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Kadant: Q3 results
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Kadant Inc. reported revenues from continuing operations of $84.4 million in the third quarter of 2011, an increase of $17.9 million, or 27 percent, compared to $66.5 million in the third quarter of 2010. Revenues in the third quarter of 2011 included increases of $4.0 million, or 6 percent, from foreign currency translation and $1.6 million, or 2 percent, from acquisitions compared to the third quarter of 2010. Operating income from continuing operations in the third quarter of 2011 was $10.8 million, or 12.8 percent of revenues, compared to $6.3 million, or 9.4 percent of revenues, in the third quarter of 2010. Operating income in the third quarters of 2011 and 2010 included income of $2.3 million and $0.7 million, respectively, related to gains from the sale of assets. Net income in the third quarter of 2011 was $8.6 million, or $.70 per diluted share, compared to $4.5 million, or $.36 per diluted share, in the third quarter of 2010. Net income from continuing operations in the third quarter of 2011 was $9.8 million, or $.80 per diluted share, compared to $4.5 million, or $.36 per diluted share, in the third quarter of 2010. Net income from continuing operations in the third quarter of 2011 included after-tax gains from the sale of assets of $2.0 million, or $.16 per diluted share, and a benefit from discrete tax items of $2.1 million, or $.17 per share, primarily due to the favorable resolution of an uncertain tax position. Net income from continuing operations in the third quarter of 2010 included after-tax gains from the sale of assets of $0.7 million, or $.06 per diluted share. Loss from discontinued operation in the third quarter of 2011 was $1.2 million, or $.10 per diluted share, due to an increase in the estimated liability associated with the recently filed class action settlement disclosed in a Form 8-K filed today. Adjusted net income, a non-GAAP measure, in the third quarter of 2011 was $5.7 million, or $.47 per diluted share, increasing 50 percent compared to $3.8 million, or $.30 per diluted share, in the third quarter of 2010.
Adjusted Net Income and Adjusted Diluted Earnings
per Share (EPS) Reconciliation (non-GAAP)
?
Three Months Ended
Oct. 1, 2011
?
Three Months Ended
Oct. 2, 2010
($ in millions)
?
Diluted EPS
($ in millions)
?
Diluted EPS
Net Income and Diluted EPS Attributable to Kadant, as reported
$
8.6
$
.70
$
4.5
$
.36
Loss from discontinued operation ? 1.2 ? .10 ? - ? -
Income and Diluted EPS from Continuing Operations, as reported
9.8
.80
4.5
.36
Adjustments for the following:
Gains from the sale of assets (2.0 ) (.16 ) (0.7 ) (.06 )
Benefit from discrete tax items ? (2.1 ) ? (.17 ) ? - ? -
Adjusted Net Income and Adjusted Diluted EPS $ 5.7 $ .47 $ 3.8 $ .30
"We had another outstanding quarter," said Jonathan W. Painter, president and chief executive officer of Kadant. "GAAP diluted EPS from continuing operations was $.80 and is the highest quarterly result achieved in our 19 years as a public company. Excluding the gains from the sale of a building and a benefit from discrete tax items, adjusted diluted EPS increased over 50 percent from last year's third quarter to $.47. This exceeded our guidance of $.40 to $.42, largely due to higher than expected revenues, and included bad debt expense of $.03 for a customer bankruptcy which occurred during the quarter and was not reflected in our guidance.
"Revenues of $84 million also exceeded our guidance, which was $80 to $82 million. Revenues increased 27 percent compared to the third quarter last year and, encouragingly, included double digit increases in all our major product lines, led by stock-preparation, which was up 38 percent.
"Bookings were $95 million in the third quarter of 2011, increasing 63 percent over last year's third quarter and 9 percent over the second quarter of 2011. This strong bookings performance, one of our best ever, contributed to a record backlog of $128 million, which was up 89 percent over third quarter last year and 7 percent over the previous record high set in the second quarter of 2011. Our book-to-bill ratio was 1.13, marking the fourth consecutive quarter where bookings have exceeded revenues. In general, the bookings performance was very strong in both our North American and European-based operations, offsetting weak bookings in China. We were particularly pleased with the bookings in our chemical pulping business, where we won large orders from customers in Russia, China, and the United States.
"Cash flows from continuing operations were $12 million, doubling over last year's third quarter. We ended the third quarter of 2011 with $48 million in cash. Our net cash position, that is, cash less debt, was $31 million, up $2 million over the second quarter of 2011, despite having repurchased over $9 million of our common stock during the third quarter. In a separate press release also issued today, we announced that our board of directors has authorized $30 million of stock repurchases through November 2012.
"I am also pleased to report that we have settled the class action lawsuit related to the composites decking products business sold in 2005. As a result of this settlement, we increased our estimated liability reported in the discontinued operation by $1.2 million in the third quarter of 2011 to $3.3 million, including $2.6 million for claims and $0.7 million for legal costs.
"We are still on track to have a record annual EPS performance in 2011, both on a GAAP and on an adjusted basis. Looking forward, as we firm up our shipment plans for the fourth quarter, we now estimate that gross margins will be lower than we had anticipated at the time of our July earnings call. We expect to achieve GAAP diluted EPS from continuing operations of $.56 to $.58 in the fourth quarter of 2011 on revenues of $92 to $94 million. For the full year we expect to achieve GAAP diluted EPS from continuing operations of $2.42 to $2.44 on revenues of $330 to $332 million, revised from our previous guidance of $2.15 to $2.25 on revenues of $325 to $335 million. Adjusted diluted EPS for the year, excluding the asset and tax gains recorded in the third quarter of 2011, is expected to be $2.09 to $2.11, as compared to our previous guidance of $2.15 to $2.25."
