensed consolidated statement of income. Interest Rate Swap Agreements In May 2018, the Company entered into an interest rate swap agreement (2018 Swap Agreement) which has a $15,000,000 notional value and expires on June 30, 2023. In 2015, the Company also entered into an interest rate swap agreement (2015 Swap Agreement) which has a $10,000,000 notional value and expires on March 27, 2020. The swap agreements hedge the Company’s exposure to movements in the three-month LIBOR rate on U.S. dollar-denominated debt. On a quarterly basis, the Company receives a three-month LIBOR rate and pays a fixed rate of interest of 3.15% plus an applicable margin as defined in the revolving credit facility on the 2018 Swap Agreement and 1.50% plus an applicable margin as defined in the revolving credit facility on the 2015 Swap Agreement. The 2018 Swap Agreement is subject to a zero percent floor on the three-month LIBOR rate. The interest rate swap agreements are designated as cash flow hedges and, accordingly, unrecognized gains and losses are recorded to AOCI, net of tax. The Company has structured its interest rate swap agreements to be 100% effective and, as a result, there is no current impact to earnings resulting from hedge ineffectiveness. Management believes that any credit risk associated with the interest rate swap agreements is remote based on the Company's financial position and the creditworthiness of the financial institution that issued those agreements. The counterparty to the interest rate swap agreements could demand an early termination of those agreements if the Company were to be in default under the 2017 Credit Agreement, or any agreement that amends or replaces the 2017 Credit Agreement in which the counterparty is a member, and if the Company were to be unable to cure the default. An event of default under the 2017 Credit Agreement includes customary events of default and failure to comply with financial covenants, including a maximum consolidated leverage ratio of 3.5 to 1, a minimum consolidated interest coverage ratio of 3 to 1, and restrictions on liens, indebtedness, fundamental changes, dispositions of property, making certain restricted payments (including dividends and stock repurchases), investments, transactions with affiliates, sale and leaseback transactions, swap agreements, changing its fiscal year, arrangements affecting subsidiary distributions, entering into new lines of business, and certain actions related to a discontinued operation. As of June 30, 2018, the Company was in compliance with these covenants. The fair values of the interest rate swap agreements represent the estimated amounts that the Company would receive from or pay to the counterparty in the event of early termination. Forward Currency-Exchange Contracts The Company uses forward currency-exchange contracts primarily to hedge exposures resulting from fluctuations in currency exchange rates. Such exposures result primarily from portions of the Company's operations and assets and liabilities that are denominated in currencies other than the functional currencies of the businesses conducting the operations or holding the assets and liabilities. The Company typically manages its level of exposure to the risk of currency-exchange fluctuations by hedging a portion of its anticipated currency exposures over the ensuing 12-month period, using forward currency-exchange contracts that have maturities of twelve months or less. Forward currency-exchange contracts that hedge forecasted accounts receivable or accounts payable are designated as cash flow hedges and unrecognized gains and losses are recorded to AOCI, net of tax. For forward currency-exchange contracts that are designated as fair value hedges, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item are recognized currently in earnings. The fair values of forward currency-exchange contracts that are not designated as hedges are recorded currently in earnings. The Company recognized within SG&A expenses in the accompanying condensed consolidated statement of income gains of $14,000 in the second quarter of 2018, losses of $1,846,000 in the second quarter of 2017, gains of $27,000 in the first six months of 2018 and losses of $1,493,000 in the first six months of 2017 associated with forward currency-exchange contracts that were not designated as hedges. Management believes that any credit risk associated with forward currency-exchange contracts is remote based on the Company's financial position and the creditworthiness of the financial institutions issuing the contracts. The following table summarizes the fair value of the Company's derivative instruments in the accompanying condensed consolidated balance sheet:
The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the six months ended June 30, 2018:
(a) See Note 8 for the income statement classification. As of June 30, 2018, the Company expects to reclassify $12,000 from AOCI to earnings over the next twelve months as a result of the interest rate swap agreements' estimated cash flows. |
Fair Value Measurements and Fair Value of Financial Instruments |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements and Fair Value of Financial Instruments | Fair Value Measurements and Fair Value of Financial Instruments Fair value measurement is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:
