Thomas O'Brien – EVP and CFO Bill Rainville – Chairman, President and CEO

Claudia Hueston – J.P. Morgan Paul Mammola – Sidoti & Company Walter Liptak – Barrington Research

Good morning. My name is Vanessa and I will be your conference operator today. At this time, I would like to welcome everyone to the Kadant Incorporated earnings business update 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 period. (Operator instructions) Thank you. It is now my pleasure to turn the floor over to your host, Mr. Thomas O'Brien, CFO. Sir, you may begin. Thomas O'Brien: Thank you, operator, and good morning everyone and welcome to Kadant's third 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 fiscal period ended June 28, 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 third-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." And 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 Kadant's 2008 third quarter results and comment on the outlook for the rest of the year. Before I review Kadant’s performance in the third quarter and the challenges facing us I want to take a moment to congratulate all of our employees around the globe for helping making Kadant one of America’s 200 best small companies as ranked by Forbes Magazine. This is the second year in a row that we have received this recognition and the name to the Forbes list. I am proud of this accomplishment and the ability of our talented workforce to consistently deliver value to our shareholders and our customers especially during these tough economic times. I like to begin my formal comments with financial highlights of our continuing operations for the third quarter. Our diluted EPS was $0.50, a slight increase compared to the same period last year excluding the results of our discontinued operation. This compares to our guidance of $0.36 to $0.38 and represents one of the highest levels of performance in the history of the company. Our revenues for Q3 were $83.7 million or 10% lower than Q3 ’07. Although we saw good performance in our fluid handling and water management businesses growth in these product lines was offset by weak revenues in our stock-prep business in Asia and North America. Product gross margins were 41% in the third quarter, an increase of nearly 300 basis points over the same period last year. This was due to improved product mix, as after market business constituted a higher percentage of our revenues as well as results from our efforts to shift manufacturing to lower cost regions. Our bookings for the quarter were $64 million, a 39% decline from our record setting performance in Q3 of ‘07. The decline in total bookings is mainly the result of lower stock-prep bookings from Asia and North America as our customers reduced capital spending in response to concerns about the global economy. Backlog at the end of Q3 stood at $86 million, a 16% decrease from the same period last year. We did, however, have another solid quarter of cash flow from operations, which generated $6.2 million in Q3, 58% more than the same period last year. Our cash flow from continuing operations for the last 12 months was $43 million. And finally as announced in our earnings release yesterday, we repurchased $22.2 million of our common stock in the third quarter and received authorization from our board to repurchase up to an additional $30 million of our stock through October 22, ’09. We firmly believe that repurchasing our stock is an excellent use of our cash and will benefit shareholders in the future. Now let's look ahead for the rest of 2008. Without a doubt, uncertainty in prospects of the global recession has adversely affected our customers’ short-term outlook. This is especially true in China which is experiencing an oversupply of linerboard as demand has dropped due to reduced exports. In addition, many of our customers require credit to finance larger projects and the turmoil in credit markets has affected their ability to obtain financing. These conditions lead us to temper our outlook for the remainder of ’08 and 2009. That said, our business fundamentals are strong, our balance sheet is healthy and we believe we are well positioned to weather the economic downturn during the coming months. As I mentioned in previous earnings calls, there are 4 major factors that benefit us in slower times. The first is our substantial consumables and parts business that is generated from our large installed base. Consumables and parts make up about one half of our sales and are fairly stable even during slowdowns. They also generate higher gross margins than capital projects. Second, many of our products offer energy and fiber saving benefits resulting in (inaudible) returns on investment opportunities. Even during difficult times these products offer attractive solutions to reduce operating costs and improve energy utilization. Third, our global manufacturing and sourcing capabilities provide increased flexibility to manage our cost, as currencies and other factors change the relative manufacturing cost from region to region. Fourth, we have consistently maintained a healthy balance sheet and currently have a small amount of net debt. In addition, we have access to capital through our established credit facilities that allow us to take advantage of opportunities such as stock repurchases and complimentary acquisitions. We will continue to seek on opportunities that add value to our portfolio and believe that patience is a value attribute in the current environment. The point that I want to emphasize here is that we believe our business model is very robust. For more than 100 years we have been serving our customers and our businesses have been through tough times before. Difficult times can also provide opportunities and we will take advantage of the situation in the marketplace to build for the future. Overall our strategy for maximizing our business remains the same. 