Conference Call
Kadant will hold a webcast with a slide presentation on Thursday, October 27, 2011, at 11 a.m. eastern time to discuss its third quarter performance, as well as future expectations. To view this webcast, go to www.kadant.com and click on the "Investors" tab. To listen to the webcast via teleconference, call 866-804-6926 within the U.S., or +1-857-350-1672 outside the U.S. and reference participant passcode 83375884. An archive of the webcast presentation will be available on our Web site until November 25, 2011. In addition, shortly after the webcast, Kadant will post its general investor presentation incorporating the third quarter results on its Web site at www.kadant.com under the "Investors" tab. This presentation will be available until the end of the fourth quarter of 2011.
Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenues excluding the effect of foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted EBITDA.
We present increases or decreases in revenues excluding the effect of foreign currency translation to provide investors insight into underlying revenue trends. In addition, we exclude from certain financial measures restructuring costs, gains on the sale of assets and pension curtailment, and benefit from discrete tax items to give investors additional insight into our quarterly and annual operating performance, especially when compared to quarters in which such items had greater or lesser effect, or no effect. In addition, these items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors to gain a better understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.
The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.
Adjusted diluted EPS in the three-month periods ended October 1, 2011 and October 2, 2010 was calculated using the reported weighted average diluted shares for each period.
Adjusted net income and adjusted diluted EPS exclude:
gains on the sale of assets, net of tax, of $2.0 million, or $.16 per diluted share, in the third quarter of 2011 and $0.7 million, or $.06 per diluted share, in the third quarter of 2010. We believe that this other income is not indicative of our core operating results and not comparable to other periods, which have differing levels of incremental costs and other income or none at all.
discrete tax items of $2.1 million, or $.17 per diluted share, in the third quarter of 2011. These tax benefits were primarily due to the favorable resolution of an uncertain tax position. We believe that these tax benefits are not comparable to other periods, which may have differing levels of discrete tax items or none at all.
Adjusted EBITDA and adjusted operating income exclude gains from the sale of assets of $2.3 million in the three- and nine-month periods ended October 1, 2011. Adjusted EBITDA and adjusted operating income exclude a gain from the sale of assets of $0.7 million in the three-month period ended October 2, 2010, and gains from the sale of assets and pension curtailment of $1.3 million, offset by restructuring costs of $0.2 million in the nine-month period ended October 2, 2010. These items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.
Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables.
Financial Highlights (unaudited) ? ? ? ?
(In thousands, except per share amounts and percentages)
?
Three Months Ended Nine Months Ended
Consolidated Statement of Income ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Revenues $ 84,358 ? $ 66,516 ? $ 238,495 ? $ 196,773 ?
?
Costs and Operating Expenses:
Cost of revenues 48,347 37,214 130,685 109,428
Selling, general, and administrative expenses 26,080 22,465 76,374 66,270
Research and development expenses 1,408 1,326 4,123 3,904
Restructuring costs and other income, net (a) ? (2,282 ) ? (748 ) ? (2,282 ) ? (1,071 )
? 73,553 ? ? 60,257 ? ? 208,900 ? ? 178,531 ?
?
Operating Income 10,805 6,259 29,595 18,242
Interest Income 122 54 343 124
Interest Expense ? (254 ) ? (311 ) ? (810 ) ? (1,008 )
?
Income from Continuing Operations before Provision
for Income Taxes 10,673 6,002 29,128 17,358
Provision for Income Taxes ? 774 ? ? 1,431 ? ? 5,974 ? ? 3,864 ?
?
Income from Continuing Operations 9,899 4,571 23,154 13,494
?
Loss from Discontinued Operation, Net of Tax ? (1,156 ) ? (5 ) ? (1,165 ) ? (14 )
?
Net Income 8,743 4,566 21,989 13,480
?
Net Income Attributable to Noncontrolling Interest ? (95 ) ? (69 ) ? (246 ) ? (152 )
?
Net Income Attributable to Kadant $ 8,648 ? $ 4,497 ? $ 21,743 ? $ 13,328 ?
?
Amounts Attributable to Kadant:
Income from Continuing Operations $ 9,804 $ 4,502 $ 22,908 $ 13,342
Loss from Discontinued Operation, Net of Tax ? (1,156 ) ? (5 ) ? (1,165 ) ? (14 )
Net Income Attributable to Kadant $ 8,648 ? $ 4,497 ? $ 21,743 ? $ 13,328 ?
?
Earnings per Share from Continuing Operations
Attributable to Kadant:
Basic $ .81 ? $ .36 ? $ 1.87 ? $ 1.08 ?
Diluted $ .80 ? $ .36 ? $ 1.85 ? $ 1.07 ?
?
Earnings per Share Attributable to Kadant:
Basic $ .71 ? $ .36 ? $ 1.78 ? $ 1.08 ?
Diluted $ .70 ? $ .36 ? $ 1.76 ? $ 1.07 ?
?
Weighted Average Shares:
Basic ? 12,155 ? ? 12,336 ? ? 12,248 ? ? 12,391 ?
?
Diluted ? 12,276 ? ? 12,487 ? ? 12,387 ? ? 12,509 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Product Line ? Oct. 1, 2011 ? Oct. 2, 2010 ? (Decrease) ? Translation (b,c)
?