The Company uses the market approach technique to value its financial assets and liabilities, and there were no changes in valuation techniques during the first six months of 2018. The Company's financial assets and liabilities carried at fair value are cash equivalents, banker's acceptance drafts, derivative instruments used to hedge the Company's foreign currency and interest rate risks, variable rate debt, and capital lease obligations. The Company's cash equivalents are comprised of money market funds and bank deposits which are highly liquid and readily tradable. These cash equivalents are valued using inputs observable in active markets for identical securities. The carrying value of banker's acceptance drafts approximates their fair value due to the short-term nature of the negotiable instrument. The fair values of the Company's forward currency-exchange contracts are based on quoted forward foreign exchange rates at the reporting date. The fair values of the Company's interest rate swap agreements are based on LIBOR yield curves at the reporting date. The forward currency-exchange contracts and interest rate swap agreements are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the table above. The carrying value and fair value of the Company's long-term debt obligations are as follows:
The carrying value of the Company's revolving credit facility approximates the fair value as the obligation bears variable rates of interest, which adjust quarterly based on prevailing market rates. The carrying values of the Company's capital lease obligations and other borrowings approximate fair value as the stipulated interest rates are comparable to prevailing market rates for those obligations. |
Business Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information | Business Segment Information The Company has combined its operating entities into two reportable operating segments, Papermaking Systems and Wood Processing Systems, and a separate product line, Fiber-based Products. In classifying operational entities into a particular segment, the Company has aggregated businesses with similar economic characteristics, products and services, production processes, customers, and methods of distribution. The following table presents financial information for the Company's reportable operating segments:
(b) Includes $23,440,000 in the three-month period ended June 30, 2018 and $52,310,000 in the six-month period ended June 30, 2018 from a 2017 acquisition. (c) Includes $569,000 in the three-month period ended June 30, 2018 and $1,339,000 in the six-month period ended June 30, 2018 for restructuring costs (see Note 2) and $315,000 in the three-month period ended July 1, 2017 and $315,000 in the six-month period ended July 1, 2017 for acquisition transaction costs. (d) Includes acquisition-related expenses of $252,000 in the six-month period ended June 30, 2018 for the amortization of acquired backlog. Includes $3,783,000 in the three-month period ended July 1, 2017 and $4,102,000 in the six-month period ended July 1, 2017 for acquisition transaction costs. (e) Corporate primarily includes general and administrative expenses. (f) The Company does not allocate interest expense, net to its segments. |
Commitments and Contingencies |
6 Months Ended |
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Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Right of Recourse In the ordinary course of business, the Company's subsidiaries in China may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The banker's acceptance drafts are noninterest-bearing obligations of the issuing bank and mature within six months of the origination date. The Company's subsidiaries in China may use these banker's acceptance drafts prior to the scheduled maturity date to settle outstanding accounts payable with vendors. Banker's acceptance drafts transferred to vendors are subject to customary right of recourse provisions prior to their scheduled maturity dates. The Company had outstanding $10,433,000 at June 30, 2018 and $10,035,000 at December 30, 2017 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates. Historically, the banker's acceptance drafts have settled upon maturity without any claim of recourse against the Company. Litigation From time to time, the Company is subject to various claims and legal proceedings covering a range of matters that arise in the ordinary course of business. Such litigation may include, but is not limited to, claims and counterclaims by and against the Company for breach of contract or warranty, canceled contracts, product liability, or bankruptcy-related claims. For legal proceedings in which a loss is probable and estimable, the Company accrues a loss based on the low end of the range of estimated loss when there is no better estimate within the range. If the Company were found to be liable for any of the claims or counterclaims against it, the Company would incur a charge against earnings for amounts in excess of legal accruals. |
Subsequent Event |
6 Months Ended |
