KAI 10-K & 10-Q changes, risk factors and insider trading

Changes in economic conditions affecting the global mining industry can occur abruptly and unpredictably, which may have significant effects on the sale of equipment by our subsidiary, SMH, which isbusinesses in our Material Handling segment. Approximately 5%4% of our consolidated revenue in 20242025 was from SMH'sthis segment's mining customers. Cyclicality for original equipment sales is driven primarily by price volatility of the commodities that are mined using SMH’sour equipment, including coal, salt, aggregates, potash, copper, iron ore and trona, or their substitutes, as well as product life cycles, competitive pressures and other economic factors affecting the mining industry, such as company consolidation, increased regulation and competition affecting demand for commodities, and the broader economy, including changes in government monetary or fiscal policies and from market expectations with respect to such policies. Falling commodity prices have in the past and may in the future lead to reduced capital expenditures by SMH’sour customers, reductions in the production levels of existing mines, a contraction in the number of existing mines and the closure of less efficient mines. Reduced capital expenditures and decreased mining activity by SMH’sour customers are likely to lead to a decrease in demand for new mining equipment, and may result in a decrease in demand for parts as SMH’sour customers are likely to reduce utilization of equipment, reduce inventories, redistribute parts from closed mines and delay rebuilds and other maintenance during industry downturns. In addition to declining orders for SMH’sour products, adverse economic conditions for SMH’sour customers may make it more difficult for SMHus to collect accounts receivable in a timely manner, or at all, which may adversely affect our working capital. As a result of this cyclicality in the global mining industry, SMHour businesses in this segment may experience significant fluctuations in its business,their results of operations and financial condition, and we expect SMH’sour businessbusinesses to continue to be subject to these fluctuations in the future.

We operate a geographically dispersed business and rely on the electronic storage and transmission of proprietary and confidential information, including technical and financial information, among our operations, customers, suppliers, and other third-party business partners. We also rely on information technology (IT), including IT services from third parties, in certain of our solutions, products, and services for customers as well as our enterprise infrastructure. Despite our security measures and internal controls, our IT infrastructure has been subject to cybersecurity incidents and may in the future be vulnerable to unauthorized access or attacks by nation states, hackers or cyber criminals; disruptions or service outages caused by errors in or compromise of software updates provided by third-party IT vendors; unauthorized access due to employee error or malfeasance; or other disruptions, such as business email compromises, phishing or other social engineering tactics, fraud, or other cybersecurity incidents. Our systems have been and may in the future be compromised by malware (including ransomware), denial-of-service attacks, cyberattacks, and other events, ranging from widespread, non-targeted, global cyber threats to targeted advanced persistent threats. These cybersecurity threats and incidents, which also may apply to our third-party business partners, could be indicators of an increased risk to our products, solutions, services, manufacturing, and IT infrastructure. The integration of newly acquired businesses may also increaseincreases the risk that we are subject to a cybersecurity incident. Recent global cyberattacks and service outages have been caused by the compromise of software updates to widely used software products, including some products that we use, which increases the risk that vulnerabilities or malicious content could be inserted into, or unauthorized access gained to, our products or IT infrastructure. While we seek to improve the security attributes of our products, solutions, services, and IT infrastructure, we cannot eliminate risk or ensure that we will not be harmed by cyberattacks or disruptions.

In some global cyberattacks, malware has been spread from one party to another via network connections that the parties had previously authorized. Our business uses IT resources on a dispersed, global basis for a wide variety of functions including development, engineering, manufacturing, sales, accounting, and human resources. Our third-party business partners, employees, and customers have access to, and share, information across multiple locations via various digital technologies. In addition, we rely on third-party business partners for a wide range of outsourced activities, including cloud providers, as part of our internal IT infrastructure and our commercial offerings. Secure connectivity is important to these ongoing operations. To a significant extent, the security of systems to which we connect depends on how such systems are designed, installed, protected, configured, updated and monitored, some of which is outside of our control. Also, our third-party business partners frequently have access to our confidential information as well as confidential information about our customers, employees, and others. In addition, we have been, and may in the future be, prevented from accessing our data or systems in the event of a ransomware or other cybersecurity incident involving our IT systems or those of our third-party business partners or other third parties in our supply chain. ACybersecurity cybersecurityincidents incidenthave caused and may in the future cause interruptions or delays in our business operations, cause us to incur remediation costs, subject us to demands to pay a ransom, or damage our reputation, regardless of whether we pay the ransom amount. We design our security architecture to reduce the risk that a compromise of our third-party business partners’ infrastructure, for example a cloud platform, could lead to a compromise of our internal systems or customer networks, but this risk cannot be eliminated and vulnerabilities at third parties could result in unknown risk exposure to our business.