Stock-Preparation $ 33,031 $ 23,855 $ 9,176 $ 7,606
Fluid-Handling 25,310 21,597 3,713 2,080
Doctoring 14,017 12,272 1,745 1,212
Water-Management 9,933 6,915 3,018 2,769
Other ? 592 ? ? 630 ? ? (38 ) ? (65 )
Papermaking Systems Segment
82,883 65,269 17,614 13,602
Fiber-based Products ? 1,475 ? ? 1,247 ? ? 228 ? ? 228 ?
?
$ 84,358 ? $ 66,516 ? $ 17,842 ? $ 13,830 ?
?
Increase
(Decrease)
Excluding Effect
Nine Months Ended of Currency
Oct. 1, 2011 ? Oct. 2, 2010 ? Increase ? Translation (b,c)
?
Stock-Preparation $ 88,674 $ 66,614 $ 22,060 $ 18,621
Fluid-Handling 72,414 61,732 10,682 6,820
Doctoring 41,774 37,478 4,296 2,887
Water-Management 25,263 21,986 3,277 2,537
Other ? 1,913 ? ? 1,881 ? ? 32 ? ? (75 )
Papermaking Systems Segment
230,038 189,691 40,347 30,790
Fiber-based Products ? 8,457 ? ? 7,082 ? ? 1,375 ? ? 1,375 ?
?
$ 238,495 ? $ 196,773 ? $ 41,722 ? $ 32,165 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Product Line ? Oct. 1, 2011 ? July 2, 2011 ? (Decrease) ? Translation (b,c)
?
Stock-Preparation $ 33,031 $ 32,320 $ 711 $ 663
Fluid-Handling 25,310 24,471 839 1,004
Doctoring 14,017 13,694 323 495
Water-Management 9,933 8,515 1,418 1,524
Other ? 592 ? ? 621 ? ? (29 ) ? (3 )
Papermaking Systems Segment
82,883 79,621 3,262 3,683
Fiber-based Products ? 1,475 ? ? 2,836 ? ? (1,361 ) ? (1,361 )
?
$ 84,358 ? $ 82,457 ? $ 1,901 ? $ 2,322 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Geography (d) ? Oct. 1, 2011 ? Oct. 2, 2010 ? (Decrease) ? Translation (b,c)
?
North America $ 34,875 $ 31,733 $ 3,142 $ 2,791
Europe 28,497 21,110 7,387 5,000
China 18,716 10,893 7,823 6,727
South America 1,741 2,118 (377 ) (480 )
Australia ? 529 ? ? 662 ? ? (133 ) ? (208 )
?
$ 84,358 ? $ 66,516 ? $ 17,842 ? $ 13,830 ?
?
Increase
Excluding Effect
Nine Months Ended of Currency
Oct. 1, 2011 ? Oct. 2, 2010 ? Increase ? Translation (b,c)
?
North America $ 112,289 $ 103,188 $ 9,101 $ 8,044
Europe 75,048 62,475 12,573 7,092
China 43,182 24,747 18,435 16,164
South America 6,005 4,835 1,170 692
Australia ? 1,971 ? ? 1,528 ? ? 443 ? ? 173 ?
?
$ 238,495 ? $ 196,773 ? $ 41,722 ? $ 32,165 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Geography (d) ? Oct. 1, 2011 ? July 2, 2011 ? (Decrease) ? Translation (b,c)
?
North America $ 34,875 $ 38,128 $ (3,253 ) $ (3,058 )
Europe 28,497 25,286 3,211 3,678
China 18,716 15,689 3,027 2,749
South America 1,741 2,681 (940 ) (907 )
Australia ? 529 ? ? 673 ? ? (144 ) ? (140 )
?
$ 84,358 ? $ 82,457 ? $ 1,901 ? $ 2,322 ?
?
Three Months Ended Nine Months Ended
Business Segment Information ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Gross Profit Margin:
Papermaking Systems 42.8 % 44.4 % 45.0 % 44.3 %
Fiber-based Products ? 36.5 % ? 28.3 % ? 50.3 % ? 46.8 %
?
? 42.7 % ? 44.1 % ? 45.2 % ? 44.4 %
?
Operating Income:
Papermaking Systems $ 14,573 $ 10,101 $ 38,343 $ 27,300
Corporate and Fiber-based Products ? (3,768 ) ? (3,842 ) ? (8,748 ) ? (9,058 )
?
$ 10,805 ? $ 6,259 ? $ 29,595 ? $ 18,242 ?
?
Adjusted Operating Income (c,e):
Papermaking Systems $ 12,291 $ 9,353 $ 36,061 $ 26,229
Corporate and Fiber-based Products ? (3,768 ) ? (3,842 ) ? (8,748 ) ? (9,058 )
?
$ 8,523 ? $ 5,511 ? $ 27,313 ? $ 17,171 ?
?
Bookings from Continuing Operations:
Papermaking Systems $ 93,965 $ 56,933 $ 259,797 $ 196,712
Fiber-based Products ? 1,304 ? ? 1,469 ? ? 7,112 ? ? 6,133 ?
?
$ 95,269 ? $ 58,402 ? $ 266,909 ? $ 202,845 ?
?
Capital Expenditures from Continuing Operations:
Papermaking Systems $ 1,371 $ 650 $ 5,281 $ 1,710
Corporate and Fiber-based Products ? 138 ? ? 93 ? ? 192 ? ? 325 ?
?
$ 1,509 ? $ 743 ? $ 5,473 ? $ 2,035 ?
?
