28.10.10

Kadant: Results for Third Quarter 2010

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Kadant Inc. reported revenues from continuing operations of $66.5 million in the third quarter of 2010, an increase of $12.8 million, or 24 percent, compared to $53.7 million in the third quarter of 2009. Revenues in the third quarter of 2010 included a $1.6 million, or 3 percent, decrease from foreign currency translation compared to the third quarter of 2009. Operating income from continuing operations in the third quarter of 2010 was $6.3 million compared to $0.8 million in the third quarter of 2009. Operating income in the third quarter of 2010 included a pre-tax gain of $0.7 million and operating income in the third quarter of 2009 included pre-tax restructuring costs of $0.5 million. Net income in the third quarter of 2010 was $4.5 million, or $.36 per diluted share, versus a net loss of $0.1 million, or $.01 per diluted share, in the third quarter of 2009. Net income in the third quarter of 2010 included an after-tax gain on the sale of real estate of $0.7 million, or $.06 per diluted share. Net loss in the third quarter of 2009 included a $0.4 million, or $.03 per diluted share, incremental tax provision, and a $0.3 million, or $.03 per diluted share, after-tax restructuring charge.

"We are very encouraged with our operating performance in the third quarter," said Jonathan W. Painter, president and chief executive officer of Kadant. "Diluted EPS was $.36 in the third quarter of 2010 and, excluding the real estate gain of $.06, was $.30 compared to our guidance of $.21 to $.23. The stronger performance was due to higher revenues in our fluid-handling and stock preparation product lines and to another quarter of strong gross margins. Gross margins were 44 percent, slightly lower than the record gross margins in the second quarter of 2010.

"Revenues of $66.5 million were well above the high end of our guidance for the quarter of $62 million, as fluid-handling revenues reached their highest level in two years. Operating income was 9.4 percent of revenues, or 8.3 percent excluding the real estate gain. Operating cash flows were $6.0 million, and we ended the quarter with over $26 million in net cash, or approximately $2.13 per diluted share.

"We noted in our press release in July that we expected a slowdown in bookings in the second half of 2010 compared to the first half, and indeed this was the case in the third quarter. Bookings of $58.4 million were 6 percent lower than last year's third quarter, and were 21 percent below the second quarter of 2010. Sequential bookings were essentially flat in the parts and consumables portion of our business, but were significantly lower in the capital business. We believe that some of this decline in capital may be due to the timing of orders, especially in China, where we saw a significant sequential decline in capital orders in the third quarter. Encouragingly, after the quarter closed we were awarded several large contracts for stock preparation systems in China, totaling $14.1 million. We expect to record these pending orders as bookings in the fourth quarter upon receipt of the down payments.

"Although we expect sequentially stronger capital bookings in the fourth quarter of 2010, based on the anticipated shipment dates these will not materially affect revenues in the fourth quarter. With that in mind, we expect to report revenues of $64 to $66 million in the fourth quarter of 2010, essentially flat with third quarter 2010. With a higher proportion of capital business, we expect some decline in gross margins from the levels of the past three quarters, resulting in diluted EPS of $.26 to $.28 in the fourth quarter. For the full year, we are raising both our revenue and EPS guidance. We expect to achieve GAAP diluted EPS of $1.33 to $1.35 from continuing operations, revised from our previous estimate of $1.20 to $1.25, on revenues of $261 to $263 million, revised from our previous estimate of $255 to $260 million."

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, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, and diluted EPS excluding the gain on the sale of real estate.

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 and certain gains and losses 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 EBITDA and adjusted operating income exclude a pre-tax gain of $0.7 million in the three-month period ended October 2, 2010 and pre-tax restructuring costs of $0.5 million in the three-month period ended October 3, 2009. Adjusted EBITDA and adjusted operating income exclude pre-tax gains of $1.3 million and restructuring costs of $0.2 million in the nine-month period ended October 2, 2010 and pre-tax restructuring costs of $2.3 million in the nine-month period ended October 3, 2009. Adjusted diluted EPS excludes the after-tax gain on the sale of real estate of $0.7 million, or $.06 per diluted share, in the three-month period ended October 2, 2010.