We monitor and manage various information systems that exist within our global operations and periodically upgrade or implement new enterprise resource planning software at our business operations. As we implement and add functionality, problems could arise that we have not foreseen. We have experienced cybersecurity threats and immaterial cybersecurity incidents that have impacted our ability to conduct our business operations. In the future, system failures, network disruptions, and cybersecurity incidents may materially adversely affect our ability to conduct our business operations, including our ability to communicate and transact business with our customers and suppliers; result in the loss or misuse of information, including credit card numbers or other personal information, the loss of business or customers, or damage to our brand or reputation; or interrupt or delay reporting of our financial results. Such system failures or unauthorized access could be caused by external theft or attack, misconduct or human error by our employees, third-party business partners, competitors, or natural disasters.

The current cyber threat environment indicates increased risk for all companies. Like other global companies, we have experienced cybersecurity threats and incidents, although we do not currently believe that any such incidents have been material or had a material adverse effect on our business, results of operations or financial condition. Our information security efforts include programs designed to address cybersecurity governance, product security, identification and protection of critical assets, insider risk, third-party risk, and cyber defense operations. We believe these measures reduce, but cannot eliminate, the risk of an information security or cybersecurity incident. Any significant cybersecurity incidents could have an adverse impact on sales and operations, harm our reputation, subject us to litigation and government investigations, and cause us to incur legal liability and increased costs to address such events and related cybersecurity concerns.

We derive a significant portion of our revenue and earnings from our international operations,operations and are subject to income and other taxes in the United States and numerous foreign jurisdictions. Changes in U.S. and foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, thereby affecting our income tax expense and profitability. A number of factors may cause our effective tax rate to fluctuate, including: changes in tax rates in various jurisdictions; unanticipated changes in the amount of profit in jurisdictions in which the statutory tax rates may be higher or lower than the U.S. tax rate; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to income taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes, including impairments of goodwill in connection with acquisitions; and changes in available tax credits or our ability to utilize foreign tax credits. Any of these factors could cause us to experience an effective tax rate significantly different from that of prior periods or current expectations, which could have an adverse effect on our results of operations or cash flows.

In addition, many countries are implementing legislation and other guidance to align their international tax rules with the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentation rules, and nexus-based tax incentive practices. The OECD also released model rules introducing a new 15% global minimum tax for large multinational corporations with an annual global revenue exceeding 750.0 million euros (Pillar Two Rules). Many countries, including the member states of the European Union, have implemented legislation adopting the Pillar Two Rules, with effective dates beginningwhich began in 2024 and beyond. While the full impact of these regulations remains uncertain, compliance with Pillar Two Rules may lead to new reporting requirements and negatively impact our provision for income taxes, net income and cash flows.

Investors, customers and other stakeholders aremay increasinglybe focused on the climate-related performance of companies they invest in. As part of our commitment to sustainability, we have set and may in the future set sustainability goals, particularly related to greenhouse gas emissions reductions. There is a risk that we may not be able to meet the goals that we set and strive to meet. If we have not responded in a satisfactory manner and demonstrated our commitment to addressing climate change, investors and customers' willingness to invest in, spend money with and otherwise provide capital to us may also be impacted.

Orders from customers in China, particularly for large fiber processing systems that have been tailored to a customer's specific requirements, have credit risks higher than we generally incur elsewhere, and some orders are subject to the receipt of financing approvals from the Chinese government or can be impacted by the availability of credit and more restrictive monetary policies. We generally do not record bookings for signed contracts from customers in China for large fiber processing systems until we receive the down payments for such contracts. The timing of the receipt of these orders and the down payments are uncertain and there is no assurance that we will be able to recognize revenue on these contracts. We may experience a loss if a contract is canceled prior to the receipt of a down payment if we have commenced engineering or other work associated with the contract or we may not be able to retain a down payment. We typically have inventory awaiting shipment to customers and could incur a loss if contracts are canceled and we cannot re-sell the equipment. In addition, we may experience a loss if the contract is canceled, or the customer does not fulfill its obligations under the contract, prior to the receipt of a letter of credit or final payments covering the remaining balance of the contract, which could represent a significant portion of the total order. As a result of these factors, our revenue recognized in China havehas varied, and will in the future vary from period to period and be difficult to predict.

Changes in government policies, political unrest, economic sanctions, trade embargoes, or other adverse trade regulations can negatively impact our business. Non-U.S. markets contribute a substantial portion of our revenues, and we intend to continue expanding our presence in these regions. For example, we operate businesses in Mexico and Canada,Canada and we benefitedbenefit from the North American Free Trade Agreement, which has been replaced by the United States-Mexico-Canada Agreement (USMCA), from which we also benefit.. If the United States were to withdraw from or materially modify the USMCA or impose significant tariffs or taxes on goods imported into the United States, the cost of our products could significantly increase or no longer be priced competitively, which in turn could have a material adverse effect on our business and results of operations.

