Kadant Reports Results for Second Quarter 2007

Kadant Inc. (NYSE:KAI) reported revenues from continuing operations in the second quarter of 2007 of $89.1 million, compared with $89.6 million in the second quarter of 2006, a decrease of 1 percent. Revenues for the second quarter of 2007 included a 3 percent increase from foreign currency translation. Operating income from continuing operations in the 2007 quarter increased 5 percent to $9.2 million versus $8.7 million in 2006. Income from continuing operations (after-tax) was $5.9 million in 2007, or $.42 of diluted earnings per share (EPS), versus income of $5.6 million, or $.40 of diluted EPS, a year ago. The results in 2007 include a loss of $.02 per diluted share from the sale of our Casting Products business in April 2007, and $.01 per diluted share of employee equity compensation expense. Including the discontinued operation, net income in the second quarter of 2007 was $4.9 million versus $5.0 million in the 2006 quarter, or $.35 per diluted share in both periods. "We had another solid quarter exceeding the upper range of our revenue guidance by $3 million and the upper range of our EPS guidance from continuing operations by $.04.” said William A. Rainville, chairman and chief executive officer of Kadant. "Our bookings were over $91 million in the second quarter of 2007, and we ended the quarter with $87 million in backlog, our highest level ever, which we believe positions us well for the second half of 2007. We had record bookings in our fluid-handling product line of $27 million, a 19 percent increase over the prior year’s quarter. Our stock preparation orders in China continue to be strong, exceeding $21 million in the second quarter of 2007. "We expect to report GAAP diluted EPS of $.37 to $.39 from continuing operations in the third quarter of 2007, on revenues of $90 to $92 million. For the full year, including the $.02 loss per diluted share from the sale of our Casting Products business, we continue to expect GAAP diluted EPS of $1.49 to $1.59 from continuing operations on revenues of $360 to $370 million. The guidance for the third quarter and full year of 2007 includes employee equity compensation expense of $.02 and $.05 per diluted share, respectively.” 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 earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted to exclude the loss from the sale of our Casting Products business. We exclude this item because its occurrence is outside of our normal operating activities. We believe that the inclusion of this measure helps investors to gain a better understanding of our underlying operations and future prospects, consistent with how management measures and forecasts Kadant's performance, especially when comparing such results to previous periods or forecasts. We also believe this information is responsive to investors' requests and gives them an additional measure of Kadant's performance. We use non-GAAP financial measures, in addition to GAAP financial measures, as the basis for measuring our underlying operating performance and comparing such performance to that of prior 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. The non-GAAP financial measure included in this press release is 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 measure included in this press release has limitations associated with its use as compared to the most directly comparable GAAP measure, in that it may be different from, and therefore not comparable to, similar measures used by other companies. EBITDA in the 2007 periods exclude: Pre-tax loss from the sale of our Casting Products business as we believe this charge to be outside of our normal operating costs and infrequent in nature. A reconciliation of the non-GAAP financial measure to our most directly comparable GAAP financial measure is set forth in the accompanying tables. Conference Call Kadant will hold its earnings conference call on Thursday, July 26, 2007, at 11 a.m. Eastern time. To listen, call 800-709-2159 within the U.S., or 973-582-2810 outside the U.S. You can also listen to the call live on the Web by visiting www.kadant.com and clicking on "Investors.” An audio archive of the call will be available on our Web site until August 24, 2007. Financial Highlights (unaudited) (In thousands, except per share amounts and percentages)   Three Months Ended Six Months Ended Consolidated Statement of Income June 30, 2007 July 1, 2006   June 30, 2007   July 1, 2006   Revenues $ 89,107   $ 89,567   $ 177,348   $ 165,158     Costs and Operating Expenses: Cost of revenues 54,964 