Good morning. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the Kadant Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the call over to Thomas O’Brien, Chief Financial Officer of Kadant. Please go ahead, sir. Thomas O’Brien: Well, thank you operator and good morning everyone and welcome to Kadant’s third quarter 2010 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer. Before we begin, let me read the Safe Harbor statement. Various remarks that we may make today about Kadant’s future expectations, plans and prospects are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those discussed in our quarterly reports on Form 10-Q for the fiscal period ended July 3, 2010, which is on file with the SEC, and is also available in the investor section of our website at www.kadant.com under the heading SEC Filings. In addition, any forward-looking statements we make on this call represent our views only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change, and you should not rely on these forward-looking statements as representing our views on any date after today. During this call, we may refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is contained in our third quarter earnings press release issued yesterday, which is available in the investor section of our website at www.kadant.com under the heading Investor News. With that, I will turn the call over to Jon Painter, who will give you an update on Kadant’s business and future prospects. Following Jon’s remarks, I will give an overview of our financial results for the quarter and we will then have the Q&A session. Jon?

Thanks, Tom. Good morning everyone. It’s my pleasure to give you an update on Kadant’s third quarter performance and comment on our outlook for the rest of the year. I would like to begin my remarks with the financial highlights from our continuing operations and then I’ll provide you an overview of what we’re seeing in our markets around the world. Overall, we had very good performance in the third quarter. Our revenue of $67 million was up 24% from the third quarter of last year, and on a sequential basis our revenues were down 4% from Q2. All major product lines experienced sequential revenue declines in Q3 except for our fluid handling line, which was up 8% compared to the previous quarter. Our bookings for the third quarter was $58 million, a decrease of 6% compared to the same period last year, and 21% sequentially. This was largely due to lower bookings of our stock capital products. Although, the slowing of the economy has had some impact on our third quarter bookings, I believe the timing of capital orders had the greatest impact as several large stock prep orders slipped into the fourth quarter. Consequently, we do expect higher sequential bookings in Q4. Our parts and consumable bookings in the third quarter were up 22% from Q3 of 2009 and were essentially unchanged from the second quarter of 2010, as machine operating rates remained high throughout the quarter. I’ll provide more details on bookings when I discuss our business activities in the various geographic regions we serve. Our gross margins in Q3 were a very strong 44% particularly when compared to our historical pre-recession gross margins, which were in the 40% range. Looking ahead, we do expect that margins will decline somewhat from current levels and they will vary…

(Operator Instructions) Your first question comes from the line of Walt Liptak with Barrington Research.

Well, congratulations on leveraging the recovery and keeping the cost down as things can be active and it’s nice to see numbers coming out. It looks like the fourth quarter with these new orders coming in is going to be solid and the guidance is good. So, I wonder if you comment a little bit given the kind of mix outlook for the North American and Europe, and maybe more positive China what 2011 might look like given your initiatives, can 2011 be a growth year for revenue and what about profitability?

Okay. Let me start I’m not exactly sure which bookings you’re talking about that are going to come through in the fourth quarter. I should make clear that some of the big China orders we had is $14 million, the two orders were $14 million system that we expect to be a booking in Q4. We don’t really expect revenue in Q4.

Okay. Got it. Okay.

Our China stuff right now, we don’t book that percent complete. So that’s going to book when we ship it sometime in Q2 in middle of 2011 sometime like that.

Okay. All right. Thank you.

I think you saw our guidance for Q4; I think we’ll have reasonable revenues.

Right.

When I look at 2011, I guess the easier one is China seems to be consistently growing and is steady upward path I would say. We don’t see too much strong cause on the horizon and there are and I’d say another parts of the developing world South America in particular, but also India, Russia those kinds of places. It seems to be pretty good growth prospects. North America and Europe, it’s more complicated and it depends I think on how the economy goes. I mean, in the end, the mills are building inventory right now. There are very, very low inventory levels. So they need to build on, but they are not going to do that forever. So assuming that these economies move through this sort of pause they are in now and start to grow up couple of percent, we should be okay in 2011. But if they stall or retreat then the mills are going to stop, they are going to slow their rates down, which is going to hurt our North American and European businesses.

Okay. All right. While understanding those moving parts, do you expect revenue to be up next year?