InOur addition,business is also affected by various product or sector-specific tariffs that the United States imposes on trading partners. Certain products imported from China, including pulp and paper machinery, are subject to tariffs imposed by the Office of the United States Trade Representative has imposed tariffs on a wide variety of products from China, including pulp and paper machinery equipment,Representative, pursuant to Section 301 of the Trade Act of 1974. The tariffs on pulp and paper machinery are set at 25% and, effective as of February 2025, there is an additional 10% tariff on all imports from China.25%. In addition, the U.S. Department of Commerce has imposed tariffs of 25%50% on numerous categories of steel and aluminum imports,products, under Section 232 of the Trade Expansion Act of 1962, and suchhas expanded these tariffs could increase or expand to include additionalcertain derivative steel and aluminum products. On July 30, 2025, President Trump announced the results of a Section 232 investigation on copper, imposing a 50% tariff on imports of semi-finished copper and copper derivatives, effective August 1, 2025. We import categories.products that are impacted by these tariffs. While we try to mitigate the impact of the existing and other proposed tariffs by the Trump administrationAdministration through pricing and sourcing strategies, we cannot be certain how our customers and competitors will react to the actions we take. The tariffs have and could in the future negatively affect our ability to compete against competitors who do not manufacture in China and/or are not subject to the tariffs.

The United States has tightened trade sanctions targeting countries like China and Russia. For example, since 2018 the United States has imposed various trade and economic sanctions targeting certain persons in Russia and certain types of business with Russia. The United States has continued to expand export control restrictions applicable to certain Chinese firms and continued its assessment of new controls for "emerging foundational technologies," escalating U.S.-China tension concerning technology. Moreover, tensions between the U.S.United States and China have increased and future actions by the U.S.United States or Chinese governments may impact our operations in and supplyimports from China, as well as sales to and from China. In response, Russia and China have begun considering and, in some cases, implementing trade sanctions that could affect U.S.-owned businesses. The imposition of trade sanctions has and may in the future continue to make it generally more difficult to do business in Russia and China and cause delays or prevent shipment of products or services performed by our personnel, or to receive payment for products or services.

The manufacturing of our products requires the use of hazardous materials that are subject to a broad array of environmental, health and safety laws and regulations. Our failure to manage the use, transportation, emissions, discharge, storage, recycling, or disposal of hazardous materials could lead to increased costs or regulatory penalties, fines and legal liability. Our ability to expand, modify or operate our manufacturing facilities in the future may be impeded by environmental regulations, such as air quality, wastewater requirements, and energy supply and use restrictions. The Chinese government has pledged to tackle the country's hazardous smog and improve air quality conditions, which has prompted authorities to impose strict pollution control measures when certain pollution levels are detected and ahead of high-profile events. Regulators have in the past and may in the future temporarily restrict the operations of our manufacturing facilities in a particular geographic location as a result of attempts to control pollution levels, or energy supply or use restrictions in China. Environmental laws and regulationsregulations, including with respect to emerging contaminants like per- and polyfluoroalkyl substances, commonly referred to as PFAS, could also require us to acquire pollution abatement or remediation equipment, modify product designs, or incur other expenses. New regulations promulgated in reaction to climate change could result in increased manufacturing costs associated with air pollution control or energy requirements, and increased or new monitoring, recordkeeping, and reporting of greenhouse gas (GHG) emissions.emissions and climate-related risks. For example, our commitment to the Science Based Targets initiative (SBTi), regulations in California, and the requirements of the Corporate Sustainability Reporting Directive in the European Union imposesimpose obligations into futuretrack years toand report GHG emissions.emissions and climate-related risks. Calculation of some GHG emissions can involve uncertainty and lack precision because of the absence of reliable inputs or methods to perform such calculations. We also see the potential for higher energy costs driven by climate change regulations. Implementation of such new regulations could increase our costs or require us to modify our operations and negatively impact our business and results of operations.

Since 2020, we have set annual goals related to environmental, social and governance (ESG) issues. Some or all of our current or future ESG goalsgoals, including our proposed GHG emissions reduction targets under the SBTi, may be difficult to achieve and may be subject to factors beyond our reasonable control, including without limitation, actions of our customers and suppliers, technological advances with respect to replacing natural gas with renewable energy sources for industrial applications, and the availability of renewable energy sources for our facilities and applications. Failure to achieve our ESG goals could negatively impact our reputation, which could have an adverse impact on our overall business and stock price.

SMH,Our which isbusinesses in our Material Handling segment,segment suppliessupply equipment to mining companies operating in major mining regions throughout the world. SMH’sOur customers’ operations are subject to or affected by a wide array of regulations in the jurisdictions where they operate, including those directly impacting mining activities and those indirectly affecting their businesses, such as applicable environmental and mine safety laws. New environmental and health legislation or administrative regulations relating to mining or affecting demand for mined materials or more stringent interpretations of existing laws and regulations, may require SMH’sour customers to significantly change or curtail their operations. The mining industry has also encountered increased scrutiny as it relates to safety regulations. New legislation or regulations and the high cost of compliance with such regulations relating to mine safety standards may induce customers to discontinue or limit their mining operations and may discourage companies from developing new mines or maintaining existing mines, which in turn could diminish demand for our products and services. As a result of these factors, demand for SMH’sour mining equipment could be adversely affected by environmental and health regulations directly or indirectly impacting the mining industry. Any reduction in demand for SMH’sour products as a result of environmental, health or mine safety regulations could have an adverse effect on SMH’sour businesses in the Material Handling segment and our overall business, financial condition or results of operations.