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Jun. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Event | Subsequent Event Commercial Real Estate Loan On July 6, 2018, the Company and certain domestic subsidiaries borrowed $21,000,000 under a promissory note (Real Estate Loan). The Real Estate Loan is repayable in quarterly principal installments of $262,500 over a ten-year period with the remaining principal balance of $10,500,000 due upon maturity. Interest on the Real Estate Loan accrues and is payable quarterly in arrears at a fixed rate of 4.45% per annum. The Company is not permitted to prepay the Real Estate Loan in any amount in the first twelve months of the term of the Real Estate Loan. Any voluntary prepayments are subject to a 2% prepayment fee if paid in the second twelve months of the term of the Real Estate Loan, and are subject to a 1% prepayment fee if paid in the third twelve months of the term of the Real Estate Loan. Thereafter, no prepayment fee will be applied to voluntary prepayment by the Company. The Real Estate Loan is secured by real estate and related personal property of the Company and certain of its domestic subsidiaries located in Auburn, Massachusetts, Three Rivers, Michigan and Lebanon, Ohio, pursuant to mortgage and security agreements dated July 6, 2018 (Mortgage and Security Agreements). The obligations of the Company under the Real Estate Loan may be accelerated upon the occurrence of an event of default under the Real Estate Loan and the Mortgage and Security Agreements, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of covenants and obligations, the inaccuracy of representations or warranties, bankruptcy- and insolvency-related defaults, liens on the properties or collateral and uninsured judgments. In addition, the occurrence of an event of default under the 2017 Credit Agreement or any successor credit facility would be an event of default under the Real Estate Loan. The Company used the proceeds from the Real Estate Loan to repay a portion of its U.S. dollar-denominated debt under the 2017 Credit Agreement. |
Nature of Operations and Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
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Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Critical Accounting Policies | The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. 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 revenue recognition, income taxes, the valuation of goodwill and intangible assets, inventories, and pension obligations. A discussion of the application of these and other accounting policies is included in Notes 1 and 3 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017, and in Revenue Recognition and Recently Adopted Accounting Pronouncements, Revenue from Contracts with Customers (Topic 606), in this note. |
Use of Estimates | Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its condensed consolidated financial statements or in the application of accounting policies, if business conditions were different, or if the Company were to use different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's condensed consolidated financial statements. |
Restricted Cash | The Company's restricted cash serves as collateral for bank guarantees primarily associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business. The majority of the bank guarantees will expire over the next twelve months. |
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 banker's acceptance drafts are noninterest-bearing obligations of the issuing bank and mature within six months of the origination date. The Company's 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 $10,735,000 at June 30, 2018 and $15,960,000 at December 30, 2017, are included in accounts receivable in the accompanying condensed consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date. |
Revenue Recognition | Approximately 94% in the second quarter of 2018 and 95% in the first six months of 2018 of the Company’s revenue was recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. The majority of the Company’s parts and consumables products and 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 accrued when revenue is recognized. The remaining 6% in the second quarter of 2018 and 5% in the first six months of 2018 of the Company’s revenue was recognized on an over time basis 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. The majority of the contracts recognized on an over time basis are for large capital projects within the Company's Stock-Preparation product line and, to a lesser extent, its Fluid-Handling and Doctoring, Cleaning, and Filtration product lines. 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 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. The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications. |
