Good day, ladies and gentlemen and welcome to the Quarter Four 2011 Kadant, Incorporated Earnings Conference Call. My name is Robin, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session [Operator Instructions]. I would now like to turn the conference over to Mr. Tom O’Brien, Chief Financial Officer of Kadant. Please proceed.

Thank you, operator, and good morning, everyone, and welcome to Kadant’s fourth quarter and full year 2011 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer. Let me begin by encouraging all of you in our business review today to participate via our webcast. You may access the live webcast by going to www.kadant.com and clicking on the investor’s tab at the top of the page, then clicking the webcast live link at the top of the page. If you are listening to the audio portion by a telephone while watching the webcast there will be a slight delay in the slides. For this reason, we recommend watching and listening via the webcast and then dialing in at the end of our prepared remarks to ask questions. The dial-in number is available in our press release issued yesterday. It will also be shown at the end of our presentation. Let me now remind everyone of our Safe Harbor statement. Various remarks that we are going to 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 outlined at the beginning of our slide presentation and those discussed under the heading risk factors in our quarterly report on form 10-Q for the fiscal quarter ended October 1, 2011. Our form 10-Q is on file with the SEC. It is also available in the investors section of our website at www.kadant.com under the heading SEC filings. In addition any forward-looking statements we make during this webcast represents 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 webcast we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. The reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our fourth quarter and full-year earnings press release issued yesterday, which is available in the investors section of our website at www.kadant.com under the heading Investor News. And 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 a Q&A session. Jon?

Thanks Tom, hello everyone. It’s my pleasure to brief you on our fourth quarter and our full-year results as well as give you our outlook for 2012. Overall we had an outstanding quarter and year. And both the quarter and the year were distinguished by a number of performance records. Let me begin with the highlights for the quarter. We finished the fourth quarter with record revenues of $97 million which was up 32% compared to the same period last year. We generated GAAP diluted earnings per share of $0.90 which was also a record for Kadant. On an adjusted basis, our earnings per share increased over 40% to $0.59 which made our GAAP guidance of $0.56 to $0.58 and was also one of the best quarterly performances in our history. Our adjusted EBITDA for the fourth quarter was $11.5 million up 32% from the same period last year. Looking at other financial highlights from Q4, our adjusted operating income increased 41% to $9.5 million, Q4 cash flow was $15 million and we ended the quarter with a net cash position of $35 million. During the fourth quarter, we repurchased approximately 318,000 shares of our stock for $6.6 million at an average price of $20.89. And finally, I am pleased to report that our efforts to grow our aftermarket business are generating some success with quarterly bookings up 7% over last year and 9% sequentially. We also had record annual performances in 2011 in several categories included adjusted diluted earnings per share which increased 49% to $2.10 on a revenue increase of 24%. We’re particularly proud that we achieved this record on revenues that were $31 million lower than our 2007 peak. Our adjusted EBITDA as a percentage of sales was also a record at 13.3% and finally our return…

Thank you Jon. I will start with a review of our gross margin performance. Consolidated product gross margins were 38.6% in the fourth quarter of 2011 increasing 380 basis points from last year. As you can see on the chart the quarterly gross margin performance was the lowest of the year. It was also the lowest level recorded since the first quarter of 2009. There were notable declines in our fluid handling, Stock Prep and water management product lines. The fluid handling and Stock Prep decreases were largely due to a significant shift in revenues, fluids capital products and away from the higher margin parts and consumables products. It illustrates the point on a consolidated basis, parts and consumables were 46% of revenues in the fourth quarter of 2011 compared to 59% in last year’s quarter. This rather substantial change in mix was due not to a decline in parts and consumables revenues which actually grew 4% over the prior year period but rather to a 73% growth in capital revenues over that same period. Capital revenues were particularly high in our Stock Prep product line where a number of larger systems were either shipped or recognized in revenues on the percentage of completion method during the fourth quarter of 2011. Looking ahead, we believe the consolidated gross margins will be between 42% and 43% in 2012 slightly below the full year 2011s 43.3%. As in 2011 there is likely to be considerable variability in the 2012 quarterly margins due in part to product mix. Now let’s turn to slide 20 and our SG&A expenses. SG&A expenses were $26.3 million in the fourth quarter of 2011 up $3.4 million or 15% from the last year and included $1 million or 4% of operating expenses from M-Clean, which was acquired in…

[Operator Instructions]. And our first question comes from the line of Walter Liptak from Barrington Research.

I wonder as far as Tom on your outlook understanding the full year and the first quarter but in the second quarter you mentioned strongest. Can you give us an idea of the revenue level sequentially from the first and then you also mentioned that a warning about some shipments could get delayed, or the strong shipments you are expecting in the second quarter going to China?

I think the revenue levels in the second Walt looking at what we have in the backlog will probably be over $90 million. So you’re looking at guidance we gave kind of $82 million to $84 million jumping up to $90 million and then it will probably come down from there in the second half.

Okay, got it. And are those large shipments to China?

Well, those are large shipments in China.

Okay.

So we manufacture those systems in China for our customers in China.

Okay.

They are all qualifier as Tom mentioned about with - that we do it on completed contract and you might have a customer asset to be delayed from one quarter to another, certainly apply to those projections for Q2.

Okay. And what about the mix of business in the second quarter, are those - what kind of gross margin are you thinking about based on those shipments?

Well, overall the gross margins will be lower because we will have the larger proportion of capital in that quarter. So you kind of have to fit that into the total margin guidance that we gave, so it will be a little bit lower obviously in the second with that higher capital mix.

Okay, got it.

We may pick up some operating leverage on the SG&A as well.