Pursuant to the Credit Agreement, we have a borrowing capacity of $400.0$750.0 million with an uncommitted, unsecured incremental borrowing facility of $200.0 million with a maturity date of NovemberSeptember 30,26, 2027.2030. In 2018, we also issued $10.0 million in senior notes under our Multi-Currency Note Purchase and Private Shelf Agreement with PGIM Private Capital, a unit of PGIM, Inc., and affiliate of Prudential Financial, Inc. (Note Purchase Agreement). We may also in the future obtain additional long-term debt and working capital lines of credit to meet future financing needs, which would have the effect of increasing our total leverage. Our indebtedness could have negative consequences, including:

Provisions of our charter and bylawsby-laws may discourage, delay, or prevent a merger or acquisition that our shareholders may consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares. For example, these provisions:

Our financial results are reported in three reportable segments consisting of our Flow Control segment, Industrial Processing segment, and Material Handling segment. We have aggregated our operating segments into reportable segments where they contained similar products and economic characteristics, and shared similar types of customers, and production and distribution methods. Our Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration operating segments and our Industrial Processing segment consists of our wood processing and fiber processing (formerly referred to as stock-preparation) operating segments. See Note 11, Business Segment and Geographical Information, in the accompanying consolidated financial statements for a description of and financial information on our reportable segments.

Overall, we anticipate higher bookings in 2026 compared to 2025, especially in our Industrial Processing segment where customer delays associated with pending orders from 2025 have resulted in a number of capital orders in the pipeline. We continue to see long-term strength in our end markets as customers continue to rely on our products to help maximizeenhance productivity through more efficient production processes. In addition, we seeanticipate growth opportunities resulting from both proposed and adoptedenacted legislation in the U.S.United States and abroadinternationally aimedthat atis fuelingdesigned to stimulate investment.

•Flow Control – Our Flow Control segment bookings increased 1%4% in 20242025 compared to 2023,2024. including a 5%This increase from acquisitions. Organic bookings decreased 3% in 2024 compared to 2023was primarily duedriven toby sluggishstrong manufacturingdemand activity,for our parts and consumables products, especially in Europe.North WeakerAmerica, partially offset by weaker demand for paperour ledcapital equipment products in all regions. While quote activity related to lowcapital millprojects operatingremains ratesstrong, there have been delays in the timing for securing orders as customers remain cautious regarding their capital spending decisions. In certain European markets, excess production capacity and milldeclining closures.demand Inhave Europe,resulted thesein challengesthe wereclosure furtherof impactedseveral bymills, weakadversely macroeconomic conditions and aggressive competition, which led to decreasedaffecting demand for our capital equipment products. We expect steady demand in our Flow Control segment in 20252026 and long-term strength in our end markets.

Our global operations have been and continue to be impacted by complex market conditions fueled by tariff-related uncertainty, inflationary pressures, geopolitical tensions, labor availability and uncertainty in the markets. While the U.S. economy has proven more resilient, growth in the European economy has slowed due to high interest rates, elevated inflation, and geopolitical tensions and China's manufacturing industry has contracted.tensions. We expect our operating environment to continue to be challenging, whichresulting createsin continued uncertainty for 2025.2026. However, we believe that the fundamentals of our business remain strong, particularlysupported givenby our solid market position in key product lines, strongexperienced global operations teams, and the long-term strength of our end markets. For more information related to these challenges, and other factors impacting our business, please see Part I, Item 1A, "Risk Factors."

Approximately 50%half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada. As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies. To mitigate the impact of foreign currency fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred. Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies. We currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the U.S. dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S. dollar.

The United States has imposed tariffs in the past and more recently proposed and implemented new tariffs on certain countries and imports, which has and will continue to increase the cost of some of the parts and equipment we import. In addition, foreign countries have implemented and may in the future implement additional retaliatory tariffs in response to these actions by the United States, which have negatively impacted and may in the future negatively impact our operations. Although we are working to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs. For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A, "Risk Factors."

We expect that a significant driver of our long-term growth will be through the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry. We have acquired several businesses in recent years and continue to pursue acquisition opportunities. See Note 2, Acquisitions, in the accompanying consolidated financial statements for further details.

We funded these acquisitions primarily through borrowings under our revolving credit facility. We expect several synergies in connection with the acquisitions, including expansion of product sales into new markets by leveraging our global sales network and relationships, as well as broadening our product portfolio, and strengthening our position in the various markets weserved, serve.and realizing the value of the acquired workforce.

