Thomas O'Brien - EVP and CFO Bill Rainville - Chairman and CEO

Tyler Old - JPMorgan Paul Mammola - Sidoti & Co. Walt Liptak - Barrington Research Bo McKenzie - Lafitte Capital

At this time, I would like to welcome everyone to the Kadant Inc. second quarter earnings conference call. (Operator Instructions). Thank you. It is now my pleasure to turn the floor over to your host, Thomas O'Brien. Sir, you may begin your conference. Thomas O'Brien: Thank you, operator, and good morning everyone and welcome to Kadant's second quarter 2008 earnings call. With me on the call today is Bill Rainville, our Chairman 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 report on Form 10-Q for the period ended March 29, 2008, which is on file with the SEC and is also available in the Investor's 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 will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our second quarter earnings press release issued yesterday, which is available in the Investor's section of our website at www.kadant.com under the heading recent news. With that, I will turn the call over to Bill Rainville, who will give you an update on Kadant's business and future prospects. Following Bill's remarks, I will give an overview of our financial results for the quarter and we will then have a Q&A session. Bill?

Thank you, Tom. Good morning everyone and welcome to our call, as we review our Kadant's 2008 second quarter results and comment on the outlook for the rest of the year. I'll start with the second quarter financial highlights of our continuing operations. Diluted EPS was $0.50 an increase of 19% over a strong quarter last year. This compares to our guidance of $0.41 to $0.43 and represents one of the highest levels in the history of the company. Our revenues for Q2 grew 4% from Q2 '07 to $92.4 million, due largely to a record setting performance from our fluid handling business which was up 31% to $28 million. In addition, our accessories business, our revenues increased 6% from the prior year's second quarter. Operating income in our Papermaking Systems segment increased to $14.7 million, representing a healthy 20% increase over Q2 of '07; EBITDA increased 5% to $12.1 million. Our bookings for the quarter were $83.7 million, a 9% decline from Q2 of last year. The decline in total bookings is mainly the result of lower stock-preparation bookings from China. Backlog, however, remains healthy, with a 26% increase over Q2 last year to $110 million. And, finally, we had another solid quarter of cash flow from operations which generated $4.6 million in Q2. Our net cash position is now $11 million. Now let's look ahead for the rest of the year. Without a doubt, there has been a considerable slow down in the growth rate of the U.S. economy, and to a lesser degree some cooling has been seen in China's robust growth over the past few years. The economic environment around the world looks to be more challenging for the second half of 2008, than we had previously envisioned. Several large stock-preparation projects in Asia on which we had expected to recognize revenue in 2008 have been pushed into 2009. And a few China projects have been shelved, although none of these were in our backlog. Some economists have suggested signs of a moderate cooling in Europe's economy as well. These events have caused us to reevaluate our outlook for the second half of the year, but we remain optimistic about our performance and prospects in a challenging business environment. We believe that Kadant's business model remains solid based on our large installed base for consumables and parts, our geographic diversity, and strong brand. As we leverage our China based operations to offer expanded product lines and consumables to the Asian marketplace, we are seeing evidence of the value of the Kadant brand in launching new products and generating orders for spare parts. In fact, our Q2 bookings for stock-prep spare parts in China doubled to $1 million over the same period last year. And water management and accessory bookings in China, two product lines, we just introduced there last year, saw a five-fold increase to more than $0.5 million. In Europe and Latin America, our stock-prep and fluid handling business prospects remained strong. We continue to see significant project activity in mills, particularly in Eastern Europe and Russia. The customers are motivated and able to react relatively quickly to implement energy saving projects in their operations. We believe that the increased acceptance of western investment in these regions, combined with the significant number of installations requiring upgrades, presents a valuable opportunity for Kadant to capitalize on with their high efficiency product offerings. For example, we have recently booked or completed steam and condensate systems, rebuild the mills in Northwest Russia, Slovenia, and Croatia, among other places. In the U.S. market, our accessories revenues grew 10% in the second quarter, compared to the same period last year. While our bookings in accessories, water management, and fluid handling increased 9%. We