Three Months Ended Nine Months Ended
Cash Flow and Other Data from Continuing Operations ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Cash Provided by Operations $ 12,293 $ 6,012 $ 19,499 $ 14,420
Depreciation and Amortization Expense 2,100 1,926 5,947 5,281
?
?
Balance Sheet Data ? ? ? ? ? Oct. 1, 2011 ? Jan. 1, 2011
?
Assets
Cash and Cash Equivalents $ 46,851 $ 61,805
Restricted Cash 1,188 -
Accounts Receivable, net 55,523 49,897
Inventories 58,540 41,628
Unbilled Contract Costs and Fees 2,628 875
Other Current Assets 10,303 9,402
Property, Plant and Equipment, net 39,111 36,911
Intangible Assets 30,011 26,793
Goodwill 107,565 97,988
Other Assets ? 10,155 ? ? 11,473 ?
?
$ 361,875 ? $ 336,772 ?
Liabilities and Shareholders' Investment
Accounts Payable $ 23,655 $ 23,756
Short- and Long-term Debt 17,375 22,750
Other Liabilities ? 99,303 ? ? 82,965 ?
?
Total Liabilities $ 140,333 $ 129,471
Shareholders' Investment $ 221,542 ? $ 207,301 ?
?
$ 361,875 ? $ 336,772 ?
?
Adjusted Operating Income and Adjusted EBITDA Three Months Ended Nine Months Ended
Reconciliation ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Consolidated
Net Income Attributable to Kadant $ 8,648 $ 4,497 $ 21,743 $ 13,328
Net Income Attributable to Noncontrolling Interest 95 69 246 152
Loss from Discontinued Operation, Net of Tax 1,156 5 1,165 14
Provision for Income Taxes 774 1,431 5,974 3,864
Interest Expense, net 132 257 467 884
Restructuring costs and other income, net (a) ? (2,282 ) ? (748 ) ? (2,282 ) ? (1,071 )
?
Adjusted Operating Income (c) 8,523 5,511 27,313 17,171
Depreciation and Amortization ? 2,100 ? ? 1,926 ? ? 5,947 ? ? 5,281 ?
?
Adjusted EBITDA (c) $ 10,623 ? $ 7,437 ? $ 33,260 ? $ 22,452 ?
?
Papermaking Systems
Operating Income $ 14,573 $ 10,101 $ 38,343 $ 27,300
Restructuring costs and other income, net (a) ? (2,282 ) ? (748 ) ? (2,282 ) ? (1,071 )
?
Adjusted Operating Income (c) 12,291 9,353 36,061 26,229
Depreciation and Amortization ? 1,985 ? ? 1,811 ? ? 5,589 ? ? 4,930 ?
?
Adjusted EBITDA (c) $ 14,276 ? $ 11,164 ? $ 41,650 ? $ 31,159 ?
?
Corporate and Fiber-based Products
Operating Loss $ (3,768 ) $ (3,842 ) $ (8,748 ) $ (9,058 )
Depreciation and Amortization ? 115 ? ? 115 ? ? 358 ? ? 351 ?
?
EBITDA (c) $ (3,653 ) $ (3,727 ) $ (8,390 ) $ (8,707 )
(a) ?
Includes a pre-tax gain from the sale of assets of $2,282 in the three-and nine-month periods ended October 1, 2011. Includes a pre-tax gain from the sale of assets of $748 in the three-month period ended October 2, 2010, and pre-tax gains from the sale of assets and pension curtailment of $1,252, offset by restructuring costs of $181 in the nine-month period ended October 2, 2010.
?
(b)
Represents the increase (decrease) resulting from the conversion of current period amounts reported in local currencies into U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the prior period.
?
(c) Represents a non-GAAP financial measure.
?
(d)
Geographic revenues data is attributed to regions based on selling locations. For North America and China, this usually approximates revenues based on where the equipment is shipped to and installed. Our European geographic data, however, includes revenues shipped to and installed outside of Europe, including South America, Africa, the Middle East, and certain countries in Asia (excluding China).
?
(e)
See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."
About Kadant
Kadant is a leading supplier to the global pulp and paper industry. Our stock-preparation, fluid-handling, doctoring, and water-management equipment and systems are designed to increase efficiency and improve quality in pulp and paper production. Many of our products, particularly in our fluid-handling product line, are also used to optimize production in other process industries. In addition, we produce granules from papermaking byproducts for agricultural and lawn and garden applications. Kadant is based in Westford, Massachusetts, with revenues of $270 million in 2010 and 1,600 employees in 16 countries worldwide. For more information, visit www.kadant.com.
The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our expected future financial and operating performance and demand for our products. The recently filed settlement of the composites building products litigation disclosed herein is contingent upon a number of items, including the preliminary and final approval of the court, and there is no assurance that it will be approved in its present form or at all. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading "Risk Factors" in Kadant's quarterly report on Form 10-Q for the period ended July 2, 2011. These include risks and uncertainties relating to our dependence on the pulp and paper industry; significance of sales and operation of manufacturing facilities in China; our ability to expand capacity in China to meet demand; commodity and component price increases or shortages; international sales and operations; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; litigation and warranty costs related to our discontinued operation and the court approval of the recently filed settlement; our acquisition strategy; protection of patents and proprietary rights; fluctuations in our share price; and anti-takeover provisions. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.
Contact:
Kadant Inc.