Revenue at our Flow Control segment increased 2%3% in 2025, while organic revenue decreasedremained 1%flat incompared to 2024 drivendue byto lower demand for our capital equipment productsproducts, especially in EuropeNorth reflectingAmerica, as a result of challenging market conditionsconditions. Ongoing mill closures, production curtailments, and amerger slowdownactivity have contributed to weak market conditions in manufacturingthe activity.pulp and paper industry. This decrease was partially offset by higher demand for ourparts capitaland equipmentconsumables productsproducts, with strength in North America,America especiallyoffsetting ourweaker fluidmarket handlingconditions productsin that help customers optimize energy utilization and maximize productivity.Europe.

Consolidated gross profit margin increased to 45.2% in 2025 from 44.3% in 2024 compared with 43.5% in 2023 due to a favorablean increase in the proportion of higher-margin parts and consumables revenue, which increased to 66%71% of totalconsolidated revenue in 2025 compared to 62%66% in 2023.2024. ThisGross increaseprofit wasmargin partially offset by the inclusion of $5.2 million ofincluded amortization expense related to acquired profit in inventory,inventory of $1.5 million, which lowered consolidated gross profit margin by 0.2 percentage points in 20242025, compared to expense of $5.2 million, which lowered gross profit margin by 0.4 percentage points.points in 2024.

•IncreasedDecreased to 52.5%52.3% at our Flow Control segment from 51.8%52.5% in 2023 primarily2024 due to higherlower margins achieved on our capital equipment products.products, This increasewhich was partially offset by the inclusion of $2.0 million of amortization expense related to acquired profit in inventory,inventory in 2024, which lowereddecreased gross profit margin in 2024 by 0.5 percentage points.

•Increased to 36.3%43.0% at our MaterialIndustrial HandlingProcessing segment from 35.7%41.8% in 2023.2024 Thedue favorableto an increase in the proportion of higher-margin parts and consumables revenue in 2024 was2025, partially offset by thelower inclusionmargins ofachieved $1.0on millionour ofcapital amortizationequipment expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.5 percentage points.products.

•Increased $9.3$5.3 million at our Flow Control segment principally due to the inclusion of $5.2$4.5 million of SG&A expenses from acquisitions,acquisitions $2.2and the impact of the weakening of the U.S. dollar, which resulted in a $2.6 million increase in SG&A expenses, including $1.4 million from the unfavorable effect of acquisition-relatedforeign costscurrency translation and increaseda compensation$1.2 expense,million shift from foreign currency gains in the 2024 period to losses in the 2025 period. These increases were partially offset by a decrease of $1.4 million in commissionacquisition-related expense.costs.

•Increased $11.3$11.9 million at our MaterialIndustrial HandlingProcessing segment primarilyprincipally due to the inclusion of $10.9$7.7 million of SG&A expenses from acquisitions and $2.4a $3.2 million of incremental acquisition-related costs, partially offset by a decreaseincrease in expenseacquisition related to external commissions and sales incentives.costs.

•Increased $1.6$3.5 million at Corporate principally due to annuala wage$2.2 increasesmillion increase in compensation expense and consultinga costs.$1.3 million increase in insurance expense.

•LossIn 2024, we recognized a loss of $0.7 million inwithin 2024our relatedFlow toControl segment from the recognition of a cumulativecurrency translation adjustment associated with the liquidation of a small foreign subsidiary in the Flow Control segment.subsidiary.

Our provision for income taxes decreased to $39.9 million in 2025 from $40.5 million in 20242024. fromOur $42.2effective milliontax rate of 27.8% in 20232025 was higher than our statutory rate of 21% primarily due to the decreasedistribution of $5.9our millionworldwide inearnings, pre-taxnondeductible income.expenses, Thestate taxes, and the cost of repatriating the earnings of certain foreign subsidiaries. These items were partially offset by foreign tax credits. Our effective tax rate wasof 26.5% in both 2024 and 2023 and was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.

Net income decreased to $103.7 million in 2025 from $112.6 million in 2024 from $116.8 million in 2023 primarily due to a $11.6$14.0 million increasedecrease in interestoperating expense,income, offset in part by a $5.5 million increase in operating income and a $1.7$4.5 million decrease in provisioninterest forexpense and a $0.6 million decrease in income taxes (see discussions above for further details).

We use organic revenue in order to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods (see discussion in Revenue above). Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude amortization expense related to acquired intangible assets, profit in inventory and backlog,backlog (collectively, purchase accounting expenses); acquisition costs,costs; restructuring and impairment costs, relocation costs; and other income andor expense, as indicated. TheseWe exclude acquisition-related purchase accounting expenses to provide a more meaningful and consistent comparison of our operating results over time and with peer companies. While we have a history of acquisition activity, such transactions do not occur on a predictable cycle, and the size and nature of these transactions will vary. We believe it is important for investors to understand that these intangible assets were recorded as part of purchase accounting and that they contribute to revenue generation. We also exclude other items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs, expenditures or income, or none at all. Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities.

(ba) Represents expense (income) within cost of revenue associated with amortization of acquired profit in inventory.

(cb) Represents intangible amortization expense associated with acquired backlog.

