Thomas O’Brien – Chief Financial Officer Jon Painter – President and CEO

Claudia Hueston – J.P. Morgan Eric Prouty - Canaccord Walt Liptak - Barrington Research Rick Hoss - Roth Capital Partners

Good morning. My name is Courtney, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). I would now like to turn the call over to Mr. Thomas O’Brien, Chief Financial Officer. You may begin your conference. Thomas O’Brien: Well, thank you, operator. Good morning, everyone, and welcome to Kadant’s first quarter 2010 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer. Before we begin, let me read the Safe Harbor statement. Various remarks that we may make today about Kadant’s future expectations, plans and prospects are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from these forward-looking statements, as a result of various important factors, including those discussed in our Annual Report on Form 10-K for the fiscal year ended January 2nd, 2010, which is on file with the SEC, and is also available in the Investor Section of our website at www.kadant.com under the heading SEC Filings. In addition, any forward-looking statements we make on this call represent our views only as of today, while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change, and you should not rely on these forward-looking statements as representing our views on any date after today. During this call, we may refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our first quarter earnings press release issued yesterday, which is available in the Investor Section of our website at www.kadant.com under the heading Recent 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. Good morning, everybody. It’s my pleasure to give you an update on Kadant’s strong first quarter performance and comment on our much improved outlook for the rest of the year. During our February earnings call, I commented that the first six weeks of 2010 had gone well, but we were still concerned about the sustainability of the recovery. I’m pleased to report that bookings and revenues continued to improve throughout the quarter and combined with the restructuring initiatives we implemented in 2008 and 2009, we had a very strong first quarter of 2010. Let me start with some financial highlights from our continuing operations. Revenues at $61 million exceeded our guidance and was our third consecutive quarterly increase. On a sequential basis, our revenues increased 8% from Q4 2009. All of our product lines, except Stock Prep had sequential increases in revenue and in addition, our fiber-based products business achieved record revenues of $3.7 million. Our bookings for the quarter were $70 million, an increase of 45% compared to the relatively weak levels of bookings during the same period last year. More importantly on a sequential basis, bookings were up 9%, our third consecutive sequential bookings increase. All of our product lines saw major increases in bookings in Q1 compared to the same period last year with our Stock Prep and fluid-handling product lines leading the growth with increases of over 50%. In our Paper-Making Systems segment, bookings for capital and after market products in Q1 2010 were up 103% and 26% respectively compared to the same period last year. Most importantly, parts and consumable bookings were up 21% from Q4, resulting in our third consecutive quarterly increase in bookings for this important segment of our business. The strong recovery in parts and consumable bookings throughout the world was one of the more encouraging aspects of our first quarter performance. Our gross margins at 44% were the highest since the mid-1990s. Despite a 6% drop in Q1 revenue, our adjusted EBITDA margins increased to 10% in Q1 from 4% in the same period last year. The restructuring actions that we took in response to the economic downturn and an improved product mix contributed to this EBITDA performance. We expect to continue to benefit from our reduced cost structure throughout 2010 and beyond. Diluted earnings per share for Q1 was $0.29 compared to our guidance of $0.06 to $0.08 for the quarter. Our stronger than expected showing of earnings per share was the result of strong revenue and margin performance, as well as a lower effective tax rate that Tom will discuss during his remarks. As I mentioned in our February earnings call, our Kadant and Lamort business initiated a restructuring plan in Q4 2009 and that process is proceeding smoothly. We expect that the restructuring will yield annualized savings of approximately $2.6 million once completed in mid-2010. The other restructuring initiatives that we began in late 2008 and into 2009 are now complete or nearing completion. I’d like to take the next few minutes to give you a sense of what we’re seeing in the marketplace and what we see unfolding for the remainder of 2010. In general, business activity was stronger than anticipated in most regions of the world during the first three months of 2010. This is a stark contrast to the dramatic slowdown in 2009 when our customers took swift actions in response to the economic downturn by postponing capital projects and running down inventory levels. As a consequence, our capital and after market business down more significantly than the general downturn in demand for paper would imply. At the time, we commented that we thought this was unsustainable and would eventually need to increase. We are now seeing our business recover more strongly than the improvement in the general demand for paper would suggest. We believe part of our revenue and bookings flow may have resulted from pent-up capital projects that are now moving forward, as well as our customers replenishing spare parts and consumables inventory. I will generally expect that over time, the growth rate of our bookings will moderate. Although, the global economy remains fragile, the condition of the paper industry is much improved from where it was a year ago. Paper producers took aggressive steps in response to the economic downturn to balance production with demand, rationalize capacity to maintain supply side discipline. As a consequence, these actions allowed paper producers to strengthen their balance sheets and successfully implement price increases in most grades. That in combination with cost reductions has led to increased profitability for the industry. The improved financial health of the paper industry is a positive development, as the mills are now in a position to focus on preventive maintenance, which is good for our after market