believe that the U.S. growth is due in part to paper mills increasingly recognizing the value of our superior service, mill presence, and application expertise. There's much evidence of customers turning to Kadant, as their supplier of choice, after experiencing product and service problems with our competitors. Although we are seeing some softness in our capital business, our backlog is still quite healthy and our balance sheet is strong. As I mentioned in the last earnings call, there are four major factors that benefit us in slower times. The first is our substantial consumables and parts business, which make up about one half of our sales and are fairly stable, even during slow downs. They also tend to generate healthier gross margins, as compared to capital projects. Second, our business is geographically diverse. We are not dependent on one part of the world and typically when one region is weak, another is adding capacity, or rebuildings improved fiber yield or improved energy utilization. Third, our global manufacturing and sourcing capabilities provide increased flexibility to manage our costs, as currencies and other factors change the relative manufacturing cost from region-to-region. Fourth, we have a strong balance sheet and access to capital that allow us to take advantage of acquisition opportunities that compliment the Kadant business model. Overall, our strategy for maximizing our business remains the same, and that is to deliver products and technical solutions that provide our customers a good return on their investment, through energy savings and fiber yield improvements, to increase our aftermarket and consumables business, to further penetrate existing markets, and focus on growth markets such as Russia, Eastern Europe and China while leveraging our global sourcing capabilities. Because of the central role China has played in Kadant's activities over the past decade, I'd like to take a few moments to share our perspectives on current developments in China. According to industry economists, China's main growth drivers , net exports and fixed asset investment are sailing into stiff headwinds. Real GDP growth has averaged 9.9% per year since 1990 and has exceeded 11% in each of the past two years. Linerboard producers in China have slowed their capacity expansion, due to concerns about the softness in the U.S. economy and the resulting decline in exports from China to the U.S. Exports to the West, in particular, the U.S., have been a major driver for Linerboard demand in China. In addition, a series of recent adverse shocks to China's economy, including severe storms, surging fiber and energy prices, and more recently, a devastating earthquake in Sichuan Province, may be tempering the short-term economic outlook. This, in turn, has resulted in delaying several fiber line startups, we expected to be completed in 2008. Despite these delays, however, we still anticipate long-term growth in this market and are encouraged by the significant increase in consumables and spare parts sales in this region, as capital projects experience a slow down. While stock-preparation equipment orders have softened in the Asian market, we see growing activity in Europe and Latin America. For example, we recently were awarded a $5 million contract for a recycling system from a fishing mill in South America. And capital orders have been recently booked for some customers in Belgium, Portugal, Greece, and El Salvador. We continue to be encouraged by opportunities and developments in our accessories, water management, and fluid handling business as well. Since re-launching our accessories and water management product lines in Germany last year, we have enhanced our ability to service our customers and grow our market share. As a result, bookings in revenues in Q2 have dramatically improved over the same period last year, and, we are especially pleased with the progress our European team made this quarter, in penetrating the accessories and water management market in one of the world's largest paper-producing countries. Our water management product line has also seen strong bookings in the second quarter for filtration products and other equipment in both North America and Asia, as mills seek to reduce water use and save energy. Beyond our activities in the pulp and paper industry, we continue to pursue sales in non-paper markets, including steel, machine tool, food processing, and synthetic fibers. In fact, our fluid handling business saw its Q2 non-paper revenues increase 16% over the same quarter last year, with healthy contributions from all areas of the globe, including North America, Asia, and especially Europe. Let me now review our guidance for 2008. With your slowdown in capital business in China, we now expect to achieve GAAP diluted EPS of $1.65 to $1.70 from continuing operations for the year, and revenues of $365 million to $370 million. For the third quarter, we expect to report diluted EPS of $0.36 to $0.38 per share on revenues of $86 million to $88 million. Now I will turn the call over to Tom for a more detailed review of the