(dc) Represents the provision for or reversal of indemnification assets related to the establishment or release of tax reserves associated with uncertain tax positions.

(ed) Includes land remediation costs of $0.9 million, restructuring costs of $0.1 million, and impairment costs of $0.3 million in our Industrial Processing segment in 2025, a loss of $0.7 million from the recognition of a cumulative translation adjustment associated with the liquidation of a small foreign subsidiary in our Flow Control segment in 2024.2024, and restructuring and impairment costs of $0.8 million in our Flow Control segment in 2023.

(fe) Includes capital expenditures of $7.4 million in 2023 andrelated $10.4to milliona new manufacturing facility in 2022 associated with the China Transaction.China.

Consolidated working capital was $313.8 million at January 3, 2026, compared with $250.8 million at December 28, 2024, compared with $225.8 million at December 30, 2023.2024. Cash and cash equivalents were $119.6 million at January 3, 2026, compared with $94.7 million at December 28, 2024, compared with $103.8 million at December 30, 2023, which included cash and cash equivalents held by our foreign subsidiaries of $100.3 million at January 3, 2026 and $73.8 million at December 28, 2024 and $94.6 million at December 30, 2023.2024.

Changes in government policies, political unrest, economic sanctions, trade embargoes, or other adverse trade regulations can negatively impact our business. Non-U.S. markets contribute a substantial portion of our revenues, and we intend to continue expanding our presence in these regions. For example, we operate businesses in Mexico and Canada and benefit from the United States-Mexico-Canada Agreement (USMCA). On July 1, 2026, the Office of the United States Trade Representative (USTR) announced that the United States does not agree to renewal of USMCA in its current form, triggering an annual review process that may result in modifications of the agreement. If the United States were to withdraw from or materially modify the USMCA or impose significant tariffs or taxes on goods imported into the United States, the cost of our products could significantly increase or no longer be priced competitively, which in turn could have a material adverse effect on our business and results of operations.

In 2025, the Trump Administration imposed a series of tariffs against U.S. trading partners pursuant to the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the Supreme Court ruled these tariffs unlawful. The Trump Administration immediately imposed new global tariffs pursuant to Section 122 of the Trade Act of 1974, which allows for tariffs of up to 15% for a period of up to 150 days. The Section 122 tariffs wereexpired alsoon challengedJuly and24, held2026. unlawful byOn the U.S.same Courtday, USTR imposed new tariffs of International10% or 12.5% on 60 trading partners under Section 301 of the Trade inAct aof decision1974. issuedIn MayJuly 7,2026, 2026.the United States imposed tariffs of 50% on certain imports from Canada under Section 338 of the Tariff Act of 1930. Our business has been negatively affected by these tariffs, and the timing and availability of refunds is uncertain. We may be negatively affected in the future by the quickly evolving tariff situation and the economic uncertainty created thereby.

Our business is also affected by various product or sector-specific tariffs that the United States imposes on trading partners. Certain products imported from China, including pulp and paper machinery, are subject to tariffs imposed by the Office of the United States Trade Representative,USTR, pursuant to Section 301 of the Trade Act of 1974. The tariffs on pulp and paper machinery are set at 25%. In addition, the U.S. Department of Commerce has imposed tariffs of 50% on numerous categories of steel, and aluminum, and copper products, under Section 232 of the Trade Expansion Act of 1962, and has expanded these tariffs to include certain derivative products subject to a 25% tariff. We import products that are impacted by these tariffs. While we try to mitigate the impact of the existing and other proposed tariffs by the Trump Administration, we cannot be certain if our actions will be successful. The tariffs have and could in the future negatively affect our ability to compete against competitors who do not manufacture in China and/or are not subject to the tariffs.

•Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard, process timber, and optimize industrial steam boiler efficiency in the packaging, paper, tissue, wood products, and food processing industries, among others. Our primary products include fiber processing systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers, custom-engineered knifeprofiles systems,and industrial blades, boiler cleaning technologies, and continuous dewatering equipment.

Consolidated bookings increased 19%16% to a record $320.8$312 million in the firstsecond quarter of 2026 compared to the fourthsecond quarter of 20252025, withled increasedby contributions from our recent acquisitions, and record demand acrossfor allour threeparts segments.and consumables products at our Industrial Processing segment. Our large installed base throughout the world continues to generate a stable stream of recurring business from aftermarket parts, maintenance upgrades, and related service requirements. Parts and consumables product bookings alsoincreased reached a record level, increasing 15%25% compared to the fourthsecond quarter of 2025,2025 dueand inrepresented part to increased demand in anticipation72% of annualconsolidated maintenance shutdowns.bookings. Capital equipment product bookings increaseddecreased 29%3% sequentially,compared reflectingto improvedthe second quarter of 2025. While customer confidencerequests asand tariff-relatedquotation uncertaintyactivity eased.remain Customers,healthy however,across all our segments, the timing for securing large capital equipment project orders remains uncertain. The volatility in trade policies, inflation, and geopolitical conflicts have led to pressure on input costs. As a result, customers remain cautious within approvals forapproving large capital projects pending greater clarity regarding input costs and broader economic conditions,conditions. whichThis has moreled recentlyto beenlonger impactedcustomer byapproval thecycles conflictsand increased volatility in the Middle East, resulting in a lengtheningtiming of quote-to-ordercapital times.project orders. This dynamic is more pronounced in our Industrial Processing segment, where average capital order values are significantly higher than in our other segments. WeBased endedon the quartercurrent with a healthy backloglevel of $325.7quote million.activity, we anticipate stronger capital bookings in the second half of 2026 compared to the first half.