business, as well as invest in capital projects that have a good return on investment. The situation is also improving on the demand side for the paper industry, as increased economic activity and spending on items such as non-durable goods leads to an increase in demand for paper products. Similarly, in developing countries, demand for paper products is increasing as the standard of living in those regions improves and the per capita consumption of paper increases. In North America, price increases for most paper and containerboard grades are holding as inventories continue to be managed at minimal levels. We believe this has provided North American paper producers some confidence and allowed them to move ahead on projects that were put on hold last year. Q1 bookings in North America increased 34% compared to the same period last year. We saw increases across all of our product lines with both water management and stock preparation product lines seeing booking rate increases of over 40%. North American bookings were also up slightly from Q4. In particular, our Fluid-Handling and Accessories businesses were up 27% and 10% respectively. Most encouragingly, all of our product lines in North America saw double-digit sequential increases in parts and consumable bookings in Q1. I’m also happy to report that Europe, which had been the slowest region to recover from the downturn, is now seeing much improved business conditions. Bookings from our European operations, which sell to customers not only in Europe, but in other regions of the world, with $25 million, up 91% over the depressed levels of Q1 last year and up 32% over Q4. All of our product lines achieved 20% plus increases in Q1 2010 bookings compared to both Q1 and Q4 of 2009. As was the case with North America, we saw strong growth in after market bookings from our European operations with sequential bookings of over 20%. Our European business has also had good capital bookings including, for example, a $2.6 million order for a Dryer Section Rebuild for a mill in Russia. Q2 is off to a good start as well. In April, we received an order for a turnkey [bleaching] line valued at approximately $5 million for a tissue machine to be supplied later this year. In China, new project activity continues, particularly in white grades and specialty paper. Our bookings in this region were up 12% over Q1 of last year, but down 19% sequentially, primarily due to several large capital projects that we booked in Q4. Our Fluid-Handling product line bookings were up more than double from Q1 of last year and up 61% from Q4 of 2009. We also received significant orders for Doctoring Systems, water-filtration equipment and steam and condensate systems during the quarter. In addition, after the quarter ended, we booked an order for a stock preparation system with a value of more than $2 million from a white-top containerboard producer. China continues to be our most important market and we are focusing on several growth opportunities including increasing sales of our accessories in water management product lines, which are currently less than $3 million in annual revenue. Based on our strong performance in Q1 and the expectation of continued healthy market demand through Q2, we expect to report GAAP diluted earnings per share of $38.40 in the second quarter of 2010 and revenues of $67 million to $69 million. In fact, during our tempered outlook for the second half of 2010 for the full year, we expect to achieve GAAP diluted earnings per share of $1.10 to $1.20 on revenues of $255 million to $265 million. Now, we’ll turn the call over to Tom for a more detailed review of the financials. Tom? Thomas O’Brien: Thank you, Jon. I’ll begin with our revenue performance. Consolidated revenues were $61.1 million in the first quarter of 2010, 6% lower than last year, including a 4% favorable effect for foreign exchange. Revenue results exceeded our guidance for the quarter of $56 million to $58 million, largely due to higher Fluid-Handling sales. Revenue increases were broad based in the first quarter of 2010, with all our major product lines reporting solid increases compared to last year, with the exception of Stock Prep. Stock Prep revenues of $17.8 million were down 39% compared to the first quarter of 2009, including a 2% favorable impact from foreign exchange. Both of last year’s revenue included $11.7 million from a large system shift to Vietnam. Increases compared to the first quarter of 2009 in the other major product lines were quite significant. 28% including Handling, including a 7% favorable effect from exchange, 27% in water management and a 5% favorable effect from exchange, 23% in fiber-based products and 8% in accessories, including 5% unfavorable exchange. The fiber-based products revenues of $3.7 million were the highest quarterly amount, we acquired this business 14 years ago. The sequential revenue increases were equally encouraging. Consolidated revenues in the first quarter of 2010 were about 8% compared to the fourth quarter of 2009 and once again, all our major product lines increased except the Stock Prep. Particularly noteworthy was the increase in water management and Fluid-Handling, which are up 18% and 16% respectively compared to the fourth quarter of 2009. The first quarter 2010 revenue results give us yet another data point supporting the thesis that our revenues bottomed out in the second quarter of 2009 and are recovering. Moreover, the 9% sequential increase in bookings and the 13% sequential increase in backlog in the first quarter of 2010, suggests that the improvement in revenues will continue into the second quarter. Again, it is especially worthy to note that our Fluid-Handling bookings of $23.4 million increased 27% compared to the fourth quarter of 2009. You can see more details of our product line revenue results in the comparisons to last year with or without giving the effect of currency changes in a schedule attached to the press release that we issued yesterday. It is clear that our North America operations continue to lead the upturn. Information Systems segment revenues in North American were up 11% compared to the fourth quarter of 2009, while revenues in our European operations increased 4%. China revenues, which tend to be lumpy, were 14% lower on a sequential basis, but more than double compared to a year ago. And turning to our product gross margins, consolidated product gross margins were 44% in the first quarter of 2010, up 610 basis points from last year’s 37.9%. The increase in the fourth