Thomas O'Brien - EVP & CFO Jonathan W. Painter - President & CEO

Walter Liptak - Global Hunter Securities Lawrence Stavitski - Sidoti & Company Operator Good day, ladies and gentlemen and welcome to the Q1, 2013 Kadant Incorporated Earnings Conference Call. My name is Catherine and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder this call is being recorded for replay purposes. I would like to turn the call over to Thomas O'Brien, Chief Financial Officer. Please proceed sir. Thomas O'Brien: Well thank you, Catherine and good morning everyone and welcome to Kadant's first quarter 2013 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer. Let me begin by encouraging all participants in our business review today to participate via webcast. You may access the live webcast by going to www.kadant.com, select the investor's tab. And then select the listen live option on the webcast. To participate in the question-and-answer session at the end of our prepared remarks you will need to dial into the teleconference. The dial-in number is available in our press release issued yesterday. It will also be shown at the end of our presentation. Let me now remind everyone of our Safe Harbor statement. Various remarks that we 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 outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 29, 2012. Our Form 10-K 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 during this webcast 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 webcast 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 first quarter earnings press release issued yesterday, which is available in the investor section of our website at www.kadant.com under the heading, Investor News. 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? Jonathan W. Painter: Thanks, Tom. Hello everyone. It's my pleasure to brief you on our first quarter results. Overall we had a much stronger quarter than we expected, particularly in the areas of bookings, gross margins and earnings per share. I will begin today's business review with the financial highlights of the quarter. We finished the quarter with revenues of 76 million, which exceeded our guidance of 71 million to 73 million, although revenues were down 9% compared to the first quarter of 2012. Gross margins in the first quarter were stronger than we expected at 47.3% and just shy of the record 47.6% in the first quarter of 2011. We generated GAAP diluted earnings per share of $0.47 in the first quarter, which exceeded our guidance of $0.32 to $0.34. This strong performance relative to guidance was driven by a number of factors, including higher than expected gross margins, particularly for capital and higher than expected revenues due to several projects that were completed and accepted by the customer earlier than planned. In addition we had expected higher R&D spending in Q1 for a new product we are working on, but that spending has slipped from Q1 into Q2. Cash flows in the quarter were $7 million allowing us to end the quarter with a net cash position of nearly 52 million. In addition to declaring our first quarterly dividend we also purchased 50,000 shares of our stock for $1.3 million during the first quarter. Perhaps the most encouraging highlight of the quarter was our bookings which increased for the second quarter in a row to 90 million and increased our backlog to 93 million. Before I go through our quarterly performance in detail I want to tell you about two small but exciting acquisitions that we have been working on. The first one we announced a few weeks ago, the acquisition of CBTI, our long time licensee in Brazil for approximately $8 million. This is a business and management team that has impressed us for many years and I am very pleased that we are finally able to bring them into the Kadant Group. CBTI is a manufacturer and supplier of our stock-prep and doctoring, cleaning and filtration product line. The company also designs and manufactures air drying systems used in the pulp and paper and other industries. Over the past five years the company had average annual revenues of approximately $17 million. Excluding acquisition related costs we expect our post acquisition EBITDA run rate for this business to be around 14% of revenues. I am excited about this acquisition for two principal reasons. First it advances our strategy to increase our presence in emerging markets. Paper and board production in South America is expected to grow 4% compounded annually over the next five years as living standards in the region improve and per capita consumption increases. Adding CBTI to our Group significantly enhances our position in this important emerging region. Second, we have a number of potential operating and market synergies with CBTI. CBTI has a very strong reputation in South America and we hope to leverage that to grow our fabric cleaning, chemical pulping and screen basket product lines. In addition we expect to have some operating synergies with CBTI and our fluid handling business in Brazil. In addition to the acquisition of CBTI we also signed an asset purchase agreement to acquire certain assets of the Noss Group, a Sweden based company recognized worldwide for its high efficiency cleaners and approach flow systems for the pulp and paper industry. Over the past five years the Noss Group has averaged annual revenues of approximately 14 million and we expect it to generate EBITDA margins of approximately 12% of revenues in 2014 after the restructuring of the operations. One of the most appealing aspects of this acquisition is the company's large installed base and strong aftermarket business of high margin parts and consumables. As you may recall growing our aftermarket business particularly for our stock-prep product line is one of our key growth strategies. The Noss product line will also expand our product offering for approach flow systems, which is the stock-prep equipment used immediately before the paper machine. In addition the Noss product line will give us a much stronger position in the virgin pulp market where Noss has been a leader both in technology and product performance. The increase in per capita paper usage in the developing world has strained the global fiber supply and new virgin pulp capacity will need to be added to meet world demand. In addition the addition of the Noss product line will expand our offering into this customer base. Finally we also anticipate synergies both on the manufacturing and selling areas as we integrate this business. We expect to close this acquisition in early May. Overall these two acquisitions advance our growth strategies of increasing our position into the faster growing developing markets, growing our parts and consumables business and expanding into adjacent markets such as virgin pulp and approach flow. Now turning to our performance, if you look at our revenue performance in the first quarter you will see a decline in our capital business particularly our stock prep line and that was the primary factor contributing to the 9% decline in revenues in Q1 compared to the same period last year. The decline in our stock-prep capital business was found across all geographic regions and was indicative of the lower booking rates we experienced last year. Stock-prep capital orders tend to be