Okay and you mentioned the SG&A. I didn’t catch the percentage of sales that you are targeting for the full year?

I think we said 30 to 31.

Okay good and then -- I guess things can be pretty choppy out of China. You got Chinese new year and some tough comps, how quickly do you think your customers can turnaround if they start absorbing the capacity that’s been put in place in some of these - political initiatives to get the economy in China going again?

I guess I have a couple of comments on that Walt, one is that - currently there are lots of activity for people adding new OCC systems and we booked a couple in Q4. So it’s just a question of levels, but it’s not like there is still people planning expansion. We still have active talks on the projects. The other - I guess the other point I would make is that it’s - in our experience it’s probably the most, the region the world that is most responsive to government stimulus. I mean the last couple of rounds with China when the government turns on the switch it seems to have a pretty quick impact, so when we say we do expect to see bookings levels continue to grow through the year that’s kind of what that’s based on.

[Operator Instructions]. I believe Mr. Walter Liptak has a follow up question.

Okay, all right. I’m back. I want to ask about the M-Clean systems and just get an idea of some of the pricing for those as well as the other margins?

We don’t get into the margins of particular products. I think it’s the time that bought M-Clean. We did say it is a very good margin product and it continues to be a very good margin product. It’s one you’ve got a sense of our overall margins as one sort we’re sort of pleased to have as part.

Okay.

A typical unit [indiscernible] varies depending on how many whether the pumping facility is separate and so forth, but you can probably get a sense of what we talked about that China order. We gave the number of beams and said around $4 million. So, it may give some sense of typical pricing.

Okay, and you’ve mentioned the 40 quotes that are out there. What is - maybe you could talk about what the market opportunity you think is for the product and what it takes to convert those quotes into orders?

Yes, in North America we’re really introducing that for they had very little presence in North America, almost nothing. So, it’s a new product to this market and it does take a while obviously but we have got some references out there running 40 quotes I think is quite a strong level. I mean they are probably in the $100,000 range. I don’t - I wouldn’t want to project what number of those quotes actually turn into orders because often people do studies and so forth. In terms of the market I mean it depends on how you phase it but it’s the primary place that it would do well is in recycle systems - dirty recycle systems on like OCC mill. That happens to be an area where we are pretty strong. So I have good expectations for M-clean anything going forward.

Okay. The other new product for the Sticky, I wonder if you could - you introduced that in China because that’s where they have got the biggest issue and the payback is quickest but is there a North American or European opportunity for it as well?

Yes I was probably not as clear in my comments as I could be. We’re manufacturing in the China but we’re introducing it globally. Absolutely it is being sold around the world.

Okay. But you have got any orders in China so far?

We have got orders everywhere, in every market in the world. It’s now our leading, it’s now the leading screen cylinder that we go with. So we have got orders in Europe, North America, China, it’s been again just introduced in October but our overall basket bookings were up around 10% last year and FiberWall was part of that and really coming in late in the year.

Okay, got it.

That’s another one that - yes it’s sticky. So the dirty OCC mills are the prime target for it. Those markets may be $140 million to $150 million.

Okay great. And then looking at free cash flow, Tom, you guys did not shop on inventories especially at the end of the year on working capital accounts. Can you give me an idea of how you think free cash flow is going to trend through 2012?

Well, a little bit of it depends on your definition of free cash flow. So I’ll give you one of them, and that is if we take net income from continuing ops in 2012, kind of in the midpoint of our guidance that would be about $23 million. And if we say the DNA is 8, the CapEx is 8 to those two kind of offset, and then really free cash flow ought to be equal to the net income from continuing ops which is the $23 million and that would compare again to maybe $26 million or so in 2011.

All right, okay. Is there...

I think that’s good cash flow, free cash flow in 2012.

All right, okay. Is there any more that you can do on the - on any of the working capital accounts, inventories or receivables to take it up a little bit..

Yes. I mean we have obviously working capital was the use of cash this year, partly due to the strong increase in revenues. So hopefully while looking at the guidance that we would - I would say that it’s possible it would be a source of cash in 2012 and that may - that could actually boost that free cash flow number a bit from what I said.

Okay. So the balance sheet, probably continues to improve with sort of flat EPS this year, I mentioned uses of cash will be continuation of share repurchase but how is the acquisition pipeline looking?

We are at -- we’re actively looking both inside and outside paper, obviously inside is a preference because I think we have more synergy opportunities but we continue to look - we’ve gone pretty far in a number of things and kind of ended up not doing it for one reason or another, but I would say it’s reasonably active. Nothing imminent though, I will tell you that.

Okay. Are you looking at the water sector because that seems to be an area that you’ve done well with as a potential add-on on to the business?

We are looking at water. I’ll tell you per our mindset if you will that the water acquisitions often tend to be more expensive than we think is the right price. So that’s been an issue when we look at filtration type companies. We are also looking at just sort of increasing our product offering in more of a home grown method and you are right in noting that our water business has actually done pretty well and pretty well in places like China.

Okay. Okay, great. With that, I will end it here and just take it offline on a private call. I appreciate your time. Okay. Thank you.

Thanks a lot Walt. We as well. Bye bye.

And there are no more questions at this time. I’d like to turn the conference back over to Mr. Jonathan Painter.

Thanks, Robin. In summary, as you can see our 2011 was an excellent year. We had a number of financial records both for the quarter and for the year. I think as we look into 2012, it will probably be more challenging but we do end the year with a good backlog, and as I mentioned earlier, if we meet our guidance for 2012, it will still be a very strong year really second only to 2011. I look forward to updating on our next quarter on our progress. Thanks very much. Bye-bye.

Ladies and gentlemen; that concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.