Investor contact:
Thomas M. O'Brien, 978-776-2000
Kadant Inc. reported revenues from continuing operations of $84.4 million in the third quarter of 2011, an increase of $17.9 million, or 27 percent, compared to $66.5 million in the third quarter of 2010. Revenues in the third quarter of 2011 included increases of $4.0 million, or 6 percent, from foreign currency translation and $1.6 million, or 2 percent, from acquisitions compared to the third quarter of 2010. Operating income from continuing operations in the third quarter of 2011 was $10.8 million, or 12.8 percent of revenues, compared to $6.3 million, or 9.4 percent of revenues, in the third quarter of 2010. Operating income in the third quarters of 2011 and 2010 included income of $2.3 million and $0.7 million, respectively, related to gains from the sale of assets. Net income in the third quarter of 2011 was $8.6 million, or $.70 per diluted share, compared to $4.5 million, or $.36 per diluted share, in the third quarter of 2010. Net income from continuing operations in the third quarter of 2011 was $9.8 million, or $.80 per diluted share, compared to $4.5 million, or $.36 per diluted share, in the third quarter of 2010. Net income from continuing operations in the third quarter of 2011 included after-tax gains from the sale of assets of $2.0 million, or $.16 per diluted share, and a benefit from discrete tax items of $2.1 million, or $.17 per share, primarily due to the favorable resolution of an uncertain tax position. Net income from continuing operations in the third quarter of 2010 included after-tax gains from the sale of assets of $0.7 million, or $.06 per diluted share. Loss from discontinued operation in the third quarter of 2011 was $1.2 million, or $.10 per diluted share, due to an increase in the estimated liability associated with the recently filed class action settlement disclosed in a Form 8-K filed today. Adjusted net income, a non-GAAP measure, in the third quarter of 2011 was $5.7 million, or $.47 per diluted share, increasing 50 percent compared to $3.8 million, or $.30 per diluted share, in the third quarter of 2010.
Adjusted Net Income and Adjusted Diluted Earnings
per Share (EPS) Reconciliation (non-GAAP)
?
Three Months Ended
Oct. 1, 2011
?
Three Months Ended
Oct. 2, 2010
($ in millions)
?
Diluted EPS
($ in millions)
?
Diluted EPS
Net Income and Diluted EPS Attributable to Kadant, as reported
$
8.6
$
.70
$
4.5
$
.36
Loss from discontinued operation ? 1.2 ? .10 ? - ? -
Income and Diluted EPS from Continuing Operations, as reported
9.8
.80
4.5
.36
Adjustments for the following:
Gains from the sale of assets (2.0 ) (.16 ) (0.7 ) (.06 )
Benefit from discrete tax items ? (2.1 ) ? (.17 ) ? - ? -
Adjusted Net Income and Adjusted Diluted EPS $ 5.7 $ .47 $ 3.8 $ .30
"We had another outstanding quarter," said Jonathan W. Painter, president and chief executive officer of Kadant. "GAAP diluted EPS from continuing operations was $.80 and is the highest quarterly result achieved in our 19 years as a public company. Excluding the gains from the sale of a building and a benefit from discrete tax items, adjusted diluted EPS increased over 50 percent from last year's third quarter to $.47. This exceeded our guidance of $.40 to $.42, largely due to higher than expected revenues, and included bad debt expense of $.03 for a customer bankruptcy which occurred during the quarter and was not reflected in our guidance.
"Revenues of $84 million also exceeded our guidance, which was $80 to $82 million. Revenues increased 27 percent compared to the third quarter last year and, encouragingly, included double digit increases in all our major product lines, led by stock-preparation, which was up 38 percent.
"Bookings were $95 million in the third quarter of 2011, increasing 63 percent over last year's third quarter and 9 percent over the second quarter of 2011. This strong bookings performance, one of our best ever, contributed to a record backlog of $128 million, which was up 89 percent over third quarter last year and 7 percent over the previous record high set in the second quarter of 2011. Our book-to-bill ratio was 1.13, marking the fourth consecutive quarter where bookings have exceeded revenues. In general, the bookings performance was very strong in both our North American and European-based operations, offsetting weak bookings in China. We were particularly pleased with the bookings in our chemical pulping business, where we won large orders from customers in Russia, China, and the United States.
"Cash flows from continuing operations were $12 million, doubling over last year's third quarter. We ended the third quarter of 2011 with $48 million in cash. Our net cash position, that is, cash less debt, was $31 million, up $2 million over the second quarter of 2011, despite having repurchased over $9 million of our common stock during the third quarter. In a separate press release also issued today, we announced that our board of directors has authorized $30 million of stock repurchases through November 2012.
"I am also pleased to report that we have settled the class action lawsuit related to the composites decking products business sold in 2005. As a result of this settlement, we increased our estimated liability reported in the discontinued operation by $1.2 million in the third quarter of 2011 to $3.3 million, including $2.6 million for claims and $0.7 million for legal costs.
"We are still on track to have a record annual EPS performance in 2011, both on a GAAP and on an adjusted basis. Looking forward, as we firm up our shipment plans for the fourth quarter, we now estimate that gross margins will be lower than we had anticipated at the time of our July earnings call. We expect to achieve GAAP diluted EPS from continuing operations of $.56 to $.58 in the fourth quarter of 2011 on revenues of $92 to $94 million. For the full year we expect to achieve GAAP diluted EPS from continuing operations of $2.42 to $2.44 on revenues of $330 to $332 million, revised from our previous guidance of $2.15 to $2.25 on revenues of $325 to $335 million. Adjusted diluted EPS for the year, excluding the asset and tax gains recorded in the third quarter of 2011, is expected to be $2.09 to $2.11, as compared to our previous guidance of $2.15 to $2.25."