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 after-market and consumables business; to further penetrate existing markets where market share is low; and to focus on emerging markets with opportunities such as Asia, Russia, Eastern Europe, and Latin America; also to leverage our global manufacturing and sourcing capabilities; and continue to ensure our stock structure is in line with expected business levels. Although our business strategy has remained consistent the market environment has not. I like to take the next few minutes to highlight some of the recent developments in the regions we serve and the potential impact on our business. Taking a closer look at the regional economies, I will begin in North America. According to VC [ph] economists domestic demand for most grades of printing and writing paper as well as newsprint in North America has trended down in 2008. North American suppliers will be adjusting supply side capacity while looking for new growth opportunities outside the US In fact we’re already seeing supply management in effect with the removal of 3.25 million tons representing approximately 3% of the annual capacity in the US and Canada so far this year. However, increases in capacity with the startup of (inaudible) machines, investments in upgrading existing machines and increased utilization rates of operating machines mitigate the negative effect that could result from these curtailments. Despite the softening demand for paper material markets, we continue to see the value of the Kadant brand in launching new products and generating orders for energy saving products. For example, two tissue manufacturers in Canada recently installed Kadant’s patented dryer bars developed at our research center in Three Rivers, Michigan, and launched earlier this year to improve heat transfer in the tissue drying process. Gains in heat transfer provide the opportunity to reduce steam consumption and in some cases apply the excess steam capacity to generate low cost electricity. In another example, a linerboard mill in the US recently purchased a rapid clean filtration system to improve the quality of its well water applied to the wet end of the paper machine. This new filter system will reduce the maintenance frequency and associated costs with the mill’s vacuum pumps used after the filtration system. Now turning to Europe, there is also a softening in paper demand. And paper capacity during the first half of 2008 was reduced in all grades except tissue compared to the first half of ’07. According to VC, further supply side cuts may develop in Scandinavia as the Russian wood export sellers are making the supply of Russian logs, which make up 90% of Scandinavia’s wood source uneconomical. While the market conditions in Western Europe are similar to those in US, Eastern Europe and Russia continue to experience relatively healthy project activity although we are mindful of the potential impact of restricted credit on this region. In Latin America, where paper consumption is relatively low per capita we see a slight improvement in paper demand. Kadant’s business activity in Latin America has been encouraging with several recent dryer section rebuild projects in Brazil and Chile and the stock preparation system designated for El Salvador. The 100 ton per day stock-prep system will be installed at a tissue mill and is valued at $2 million. At the end of the quarter, we received an order valued at approximately $4.2 million from a Colombian tissue producer for 130 ton per day (inaudible) line. Finally, I like to comment on the market conditions in China and how Chinese paper makers are responding to current economic developments. For the last several years paper producers in China have been aggressively adding capacity to feed China’s booming export business. The global slowdown and the resulting reduction of exports from China have caught China’s paper industry by surprise leading to an oversupply of linerboard. During the last earnings call, I indicated that China’s paper producers were building inventory as demand and planned capacity increases were brought online. To address the oversupply market related downtime was reportedly taken in September and it was noted that many producers were taking downtime during the Chinese national holiday from September 29th to October 5th. Recently, China’s two largest container board producers Nine Dragons and Lee & Man announced delays or cancellations of several new machines. We see these moves as prudent and would expect the supply side control reflects market demand. We also expect it will take some time to absorb the excess capacity that is currently in the market which is slated to come online. It is important to acknowledge that the longer-term fundamentals of China’s economy are still in