I thought I avoided that. We haven’t got our budgets in from our divisions. If you compare 10 to 11, as you know, we started with a pretty strong 2010 and it got weaker during the year. So we’re going to answer, I would say, 2011 in North America and Europe in particular in some as a weaker position that we ended 2010. Now what we build during the year, I would say, most economists say that there is some lift in the economies next year not much, but some.

Okay. Are you getting any visible, I guess quote activity and things like they are just not there like they were last year…?

Well, I mean we had a couple of things in Q1, so one was, we had a real pop in our spares and consumables bookings and we kind of attributed that to restocking inventory levels. So we had a pretty strong parts and consumables hit in the first part of the year. The good news is they’ve come off from, let’s say, the Q1 booking rates, but they’re still holding pretty solid, and that makes me think that there’s no more inventory build going on, it’s just operating [rates]. Benefit for 2011 is we do have good quarter activity in China, which is going to be in 2011.

Okay. Okay. I’ll get back in queue, but I just have one more quick one. Fourth quarter SG&A as a percentage of sales, do you have a guess of what that might be, Tom? Thomas O’Brien: I think, it’ll be pretty close to the third quarter level, Walt.

In the dollar amount, it will be the same. Thomas O’Brien: Yes. Dollar amount you got the same as well already.

The next question comes from Eric Prouty with Canaccord.

A quick question; I know you touched up on some of the geographies, but if we look at specific companies, there’s obviously been a lot of tough news for the last few years out of many of the major players out there in the market. Are you at least seeing your folks taken out capacity, bankruptcies et cetera from a corporate standpoint, because I know you guys were closely do think seems to be bottoming out at least there from that standpoint?

I would say they have. I mean, IT at least just they had a fantastic second quarter. They have trimmed down their footprint, brought down some closer mills brought capacity down, but they are operating at a very high rates. They’re still building inventories and they were pretty optimistic for the rest of this year and pretty optimistic for 2011. Now there are in some better grades in some ways now. The (Inaudible) I assume are quite as upbeat but again I think a lot of the pain is probably behind them.

Great. And then from a specific kind of the profit breakdown or the segmentation standpoint, if you look at accessories revenue line in particular, that seemed to have slowed down quite a bit sequentially, dropped a tiny bit slowed down significantly year-over-year. Is that a timing issue or is there anything specific there that we should be keeping an eye on?

I would say that we spend a lot of time here comparing the trends of our various businesses and I’ve kind of come to the conclusion that it’s hard to lead too much into it, because very often a capital projects that is in one quarter or another throws the comparisons off. That said, I would say the accessory business as Tom kind of mentioned in his remarks, it’s one of our more heavy consumer [world] businesses. So the weakness maybe indicative of this slowing that I was talking about earlier in North America and Europe. Thomas O’Brien: That’s right. It was up over last year, Eric, but you’re right. It was down sequentially.

Right. And then from the gross margin standpoint in particular, you guys are still hanging in there in kind of the mid-40s, you know very good margin. What’s kind of the outlook there? They used numbers that you think obviously mix plays into this quite a bit, but any thoughts on the margin standpoint?

That’s a good question. There’s a whole bunch, we were pleasantly surprised with the margins in Q3 and the margins had benefited to some extent from previous session times in that we have a bit more spares and consumable, but there’s a whole bunch of factors as you could imagine that go into margins, some of which is the product line mix between our businesses, accessories versus food handling versus stock prep. Another one is things like the absorption we’ve got and that I think a permanent benefit. We took down a lot of overhead in a lot of manufacturing capacity so allowing us to be more fully absorbed. So I think that’s a permanent change in our operations. But, I would say if you look at the first part of this year, the mix and even pricing within product lines has been unusually good. I wouldn’t want to forecast it will always be that good.

Okay. Fair enough. And then finally, you mentioned China obviously an area of strength. Can you guys just break out, I mean from a percent of revenue standpoint, what type of contribution China is now? Thomas O’Brien: Well, I think we said in the third quarter it was 10.9 million of revenues.

(Operator Instructions) Your next question comes from Rick Hoss with Roth Capital.

Jon, not to belabor the whole bookings discussion here, but I’m just trying to get a feel for the differences 2Q, 3Q, I realized 2Q benefited from, as I think you mentioned tent up demand. And I mean is 3Q, is that indicative of kind of an ongoing demand or interest rate or do you see this as sort of a period of where you had fantastic bookings and a lot of catch up and then after you got these kind of high priority projects in place then the purchasing managers kind of looked around and said, okay, what else do we need to do?