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 Operations         Oct. 2, 2010         Oct. 3, 2009         Oct. 2, 2010         Oct. 3, 2009
                                        
Revenues         $     66,516             $     53,716             $     196,773             $     168,805     
                                        
Costs and Operating Expenses:                                 
    Cost of revenues             37,214                 31,776                 109,428                 101,441     
    Selling, general, and administrative expenses             22,465                 19,557                 66,270                 61,010     
    Research and development expenses             1,326                 1,059                 3,904                 4,251     
    Restructuring costs and other income, net (a)             (748     )             513                 (1,071     )             2,283     
                    60,257                 52,905                 178,531                 168,985     
                                        
Operating Income (Loss)             6,259                 811                 18,242                 (180     )
Interest Income             54                 49                 124                 348     
Interest Expense             (311     )             (473     )             (1,008     )             (1,793     )
                                        

Income (Loss) from Continuing Operations Before Provision for Income Taxes
            6,002                 387                 17,358                 (1,625     )
Provision for Income Taxes             1,431                 530                 3,864                 2,596     
                                        
Income (Loss) from Continuing Operations             4,571                 (143     )             13,494                 (4,221     )
                                        
Loss from Discontinued Operation, Net of Tax             (5     )             (5     )             (14     )             (14     )
                                        
Net Income (Loss)             4,566                 (148     )             13,480                 (4,235     )
                                        
Net (Income) Loss Attributable to Noncontrolling Interest             (69     )             29                 (152     )             32     
                                        
Net Income (Loss) Attributable to Kadant         $     4,497             $     (119     )         $     13,328             $     (4,203     )
                                        
Amounts Attributable to Kadant:                                 
        Income (Loss) from Continuing Operations         $     4,502             $     (114     )         $     13,342             $     (4,189     )
        Loss from Discontinued Operation, Net of Tax             (5     )             (5     )             (14     )             (14     )
        Net Income (Loss) Attributable to Kadant         $     4,497             $     (119     )         $     13,328             $     (4,203     )
                                        
Earnings (Loss) per Share from Continuing Operations                                 
    Attributable to Kadant:                                 
        Basic         $     .36             $     (.01     )         $     1.08             $     (.34     )
        Diluted         $     .36             $     (.01     )         $     1.07             $     (.34     )
                                        
Earnings (Loss) per Share Attributable to Kadant:                                 
        Basic         $     .36             $     (.01     )         $     1.08             $     (.34     )
        Diluted         $     .36             $     (.01     )         $     1.07             $     (.34     )
                                        
                                        
Weighted Average Shares                                 
        Basic             12,336                 12,270                 12,391                 12,347     
                                        
        Diluted             12,487                 12,270                 12,509                 12,347     
                                        
                                        Increase
                                        (Decrease)
                                        

Excluding
Effect
                Three Months Ended         Increase         

of Currency
Translation
Revenues by Product Line         Oct. 2, 2010         Oct. 3, 2009         (Decrease)         

(b,d)
                                        
Stock-Preparation Equipment         $     23,855             $     19,672             $     4,183             $     5,001     
Fluid-Handling             21,597                 15,794                 5,803                 6,271     
Accessories             12,272                 11,917                 355                 642     
Water-Management             6,915                 4,486                 2,429                 2,516     
Other             630                 487                 143                 122     
                                        
Pulp and Papermaking Systems Segment             65,269                 52,356                 12,913                 14,552     
Other (c)             1,247                 1,360                 (113     )             (113     )
                                        
                $     66,516             $     53,716             $     12,800             $     14,439     
                                        
                                        Increase
                                        

Excluding
Effect
                Nine Months Ended                 

of Currency
Translation
                Oct. 2, 2010         Oct. 3, 2009         Increase         

(b,d)
                                        
Stock-Preparation Equipment         $     66,614             $     65,291             $     1,323             $     2,261     
Fluid-Handling             61,732                 46,634                 15,098                 14,507     
Accessories             37,478                 34,319                 3,159                 2,975     
Water-Management             21,986                 14,772                 7,214                 7,048     
Other             1,881                 1,322                 559                 434     
                                        