place. China’s GDP grew 9% in the third quarter of ’08 and the low per capita paper usage is expected to continue to grow from its currents levels. We continue to focus on building our after market business in China and around the globe leveraging our large installed base and emphasizing return on investment formed with our energy and fiber saving products. Bookings for our water management and accessory product lines in China doubled during the first nine months of ’08 compared to first nine months of ’07 and our stock-prep after market revenue in China increased two-fold during the same period. Although we don’t know when the global economy will rebound we do know that our business fundamentals are solid and we are in a strong position to seek opportunities as they arise. Prior to passing the call over to Tom, I like to comment on our guidance for ’08. Despite the current economic environment we believe Kadant is well positioned to withstand a global slowdown. Our spare parts business and consumables sales, which make up approximately 50% of our total revenue are relatively stable even during sluggish economic periods. The declines in stock-prep bookings, however, will have a near-term impact as we discussed on our July earnings call we had included approximately $15 million in revenue and $0.09 of diluted earnings per share associated with a large systems order for a new customer in Vietnam in our full-year guidance. We have noted that the customer had been unable to open a confirmed letter of credit, which we require in this transaction before making any shipments. The customer has made significant progress in arranging financing for this project including a 30% down payment and a letter of credit for a portion of the remaining amounts. However, partly due to the worldwide credit crisis, we do not expect the customer will complete all the steps necessary for us to recognize revenue and income on the order in the fourth quarter. We now expect to recognize revenue and income from this project in early 2009. Based on this development and the general market conditions I have discussed, we now expect to achieve GAAP diluted EPS of $0.18 to $0.20 from continuing operations in the fourth quarter of ’08 on revenues of $75 million to $77 million. For the year, we now expect GAAP diluted EPS of $1.54 to $1.56 on revenues of $337 million to $339 million. Had we included the income from the large systems order from Vietnam we would have been at or near the low end of our previous full year guidance. 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 $83.7 million in the third quarter of 2008, 10% lower than last year, including a 12% favorable effect from foreign exchange. Revenues were slightly below our guidance for the quarter of $86 million to $88 million, primarily due to lower than anticipated sales in our stock-prep and fluid handling product lines. In general, we had solid revenue performances in our water management and fluid handling product lines, offset by weakness in our accessories and especially in stock-prep product lines. Let's now look more closely at the revenue performances in each of our major product lines. Stock-prep revenues were $30.3 million in the third quarter of 2008, down 27% from last year, including a 5% favorable effect from foreign exchange. As was the case last quarter a major contributor to the decline was our business in China, where stock-prep revenues of $7.1 million were down 62% from last year, including a 3% favorable effect from currency. Our capital business in China continues to be very weak with few live system projects underway and few on the immediate horizon. The same was true about stock-prep business in North America, which was down 29% compared to the third quarter of 2007 in part due a large system project in last year’s results. In contrast, our European based stock-prep business had a strong revenue performance. Stock-prep revenues here were up 55% compared to last year including 16% from the favorable effects of currency with some of the larger projects originating in Russia, Greece, Portugal, and Columbia. Revenues in our water management product line increased 22% from last year, including a 1% favorable effect from foreign exchange. In North America, revenues increased 23% compared to the third quarter of 2007, including a 1% favorable impact from currency, largely due to higher sales in our formation and filtration product lines especially in the US. European-based revenues were up 12% over last year, including a 5% favorable currency effect. Turning to our accessories product line, revenues were $15.2 million in the third quarter of 2008, down 9% from last year and included a 1% favorable effect from currency. Revenues declined in both North America and Europe due in part to lower sales to fine paper and coated paper producers who have in turn seeing reduced demand for their products due to the weaker global economy. We also believe that some mills are running longer intervals between maintenance and in some cases are only replacing critical parts that directly affect the machine uptime. And finally to round up my discussion of revenues, our fluid handling product line posted another solid revenue performance in the third quarter of 2008. Revenues here were $27.3 million, up 9% over last year including a 7% favorable effect from foreign