financials. Tom? Thomas O'Brien: Thank you, Bill. Let's start with our revenue performance. Consolidated revenues were $92.4 million in the second quarter of 2008, 4% higher than last year, including a 7% favorable effect from foreign exchange. Revenues were slightly below our guidance for the quarter of $94 million to $96 million, primarily due to lower than anticipated sales in our stock-prep and Fiber-based Products businesses. In general, we had an exceptionally strong revenue performance in our fluid handling product line, where revenues set a quarterly record of $28 million, up 31% from last year, including 12% from the favorable effects of foreign exchange. Our accessories product line also increased from the second quarter of 2007, up 6% including 5% from the favorable effects of currency translation. Offsetting these increases somewhat were declines in stock-prep, water management, and our Fiber-based Products business. Let's now look at the revenue performance in more detail by product line. Stock-prep revenues were $37.3 million in the second quarter of 2008, down 7% from last year, including a 7% favorable effect from foreign exchange. The major contributor to the decline was our business in China, where stock-prep revenues of $11million were down 45% from last year, including a 4% favorable effect from currency. On a more positive note, we did see a significant increase in our aftermarket revenues in China, but these increases were not enough to overcome the even more significant decline in our capital business. With respect to the capital business in China, in the second quarter of 2008, we had two percentage of completion projects underway compared to 12, last year. The stock-prep picture brightens a bit in North America, and especially in Europe. In North America, stock-prep revenues increased 6%, while revenues in our European based operation increased 73%, including 26% from the favorable effects of currency. The increase in Europe is due to a higher percentage of completion revenues from several projects, including a large project in Russia, as well as a 40% increase in aftermarket revenues, which includes a 19% increase from currency. Revenues in our water management product line were down 10% from last year, including a 2% favorable effect from foreign exchange. In North America, revenues increased 3% from the second quarter of 2007, including a 1% favorable impact from currency. European based revenues were 35% lower than last year, including a 5% favorable effect from currency, largely due to lower sales to OEMs. Prospects in this product line look somewhat brighter going into the third quarter of 2008, as bookings were up 12% in the second quarter, compared to last year, including a 3% increase from exchange. In our accessories product line, revenues were $16.8 million in the second quarter of 2008, up 6% from last year and included a 5% favorable effect from currency. North American revenues were flat with last year, although we did see 10% growth in the U.S. which was offset by decreases in Canada where the newsprint market, in particular remains quite weak. In Europe, accessories revenues increased 11% compared to last year, including a 9% favorable effect from foreign exchange. And to end my discussion of revenues and perhaps the most encouraging note of all, revenues in our fluid handling product line were a record $28 million in the second quarter of 2008, up 31% over last year including a 12% favorable effect from foreign exchange. The major contributor to this outstanding performance was from our European business, where revenues increased 64% over the second quarter of 2007, including 19% from foreign exchange. In Europe, we continue to see strong project activity in mills, both in Eastern Europe and in Russia. Revenues were also strong in Latin America, up 80%, including 29% from currency, China, up 72%, including 26% from currency; and in our Southeast Asia business, which was up 188%, including 34% from foreign exchange. Partly offsetting these increases was the decrease of 15% in North America, where customers, in general, are taking longer to commit to energy saving projects regardless of the compelling ROIs, due to spending restraints and uncertainty in the economic outlook. Turning to our product gross margins, consolidated product gross margins were 41.7% in the second quarter of 2008, the highest level we've achieved since the third quarter of 2003, and were 340 basis points higher than last year. This improvement occurred entirely in our Papermaking System segment where gross margins of 42% were 360 basis points higher over the second quarter of 2007. The increase in our Papermaking Systems segment was primarily due to higher margins in our stock-prep product line, where margins increased both in capital and aftermarket products. Stock-prep also had a more favorable mix towards higher margin aftermarket products in the second quarter of 2008 compared to last year, including higher aftermarket sales in China. Gross margins in this segment also increased due to a more favorable mix towards higher margin fluid