Pulp and Papermaking Systems Segment             189,691                 162,338                 27,353                 27,225     
Other (c)             7,082                 6,467                 615                 615     
                                        
                $     196,773             $     168,805             $     27,968             $     27,840     
                                        
                Three Months Ended         Increase         
Sequential Revenues by Product Line         Oct. 2, 2010         July 3, 2010         (Decrease)         
                                        
Stock-Preparation Equipment         $     23,855             $     25,004             $     (1,149     )         
Fluid-Handling             21,597                 20,070                 1,527             
Accessories             12,272                 12,711                 (439     )         
Water-Management             6,915                 8,567                 (1,652     )         
Other             630                 601                 29             
                                        
Pulp and Papermaking Systems Segment             65,269                 66,953                 (1,684     )         
Other (c)             1,247                 2,183                 (936     )         
                                        
                $     66,516             $     69,136             $     (2,620     )         
                                        
                Three Months Ended         Nine Months Ended
Business Segment Information (c)         Oct. 2, 2010         Oct. 3, 2009         Oct. 2, 2010         Oct. 3, 2009
                                        
Gross Profit Margin:                                 
        Pulp and Papermaking Systems             44     %             41     %             44     %             40     %
        Other             28     %             25     %             47     %             36     %
                                        
                    44     %             41     %             44     %             40     %
                                        
Operating Income (Loss):                                 
        Pulp and Papermaking Systems         $     10,101             $     3,898             $     27,300             $     7,480     
        Corporate and Other             (3,842     )             (3,087     )             (9,058     )             (7,660     )
                                        
                $     6,259             $     811             $     18,242             $     (180     )
                                        
Adjusted Operating Income (d):                                 
        Pulp and Papermaking Systems         $     9,353             $     4,411             $     26,229             $     9,763     
        Corporate and Other             (3,842     )             (3,087     )             (9,058     )             (7,660     )
                                        
                $     5,511             $     1,324             $     17,171             $     2,103     
                                        
Bookings from Continuing Operations:                                 
        Pulp and Papermaking Systems         $     56,933             $     60,626             $     196,712             $     151,478     
        Other             1,469                 1,806                 6,133                 6,632     
                                        
                $     58,402             $     62,432             $     202,845             $     158,110     
                                        
Capital Expenditures from Continuing Operations:                                 
        Pulp and Papermaking Systems         $     650             $     306             $     1,710             $     2,161     
        Corporate and Other             93                 33                 325                 218     
                                        
                $     743             $     339             $     2,035             $     2,379     
                                        
                Three Months Ended         Nine Months Ended
Cash Flow and Other Data from Continuing Operations         Oct. 2, 2010         Oct. 3, 2009         Oct. 2, 2010         Oct. 3, 2009
                                        
Cash Provided by Operations         $     6,012             $     13,177             $     14,420             $     31,764     
Depreciation and Amortization Expense             1,926                 1,876                 5,281                 5,595     
                                        
                                        
Balance Sheet Data                         Oct. 2, 2010         Jan. 2, 2010
                                        
Assets                                 
Cash and Cash Equivalents                         $     49,487             $     45,675     
Accounts Receivable, net                             43,550                 36,436     
Inventories                             42,769                 37,435     
Unbilled Contract Costs and Fees                             4,199                 3,370     
Other Current Assets                             7,505                 8,355     
Property, Plant and Equipment, net                             36,796                 38,415     
Intangible Assets                             27,242                 28,071     
Goodwill                             98,653                 97,622     
Other Assets                             11,491                 12,277     
                                        
                                $     321,692             $     307,656     
Liabilities and Shareholders' Investment                                 
Accounts Payable                         $     21,111             $     17,612     

Short- and Long-term Debt
                            22,875                 23,250     
Other Liabilities                             74,663                 72,763     
                                        
    Total Liabilities                         $     118,649             $     113,625     
    Shareholders' Investment                         $     203,043             $     194,031     
                                        