exchange. As was the case in the second quarter of 2008, the major contributor to the revenue growth in this product lines came from our European business where revenues increased 30% over the third quarter of 2007, including 9% of foreign exchange. Here we continue to see project activities in mills especially in Eastern Europe and Russia, particularly for machine rebuilds. Revenues were also strong in Latin America and in our South East Asia business. Partly offsetting these revenue gains were decreases of 16% in the US and 6% in China, the latter of which included an 18% favorable effect from currency. The US market remains relatively weak despite excellent ROIs on energy savings projects as some customers continue to defer projects due to spending restraints and the increased uncertainly in the economic outlook. Now turning to our product gross margins, for the second quarter in a row now we have seen excellent results of the gross margin line. Consolidated product gross margins were 40.9% in the third quarter of 2008, up 280 basis points over last year. This improvement occurred entirely in our papermaking system segment where gross margins of 41.5% were 310 basis points higher than third quarter of 2007. The increase in our papermaking systems segment was primarily due to a better product mix that is a larger proportion of higher margin after market revenues and fluid handling revenues, as well as higher margins in our water management product lines. Gross margins were lower than last year in our other category, although this only adversely affected our consolidated gross margins by 30 basis points largely due to higher prices in natural gas, which is a major component of the manufacturing cost in our fiber-based products business. As you may know, gas prices have dropped significantly and we expect improved results for this business next year. Now let's look at our SG&A expenses for a moment. SG&A expenses were $24.4 million in the third quarter of 2008, up $400,000 or 2%, from last year. This increase includes $1 million from the unfavorable effect of foreign exchange, as well as an decrease of $1 million associated with lower employee incentive compensation expense. Due to lower revenues in the 2008 period, SG&A as a percentage of revenues increased from 25.9% in the third quarter of 2007 to 29.2% in the third quarter of 2008. Now on to our EPS results. We reported GAAP diluted earnings per share, including the discontinued operation, of $0.50 in the third quarter of 2008, compared to $0.40 in the third quarter of 2007. The discontinued operation reported breakeven results in the 2008 period, compared to a loss of $0.09 in the 2007 period. So, excluding the discontinued results, income from continuing operations was $0.50 in the third quarter of 2008, compared to $0.49 in the third quarter of 2007, an increase of $0.01 per diluted share. This improvement of $0.01 per diluted share which compares to a very strong quarter last year includes increases of $0.09 from the following; $0.03 due to a gain on the sale of a property net of restructuring costs, $0.02 due to a lower effective tax rate which in turn was largely the result of several discrete non-recurring tax benefits, $0.02 due to lower shares outstanding for which I will give more details in a moment, $0.01 from the net favorable effects of foreign exchange translations, and $0.01 due to lower non-interest expense. Now let's turn to the balance sheet and our cash flows for a moment. We ended the third quarter with $59.8 million in cash and $61.1 million in debt, leaving us with a net cash position that is debtless cash of $1.3 million. This compares to a net debt position of $7.2 million in the third quarter of 2007 or a reduction in our net debt of $5.9 million compared to last year. In the second quarter of 2008, we were in a net cash position of $10.9 million and a change from the second quarter to the third quarter of 2008 was largely the result of significant repurchases of common stock in the third quarter of 2008. Encouragingly, cash flows from operations were a solid $6.2 million in the third quarter of 2008, an increase of $2.3 million or 58% over last year. For the first nine months of 2008 cash flow from operations of $17.1 million have more than doubled over the same period last year. Now with respect to our stock repurchase program, during the quarter we repurchased 945,600 shares of our common stock in open market transactions for a total purchase price of $22.2 million. Through the first nine months of 2008 we purchased over 1.6 million shares of our common stock at a cost of $41 million. The effect of these purchases will be to lower our fourth quarter 2008 weighted average diluted shares outstanding to approximately 13 million shares compared to 14.4 million shares in the fourth quarter of 2007. Probably to fund these repurchases, we borrowed an additional $16 million under our fully revolving credit facility at an average interest rate of 3.2%. I should add that we still have approximately $27 million of committed lines available under this facility as of the end of the third quarter and an additional $175 million in uncommitted credit lines available from our bank group and from (inaudible) facility both of which we entered into earlier this year. 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?