quarter of 2009 was 270 basis points. In our Paper-Making Systems segment, gross margins of 43.5% were 540 basis points higher than last year. Product gross margins were higher in all our major product lines compared to last year, those means Stock Prep, where the increase was 550 basis points. Encouragingly, margins were up in all the major product lines on a sequential basis as well. Sequential increase in product gross margins was led by water management, consolidated increases in both Europe and North America. As we expected, the gross margins in this product line continued to benefit the consolidation of our U.S. water management manufacturing facility into our manufacturing facilities in the U.S. and Mexico, which was completed in 2009. Segment margins in the first quarter of 2010 also improved due to a favorable product mix that is fortunately post-sales of higher margin parts and consumable products in the first quarter of 2010 compared to last year. Gross margins in the next few quarters may decline somewhat in the first quarter levels, as we expect higher revenues from larger assistance projects in subsequent quarters. In our other categories, gross margins of 50.7% were significantly higher than last year’s 34%, largely due to record high volumes and lower natural gas prices in our fiber-based products business. Now, let’s turn to our SG&A expenses for a moment. SG&A expenses were $21.1 million in the first quarter of 2010, down $1.1 million or 5% from last year, including an increase in the effective foreign exchange translation of 700,000 or 3%. For the total year, we expect SG&A expenses to be approximately $84 million through $85 million, an increase of 4% compared to 2009. As a percentage of revenues, SG&A was 34.6% in the first quarter of 2010, essentially flat with last year’s 34.2%. Now, let me turn to our EPS results in the first quarter. The reported GAAP diluted earnings per share from continuing operations of $0.29 in the first quarter of 2010 compared to a loss of $0.23 the first quarter of 2009. The first quarter of 2010 results included a gain of $0.02 from the sale of real estate. The first quarter of 2009 results included incremental tax provision of $0.21 and a restructuring charge of $0.04. Excluding these items in both periods, adjusted diluted EPS was $0.27 in the first quarter of 2010 compared to $0.02 in the first quarter of 2009 for an increase of $0.25. This improvement of $0.25 per diluted share includes increases of $0.05 due to a lower effective tax rate, $0.02 due to a lower net interest expense and an immaterial effect from foreign currency translation. The remaining increase of $0.18 therefore was due to better operating results in the first quarter of 2010 compared to the first quarter of 2009. Now I do need to make a few comments on our effective tax rate in the first quarter of 2010. We believe that with the increase in earnings in the first quarter of 2010, and the expected increase of full year, we will be in a position to utilize foreign tax credits, which have been fully reserved for in prior years. The effect of using these fully valued credits directly reduces our tax expense. Further, we are experiencing a better mix of profitability, which we believe will continue for the rest of the year, resulting in more pre-tax income and lower tax jurisdictions. Let me also take a moment to compare the actual EPS results in the first quarter to the guidance, which we issued during our February 2010 earnings call. Our GAAP diluted EPS for the first quarter of 2010 was $0.06 to $0.08 and this included $0.01 of restructuring cost. The reported absolute EPS of $0.29 and this included a $0.02 gain from the sale of real estate. Excluding the restructuring costs and the gain therefore, adjusted diluted EPS was $0.27 in the first quarter of 2010 compared to the adjusted EPS guidance of $0.07 to $0.09. The increase of $0.18 to $0.20 included $0.08 from a lower effective tax rate in the first quarter of 2010 compared to the forecasted rate. Also for the full year 2010, we now expect the effective tax rate to be approximately 20% to 22% compared to our earlier guidance of 32% to 34%. I should also note that the utilization of these foreign tax credits provides us with true economic benefits and that we are projecting that we will pay no federal cash taxes in the U.S. in 2010, although, we expect it will be a substantial amount of taxable income. Turning to the balance sheet, cash flows from continuing operations were a negative 600,000 in the first quarter of 2010, and the deposited cash flows of $13.8 million in the first quarter of 2009. In the 2010 quarter, working capital, here defined as current assets less current liabilities, excluding cash, debt and discontinued operations, increased by approximately $5 million, most of which was in accounts receivable and inventories, as our revenue volume continues to build. Given the higher revenues, we may see an increasing working capital for the full year 2010 compared to the balance at the end of 2009. Despite this use of cash, our working capital management remains solid. Compared to the first quarter of 2009, days sales and receivables increased only two days to 67. Days of inventory decreased 11 days to 102 and days account payable increased by 20, 50 days. In total, our working capital as a percentage of the last 12 months revenue stood at 13.1% in the first quarter of 2010, up from 10.5% in the fourth quarter of 2009, but still 220 basis points lower than the first quarter of 2009. Our net cash position, that is cash plus debt, at the end of the first quarter of 2010 was $20.5 million, down slightly from $22.4 million at the end of 2009, but still an improvement of almost $28 million compared to the net debt position of $7.3 million at the end of the first quarter of 2009. The improvement in our EBITDA, we are now restoring our borrowing capacity and we could now borrow approximately $50 million under the terms of our credit facilities. This compares to the $23 million we had borrowed in outstanding at the end of the first quarter of 2010. Moreover, we expect that we will able to add that capacity, should the need arise, as our trailing last 12-month EBITDA improves over the next few quarters. Also at the end of the first quarter of 2010, we were comfortably in compliance with the financial covenants in our multi-bank credit facility, which runs to early 2013. That concludes my review of the financials and I will now turn the call back to the operator for our Q&A Session. Operator?