Overall, we expect bookings in 2026 to exceed 2025 levels, largely driven by our Industrial Processing segment,segment where customer delays associated with pending orders from 2025 have resulted in a number of capital orders in the pipeline, combined withand incremental contributions from our recent acquisitions. We continue to see long-term strength in our end markets as customers rely on our products to enhance productivity through more efficient production processes. Additionally, we anticipate incremental growth opportunities resultingrelated fromto proposedindustrial automation and enactedmodernization legislationinvestments as well as in the United Statesenergy and internationallydefense that is intended to stimulate investment.sectors.

•Flow Control – Our Flow Control segment bookings increased 19%11% compared to the fourthsecond quarter of 2025, reflecting strong demand for bothour parts and consumables, as well as capital equipmentconsumables products across all regions. ThisStronger performancedemand followsin theNorth lastAmerica, threefueled quartersby offactory 2025,automation whereprojects, bookingswas weretempered constrainedby weaker demand in Europe, which was negatively impacted by mill closures and low factory utilization rates. Demand for our capital equipment products was limited as customers remained cautious regarding their capital spending decisions amid market uncertainty. We expect consistent demand for boththe aftermarketremainder parts and capital equipment products to increase inof 2026 and continue to see long-term strength in ourthis endsegment markets.due to its diversified market exposure.

•Industrial Processing – Our Industrial Processing segment bookings increased 19%29% compared to the fourthsecond quarter of 2025, drivenas byrecent strongacquisitions demanddrove forrecord aftermarket parts.parts bookings in the quarter. Demand for our capital equipment products also increased sequentially, but was negatively impacted by the volatility in timing of capital project timing.orders. Quotation activity remains high and project discussions continue across most regions, however, customers continue to defer larger capital investments. Overall, we expect demand for our capital equipment products to strengthen in the second half of 2026, supported by the anticipated receipt of several large capital orders currently in the pipeline. In addition, we expect demand for our aftermarket parts to remain steadystable in 2026.

Our global operations have been and continue to be impacted by complex market conditions fueled by tariff-relatedvolatile uncertainty,trade policies, inflationary pressures, and geopolitical tensions. We expect our operating environment to continue to be challenging, especially for large capital equipment projects where the order timing is uncertain. However, we believe that the fundamentals of our business remain strong, supported by our solid market position in key product lines, experienced global operations teams, and long-term strength of our end markets. For more information related to these challenges, and other factors impacting our business, please see Risk Factors, included in Part I, Item 1A, of our Annual Report, as further amended in Part II, Item 1A, within this report, and as may be further amended and/or restated in subsequent filings with the SEC.

The United States has imposed tariffs in the past and more recently proposed and implemented new tariffs on certain imports, which hashave and will continue to increase the cost of some of the parts and equipment we import. In addition, foreign countries have implemented and may in the future implement additional retaliatory tariffs in response to these actions by the United States, which have negatively impacted and may in the future negatively impact our operations. Although we are working to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs. For more information on risks associated with our global operations, including tariffs, please see Risk Factors, included in Part I, Item 1A, of our Annual Report, as further amended in Part II, Item 1A, within this report, and as may be further amended and/or restated in subsequent filings with the SEC.

On April 30, 2026, we completed the acquisition of voestalpine BÖHLER Profil GmbH & Co KG and voestalpine BÖHLER Profil VerwaltungsGmbH for 157.0a millionnet euros,purchase subjectprice toof certain$170.1 customarymillion. adjustments. AtUpon closing, the companyacquired namesentities were changed torenamed Kadant Profil GmbH & Co KG and Kadant Profil Verwaltungs GmbH (collectively, Kadant Profil). Kadant Profil is a manufacturer of customized rolled profiles and industrial knife solutions for demanding industrial applications and is part of our Industrial Processing segment. See Note 2, Acquisitions, in the accompanying condensed consolidated financial statements for further details.

FirstSecond Quarter 2026 Compared with FirstSecond Quarter 2025

The following table presents the change in revenue by segment between the firstsecond quarters of 2026 and 2025, and those changes excluding the effect of acquisitions and foreign currency translation which we refer to as change in organic revenue. Organic revenue excludes the effect of acquisitions for the four quarterly reporting periods following the date of the acquisition. The presentation of the change in organic revenue is a non-GAAP measure. We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding U.S. generally accepted accounting principles (GAAP) measure.