handling revenues, which as I noted earlier, achieved record sales in the second quarter of 2008. Gross margins were lower in the last year in our other category, although this only slightly affected our consolidated gross margins due to lower sales volumes and higher gas prices in our fiber based products business. Now let's look at our SG&A expenses for a moment. SG&A expenses were $26.9 million in the second quarter of 2008, up $3.8 million or 17%, from last year. This increase includes $1.6 million, or 7%, from the unfavorable effect of foreign exchange, as well as an increase of $1.5 million associated with higher non-cash employee equity compensation expense, legal expenses related to the discontinued operations, and bad debt expense, which was largely due to a customer bankruptcy in Europe. Excluding both the unfavorable effect of foreign exchange and the other items I just mentioned, SG&A expenses in the second quarter of 2008 were up approximately 3% compared to last year. Now our EPS results. We reported GAAP diluted earnings per share, including the discontinued operations, of $0.50 in the second quarter of 2008, compared to $0.35 in the second quarter of 2007. The discontinued operation reported breakeven results in the 2008 period, compared to a loss of $0.07 in the 2007 period. So, excluding the discontinued results, income from continuing operations was $0.50 in the second quarter of 2008, compared to $0.42 in the second quarter of 2007, an improvement of 19%, or $0.08 per diluted share. This improvement of $0.08 per diluted share includes increases of $0.03 due to the net favorable effects of foreign currency translation, $0.02 due to lower net interest expense, $0.01 due to lower shares outstanding and $0.01 due to a lower effective tax rate. Diluted EPS was lowered in the second quarter of 2008 by $0.03 due to an increased in non-cash employee equity compensation expense. These factors taken together account for a net increase of $0.04, and since I am explaining an increase of $0.08 between the two periods, it leaves us with an increase of $0.04 per diluted share due to better operating results in the second quarter of 2008, compared to last year. Now let's turn to the balance sheet and our cash flows for a moment. We ended the second quarter with $53.9 million in cash and $43 million in debt, leaving us with a net cash position, that is, cashless debt of $10.9 million. This net cash position represents approximately $0.79 per diluted share at quarter end. Cash flows from operations were $4.6 million in the second quarter of 2008, an increase of $7.3 million from last year. For the first six months of 2008, cash flows from operations of $10.9 million have almost tripled over the same period last year. Our major sources of cash in the second quarter of 2008 were $6.9 million of income from continuing operations, along with $1.9 million of depreciation and amortization. Our major uses of cash were $6.9 million in purchases of our common stock, $5 million in working capital to fund some of the larger projects underway for shipment later in the year, and $1.5 million in CapEx. With respect to our capital structure, during the second quarter, we announced that we had entered into an uncommitted $100 million three-year multi-currency private shelf agreement with Prudential Capital Group. This facility, along with the $75 million of uncommitted facility we entered into earlier in the year under our new five-year credit agreement, gives us the total of $175 million in uncommitted borrowing capacity to support our future growth plans and our stock repurchase program. Further, we have approximately $42.6 million available in unused committed lines under our five-year credit agreement. Now, before closing, I'd like to expand on one item of particular importance to our guidance for the remainder of 2008. Included in our backlog is a large systems order to a new customer in Vietnam. This recycling system was originally scheduled to ship for the customer's request in stages between June and August 2008. The customer has so far been unable to open the confirmed letter of credit, which we require in this transaction before making any shipments. Importantly, to date, we have not taken any revenue for this project under the percentage of completion method. Further, we have received progress payments equal to 30% of the contract value, so we do expect this project to be completed by the customer. However, to be cautious, we have now included the revenue in income associated with it in our fourth quarter 2008 guidance, during which we expect the customer will have resolved the remaining issues associated with raising a letter of credit. The effect on the fourth quarter and in our annual guidance for 2008 is approximately $15 million in revenues and $0.09 of diluted earnings per share. Although at this point, we do expect to ship this project in 2008, it is possible that the shipment could be further delayed into 2009. And that concludes my review of the financials and I will now turn the conference back to the operator for our Q&A session. Operator?