Conference Call
Kadant will hold a webcast with a slide presentation on Thursday, October 27, 2011, at 11 a.m. eastern time to discuss its third quarter performance, as well as future expectations. To view this webcast, go to www.kadant.com and click on the "Investors" tab. To listen to the webcast via teleconference, call 866-804-6926 within the U.S., or +1-857-350-1672 outside the U.S. and reference participant passcode 83375884. An archive of the webcast presentation will be available on our Web site until November 25, 2011. In addition, shortly after the webcast, Kadant will post its general investor presentation incorporating the third quarter results on its Web site at www.kadant.com under the "Investors" tab. This presentation will be available until the end of the fourth quarter of 2011.
Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenues excluding the effect of foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA), and adjusted EBITDA.
We present increases or decreases in revenues excluding the effect of foreign currency translation to provide investors insight into underlying revenue trends. In addition, we exclude from certain financial measures restructuring costs, gains on the sale of assets and pension curtailment, and benefit from discrete tax items to give investors additional insight into our quarterly and annual operating performance, especially when compared to quarters in which such items had greater or lesser effect, or no effect. In addition, these items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors to gain a better understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.
The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.
Adjusted diluted EPS in the three-month periods ended October 1, 2011 and October 2, 2010 was calculated using the reported weighted average diluted shares for each period.
Adjusted net income and adjusted diluted EPS exclude:
gains on the sale of assets, net of tax, of $2.0 million, or $.16 per diluted share, in the third quarter of 2011 and $0.7 million, or $.06 per diluted share, in the third quarter of 2010. We believe that this other income is not indicative of our core operating results and not comparable to other periods, which have differing levels of incremental costs and other income or none at all.
discrete tax items of $2.1 million, or $.17 per diluted share, in the third quarter of 2011. These tax benefits were primarily due to the favorable resolution of an uncertain tax position. We believe that these tax benefits are not comparable to other periods, which may have differing levels of discrete tax items or none at all.
Adjusted EBITDA and adjusted operating income exclude gains from the sale of assets of $2.3 million in the three- and nine-month periods ended October 1, 2011. Adjusted EBITDA and adjusted operating income exclude a gain from the sale of assets of $0.7 million in the three-month period ended October 2, 2010, and gains from the sale of assets and pension curtailment of $1.3 million, offset by restructuring costs of $0.2 million in the nine-month period ended October 2, 2010. These items are excluded as they are either isolated or cannot be expected to occur again with any regularity or predictability and we believe are not indicative of our normal operating results.
Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables.
Financial Highlights (unaudited) ? ? ? ?
(In thousands, except per share amounts and percentages)
?
Three Months Ended Nine Months Ended
Consolidated Statement of Income ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Revenues $ 84,358 ? $ 66,516 ? $ 238,495 ? $ 196,773 ?
?
Costs and Operating Expenses:
Cost of revenues 48,347 37,214 130,685 109,428
Selling, general, and administrative expenses 26,080 22,465 76,374 66,270
Research and development expenses 1,408 1,326 4,123 3,904
Restructuring costs and other income, net (a) ? (2,282 ) ? (748 ) ? (2,282 ) ? (1,071 )
? 73,553 ? ? 60,257 ? ? 208,900 ? ? 178,531 ?
?
Operating Income 10,805 6,259 29,595 18,242
Interest Income 122 54 343 124
Interest Expense ? (254 ) ? (311 ) ? (810 ) ? (1,008 )
?
Income from Continuing Operations before Provision
for Income Taxes 10,673 6,002 29,128 17,358
Provision for Income Taxes ? 774 ? ? 1,431 ? ? 5,974 ? ? 3,864 ?
?
Income from Continuing Operations 9,899 4,571 23,154 13,494
?
Loss from Discontinued Operation, Net of Tax ? (1,156 ) ? (5 ) ? (1,165 ) ? (14 )
?
Net Income 8,743 4,566 21,989 13,480
?
Net Income Attributable to Noncontrolling Interest ? (95 ) ? (69 ) ? (246 ) ? (152 )
?
Net Income Attributable to Kadant $ 8,648 ? $ 4,497 ? $ 21,743 ? $ 13,328 ?
?
Amounts Attributable to Kadant:
Income from Continuing Operations $ 9,804 $ 4,502 $ 22,908 $ 13,342
Loss from Discontinued Operation, Net of Tax ? (1,156 ) ? (5 ) ? (1,165 ) ? (14 )
Net Income Attributable to Kadant $ 8,648 ? $ 4,497 ? $ 21,743 ? $ 13,328 ?
?
Earnings per Share from Continuing Operations
Attributable to Kadant:
Basic $ .81 ? $ .36 ? $ 1.87 ? $ 1.08 ?
Diluted $ .80 ? $ .36 ? $ 1.85 ? $ 1.07 ?
?
Earnings per Share Attributable to Kadant:
Basic $ .71 ? $ .36 ? $ 1.78 ? $ 1.08 ?
Diluted $ .70 ? $ .36 ? $ 1.76 ? $ 1.07 ?
?
Weighted Average Shares:
Basic ? 12,155 ? ? 12,336 ? ? 12,248 ? ? 12,391 ?
?
Diluted ? 12,276 ? ? 12,487 ? ? 12,387 ? ? 12,509 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Product Line ? Oct. 1, 2011 ? Oct. 2, 2010 ? (Decrease) ? Translation (b,c)
?