Recent Accounting Pronouncements | Recently Adopted Accounting Pronouncements Revenue from Contracts with Customers (Topic 606), Section A-Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). In May 2014, the FASB issued ASU No. 2014-09, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company adopted this ASU using the modified retrospective transition approach effective at the beginning of fiscal 2018. The guidance applies to all new contracts initiated in fiscal 2018. For existing contracts that have remaining obligations as of the beginning of fiscal 2018, any difference between the recognition criteria in this ASU and the Company's previous revenue recognition practices under Topic 605 was recognized using a cumulative-effect adjustment that increased retained earnings by $119,000. The increase in retained earnings primarily related to contracts, which meet the over time criteria under the new revenue standard and, as a result, the portion of the contract completed as of the beginning of fiscal 2018 was recognized immediately in retained earnings. Partially offsetting this increase was a reduction of retained earnings associated with certain contracts which were previously accounted for under the percentage-of-completion method of accounting, but do not meet the requirements for over time recognition under Topic 606. Amounts previously recognized in fiscal 2017 based on the percentage-of-completion method of accounting were deferred at the beginning of fiscal 2018 and will be recognized along with the remaining revenue and costs in fiscal 2018 when control of the asset has been transferred to the customer. The Company has implemented certain modifications to its existing internal controls to support the recognition criteria and disclosure requirements of this ASU. See Revenue Recognition in this note for further disclosures required by this ASU. Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued ASU No. 2016-15, which simplifies the diversity in practice related to the presentation and classification of certain cash receipts and cash payments in the statement of cash flows under Topic 230. The Company adopted this ASU at the beginning of fiscal 2018 with no impact on the Company's condensed consolidated statement of cash flows. Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued ASU No. 2016-16, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. The Company adopted this ASU at the beginning of fiscal 2018 on a modified retrospective basis, which resulted in an immaterial adjustment to retained earnings. The impact of the adoption of this standard on future periods will be dependent on future asset transfers, which generally occur in connection with acquisitions and other business structuring activities. Statement of Cash Flows (Topic 230), Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18, which requires inclusion of restricted cash and restricted cash equivalents within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this ASU at the beginning of fiscal 2018. Prior period amounts related to the Company's cash flows from financing activities, exchange rate effect on cash, and cash, cash equivalents, and restricted cash were restated as required by this ASU, which did not have a material effect on the Company's statement of cash flows. See Restricted Cash in this note for further disclosures required by this ASU. Business Combinations (Topic 805), Clarifying the Definition of a Business. In January 2017, the FASB issued ASU No. 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company adopted this ASU on a prospective basis at the beginning of fiscal 2018. The adoption of this ASU will impact how the Company assesses acquisitions and disposals of businesses in the future. Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. In March 2017, the FASB issued ASU No. 2017-07, which requires employers to include only the service cost component of net periodic pension cost and net periodic post-retirement benefit cost in costs and operating expenses in the same income statement line item as the related employees' compensation costs. The other components of net benefit cost are to be included in non-operating expenses. The Company adopted this ASU at the beginning of fiscal 2018 and prior period amounts were reclassified with no impact on the Company’s condensed consolidated net income. As a result of the adoption, the Company reclassified $217,000 in the second quarter of 2017 and $421,000 in the first six months of 2017 from operating income to other expense, net in the accompanying condensed consolidated statement of income. Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting. In May 2017, the FASB issued ASU No. 2017-09, which provides clarity on which changes to the terms or conditions of share-based payment awards require entities to apply the modification accounting provisions required in Topic 718. The Company adopted this ASU on a prospective basis at the beginning of fiscal 2018. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements. Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. In March 2018, the FASB issued ASU No. 2018-05, an amendment to the December 2017 SEC Staff Accounting Bulletin No. 118 (SAB 118), which allowed SEC registrants to record provisional amounts in earnings due to the complexities involved in accounting for the December 22, 2017 enactment of The Tax Cuts and Jobs Act of 2017 (2017 Tax Act). While the Company’s accounting for certain tax effects is incomplete, it has determined reasonable estimates for those effects and has recorded provisional amounts in the condensed consolidated financial statements as of June 30, 2018 and December 30, 2017. Recent Accounting Pronouncements Not Yet Adopted Leases (Topic 842). In February 2016, the FASB issued ASU No. 2016-02, which requires a lessee