(Operator Instructions). Your first question is coming from Tyler [Old] of JPMorgan. Please go ahead. Tyler Old - JPMorgan: Good morning.

Good morning, Tyler. Tyler Old - JPMorgan: I just wanted to try and get a better sense for the magnitude of the slow down that you're seeing in China. It's my understanding that at this stage the projects are really being temporarily delayed. Are you seeing any signs that some of these temporary projects or temporary delayed projects are actually going to be eventually cancelled?

No, we don't sense that at all, Tyler. That's a good question. No, we don't. And in fact, we had experienced something similar to this about four years ago. And what we see is a shift probably one to two quarters. And these are, when we recognize order and backlog. I mean, we have certainly down payments on them. They, at that time, as you know they'd put a lot in the infrastructure, both in land buildings, putting in power supplies and all the utilities. And, there is also a need certainly for the product, for the Linerboard. So, we are fairly confident that these are just delays and we don't sense any cancellations. I mean, the only projects that we have seen that have been shelved, and when they would occur again, is some that were back in the pipeline, and often what happens is a new project comes up and takes it place. But, ones that are in our backlog, we certainly don't see them disappearing. Tyler Old - JPMorgan: That's reassuring. And I guess…

I mean the worst case for us, is that they go into '09. But I mean it's not that we would lose them, but we expect some of them to start coming in, in the fourth quarter. Tyler Old - JPMorgan: Okay. And I guess that was, dovetails. And my next question is, as you stand here, or looking out to the back half of 2008, do you expect this weakness to trail off in 2009?

Well, again, that depends a lot about, what happens I guess in the worldwide economy. And we certainly keep an eye on it. I can tell you that certainly the economists that are looking at our industry and I had attended a conference recently in China that comments that over the next five to ten years, assuming there'll be strong growth opportunities, the trend is going to continue. But, again, some of the capital orders could be somewhat lumpy. We are starting to mitigate that to some extent by our much more valuable parts business that we're starting to mine off for our large installed base. So, as far as income capability, even in slow downs, I think that we're enhancing our position from the Asian market, because we do have a very large installed base there, and some of those systems have now been running for a couple of years and it's going to be requiring parts to continue to run. Tyler Old - JPMorgan: Okay. And could you talk a little bit about anticipated product mix in the third quarter? Margins were really strong in the second quarter and I know capital equipment is going to be a down a little bit and the top line will be down, but if you could just talk a little bit about product mix that would be great.

Well, I think the product mix that we experienced in the second quarter certainly helped generate some of the margins improvement that we had, as well as, I would add, that manufacturing, taking advantage of the strategy which we put in place to manufacture in lower cost regions in some of our parts and components would also help us on the margins. And I would think that the margins for the third quarter… Thomas O'Brien: And I think you can refer, Tyler, from our guidance that we're basically saying the margins in the third will be somewhat lower than the second. Partly, I think due, because we know some of the projects that we do have are coming on stream in the third and they will come into this somewhat lower margin. So…

The mix will, yeah. Thomas O'Brien: Yeah. So, the guidance infers to somewhat lower product gross margins in the third quarter. We hope we're wrong with that, we hope we have some upside with that, but that's what the guidance would suggest at this point. Tyler Old - JPMorgan: Okay, great. Thanks very much.

Thank you, Tyler.

Thank you. Your next question is coming from Paul Mammola of Sidoti & Co. Please go ahead. Paul Mammola - Sidoti & Co.: Hi, good morning.

Good morning, Paul. Paul Mammola - Sidoti & Co.: Just to build off that question from Tyler, Tom, you said you hope you're wrong maybe on the margin side. Is it a possibility or is it built into your forecast for maybe a tamer number for fluid handling products in terms of growth? And if that's exceeded, is there a possibility that maybe there is a good amount of upside to the gross margin number? Thomas O'Brien: There's a little bit more of that I would say in the fourth quarter than the third. Paul Mammola - Sidoti & Co.: Okay. And, Tom, your comments on G&A, obviously I had a few things in there. Going forward, how should we think about G&A? Should we assume that some of the lawyer costs stay in there and maybe the bad debt falls off in the third and fourth quarters? Thomas O'Brien: Right. I hope that bad debt I knew was kind of a one-off item in the second quarter. Paul Mammola - Sidoti & Co.: Okay. Thomas O'Brien: I believe the legal expenses should tail off a little bit, but it's a little hard to predict that. But, maybe tail off a little bit in the third, we hope. But, I think, in general, the way to think about it, if you look at all of the OpEx, including SG&A and R&D, given the lower revenue level at the moment that will be running around 30%. Paul Mammola - Sidoti & Co.: Okay, that's helpful. And, obviously, you had a good reference to the capital position at this point. Are acquisitions still part of a strategy in a slowed down environment its right now?