(Operator Instructions) Your first question comes from the line of Claudia Hueston with J.P. Morgan. Claudia Hueston – J.P. Morgan: Hi, thanks very much. Good morning. Just a couple of questions, one, I was just hoping you could talk a little bit more about the restructuring and how that contributed to the improvement in the margins in the quarter. Obviously, the mix was better too, but it did seem like the restructuring really seemed to bear some fruit in the quarter? And then, if you could just talk about sort of where you feel like where you are in terms of achieving restructuring savings at this point?

I can start with that and then maybe Tom will correct me where I make a mistake. On the restructuring side, a lot of the restructuring, you compare Q1 of last year to Q1 of this year, a couple of points on that. One is some of the restructuring took place in 2008. We really started both in the U.S. and in China in the middle of 2008. So, the comparison of things, SG&A aren’t exactly apples-to-apples, if you will, for the changes we made during the downturn in the economy. Secondly, in 2008, we, in addition to restructuring, we did a lot of things that were more short-term. People took furloughs in Europe and in China. We had pay reductions that were temporary freezes, things like that, no bonuses. Those things are, I would say, back to normal now, so that also offset some of the changes we made. So, in the end, I think you really can see the changes in the gross margin line. The SG&A line is a little bit masked by these other currents that are going there. The main thing we have going forward is really the restructuring in Lamort, which we say will be completed the middle of this year and will be about $2.6 million of savings. I don’t know if you have anything to add to that, Tom? Thomas O’Brien: No, I got, I agree with that. The only other thing I would say, Claudia, is you kind of hit to that and your question is the improvement in the margins in the first quarter, there was an improvement due to mix, but that was actually the lesser of the factors. The main factor was really cost reductions that took place in our indirect manufacturing operations, better efficiencies in manufacturing. And that’s encouraging to me, I think, ultimately because we expected the mix may continue on the way it is and it be slanted somewhat toward the higher system projects, like I mentioned in my remarks, but it still suggests that we have some upside potentially on the margin line going forward. Claudia Hueston – J.P. Morgan: Yeah. No, I was pleased to see it; it was a nice surprise for star forecasts and it was nice to see that coming through. I know you guys have been working hard on that for the last couple of quarters? The other question, I just had, in the past, you’ve talked about delays in orders and some orders being pulled back, particularly in China. As inquiries have picked up, as activity has picked up, are you see seeing any of those projects sort of dusted off or revisited at this point?