56,847 110,658 103,821 Selling, general, and administrative expenses 23,087 22,498 46,583 44,619 Research and development expenses 1,493 1,496 3,160 3,041 Loss on sale of subsidiary (a) 388 - 388 - Restructuring costs   -     -     -     138     79,932     80,841     160,789     151,619     Operating Income 9,175 8,726 16,559 13,539 Interest Income 342 251 693 510 Interest Expense   (789 )   (804 )   (1,595 )   (1,598 )   Income from Continuing Operations Before Provision for Income Taxes and Minority Interest Expense 8,728 8,173 15,657 12,451 Provision for Income Taxes 2,705 2,529 4,895 3,984 Minority Interest Expense   87     47     135     105     Income from Continuing Operations 5,936 5,597 10,627 8,362   Loss from Discontinued Operation, Net of Tax   (1,022 )   (627 )   (1,414 )   (741 )   Net Income $ 4,914   $ 4,970   $ 9,213   $ 7,621     Basic Earnings per Share Income from Continuing Operations $ .42 $ .41 $ .76 $ .61 Loss from Discontinued Operation   (.07 )   (.05 )   (.10 )   (.05 ) Net Income $ .35   $ .36   $ .66   $ .56     Diluted Earnings per Share Income from Continuing Operations $ .42 $ .40 $ .75 $ .60 Loss from Discontinued Operation   (.07 )   (.05 )   (.10 )   (.05 ) Net Income $ .35   $ .35   $ .65   $ .55     Weighted Average Shares Basic   14,012     13,702     14,010     13,641     Diluted   14,202     14,056     14,208     13,948     Three Months Ended Six Months Ended Business Segment Information (b) June 30, 2007 July 1, 2006   June 30, 2007   July 1, 2006   Revenues: Pulp and Papermaking Systems $ 86,609 $ 85,427 $ 170,643 $ 156,500 Other   2,498     4,140     6,705     8,658     $ 89,107   $ 89,567   $ 177,348   $ 165,158     Gross Profit Margin: Pulp and Papermaking Systems 38 % 37 % 38 % 38 % Other   34 %   31 %   34 %   30 %     38 %   37 %   38 %   37 %   Operating Income: Pulp and Papermaking Systems $ 12,238 $ 11,016 $ 21,808 $ 17,767 Corporate and Other   (3,063 )   (2,290 )   (5,249 )   (4,228 )   $ 9,175   $ 8,726   $ 16,559   $ 13,539     Bookings from Continuing Operations: Pulp and Papermaking Systems $ 89,310 $ 85,914 $ 185,517 $ 184,114 Other   2,343     2,936     6,360     8,357     $ 91,653   $ 88,850   $ 191,877   $ 192,471     Capital Expenditures from Continuing Operations: Pulp and Papermaking Systems $ 846 $ 638 $ 1,621 $ 975 Corporate and Other   40     85     103     131     $ 886   $ 723   $ 1,724   $ 1,106     Three Months Ended Six Months Ended Cash Flow and Other Data from Continuing Operations June 30, 2007 July 1, 2006   June 30, 2007   July 1, 2006   Cash (Used in) Provided by Operations $ (2,684 ) $ (2,038 ) $ 3,768 $ (356 ) Depreciation and Amortization Expense 1,891 1,825 3,648 3,755     Balance Sheet Data         June 30, 2007   Dec. 30, 2006   Cash and Cash Equivalents $ 40,264 $ 39,634 Short- and Long-term Debt 50,209 53,982 Shareholders' Investment 252,874 237,965   Three Months Ended Six Months Ended EBITDA Data June 30, 2007 July 1, 2006   June 30, 2007   July 1, 2006   Consolidated GAAP Operating Income $ 9,175 $ 8,726 $ 16,559 $ 13,539 Depreciation and Amortization 1,891 1,825 3,648 3,755 Loss on sale of subsidiary (a)   388     -     388     -     EBITDA $ 11,454   $ 10,551   $ 20,595   $ 17,294     Pulp and Papermaking Systems GAAP Operating Income $ 12,238 $ 11,016 $ 21,808 $ 17,767 Depreciation and Amortization   1,762     1,678     3,386     3,430     EBITDA $ 14,000   $ 12,694   $ 25,194   $ 21,197     Corporate and Other (b) GAAP Operating Loss $ (3,063 ) $ (2,290 ) $ (5,249 ) $ (4,228 ) Depreciation and Amortization 129 147 262 325 Loss on sale of subsidiary (a)   388     -     388     -     EBITDA $ (2,546 ) $ (2,143 ) $ (4,599 ) $ (3,903 )     (a) Reflects a pre-tax loss on the sale of the Castings Products business on April 30, 2007.   (b) "Other" includes the results from the Fiber-based Products business and the Casting Products business through its sale on April 30, 2007.   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 $342 million in 2006 and 2,000 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, and growth opportunities and strategies. 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 March 31, 2007. 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; our debt obligations; restrictions in our credit agreement; future warranty claims associated with the discontinued operation; our acquisition strategy; future restructurings; risks associated with our fiber-based products business; protection of patents and proprietary rights; fluctuations in quarterly operating results; 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.