If you’re comparing, you made a good point about comparing Q3, let’s say, to Q2 because Q2 wasn’t so bad. I guess a couple of key points, one, parts and consumables were steady. So we are really talking about capital and we’re mostly talking about stock prep capital. In every region of the world that was the business from a bookings point of view that was down significantly and China really significantly. I tried to kind of comment in my remarks that a lot of that’s timing, I mean we’re going to have, I think in Q4 when we’re talking about comparisons to Q3 it’s going to much more favorable, particularly in areas of stock prep. So I think there is an element, particularly Northern Europe where the hot projects move forward and some of the (Inaudible) product lines and maybe there is a little bit of softening. But I think primarily it’s a timing issue with just the way that the projects are falling, because our Q4 is looking pretty good so far, particularly out of China. Tom, do you want to add anything to that? Thomas O’Brien: No, I guess I think that was really (Inaudible) with capital business in the third quarter that was very weak, most of that was stock prep, most of that was in China. And as you can see, we have already talked about those 40 million in orders, but there are others out there that we think we’re really timing between the third and fourth quarter.

The project pipeline looks pretty good in China. So I wouldn’t yet call that a trend, I mean that drop.

Right, okay. And then when I think about North America and Europe and based on your comments and there is a little bit of divergence from the IP call yesterday. How do you grow and it’s assuming a flat market as you’re saying, how do you grow the North American business? I mean your focus on market share, you’re going to focus more on a M&A, additional products, which strategy?

Okay. So I want to maybe comment first on the divergence from our fee. If you listened to the IP call, it was pretty optimistic for the rest of ‘11. It’s a little, I’d say, more optimistic than people like (Inaudible) about 2011, they’re little more cautious about what the economy is going to do in North America and Europe. So, we’re probably going to be somewhere in between that, but we’re not economist. So then in terms of growing our business in the slow-growth markets, I cannot put North America and Europe together in a lump. There are things we can do, one of them is just getting more yield out our installed base. The mills are still running and some of our business we have a very good part stream coming of our installed base and in some of our businesses we could do better, I’d say in particular things like stock preps. Another area I’d say particularly in Europe we’ve decent market share in Europe, but it’s very uneven. We have relatively low market share places like in Germany and lot of the Scandinavian countries. So we do have opportunities I think to grow our market share in those regions. So those are, say, the two prime possibilities.

Okay. And then, Tom, I know over the last few quarters we’ve talked about SG&A levels and with a certain revenue target, it looks like run rate from based on third quarter is about 90 million. I think we’ve discussed in the past maybe 86 to87 up to 300 onto type of top line. Would you say that now we’re moving into 90 and maybe that increases as revenue gets harder to come by, maybe you have any give up pay more to get these sales and how would you characterize that?

Yeah, I mean no, you’re right. I mean, we’re running higher than what I thought and what I told you last quarter. There’s no question about that. It’s slightly higher. I mean, I think, we’ll come in maybe a little under 89 million for the year. I think, what’s happened is a couple of things; one is and I kind of mentioned this in my remarks. We’re seeing higher incentive expense, higher commission expense with the higher revenues and also I would say we had batten down the hatches so hard last year and anything that moved on deck, we had screwed down pretty tightly. As some of that gets loosened a bit, we’re seeing a little bit more travel expense, for example mostly all guys get out to meet more customers, which is we want and things like that. So I think I was being as little optimistic in terms of my SG&A forecast last time, but I think we’ll come in at around 89 million. Now having said that, these margin levels, a little bit more revenue will give us some good operating leverage, because I don’t think it will grow proportionately the SG&A from here. Thomas O’Brien: (Inaudible)

Okay. And then tax rate has been great. What should we model for the fourth quarter?

Fourth quarter, we’re looking at around 23%.

23%?

Yeah.

I would now like to send the call back over to Thomas O’Brien for any closing remarks. Thomas O’Brien: Thank you, operator. Well, thanks for your attention. I think that the strong margins we had and our performance in the third quarter shows benefits of the restructuring that we did over the past few years. As we look forward, our balance sheet is healthy, our operating units are doing a great job seizing new opportunities and I look forward to reporting our progress in future calls. Thanks very much.

That concludes today’s conference call. You may now disconnect.