Thank you. (Operator instructions) Our first question is coming from Claudia Hueston with J.P. Morgan. Please go ahead. Claudia Hueston - J.P. Morgan: Thanks very much. Good morning guys.

Good morning Claudia. Claudia Hueston - J.P. Morgan: Just a couple of questions here, first is on Asia. I was wondering, obviously we have heard about Lee & Man and Nine Dragons. I wondered what you are hearing from some of the smaller manufacturers in Asia and then just sort of beyond the stock-prep business how are the parts and consumables and sort of the growth and the accessories. Have you noticed any shift in trends there in the last few months or so as things have really slowed down?

Concerning some of -- that is a good question Claudia. Concerning some of the smaller customers that we have in China, we have actually still prodding and still to see some active projects and on some varying grades of papers as well. So, I mean China although it is not going to add a big robust contribution on major capital orders that we have seen in the last couple of years, we still expect to get some orders out of China and concerning our parts and consumables and the blade business. In the water management accessory side of the business we continue to make gains. We had good increases over the previous year. We also see our parts business in the stock-prep area double over the previous year. So, we continue to see and I think one of the advantages that we have in this marketplace now as we have established an large installed base in China over the past few years and stock-preparation and, I think, we are going to continue to see opportunities to mine that installed base for parts. And we are also seeing a nice pickup in gain in our basket business as well. And the basket business not only for Asia but that is also, although manufactured in China it is going to help us throughout the world. Claudia Hueston - J.P. Morgan: Okay, that is helpful. And sort of you are picking up a little bit on that your margins in the core business were quite good in the quarter and I don’t know -- maybe you can talk a little bit about what sort of driven just by mix and a little less stock-prep in there but what also might be a result of some of the productivity and sort of global sourcing that you have done over the last couple of quarters?

I think that the mix obviously helped as we had more percentage of the parts of consumables, but on the other hand we also had a fair amount of pickup because of the global sourcing that are now taking place out of our lower cost facilities in Asia and in Mexico for example. Claudia Hueston - J.P. Morgan: And what would you say --

It is a combination of the two. Claudia Hueston - J.P. Morgan: Thanks. Where would you say you are in that sort of -- in that ramp up of sourcing more from some of your other Mexican operations or your Asian operations? Still more to come?

Yes, I think -- in Mexico I think we are really pretty well situated at this point in time in terms of capacity and ability to produce capital equipment on water management accessories and certainly for North America. In China, we made major improvements on those lines as well because we are now --- that is helping us establish a good strong base for our accessories and water management business along with our fluid handling business. And concerning stock-prep, we see there and now we have the ability within China to manufacture just about our entire line of stock-preparation equipment. So, not only for the Asian markets but also it is going to benefit our margin opportunity by sending components whether it be for parts or systems to feed Europe and North American and rest of the world as well. So, we are far better off today then we were a year ago. We accomplished a great deal in the past year. And on the basket business as well, we had added capacity over this past year and we have trained our workforce and consequently we reduced our delivery times dramatically on baskets, which are going to really help us penetrate markets in North America and Europe. Claudia Hueston - J.P. Morgan: Thanks, it is helpful. And then maybe just two for Tom. Any comment on the tax rate, how we should think about it for the fourth quarter and any early guidance for ’09 and then similarly I don’t know if you have any thoughts on capital spending yet for 2009? Thomas O'Brien: Well the tax rate for the fourth quarter I think I can answer that one. The recurring rate will be 30%. In fact that was actually the recurring rate in the third quarter as well. We had some discrete items that lowered it in the third quarter. So, I would use 30% in the fourth quarter.

And I would take the next. It is a little early to say that on the tax rate but we should be in the same general range. Claudia Hueston - J.P. Morgan: Okay.