Yeah. We are, I mean, as I kind of said in my remarks, the quarter was excellent and the pickup really in every region of the world was stronger than we expected. So, some of that stuff we believe is probably from pent-up demand, stuff that was, as you said, dusted off and pushed forward. The good news really is that even looking forward, our people in China in particular, there’s a project in all levels of the pipeline. So, we’re fairly optimistic about China and most regions of the world really for the year. Claudia Hueston – J.P. Morgan: Have you noticed any change in the competitive environment there from a supplier standpoint?

I would not say we had really noticed a change in the competitive environment. Most of our competitors are large multi-nationals and they’re still there. The smaller players are not major competitors. They may have suffered a bit, but they’re not really major competitors of ours. Claudia Hueston – J.P. Morgan: Okay. Great. Thanks so much, guys. Take care.

Your next question comes from the line of Eric Prouty with Canaccord. Eric Prouty - Canaccord: Hi. Thanks, guys, and very, very good quarter and outlook here. A couple of housekeeping questions, first, on the tax rate, it sounds like blended for the year 20% to 22%, as you said. How will that flow through the year? Will that be kind of an even across the remaining quarters, or will they be another very low rate in June and then it will kind of creep up from there? How do you think that will play out? Thomas O’Brien: Well, the way we’ve incorporated our guidance is that would be, I’ll say, evenly, the same amount for the next three quarters. Eric Prouty - Canaccord: Okay. Perfect. And then do you expect any of that to carry through to 2011 or do you think you go back up to more of a normalized rate in 2011? Thomas O’Brien: That’s a very good question, Eric and it kind of gets back to why the rate was so low in the first quarter and essentially, we have almost $13 million of foreign tax credits that we can utilize. They’re only expecting to utilize about $1.4 million of that $13 million pool that we have, so it’s a very complicated area. There’s a lot of caveats and cautions to this, but we do expect, I think, it’s reasonable to expect that we would be able to continue to use these foreign tax credits into 2011, 2012, assuming that we have the same levels of operating income in the U.S. and the same levels of foreign source income in the U.S. So, there’s a limitation in our ability to utilize those foreign tax credits, but we should still see the benefits of those going forward the next few years, all other things being equal. Eric Prouty - Canaccord: Great. That’s good news. And then, if I do look at your guidance, the guidance you gave for June and then the full year guidance, it would seem that you’re expecting, I guess, less from a revenue standpoint, maybe more from an earnings standpoint for there to be a slowdown or a pullback in earnings in the back half of the year as opposed to the front half of the year. Is that attributable just to kind of this potential catch-up in orders that you might be seeing now and expecting things to weaken off a bit, moderate off a bit come September and December, or is that some sort of seasonality at work?

Well, the point, you might remember if you can go back to our December call, we kind of saw the recovery as kind of a long, slow slug, uneven, with higher quarters and lower quarters. So that is kind of a prevailing view. In that kind of thinking, the first quarter definitely came as a pleasant surprise, but a surprise. So, we’re kind of looking out at the overall economy and say, it seems like that level of increase is not going to stay, given that there’s still high unemployment and all the macro issues that you all are well aware of. So, we’re kind of assuming that maybe there is some fallback, but it’s more a broad macro assumption than anything we’re specifically seeing in terms of booking trends in the market right now. Eric Prouty - Canaccord: Okay. So, I guess, it would be fair to categorize, I guess, what’s built into your estimations as a conservative economic outlook for the back half of the year?