Stock-Preparation $ 33,031 $ 23,855 $ 9,176 $ 7,606
Fluid-Handling 25,310 21,597 3,713 2,080
Doctoring 14,017 12,272 1,745 1,212
Water-Management 9,933 6,915 3,018 2,769
Other ? 592 ? ? 630 ? ? (38 ) ? (65 )
Papermaking Systems Segment
82,883 65,269 17,614 13,602
Fiber-based Products ? 1,475 ? ? 1,247 ? ? 228 ? ? 228 ?
?
$ 84,358 ? $ 66,516 ? $ 17,842 ? $ 13,830 ?
?
Increase
(Decrease)
Excluding Effect
Nine Months Ended of Currency
Oct. 1, 2011 ? Oct. 2, 2010 ? Increase ? Translation (b,c)
?
Stock-Preparation $ 88,674 $ 66,614 $ 22,060 $ 18,621
Fluid-Handling 72,414 61,732 10,682 6,820
Doctoring 41,774 37,478 4,296 2,887
Water-Management 25,263 21,986 3,277 2,537
Other ? 1,913 ? ? 1,881 ? ? 32 ? ? (75 )
Papermaking Systems Segment
230,038 189,691 40,347 30,790
Fiber-based Products ? 8,457 ? ? 7,082 ? ? 1,375 ? ? 1,375 ?
?
$ 238,495 ? $ 196,773 ? $ 41,722 ? $ 32,165 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Product Line ? Oct. 1, 2011 ? July 2, 2011 ? (Decrease) ? Translation (b,c)
?
Stock-Preparation $ 33,031 $ 32,320 $ 711 $ 663
Fluid-Handling 25,310 24,471 839 1,004
Doctoring 14,017 13,694 323 495
Water-Management 9,933 8,515 1,418 1,524
Other ? 592 ? ? 621 ? ? (29 ) ? (3 )
Papermaking Systems Segment
82,883 79,621 3,262 3,683
Fiber-based Products ? 1,475 ? ? 2,836 ? ? (1,361 ) ? (1,361 )
?
$ 84,358 ? $ 82,457 ? $ 1,901 ? $ 2,322 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Revenues by Geography (d) ? Oct. 1, 2011 ? Oct. 2, 2010 ? (Decrease) ? Translation (b,c)
?
North America $ 34,875 $ 31,733 $ 3,142 $ 2,791
Europe 28,497 21,110 7,387 5,000
China 18,716 10,893 7,823 6,727
South America 1,741 2,118 (377 ) (480 )
Australia ? 529 ? ? 662 ? ? (133 ) ? (208 )
?
$ 84,358 ? $ 66,516 ? $ 17,842 ? $ 13,830 ?
?
Increase
Excluding Effect
Nine Months Ended of Currency
Oct. 1, 2011 ? Oct. 2, 2010 ? Increase ? Translation (b,c)
?
North America $ 112,289 $ 103,188 $ 9,101 $ 8,044
Europe 75,048 62,475 12,573 7,092
China 43,182 24,747 18,435 16,164
South America 6,005 4,835 1,170 692
Australia ? 1,971 ? ? 1,528 ? ? 443 ? ? 173 ?
?
$ 238,495 ? $ 196,773 ? $ 41,722 ? $ 32,165 ?
?
Increase
(Decrease)
Excluding Effect
Three Months Ended Increase of Currency
Sequential Revenues by Geography (d) ? Oct. 1, 2011 ? July 2, 2011 ? (Decrease) ? Translation (b,c)
?
North America $ 34,875 $ 38,128 $ (3,253 ) $ (3,058 )
Europe 28,497 25,286 3,211 3,678
China 18,716 15,689 3,027 2,749
South America 1,741 2,681 (940 ) (907 )
Australia ? 529 ? ? 673 ? ? (144 ) ? (140 )
?
$ 84,358 ? $ 82,457 ? $ 1,901 ? $ 2,322 ?
?
Three Months Ended Nine Months Ended
Business Segment Information ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Gross Profit Margin:
Papermaking Systems 42.8 % 44.4 % 45.0 % 44.3 %
Fiber-based Products ? 36.5 % ? 28.3 % ? 50.3 % ? 46.8 %
?
? 42.7 % ? 44.1 % ? 45.2 % ? 44.4 %
?
Operating Income:
Papermaking Systems $ 14,573 $ 10,101 $ 38,343 $ 27,300
Corporate and Fiber-based Products ? (3,768 ) ? (3,842 ) ? (8,748 ) ? (9,058 )
?
$ 10,805 ? $ 6,259 ? $ 29,595 ? $ 18,242 ?
?
Adjusted Operating Income (c,e):
Papermaking Systems $ 12,291 $ 9,353 $ 36,061 $ 26,229
Corporate and Fiber-based Products ? (3,768 ) ? (3,842 ) ? (8,748 ) ? (9,058 )
?
$ 8,523 ? $ 5,511 ? $ 27,313 ? $ 17,171 ?
?
Bookings from Continuing Operations:
Papermaking Systems $ 93,965 $ 56,933 $ 259,797 $ 196,712
Fiber-based Products ? 1,304 ? ? 1,469 ? ? 7,112 ? ? 6,133 ?
?
$ 95,269 ? $ 58,402 ? $ 266,909 ? $ 202,845 ?
?
Capital Expenditures from Continuing Operations:
Papermaking Systems $ 1,371 $ 650 $ 5,281 $ 1,710
Corporate and Fiber-based Products ? 138 ? ? 93 ? ? 192 ? ? 325 ?
?
$ 1,509 ? $ 743 ? $ 5,473 ? $ 2,035 ?
?
