KADANT INCKAI

KADANT INC Income Taxes Disclosure

10-KFiled Feb 25, 20256 min read
Income Taxes
The components of income before provision for income taxes are as follows:
(In thousands)December 28, 2024December 30, 2023December 31, 2022
Domestic$51,417 $57,810 $46,558 
Foreign101,653 101,206 119,078 
 $153,070 $159,016 $165,636 
The components of the provision for income taxes are as follows:
(In thousands)December 28, 2024December 30, 2023December 31, 2022
Current Provision:
Federal$7,051 $12,402 $8,738 
Foreign29,414 28,587 26,032 
State2,819 3,170 1,977 
 39,284 44,159 36,747 
Deferred Provision (Benefit):   
Federal2,094 48 1,970 
Foreign(1,222)(2,594)4,233 
State360 597 956 
 1,232 (1,949)7,159 
 $40,516 $42,210 $43,906 

The Company receives a tax deduction upon the vesting of RSUs. The Company recognizes excess income tax benefits and tax deficiencies related to stock-based compensation arrangements as discrete items within the provision for income taxes in the reporting period in which they occur. The Company recognized an income tax benefit of $523,000 in 2024, $354,000 in 2023 and $501,000 in 2022 in the accompanying consolidated statement of income.
The provision for income taxes in the accompanying consolidated statement of income differs from the provision calculated by applying the statutory federal income tax rate of 21% to income before provision for income taxes due to the following:
(In thousands)December 28, 2024December 30, 2023December 31, 2022
Provision for Income Taxes at Statutory Rate$32,145 $33,393 $34,784 
Increases (Decreases) Resulting From:   
Foreign tax rate differential7,697 5,070 5,770 
State income taxes, net of federal income tax2,512 2,965 2,316 
Nondeductible expenses1,731 1,730 2,683 
U.S. tax (benefit) cost of foreign earnings(1,379)1,270 932 
(Reversal of) provision for tax benefit reserves, net(65)386 (1,368)
Research and development tax credits(503)(520)(425)
Excess tax benefit related to stock-based compensation(401)(276)(377)
Change in valuation allowance(203)(684)318 
Other(1,018)(1,124)(727)
 $40,516 $42,210 $43,906 

The Company's net deferred tax liability consists of the following:
(In thousands)December 28, 2024December 30, 2023
Deferred Tax Asset:
Net operating loss carryforwards$9,623 $11,300 
Lease liabilities9,094 6,820 
Inventory basis difference5,589 5,417 
Employee compensation5,196 4,690 
Capitalized research expenses4,682 4,159 
Reserves and accruals3,125 2,581 
Allowance for credit losses822 776 
Foreign, state, and alternative minimum tax credit carryforwards344 490 
Other153 214 
Deferred tax asset, gross38,628 36,447 
Less: valuation allowance(7,570)(7,829)
Deferred tax asset, net31,058 28,618 
Deferred Tax Liability:  
Goodwill and intangible assets(44,027)(41,116)
Fixed asset basis difference(13,372)(11,764)
ROU assets(8,754)(5,969)
Provision for unremitted foreign earnings(1,135)(1,153)
Other(2,919)(2,361)
Deferred tax liability(70,207)(62,363)
Net deferred tax liability$(39,149)$(33,745)