Yes, in fact, in a slowed down environment there could be more opportunities for us because I think some of the multiples will become much more reasonable on expectations. And, that's where we're fortunate as well, Paul, to have such a strong balance sheet and ability to take advantage of good opportunities when they appear. So, we're constantly looking at acquisition potential. Paul Mammola - Sidoti & Co.: Okay. And building off of that, is there any update on the [Wushi] capacity expansion or has the news from Asia sort of tempered that outlook at this point?

No. The expansion is going to be going ahead as we had planned because of the progress we've been making in the marketplace with our accessories and water management product lines. So we intend on continuing to expand that and being busy in that facility. Paul Mammola - Sidoti & Co.: Okay. And what have you guys seen on the material cost front? Is there inflation coming up ahead or have you contained costs through price increases thus far?

Paul, on material costs, some of the materials that we buy we've actually seen some decrease from the highs that we experienced there sometime back especially in steel. But we also have always protected ourselves. If there is any surge on material costs, we have surcharges which we apply to our big capital orders. Paul Mammola - Sidoti & Co.: Okay. And just one last thing. Is there an update on how screen baskets are performing and how that market is shaping up in Asia right now?

Oh, yes. We're making good improvement on the basket market, not only in Asia, but starting to penetrate in Europe and, to a lesser extent, now we're just starting to feed baskets into North America as well. So we look at that as a real great growth opportunity for us. Paul Mammola - Sidoti & Co.: Okay, thank you.

Thank you, Paul.

Thank you. Your next question is coming from Walt Liptak of Barrington Research. Please go ahead. Walt Liptak - Barrington Research: Hi, thanks, and good morning, everyone.

Good morning, Walt. Walt Liptak - Barrington Research: Well, first of all, to start out. Did you provide a backlog number? I am not sure if I probably missed it in the press release.

Yes, we did. The backlog is… Thomas O'Brien: I think it's around $109. Yes, $109.

Yes, $109 million. Walt Liptak - Barrington Research: Okay. And in China, you have a number like a utilization rate or something that would suggest that the weather or the earthquakes have just pushed out these orders?

No, really, Walt, up until just recently they were still importing Linerboard. So, they still weren't supplying the needs that they had. So, there is still a built up need. They're basically been running pretty close to capacity on all the grades. And we don't get the statistics from them as quickly as we do from North America. So, there may be a little lag time in there. But, I don't see a major drop off in utilization. Walt Liptak - Barrington Research: Okay, great. So, they're still running at 100%? You mentioned two things for the China delays. One was the stiff headwinds and the export impacts on Linerboard and then you mentioned the weather and the earthquakes. I wonder if you could provide more color, like were some of the orders in the areas hit by the earthquake or how can you give us more color on that?

We've not had any mills that were impacted or any projects that were impacted directly into the earthquake area. We did have some mills and components that were necessary, safe for their power plants, which are required, which deliveries and some of those components were impacted, which certainly added to the delay of some of those projects. That's where the implication came in on the earthquakes. Walt Liptak - Barrington Research: Okay. All right. And then switching gears to the Vietnam systems order. The letter of credit, I mean, what was the issue with them not being able to get their letter of credit or how can we handicap that?

Well, I think it's really securing financing. Basically, that's being handled by a UK. Operation, of which I can tell you that, what gives us a little comfort on it is the fact that there is a huge investment already made in the project, both in terms of land, the buildings. They have two paper machines on order, of which they paid substantial down payments on, plus a recycling system. So, one way or another the project is going to go. They're just trying to get the best terms they can I guess looking around for financing the rest of the project. Walt Liptak - Barrington Research: Okay. All right, that's good. And you said you did not recognize any revenue yet from…