to recognize a right-of-use asset and a lease liability for operating leases, initially measured at the present value of the future lease payments, in its balance sheet. This ASU also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This new guidance is effective for the Company in fiscal 2019 using the modified retrospective transition method and early adoption is permitted. The Company is assessing the practical expedients allowed under this new guidance as well as reviewing the impact on its systems, processes and controls to account for its leases. The Company has not completed its evaluation but believes this standard will have a significant impact on its balance sheet, but is not expected to have a material impact on the Company’s results of operations or cash flows. As of the end of fiscal 2017, the Company had approximately $8.1 million of future lease payments due after fiscal 2018. The actual impact of this new standard will depend on the total amount of the Company’s lease commitments as of the adoption date. Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU No. 2016-13, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining lives. This new guidance is effective for the Company in fiscal 2020 with early adoption permitted beginning in fiscal 2019. The Company is currently evaluating the effects that the adoption of this ASU will have on its condensed consolidated financial statements. Derivatives and Hedging (Topic 815), Targeted Improvements in Accounting for Hedging Activity. In August 2017, the FASB issued ASU No. 2017-12, which provides improvements to current hedge accounting to better portray the economic results of an entity’s risk management activities and to simplify the application of current hedge accounting guidance. This new guidance is effective on a prospective basis for the Company in fiscal 2019. Early adoption is permitted. The Company does not believe that adoption of this ASU will have a material effect on its condensed consolidated financial statements. Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued ASU No. 2018-02, which allows a reclassification from accumulated other comprehensive items (AOCI) to retained earnings for stranded tax effects resulting from the 2017 Tax Act. The reclassification is elective and would allow the income tax effects on items that were originally recorded in AOCI be reclassified from AOCI to retained earnings. This ASU is effective for the Company in fiscal year 2019 and interim periods therein and should be applied either at the beginning of the period of adoption or retrospectively to each period in which the income tax effects of the 2017 Tax Act are recognized. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of this ASU will have on its condensed consolidated financial statements. |
Derivatives | The Company uses derivative instruments primarily to reduce its exposure to changes in currency exchange rates and interest rates. When the Company enters into a derivative contract, the Company makes a determination as to whether the transaction is deemed to be a hedge for accounting purposes. If a contract is deemed a hedge, the Company formally documents the relationship between the derivative instrument and the risk being hedged. In this documentation, the Company specifically identifies the asset, liability, forecasted transaction, cash flow, or net investment that has been designated as the hedged item, and evaluates whether the derivative instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria are not met, the Company does not use hedge accounting for the derivative. The changes in the fair value of a derivative not deemed to be a hedge are recorded currently in earnings. The Company does not hold or engage in transactions involving derivative instruments for purposes other than risk management. ASC 815, Derivatives and Hedging, requires that all derivatives be recognized on the balance sheet at fair value. For derivatives designated as cash flow hedges, the related gains or losses on these contracts are deferred as a component of AOCI. These deferred gains and losses are recognized in the statement of income in the period in which the underlying anticipated transaction occurs. For derivatives designated as fair value hedges, the unrealized gains and losses resulting from the impact of currency exchange rate movements are recognized in earnings in the period in which the exchange rates change and offset the currency gains and losses on the underlying exposures being hedged. The Company performs an evaluation of the effectiveness of the hedge both at inception and on an ongoing basis. The ineffective portion of a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge, are recorded in the accompanying condensed consolidated statement of income. |