Deferred tax assets and liabilities are presented in the accompanying consolidated balance sheet within other assets and long-term deferred income taxes on a net basis by tax jurisdiction. The Company has established valuation allowances related to certain domestic and foreign deferred tax assets on deductible temporary differences, tax losses, and tax credit carryforwards. The valuation allowance at year-end 2024 was $7,570,000, consisting of $63,000 in the United States and $7,507,000 in foreign jurisdictions. The decrease in the valuation allowance in 2024 of $259,000 is related primarily to utilization of net operating losses and fluctuations in foreign currency exchange rates, partially offset by the valuation allowance recorded in purchase accounting. Compliance with ASC 740 requires the Company to periodically evaluate the necessity of establishing or adjusting a valuation allowance for deferred tax assets depending on whether it is more likely than not that a related tax benefit will be realized in future periods. When assessing the need for a valuation
allowance in a tax jurisdiction, the Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As part of this evaluation, the Company considers its cumulative three-year history of earnings before income taxes, taxable income in prior carryback years, future reversals of existing taxable temporary differences, prudent and feasible tax planning strategies, and expected future results of operations. As of year-end 2024, the Company maintained a valuation allowance in the United States against a portion of its state net operating loss carryforwards in the United States and a valuation allowance in certain foreign jurisdictions due to the uncertainty of future profitability in the state and those foreign jurisdictions.
At year-end 2024, the Company had state net operating loss carryforwards of $9,146,000 and foreign net operating loss carryforwards of $40,136,000. The U.S. state net operating loss carryforwards begin to expire in 2025 and a portion does not expire. Of the foreign net operating loss carryforwards, $1,244,000 will expire in the years 2025 through 2044, and the remainder do not expire. As of year-end 2024, the Company had foreign tax credits carryforwards of $240,000. The foreign tax credit carryforward begins to expire in 2028. The utilization of this tax attribute is limited to the Company's future taxable income.
At year-end 2024, the Company had approximately $296,095,000 of unremitted foreign earnings. During 2024, the Company repatriated $27,658,000 of previously taxed foreign earnings to the United States and recognized a foreign exchange loss of $1,746,000 associated with these earnings. The Company intends to repatriate the distributable reserves of select foreign subsidiaries back to the United States and has recognized $584,000 of tax expense on the estimated repatriation amount during 2024. Except for these select foreign subsidiaries, the Company intends to indefinitely reinvest $255,324,000 of earnings of its foreign subsidiaries in order to support the current and future capital needs of their operations, including the repayment of the Company’s foreign debt. The related foreign withholding taxes, which would be required if the Company were to remit these foreign earnings to the United States, would be approximately $5,311,000.
The Company operates within multiple tax jurisdictions and could be subject to audit in those jurisdictions. Such audits can involve complex income tax issues, which may require an extended period of time to resolve and may cover multiple years. In management's opinion, adequate provisions for income taxes have been made for all years subject to audit.
As of year-end 2024, the Company had a liability of $14,510,000 for unrecognized tax benefits of which $6,032,000, if recognized, would reduce the effective tax rate. A reconciliation of unrecognized tax benefits is as follows:
(In thousands)December 28, 2024December 30, 2023
Unrecognized Tax Benefits, Beginning of Year$11,212 $10,354 
Gross Increases – Tax Positions in Prior Periods80 44 
Gross Increases – Tax Positions in Prior Periods Arising from Acquisitions (a)4,372 — 
Gross Decreases – Tax Positions in Prior Periods(25)(37)
Gross Increases – Current-Period Tax Positions931 1,589 
Settlements(85)(130)
Lapses of Statutes of Limitations(1,624)(749)
Currency Translation(351)141 
Unrecognized Tax Benefits, End of Year$14,510 $11,212 
(a) Indemnification assets of $4,372,000 were also recorded.

A portion of the unrecognized tax benefits generated in 2024 is offset by deferred tax assets in the accompanying consolidated balance sheet. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company has accrued $3,488,000 at year-end 2024 and $2,017,000 at year-end 2023 for the potential payment of interest and penalties. The interest and penalties included in the accompanying consolidated statement of income was an expense of $131,000 in 2024 and $120,000 in 2023.
The Company is currently under audit in certain of its foreign tax jurisdictions. It is reasonably possible that over the next fiscal year the amount of liability for unrecognized tax benefits may be reduced by up to $1,135,000 primarily from the expiration of tax statutes of limitations.
The Company remains subject to U.S. federal income tax examinations for the tax years 2019 through 2024, and to non-U.S. income tax examinations for the tax years 2015 through 2024. In addition, the Company remains subject to state and local income tax examinations in the United States for the tax years 2003 through 2024.
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About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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