No. We did not. Walt Liptak - Barrington Research: What about from the China orders, have you recognized any revenue from those that have shipped out or were those just things that you thought were going to end up in backlog? Thomas O'Brien: Typically, on the China orders, given the fact that they are large enough, we recognize those on percentage of completion. Walt Liptak - Barrington Research: Okay. So there's nothing, they haven't been started yet? Thomas O'Brien: There's been nothing that's been canceled or anything like that. Obviously it was on POC. Now, we do have some projects again that are being delayed out either later into '08 or into '09 on percentage of completion. Walt Liptak - Barrington Research: Okay. Thomas O'Brien: But, that's just kind of just normal, not normal, but I mean that does happen from time to time where we'll have a project, we expect to ship it at a certain date and the customer wants to delay it further. And there have been a few of those that have happened, yes. Walt Liptak - Barrington Research: Okay, but discussions on the China orders are more that there were things on the horizon that looked like they're going to push further out from the back half of '08? Thomas O'Brien: Yes. That's more booking them and actually starting work on them. That's what we're referring to there. Walt Liptak - Barrington Research: Okay. Thanks very much.

Okay.

Thank you. (Operator Instructions). Your next question is coming from [Bill] McKenzie of Lafitte Capital. Please go ahead. Bill McKenzie - Lafitte Capital: Hi, guys. A point of clarification. I was trying to write and listen at the same time, which I am not always good at. And I didn't understand exactly how you were couching the Vietnamese order. Is it expected for Q3 or are you saying that until they get the financing you're not expecting it yet?

No, it's not in Q3. Bill McKenzie - Lafitte Capital: Q4, I am sorry, Q4.

Yeah, we expect it to happen in Q4. Bill McKenzie - Lafitte Capital: Okay. Then, on your French operations, I know you guys have been working to try to get your profits up in that. What's the status there?

Oh, we're making great progress on the French operation. In fact, their backlog is very high. They've been booking the orders that have been going on in Eastern Europe. And they were responsible for booking the one off in Columbia. So, their margins have been going up very well and we're making a lot of progress there. And some of that is being helped as well, by the way, Bill, by making some of the components out of China to help feed them as well, which was part of our model initially. Bill McKenzie - Lafitte Capital: I think we had talked about before trying to get towards kind of low double-digit margins, I think. Are you kind of halfway there or better or…?

We're about five now, but we're certainly on the path of getting up there at this point. Bill McKenzie - Lafitte Capital: All right. And then…

The backlog that we're carrying now should help us as well, going to make an improvement. Bill McKenzie - Lafitte Capital: You guys have got a share buyback program in place. Can you update us on what you might have done in Q2 and where that stands in terms of further potential buybacks? Thomas O'Brien: We have a $30 million authorization that the board authorized in early May, and we utilized about $6 million of that in the second quarter. So, year-to-date, we've bought back just a little under $19 million of stock. And I went back, when we started our repurchase program, actually within May of '04, we bought back over $50 million of stock since we started the program in May of '04. Bill McKenzie - Lafitte Capital: All right, good. Thomas O'Brien: I think we have a lot left on that authorization and it's obviously one of the major strategic uses of our cash here going forward. Bill McKenzie - Lafitte Capital: Then, one last question. I know you talked about some delays in some of the Chinese orders. I am sure that you guys keep track of as many of those companies as possible over there. Have you noticed anything in the Chinese market about any issues in access to capital recently within China that might be just worth pointing out?

No, we haven't noticed anything that major on the restriction. And many of the companies that we're dealing with, are major public companies right now, they've really had IPOs to raise the capital with expansion in mind. So, no, we haven't, no, that we haven't seen at this point, no. Bill McKenzie - Lafitte Capital: All right, great. Well, thanks a lot.

Thank you, Bill.

Thank you. There appears to be no further questions at this time. I will now like to turn the floor back to Bill Rainville for any closing comments.

All right. Thank you, Operator. In closing, I'd just like to say that we believe Kadant is well positioned to capitalize on opportunities, even during times of economic uncertainty. Importantly, our healthy backlog of $109 million, strong parts and consumable business, geographic diversity, as well as an excellent balance sheet provide stability during challenging times and flexibility to achieve our performance targets. I look forward to reporting on our progress as we work toward implementing our strategies and meeting our operational and financial goals for the remainder of the year. Thank you for joining us today and for supporting Kadant.

Thank you. This does conclude today's conference call. You may now disconnect and have a great day.