Yeah. I mean, it really since there’s a little bit, just as we had during last year, we felt, our business came down much more dramatically than [start] and we kind of said this can’t continue. I mean, we were actually surprised how long it did. I think we’re now seeing the other side of it. We’re recovering much more strongly than the paper industry would imply that we should be and we’re kind of also saying, well, that probably won’t continue. Well, eventually, it kind of moderated. Eric Prouty - Canaccord: Sure. No, that’s fair enough and being conservative is not a bad thing in this.

Yeah. Conservative is better than the other one. Eric Prouty - Canaccord: And then finally and you’ve talked about this in many different ways, but I’m just going to ask for a tiny bit more detail again then. The gross margin was very impressive. The movement you had in that sounds like that might moderate a bit. Would the moderation, it sounds like it’s really more a kind of product mix shift moderation being expenses going back up because of new investments, et cetera. What kind of goes into that forward outlook of moderating gross margin? Thomas O’Brien: You know, I think you have it there, Eric. The fact that we’re looking for more existence projects in the second half than what we had in the first half. So that will tend to decrease the margin percentages going forward. Eric Prouty - Canaccord: Okay. And then given this improvement in the environment, I mean, obviously you just went through a year of a lot of cost cutting. I mean, what can we expect that the SG&A will kind of go up as revenue starts going up? I mean, you won’t be able to hold that flat going forward, will you, as revenue and earnings continue to improve?

Well, we are definitely, in our divisions are feeling some strain with the increased volume and their lower staffing rates. From our end, we’re certainly encouraging them to kind of hold the line as best they can because again, we don’t know that this is going to stay. I do think that some of the changes we made. For example, consolidating our water management business into our accessories business and combining our sales force, so those are fundamental changes that will keep for a while. Some of the other stuff, yeah, there will be some slippage, but we’ll certainly, we’re going to watch it very carefully and keep it to a minimum. Eric Prouty - Canaccord: Great. And then finally, you’re in very good financial health with just a tiny bit of debt, a lot of cash. I mean, what’s topping, you already said, potential acquisitions still topping your priority list for potential cash usage? And then, what are you seeing out there? Has this bad economy created any opportunities out there, folks still asking too much for their businesses?

With this level of cash, certainly acquisitions would be one of the prime things that would be an opportunity for us. I would say we’re always looking at acquisitions both inside and outside the paper industry, particularly inside the paper industry. It seems that there’s more stuff potentially coming around. I don’t know enough to say about what evaluations are reasonable enough for now at this point, but it’s something we kind of monitor and we have an eye to the ground, ear to the ground for. Eric Prouty - Canaccord: Sure. Great. I’ll hop back in. Congratulations.

(Operator Instructions) Your next question comes from the line of Walt Liptak with Barrington Research. Walt Liptak - Barrington Research: Hi, thanks, guys. Good morning. A good job too. I wonder, if you can just help me, I mean, at the beginning of your comments, you talked about parts and after market really being a big driver for this quarter. And maybe I missed this, but have you broken out parts of this quarter as a percentage of sales and how much that was up year-over-year versus systems?

I think we did about $35 million in parts. Thomas O’Brien: Yeah. I think if you look at it as a percentage of the segment revenue, there was a little over 60%, I think, somewhere in that range. Walt Liptak - Barrington Research: Okay. And what is normal? Thomas O’Brien: I think just a follow-up on that though, Walt, the interesting point of that is that it’s about, it jumped to $35 million. That’s well below.

I mean, but of course, the economy is well below its historic run rate. I think just to go on a little bit about parts, to me, the news of the quarter, one, is Fluid-Handling doing so well and the other is parts. And its parts really every part of the world in almost every product line, so, we’ve always said keep an eye on our parts recovery and my mind, that’s probably the most encouraging thing that we saw in Q1. Walt Liptak - Barrington Research: Okay. And why do think the Fluid-Handling part of the business is doing well at this point?

The Fluid-Handling business is one that has a nice return on investment on energy. It’s also not a huge cost per product, so it doesn’t have very long lead times for stuff to come online and we have good markets everywhere in the world. So, we kind of look at Fluid-Handling as a good barometer of the overall state of the industry. Walt Liptak - Barrington Research: Okay. And then Stock Prep, obviously that’s larger systems, right?