Revenue by reportable segment in the firstsecond quarters of 2026 and 2025 is as follows:

Revenue at our Flow Control segment increased 7%5% in the firstsecond quarter of 2026, primarily driven by higher demand for our parts and consumables productsproducts, acrossespecially allin regions.North America and Asia. In addition, capital equipment product revenue increased in China due to the completion of several large projects that had previously been delayed.projects.

Revenue at our Material Handling segment increased 5%8% in the firstsecond quarter of 2026, driven byreflecting strong demand for ourboth capital equipment and aftermarket parts andproducts. consumablesThe productsincrease acrosswas allprimarily regions.driven by our business in Europe, which benefited from a large refurbishment project during the quarter.

Gross profit margin by reportable segment in the firstsecond quarters of 2026 and 2025 is as follows:

Consolidated gross profit margin decreased to 45.0%43.8% in the firstsecond quarter of 2026 from 46.1%45.9% in the firstsecond quarter of 2025.2025 This decrease was primarily attributabledue to theseveral inclusionfactors. The proportion of $1.4higher-margin millionaftermarket ofparts amortizationrevenue expense relateddecreased to acquired profit68% in inventory2026 compared to 71% in the2025. firstIn quarteraddition, of 2026, which reducedour gross profit marginmargins for both aftermarket parts and capital equipment products were adversely affected by 0.5the percentageproduct points,mix andwithin athese categories. Gross profit margin in our Industrial Processing segment was negatively affected by the lower gross margin profile associated with therecent product mix.acquisitions.

•Decreased to 52.7%52.5% at our Flow Control segment from 53.3%53.8% in the 2025 period primarily due to lower margins achieved on our parts and consumables products.products and an unfavorable mix of capital equipment projects in the period.

•Decreased to 42.5%40.7% at our Industrial Processing segment from 44.1%42.6% in the 2025 period due to the inclusionlower ofgross $1.4margin millionprofile ofassociated amortizationwith expenserecent relatedacquisitions. toIn acquired profit in inventory in the 2026 period, which decreasedaddition, gross profit margin inwas 2026negatively impacted by 1.1 percentage points, and a decrease in the proportion of higher-margin parts and consumables product revenue, which decreased to 76%69% of consolidated revenue in the firstsecond quarter of 2026 compared to 80%76% in the prior2025 yearperiod, period.and lower margins achieved on our aftermarket parts products.

Selling, general, and administrative (SG&A) expenses by reportable segment and Corporate in the firstsecond quarters of 2026 and 2025 are as follows:

Consolidated SG&A expenses increased $11.3$7.7 million, or 16%,10%, in the firstsecond quarter of 2026 compared to the firstsecond quarter of 2025. This increase was2025, primarily attributabledue to the inclusion of $7.9 million of SG&A expenses from acquisitionsrecent and an unfavorable impact from foreign currency translation of $2.8 million.acquisitions.

•Increased $1.2$0.4 million at our Flow Control segment primarily due to a $1.4 millionnet unfavorable impact from foreign currency transaction and translation.

•Increased $9.3$5.4 million at our Industrial Processing segment primarily due to $7.9 million of SG&A expenses from acquisitions, offset in part by a $0.9$1.4 million unfavorable impactshift from foreign currency translationlosses in the 2025 period to gains in the 2026 period and $0.3a $0.5 million decrease in incrementalbad acquisition-relateddebt costs.expense.

Interest expense increased to $4.5$5.3 million in the firstsecond quarter of 2026 from $3.8$3.3 million in the firstsecond quarter of 2025 due to increased borrowings under our revolving credit facility, which were primarily used to fund our acquisitions during the second half of 2025 and first half of 2026, partially offset by a lower weighted-average interest rate. We expect interest expense will be higher for the remainder of 2026 compared to prior periods, primarily as a result of the borrowings used to finance our April 2026 acquisition of Kadant Profil.

Provision for income taxes increased to $10.1$13.2 million in the firstsecond quarter of 2026 from $7.8$9.8 million in the firstsecond quarter of 2025.

The effective tax rate of 28.2%28.6% in the firstsecond quarter of 2026 was higher than our statutory rate of 21%21%, primarily due to the distribution of our worldwide earnings, nondeductiblestate expenses,taxes, and statenondeductible taxes.expenses.

The effective tax rate of 24.3%26.9% in the firstsecond quarter of 2025 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, state taxes, nondeductible expenses, and statethe taxes.cost of repatriating the earnings of certain foreign subsidiaries. These items were offset in part by net excess income tax benefits from stock-based compensation arrangements, the reversal of tax reserves associated with uncertain tax positions, and foreign tax credits.

Net income increased to $25.8$32.8 million in the firstsecond quarter of 2026 from $24.4$26.6 million in the firstsecond quarter of 2025 primarily due to a $4.5$11.5 million increase in operating income, offset in part by a $0.7$2.0 million increase in interest expense and a $2.3$3.4 million increase in provision for income taxes (see discussions above for further details).