Fair Value Measurement | The carrying value of the Company's revolving credit facility approximates the fair value as the obligation bears variable rates of interest, which adjust quarterly based on prevailing market rates. The carrying values of the Company's capital lease obligations and other borrowings approximate fair value as the stipulated interest rates are comparable to prevailing market rates for those obligations. The Company uses the market approach technique to value its financial assets and liabilities, and there were no changes in valuation techniques during the first six months of 2018. The Company's financial assets and liabilities carried at fair value are cash equivalents, banker's acceptance drafts, derivative instruments used to hedge the Company's foreign currency and interest rate risks, variable rate debt, and capital lease obligations. The Company's cash equivalents are comprised of money market funds and bank deposits which are highly liquid and readily tradable. These cash equivalents are valued using inputs observable in active markets for identical securities. The carrying value of banker's acceptance drafts approximates their fair value due to the short-term nature of the negotiable instrument. The fair values of the Company's forward currency-exchange contracts are based on quoted forward foreign exchange rates at the reporting date. The fair values of the Company's interest rate swap agreements are based on LIBOR yield curves at the reporting date. The forward currency-exchange contracts and interest rate swap agreements are hedges of either recorded assets or liabilities or anticipated transactions. |
Nature of Operations and Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information |
(a) Represents an estimated post-closing purchase price adjustment related to the 2017 acquisition of certain assets of Unaflex, LLC, which is expected to be settled in 2018. |
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Cash and Cash Equivalents | The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's condensed consolidated balance sheet that are shown in aggregate in the accompanying condensed consolidated statement of cash flows:
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Restricted Cash | The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's condensed consolidated balance sheet that are shown in aggregate in the accompanying condensed consolidated statement of cash flows:
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Inventories | The components of inventories are as follows:
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Acquired Intangible Assets | Acquired intangible assets by major asset class are as follows:
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Changes in the Carrying Amount of Goodwill | The changes in the carrying amount of goodwill by segment are as follows:
(a) Relates to a purchase price allocation adjustment primarily for inventory valuation and a purchase price adjustment for acquisitions completed in 2017. The purchase price allocations for the Company's 2017 acquisitions were finalized in the second quarter of 2018, except for the purchase price allocation for the August 2017 acquisition of Unaflex, LLC, which will be finalized in the third quarter of 2018. |
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Warranty Obligations | The changes in the carrying amount of accrued warranty costs included in other current liabilities in the accompanying condensed consolidated balance sheet are as follows:
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Revenue by Product Line, Product Type, Geography, and Revenue Recognition Method | The Company disaggregates its revenue from contracts with customers by product line, product type, and geography as this best depicts how its revenue is affected by economic factors as shown below:
The following table presents revenue by revenue recognition method:
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Balances from Contracts with Customers | The following tables present the balances from contracts with customers:
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Restructuring Costs (Tables) |
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Restructuring Costs [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Costs | A summary of the changes in accrued restructuring costs included in other accrued expenses in the accompanying condensed consolidated balance sheet are as follows:
(a) Includes employee retention costs that are accrued ratably over the period through which employees must work to qualify for a payment and facility closure and clean-up costs associated with the U.S. and Sweden stock-preparation operations. |
Earnings per Share (Tables) |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Earnings Per Share | Basic and diluted earnings per share (EPS) are calculated as follows:
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Long-Term Obligations (Tables) |
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Schedule of Long-Term Obligations | Long-term obligations are as follows:
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Retirement Benefit Plans (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Periodic Benefit Cost and Assumptions Used | The components of net periodic benefit cost are as follows:
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Accumulated Other Comprehensive Items (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Accumulated Other Comprehensive Items | Changes in each component of AOCI, net of tax, are as follows:
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Reclassification Out of Accumulated Other Comprehensive Items | Amounts reclassified from AOCI are as follows:
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Derivatives (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Derivative Instruments | The following table summarizes the fair value of the Company's derivative instruments in the accompanying condensed consolidated balance sheet:
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Activity in Accumulated Other Comprehensive Items (OCI) | The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the six months ended June 30, 2018:
(a) See Note 8 for the income statement classification. |
Fair Value Measurements and Fair Value of Financial Instruments (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities Measured on a Recurring Basis | The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:
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Carrying Value and Fair Value of Debt Obligations | The carrying value and fair value of the Company's long-term debt obligations are as follows:
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Business Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Reporting Information | The following table presents financial information for the Company's reportable operating segments:
(b) Includes $23,440,000 in the three-month period ended June 30, 2018 and $52,310,000 in the six-month period ended June 30, 2018 from a 2017 acquisition. (c) Includes $569,000 in the three-month period ended June 30, 2018 and $1,339,000 in the six-month period ended June 30, 2018 for restructuring costs (see Note 2) and $315,000 in the three-month period ended July 1, 2017 and $315,000 in the six-month period ended July 1, 2017 for acquisition transaction costs. (d) Includes acquisition-related expenses of $252,000 in the six-month period ended June 30, 2018 for the amortization of acquired backlog. Includes $3,783,000 in the three-month period ended July 1, 2017 and $4,102,000 in the six-month period ended July 1, 2017 for acquisition transaction costs. (e) Corporate primarily includes general and administrative expenses. (f) The Company does not allocate interest expense, net to its segments. |
Nature of Operations and Summary of Significant Accounting Policies - Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Accounting Policies [Abstract] | ||
Cash Paid for Interest | $ 4,268 | $ 366 |
Cash Paid for Income Taxes, Net of Refunds | 14,808 | 7,076 |
Non-Cash Investing Activities: | ||
Estimated post-closing adjustment | 237 | 0 |
Non-cash additions to property, plant and equipment | 1,033 | 390 |
Non-Cash Financing Activities: | ||
Issuance of Company common stock upon vesting of restricted stock units | 3,264 | 2,814 |
Dividends declared but unpaid | $ 2,442 | $ 2,311 |
Nature of Operations and Summary of Significant Accounting Policies - Cash, Cash Equivalents, and Restricted Cash (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 30, 2017 |
Jul. 01, 2017 |
Dec. 31, 2016 |
---|---|---|---|---|
Cash and Cash Equivalents [Abstract] | ||||
Cash and cash equivalents | $ 60,177 | $ 75,425 | $ 85,840 | $ 71,487 |
Restricted cash | 975 | 1,421 | 2,141 | 2,082 |
Total Cash, Cash Equivalents, and Restricted Cash | $ 61,152 | $ 76,846 | $ 87,981 | $ 73,569 |
Nature of Operations and Summary of Significant Accounting Policies - Inventories (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 30, 2017 |
---|---|---|
Accounting Policies [Abstract] | ||
Raw Materials and Supplies | $ 45,522 | $ 38,952 |
Work in Process | 24,722 | 18,203 |
Finished Goods | 26,017 | 27,778 |
Total Inventories | $ 96,261 | $ 84,933 |
Nature of Operations and Summary of Significant Accounting Policies - Warranty Obligations (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Changes in the carrying amount of accrued warranty costs [Roll Forward] | ||
Balance at December 30, 2017 | $ 5,498 | $ 3,843 |
Provision charged to expense | 1,656 | 1,209 |
Usage | (881) | (1,056) |
Currency translation | (192) | 224 |
Balance at June 30, 2018 | $ 6,081 | $ 4,220 |
Nature of Operations and Summary of Significant Accounting Policies - Revenue from Contract with Customers (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 30, 2017 |
---|---|---|
Revenue from Contract with Customer [Abstract] | ||
Accounts receivable | $ 88,223 | $ 89,624 |
Contract assets | 2,183 | 2,374 |
Contract liabilities | $ 54,525 | $ 38,702 |
Restructuring Costs - Summary of Changes in Accrued Restructuring Costs (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Restructuring Cost and Reserve [Line Items] | ||||
Beginning balance | $ 203 | |||
(Reversal) provision | $ 569 | $ 0 | 1,339 | $ 0 |
Usage | (1,371) | |||
Currency translation | (14) | |||
Ending balance | 157 | 157 | ||
Employee Severance [Member] | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Beginning balance | 203 | |||
(Reversal) provision | (55) | |||
Usage | 0 | |||
Currency translation | (11) | |||
Ending balance | 137 | 137 | ||
Employee Relocation [Member] | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Beginning balance | 0 | |||
(Reversal) provision | 1,018 | |||
Usage | (1,015) | |||
Currency translation | (3) | |||
Ending balance | 0 | 0 | ||
Other Restructuring [Member] | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Beginning balance | 0 | |||
(Reversal) provision | 376 | |||