Yeah. Walt Liptak - Barrington Research: And what does the pipeline look for deals or utilization rates? Do you expect that that’s going to come back at some point by the back half of the year or something?

In my remarks, you might have noticed, we actually recently booked, in fact, even in Q2, booked a number of Stock Prep Systems. China is the area where a lot of that stuff goes and the pipeline in China seems pretty reasonable, certainly much, much better than last year. Whether that settles down, who knows? But where we’re sitting right now, it looks pretty good. Walt Liptak - Barrington Research: Okay. And if I could just switch gears and kind of go back to I think what Claudia was talking about and maybe ask about, you were at a run rate of revenue that had an incremental $100 million or something like that to get to like the $350 million range again. What kind of leverage would you expect to get on that considering the mix of some systems coming back? And if you were to get back there, would we be seeing operating margins significantly higher because of restructuring? Thomas O’Brien: You’re back to the $300 million case, Walt, then, right? Walt Liptak - Barrington Research: Okay. Fine. Yeah. Thomas O’Brien: So, I think, thank you for asking that, by the way. That 300 million we’re saying if margins are in the 42%, 43% range, in SG&A, maybe $87 million or so. There’s going to be some increase in SG&A, but we should get some good leverage out of that. And you do the arithmetic that would suggest an operating income of $35 million, somewhere in that range. At the tax rate we’re talking now, that would be and EPS is 180 plus, 190. So, that in past a lot of things obviously. The $300 million revenues, the mix of that parts to consumables versus systems, et cetera. But we’ve talked about this before and I think the point that we’re trying to make with that $300 million case is the fact that we do have good operating leverage going forward because of all the efforts that our operating people took in the last 18 months to restructure the business. And we’re benefiting from that today, not only from the SG&A leverage, but also as you can see in the gross margin leverage and we’re seeing some of that in the first quarter. Walt Liptak - Barrington Research: Right. Okay. Good. Yeah, that’s actually more than I thought I was going to get. So, I’ll stop right there, thanks, guys.

We didn’t project, you got a million avenues for 2010. Walt Liptak - Barrington Research: Okay.

Your next question comes from the line of Rick Hoss with Roth Capital Partners. Rick Hoss - Roth Capital Partners: Good morning. Tom, quickly, working capital, is that going to be a use of cash all year for fiscal ‘10? Thomas O’Brien: Well, that’s another good question and again, it’s a tough thing to predict, but I think it would be reasonable to assume, yeah, that even though I think we’re doing a good job of the working capital management, as we’re building revenues, we will be investing in working capital. So, for the year, we could be talking $5 to $8 million investment in working capital depending upon where the volumes end up. We’ll obviously continue to work on the working capital metrics, I outlined, but I think it is reasonable to assume we’ll have some investment there in 2010. Rick Hoss - Roth Capital Partners: And then the SG&A target you gave, is that a reflection of FX working against you? Thomas O’Brien: It’s a little bit of that, yeah. Rick Hoss - Roth Capital Partners: Okay. And then, can you quantify the benefit of the inventory restocking? It sounds like the first quarter obviously benefited from that?

No. You know, I should say also, our comments about inventory restocking and this is not scientific in any way. This is just anecdotal and our own sense. Just as we had a sense last year that our business dropped much more then, we were wondering if they had a secret stash of spares somewhere because we couldn’t understand why the orders dropped them the way they did just and now it seems like they’re ordering higher than the run rates would imply. So, it’s not anything more than that. There’s no way to quantify it at all. Rick Hoss - Roth Capital Partners: Okay. But certainly the recovery in the industry as a whole can offset some of the domestic uncut appreciate white paper type grades, which I think there’s still expected to be some closures in this year or next.

Yeah. I mean, the picture in North America is certainly, there is consolidation and closure. So, the thing I think is kind of important to keep in mind when you look at us is our exposure by grade, our two big grades are containerboard and tissue. And those, metrics for those businesses, unlike the newsprint or uncoated free even, are much stronger along the line. Rick Hoss - Roth Capital Partners: Thanks for your insight.

We have no further questions at this time.

Okay. Thank you, operator. In closing, I’d like to thank our employees around the globe for their hard work that contributed to our strong Q1 performance. I think, we’re in a great position to take advantage of the economic recovery that appears to be taking shape. And I look forward to reporting on our progress throughout 2010. Thanks very much. Bye-bye.

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