For next year. Capex I can tell you for this year will be somewhere -- you know I think we have only spent about $4 million or little bit more than that so far through the first 3 quarters. We are still expecting somewhere, you know, $7 to $8 million for the year in Capex. And next year I think we will probably return to more traditional levels that we have had, which is you know somewhere around 1.5% of revenues. Claudia Hueston - J.P. Morgan: Okay, perfect. Thank you guys very much.

Thank you Claudia.

Thank you. Our next question is coming from Paul Mammola with Sidoti & Company. Please. Paul Mammola - Sidoti & Company: Hi. Good afternoon guys.

Good morning Paul. Thomas O'Brien: Good morning. Paul Mammola - Sidoti & Company: Just a quick question on cash. Obviously you had a good quarter in terms of operating cash generation. I guess what the primary uses are acquisitions in the picture here or would buybacks be the primary use?

Well Paul, I guess we continue to look at both as an opportunity. Certainly, stock buybacks as we commented on we are very active in the third quarter, and we still see opportunities in stock buybacks. This is why we had obtained this additional authorization. On the other hand, we have also very successfully in past down cycles had looked carefully and accomplished some good acquisitions. And in down cycles and in economic cycles like this there could be some great opportunities for us to add complementary acquisitions to our product lines whether it be within the paper industry or other industrial markets outside paper. So, both of them we continue to look at and try to optimize shareholder value. Paul Mammola - Sidoti & Company: Okay. And I guess building of that, you mentioned previous acquisitions obviously (inaudible) and is a big part of holding EPS steady here, you know, do you think it is fair to assume if fluid handling holds up in the fourth quarter that 10 to -- $0.18 to $0.20 might be very conservative considering again that fluid handling holds up?

(inaudible) fluid handling certainly is a big contribution. So, it is just very difficult. Based on what we have now in the shifting of this order that we had out of Vietnam from the fourth quarter into first quarter certainly has influenced our guidance for the fourth quarter. You know, as I commented if that were to remain in there we would received all the insurance payments through letters of credit we would been at or very near our guidance for the quarter. So, some of it I guess was just sitting back and taking a look and watching all the economic events taking place throughout the globe and I guess, I would rather hereon taking a look what we really are fairly confident at achieving at this point. Paul Mammola - Sidoti & Company: Okay and I guess that is helpful. Would you classify, you had some good color on what your customers are doing, but would you classify financing for all customers in Asia is difficult right now or is it more selective to, you know, I guess single customers in Vietnam as such.

Yes, I guess it is somewhat selective Paul. I mean we -- there are some customers obviously. There are still looking at proposals and not necessarily the big giants but some of the other ones because, for example, within China they are developing their own consumer base primarily on white grades of paper and we certainly have opportunities to be involved in them. And then in other parts of the world it depends upon the customer and their availability of capital, whether they have their own cash or funds to fund projects or on the other hand if they have credit and access to going to the markets for capital. So it does vary. Paul Mammola - Sidoti & Company: Okay, thanks for your time.

All right. Thank you Paul.

Thank you. Our next question is coming from Walter Liptak with Barrington Research. Please go ahead. Walter Liptak - Barrington Research: Hi, thanks and good morning everyone.

Good morning Walter. Walter Liptak - Barrington Research: Wonder if I can just drill down a little bit on the situation in China. And I wonder if you can tell me what the capacity utilization is running at some of the customers like Nine Dragons or Lee & Man. Do you have that detail?

Yes, sometimes we don’t get as accurate information as currently as we do in other parts of the world. But our sense right now is that they have shut down some of the machines right now and they have fairly high inventories. So, I think on linerboard probably on the machines that are running are probably running more like the 90%, 95% range because they have shut some of that capacity down. And then on some of the other grades of paper they are running at fairly close, continuing to run at around 90%, 95% range. This is why they are still looking at adding some capacity on paper outside of linerboard. I think liner board itself in general, especially on the major ones. I don’t think we are going to see any major thrust in projects like that for the next year or two. Walter Liptak - Barrington Research: For a year or two.