Usage | (356) | |||
Currency translation | 0 | |||
Ending balance | $ 20 | $ 20 |
Earnings per Share - Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Amounts Attributable to Kadant: | ||||
Net Income | $ 12,349 | $ 8,096 | $ 23,207 | $ 17,047 |
Basic Weighted Average Shares (in shares) | 11,092 | 11,001 | 11,067 | 10,976 |
Effect of Stock Options, Restricted Stock Units and Employee Stock Purchase Plan Shares (in shares) | 308 | 295 | 304 | 274 |
Diluted Weighted Average Shares (in shares) | 11,400 | 11,296 | 11,371 | 11,250 |
Basic Earnings per Share (in dollars per share) | $ 1.11 | $ 0.74 | $ 2.10 | $ 1.55 |
Diluted Earnings per Share (in dollars per share) | $ 1.08 | $ 0.72 | $ 2.04 | $ 1.52 |
Earnings per Share - Narrative (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Restricted Stock Units (RSUs) [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Amount of antidilutive securities excluded from computation of EPS (in shares) | 34 | 19 | 32 | 29 |
Provision for Income Taxes - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
Dec. 30, 2017 |
|
Income Tax Disclosure [Abstract] | |||||
Provisional net income tax expense | $ 792 | ||||
Provision for income taxes | $ 5,271 | $ 2,955 | $ 9,132 | $ 5,690 | |
Effective tax rate | 28.00% | 25.00% | |||
Statutory tax rate | 21.00% | 35.00% | |||
Tax expense related to repatriating earnings of certain foreign subsidiaries | $ 426 |
Long-Term Obligations - Schedule of Long-Term Obligations (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 30, 2017 |
---|---|---|
Debt Instrument [Line Items] | ||
Obligations Under Capital Lease, due 2018 to 2022 | $ 4,362 | $ 4,633 |
Total | 206,896 | 242,080 |
Less: Current Maturities of Long-Term Obligations | (665) | (696) |
Long-Term Obligations | 206,231 | 241,384 |
Revolving Credit Facility [Member] | ||
Debt Instrument [Line Items] | ||
Revolving Credit Facility, due 2022 | 202,205 | 237,011 |
Other Borrowings [Member] | ||
Debt Instrument [Line Items] | ||
Other Borrowings, due 2018 to 2023 | $ 329 | $ 436 |
Stock-Based Compensation - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
May 16, 2018 |
Jun. 30, 2018 |
Jul. 01, 2017 |
Jun. 30, 2018 |
Jul. 01, 2017 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||
Stock-based compensation expense | $ 2,146 | $ 1,441 | $ 3,610 | $ 2,736 | |
Unrecognized compensation expense related to stock awards | $ 8,374 | $ 8,374 | |||
Recognition period | 1 year 9 months 18 days | ||||
Director [Member] | Restricted Stock Units (RSUs) [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Number of units granted | 10,800 | ||||
Aggregate grant date fair value | $ 1,019 |
Derivatives - Activity in Accumulated Other Comprehensive Items (OCI) (Details) $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Total Stockholders' Equity [Roll Forward] | |
Beginning balance | $ 332,504 |
Ending balance | 341,685 |
Net unrealized gain included in AOCI expected to be reclassified to earnings over the next 12 months | 12 |
Cash Flow Hedging [Member] | |
Total Stockholders' Equity [Roll Forward] | |
Beginning balance | 79 |
Loss (gain) reclassified to earnings | (1) |
(Loss) gain recognized in AOCI | (79) |
Ending balance | (1) |
Cash Flow Hedging [Member] | Interest Rate Swap Agreement [Member] | |
Total Stockholders' Equity [Roll Forward] | |
Beginning balance | 79 |
Loss (gain) reclassified to earnings | 17 |
(Loss) gain recognized in AOCI | (97) |
Ending balance | (1) |
Cash Flow Hedging [Member] | Forward currency-exchange contracts [Member] | |
Total Stockholders' Equity [Roll Forward] | |
Beginning balance | 0 |
Loss (gain) reclassified to earnings | (18) |
(Loss) gain recognized in AOCI | 18 |
Ending balance | $ 0 |
Fair Value Measurements and Fair Value of Financial Instruments - Carrying Value and Fair Value of Debt Obligations (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 30, 2017 |
---|---|---|
Carrying Value [Member] | ||
Long-term Debt Obligations: | ||
Revolving credit facility | $ 202,205 | $ 237,011 |
Capital lease obligations | 3,843 | 4,101 |
Other borrowings | 183 | 272 |
Debt obligations | 206,231 | 241,384 |
Fair Value [Member] | ||
Long-term Debt Obligations: | ||
Revolving credit facility | 202,205 | 237,011 |
Capital lease obligations | 3,843 | 4,101 |
Other borrowings | 183 | 272 |
Debt obligations | $ 206,231 | $ 241,384 |
Commitments and Contingencies - Narrative (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Dec. 30, 2017 |
|
Commitments and Contingencies Disclosure [Abstract] | ||
Banker's acceptance drafts, maturity period | 6 months | |
Banker's acceptance drafts with recourse | $ 10,433 | $ 10,035 |
Subsequent Event - Narrative (Details) - Subsequent Event [Member] - Secured Debt [Member] - Commercial Real Estate Loan [Member] |
Jul. 06, 2018
USD ($)
|
---|---|
Subsequent Event [Line Items] | |
Principal amount | $ 21,000,000 |
Quarterly installment amount | $ 262,500 |
Term | 10 years |
Outstanding balance | $ 10,500,000 |
Fixed interest rate | 4.45% |
Second Twelve Months of the Loan Term [Member] | |
Subsequent Event [Line Items] | |
Prepayment fee | 2.00% |
Third Twelve Months of the Loan Term [Member] | |
Subsequent Event [Line Items] | |
Prepayment fee | 1.00% |
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