Three Months Ended Nine Months Ended
Cash Flow and Other Data from Continuing Operations ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Cash Provided by Operations $ 12,293 $ 6,012 $ 19,499 $ 14,420
Depreciation and Amortization Expense 2,100 1,926 5,947 5,281
?
?
Balance Sheet Data ? ? ? ? ? Oct. 1, 2011 ? Jan. 1, 2011
?
Assets
Cash and Cash Equivalents $ 46,851 $ 61,805
Restricted Cash 1,188 -
Accounts Receivable, net 55,523 49,897
Inventories 58,540 41,628
Unbilled Contract Costs and Fees 2,628 875
Other Current Assets 10,303 9,402
Property, Plant and Equipment, net 39,111 36,911
Intangible Assets 30,011 26,793
Goodwill 107,565 97,988
Other Assets ? 10,155 ? ? 11,473 ?
?
$ 361,875 ? $ 336,772 ?
Liabilities and Shareholders' Investment
Accounts Payable $ 23,655 $ 23,756
Short- and Long-term Debt 17,375 22,750
Other Liabilities ? 99,303 ? ? 82,965 ?
?
Total Liabilities $ 140,333 $ 129,471
Shareholders' Investment $ 221,542 ? $ 207,301 ?
?
$ 361,875 ? $ 336,772 ?
?
Adjusted Operating Income and Adjusted EBITDA Three Months Ended Nine Months Ended
Reconciliation ? Oct. 1, 2011 ? Oct. 2, 2010 ? Oct. 1, 2011 ? Oct. 2, 2010
?
Consolidated
Net Income Attributable to Kadant $ 8,648 $ 4,497 $ 21,743 $ 13,328
Net Income Attributable to Noncontrolling Interest 95 69 246 152
Loss from Discontinued Operation, Net of Tax 1,156 5 1,165 14
Provision for Income Taxes 774 1,431 5,974 3,864
Interest Expense, net 132 257 467 884
Restructuring costs and other income, net (a) ? (2,282 ) ? (748 ) ? (2,282 ) ? (1,071 )
?
Adjusted Operating Income (c) 8,523 5,511 27,313 17,171
Depreciation and Amortization ? 2,100 ? ? 1,926 ? ? 5,947 ? ? 5,281 ?
?
Adjusted EBITDA (c) $ 10,623 ? $ 7,437 ? $ 33,260 ? $ 22,452 ?
?
Papermaking Systems
Operating Income $ 14,573 $ 10,101 $ 38,343 $ 27,300
Restructuring costs and other income, net (a) ? (2,282 ) ? (748 ) ? (2,282 ) ? (1,071 )
?
Adjusted Operating Income (c) 12,291 9,353 36,061 26,229
Depreciation and Amortization ? 1,985 ? ? 1,811 ? ? 5,589 ? ? 4,930 ?
?
Adjusted EBITDA (c) $ 14,276 ? $ 11,164 ? $ 41,650 ? $ 31,159 ?
?
Corporate and Fiber-based Products
Operating Loss $ (3,768 ) $ (3,842 ) $ (8,748 ) $ (9,058 )
Depreciation and Amortization ? 115 ? ? 115 ? ? 358 ? ? 351 ?
?
EBITDA (c) $ (3,653 ) $ (3,727 ) $ (8,390 ) $ (8,707 )
(a) ?
Includes a pre-tax gain from the sale of assets of $2,282 in the three-and nine-month periods ended October 1, 2011. Includes a pre-tax gain from the sale of assets of $748 in the three-month period ended October 2, 2010, and pre-tax gains from the sale of assets and pension curtailment of $1,252, offset by restructuring costs of $181 in the nine-month period ended October 2, 2010.
?
(b)
Represents the increase (decrease) resulting from the conversion of current period amounts reported in local currencies into U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the prior period.
?
(c) Represents a non-GAAP financial measure.
?
(d)
Geographic revenues data is attributed to regions based on selling locations. For North America and China, this usually approximates revenues based on where the equipment is shipped to and installed. Our European geographic data, however, includes revenues shipped to and installed outside of Europe, including South America, Africa, the Middle East, and certain countries in Asia (excluding China).
?
(e)
See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."
About Kadant
Kadant is a leading supplier to the global pulp and paper industry. Our stock-preparation, fluid-handling, doctoring, and water-management equipment and systems are designed to increase efficiency and improve quality in pulp and paper production. Many of our products, particularly in our fluid-handling product line, are also used to optimize production in other process industries. In addition, we produce granules from papermaking byproducts for agricultural and lawn and garden applications. Kadant is based in Westford, Massachusetts, with revenues of $270 million in 2010 and 1,600 employees in 16 countries worldwide. For more information, visit www.kadant.com.
The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our expected future financial and operating performance and demand for our products. The recently filed settlement of the composites building products litigation disclosed herein is contingent upon a number of items, including the preliminary and final approval of the court, and there is no assurance that it will be approved in its present form or at all. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading "Risk Factors" in Kadant's quarterly report on Form 10-Q for the period ended July 2, 2011. These include risks and uncertainties relating to our dependence on the pulp and paper industry; significance of sales and operation of manufacturing facilities in China; our ability to expand capacity in China to meet demand; commodity and component price increases or shortages; international sales and operations; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; litigation and warranty costs related to our discontinued operation and the court approval of the recently filed settlement; our acquisition strategy; protection of patents and proprietary rights; fluctuations in our share price; and anti-takeover provisions. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.
Contact:
Kadant Inc.
Investor contact:
Thomas M. O'Brien, 978-776-2000