There are certainly other opportunities for us within China and I think the good thing that we have is that installed base now. Now is the opportunity for us to really go in and mine that and for us that is going to be a great opportunity over the next couple of years. Walter Liptak - Barrington Research: Okay, do you know what the breakdown is between the white paper and the linerboard in terms of their capacity.

The linerboard right now is making up the bulk of it. It is probably making up around somewhere around three-quarters to 80% of their capacity. It is by far the largest one because that had related primarily to feed their manufacturing base. And I think that on the other hand I don’t see much growth on that over the next year or two, I do see more growth coming out of the white grades. And on the white grades, the paper by the way we are surely getting involved with stock-prep, but there we even get more of benefit on our accessories and water management product line as well. And on projects I should also mention that we continue to talk about stock-prep there but also on smaller scales we do get involved in projects on our water management systems and our accessory systems as well as on the fluid handling projects there. Walter Liptak - Barrington Research: Okay.

So, China is still -- we are still looking at it as a very viable market for us, but we just see that growth certainly is going to slow down for us for the next year or two. Walter Liptak - Barrington Research: Right on the line --

Over the big linerboard projects. Walter Liptak - Barrington Research: Over the last couple of years what percentage of China has been those two big customers?

(inaudible) Tom on that. I would say it is probably around -- about half of our big projects, our major stock-prep projects came out of those two. They were really leading the pack. Walter Liptak - Barrington Research: Okay, and do you have an idea about the value of the business that is getting pushed out, I guess I could back into it based on the way you answered these questions, but you know as you talk to your customers, do you know -- are there known projects where you could say x millions of dollars have been mothballed or pushed out for a year or two?

I guess we have seen some of what where we had anticipated perhaps some activity in ’09 that are now pushed back and probably may occur in ’10, but some of that is slowly hinged [ph] right now and some difficult because what we really look at is -- and a lot of that depends upon how quickly the economies pick up and what happens in Western Europe? What happens in North America because they feed so many products into these markets. So, a lot of that is hinged right now and so we are trying to grasp a handle on that as well. Walter Liptak - Barrington Research: Okay, thanks for trying to answer that. The after market opportunity, you know and I think I have heard numbers thrown around before, but what percentage of sales in China have been OEM equipment versus aftermarket parts and sales, I guess I am trying to get to a number of what kind of opportunity we have there now that you have got the nice installed base?

I think on the stock-prep business because a lot of a consumables and in our water management goes into the parts area, but if I go into -- where we have the huge installed base in stock-prep, I mean we are a level right now because a lot of the systems are just started up in the last year or two and so we are just in the very early stages of where they really require the parts, but this year we are going to be a level of around, just to give you a sense of around $7 million. And having said that I would think that over the next few years, it is going to get closer into the level of around $25 to $30 million especially as we starting feeding baskets into that. And over the next 5 or 6 years it is going to get probably about the same levels we have in the US. In the US, we have been operating primarily on after market business for the installed base that we have over the last couple of years. So, there is a great opportunity for us. Walter Liptak - Barrington Research: Okay, good. And then Tom when you were going through the different product categories, water management I didn’t catch the revenue number that was up 22%? Thomas O'Brien: For water management? Walter Liptak - Barrington Research: Yes. Thomas O'Brien: Okay. Hold on a second, it was up 22%. Walter Liptak - Barrington Research: Okay, do you have the dollar amount of revenue? Thomas O'Brien: The dollar amount of revenues? Walter Liptak - Barrington Research: Yes, Thomas O'Brien: For water management. Do I have that number? It is around $8.5 million. It might be off a little. Walter Liptak - Barrington Research: Thanks guys. Thomas O'Brien: Yes.

Thank you Walter.

Thank you. (Operator instructions)

No further questions operator.

No. There appears to be no further questions. I will turn the floor back over to you.

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 robust parts and consumable business, energy saving products, and healthy balance sheet provide stability during challenging times and flexibility to achieve our goals. 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 2008. Thank you for joining us today and for supporting Kadant.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.