                                $     321,692             $     307,656     
                                        
                Three Months Ended         Nine Months Ended
EBITDA Data         Oct. 2, 2010         Oct. 3, 2009         Oct. 2, 2010         Oct. 3, 2009
                                        
Consolidated                                 
        Net Income (Loss) Attributable to Kadant         $     4,497             $     (119     )         $     13,328             $     (4,203     )
        Net Income (Loss) Attributable to Noncontrolling Interest             69                 (29     )             152                 (32     )
        Loss from Discontinued Operation, Net of Tax             5                 5                 14                 14     
        Provision for Income Taxes             1,431                 530                 3,864                 2,596     
        Interest Expense, net             257                 424                 884                 1,445     
        Restructuring costs and other income, net (a)             (748     )             513                 (1,071     )             2,283     
                                        
        Adjusted Operating Income (d)             5,511                 1,324                 17,171                 2,103     
        Depreciation and Amortization             1,926                 1,876                 5,281                 5,595     
                                        
        Adjusted EBITDA (d)         $     7,437             $     3,200             $     22,452             $     7,698     
                                        
Pulp and Papermaking Systems                                 
        GAAP Operating Income         $     10,101             $     3,898             $     27,300             $     7,480     
        Restructuring costs and other income, net (a)             (748     )             513                 (1,071     )             2,283     
                                        
        Adjusted Operating Income (d)             9,353                 4,411                 26,229                 9,763     
        Depreciation and Amortization             1,811                 1,764                 4,930                 5,252     
                                        
        Adjusted EBITDA (d)         $     11,164             $     6,175             $     31,159             $     15,015     
                                        
Corporate and Other (c)                                 
        GAAP Operating Loss         $     (3,842     )         $     (3,087     )         $     (9,058     )         $     (7,660     )
        Depreciation and Amortization             115                 112                 351                 343     
                                        
        EBITDA (d)         $     (3,727     )         $     (2,975     )         $     (8,707     )         $     (7,317     )
                                        
                                        
(a)     Includes a pre-tax gain from the sale of assets of $748 in the three-month period ended October 2, 2010, and pre-tax restructuring costs of $513 in the three-month period ended October 3, 2009. Includes 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, and pre-tax restructuring costs of $2,283 in the nine-month period ended October 3, 2009.
    
    
    
                                        
(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)     "Other" includes the results from the Fiber-based Products business.
                                        
(d)     Represents a non-GAAP financial measure.

Kadant Inc. also announced that its board of directors has authorized the repurchase of up to $20 million of its equity securities effective November 5, 2010 through November 5, 2011. Repurchases may be made in public or private transactions, including under Securities Exchange Act Rule 10b-5-1 trading plans. The timing and amount of any repurchases will be at the discretion of company management and will be based on market conditions and other corporate considerations, including limitations contained in our credit agreement entered into on February 13, 2008. Through October 26, 2010, under the existing $20 million authorization that will expire on November 4, 2010, the Company has repurchased 255,500 shares of its common stock for an aggregate purchase price of approximately $4.4 million.

About Kadant

Kadant Inc. is a leading supplier to the global pulp and paper industry, with a range of products and services for improving efficiency and quality in pulp and paper production, including paper machine accessories and systems for stock preparation, fluid handling, and water management. Our fluid-handling products are also used to optimize production in the steel, rubber, plastics, food, and textile 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 $226 million in 2009 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, demand for our products, industry and economic outlook, and pending orders. There can be no assurance that we will be able to record bookings or recognize revenues on the pending orders described in this release. Important factors that could cause actual results to differ materially from those indicated by such statements are set forth under the heading "Risk Factors" in Kadant's quarterly report on Form 10-Q for the period ended July 3, 2010. 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; international sales and operations; competition; soundness of suppliers and customers; our debt obligations; restrictions in our credit agreement; soundness of financial institutions; litigation and warranty costs related to our discontinued operation; our acquisition strategy; future restructurings; factors influencing our fiber-based products business; 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.

SOURCE: Kadant Inc.

Kadant Inc.
Investor contact:
Thomas M. O'Brien, 978-776-2000


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