larger and the timing can be lumpy, which contributes to some revenue volatility in this product line. Our doctor cleaning and filtration and our fluid and handling product lines however saw an increase in Q1 revenues of 3% and 5% respectively compared to the same period last year. The increase in our doctoring cleaning and filtration product line was driven primarily by our European operations while the increase in our fluid handling product line was led by our North American operations. Our bookings in Q1 saw just the opposite effect as our revenues in that our stock-prep product line drove a 16% overall increase in Q1 bookings compared to the same period last year. We generated more than 90 million in bookings in Q1 with strong performance in our stock-prep business where bookings were up by double digit percentages in North America and China. Even more encouraging our European stock-prep operations were up more than double compared to the same period last year as a result of winning several large capital projects earlier this year. On the other hand, bookings in our fluid handling and our doctor cleaning and filtration product line were down 13% and 5% respectively due to reduced demand in Europe and the U.S. That said after the quarter close we were awarded several fluid handling capital projects for dryer systems, device in Europe for a combined value of 3 million dollars including orders from Germany and Turkey. Slide 10 illustrates our bookings and revenue trends and we can see clear upward momentum in our quarterly bookings which is shown in the blue bars. Our quarterly revenues however, have continued to reflect the lower booking rates we experienced during 2012. Bookings were up sharply in Q1 and as I noted earlier this is driven by our stock-prep capital business. Although we expect Q1 will be our strongest booking quarter of 2013, the rest of the year does look quite solid. In fact there are several larger projects in the pipeline and if they turn into orders we could in fact have a higher bookings quarter later in the year. Strong bookings in Q1 represent the second sequential quarterly increase and I would say this is one of the key takeaways of our performance this quarter. Another key takeaway for the quarter is our parts and consumables bookings and revenue which are the highest since 2008. Our Q1 parts and consumables bookings were 55 million, up 10% compared to Q1 of 2012 and up 17% sequentially. This growth in bookings is driven by our stock-prep product line which is up more than 20% and our doctoring cleaning filtration product line which is up 9% over the same period last year. Our revenue for parts and consumables were 51 million in the first quarter up 4% over Q1 in last year and made up 67% of our revenue. This is the result in large part of our focus on aftermarket parts and consumables as well as the introduction of new products. A new fiber wall screen basket for example has contributed to the growth of our parts and consumables business as has our emphasis on growing our parts business in China. In addition, we do expect continued momentum going forward due in part to the pending acquisition of Noss which is heavily weighted towards parts and consumables. I would like to take the next few minutes to provide a brief review of our business activities in each of the major geographic regions of the world. Let me start with North America. The paper industry in North America has remained relatively stable and this region continues to be one of the stronger regions in the world for us. Our revenues in North America were up 4% sequentially, to 39 million in Q1 but down 2% compared to the first quarter of 2012. The year-over-year decline in revenues is due in large part to our stock-prep product line which had a strong Q1 in 2012. Revenues in our fluid handling product line however were up 11% in Q1 compared to the same period last year, as a result of increased orders from producers in the steel and food industries. Bookings in North America were quite strong at 44 million up 3% compared to the same period last year, and up 19% sequentially. The year-over-year increase was led by our stock-prep product line where we booked several orders for recycled fiber processing systems totaling more than 4 million, including one to convert a newsprint machine to linerboard. You may recall that we announced similar order for equipment to be used in a newsprint conversion in France in our last earnings call. In addition we booked an order for a steam and condensate system rebuild product in Canada for more than a million and an order for our new multi jet high efficiency cleaning system also from a Canadian mill. Our bookings for parts and consumables in our North American operations were up 5% compared to last year and up 16% sequentially. The first quarter is historically a strong quarter for bookings particularly in North America, for parts bookings I should say. Turning to Europe, the strained market conditions in Europe have continued to impact the paper industry as announced closure of the newsprint capacity will exceed 1 million tons in 2013 and prices of most paper grades remained soft. That said our business in Europe is showing some definite signs of improvement. Our Q1 revenues in Europe reflected the prep bookings levels we had in 2012 and fell 8% compared to last year to 18 million due primarily to weaker sales on our stock prep product line. Bookings however, really sharply compared to the prior year and sequentially. We generated $27 million of bookings in Europe, up 39% over the same period last year and our second sequential increase. The increase in bookings is largely due to the receipt of two stock-prep recycling system orders with a combined value of more than 9 million, for customers in France and Russia that I noted in our February earnings call. As I mentioned to you earlier after the quarter closed we also booked orders for our fluid handling equipment which combined $3 million from paper producers in Germany and Turkey. Parts and consumables bookings at our operation in Europe were up 16% compared to Q1 of last year and 25% sequentially. Now let's take a look at China. The economy in China continued its relatively strong growth rate in Q1 with a 7.7 increase compared to the prior year. The timing for additions of new capacity still remains uncertain and entirely dependent on the market's ability to absorb existing capacity particularly in container board. Turning to our revenues, our Q1 revenues in China decreased 6% compared to the previous year. The decline in revenues was due to primarily to lower revenues for capital systems from our stock-prep product line as our fluid handling and doctoring, cleaning and filtration product lines saw revenues increase in Q1 compared to last year. Our bookings in China increased in Q1 to 12 million, up more than 70% compared to a fairly weak Q1 of last year. As announced during our last call we booked several OCC recycle system orders in Q1 with a combined value of approximately 2.5 million. We also booked an order for an innovative consumer waste handling system valued at more than 3 million. In this application the customer will use our equipment to recover plastics, metals and other reusable materials from municipal solid waste. If the initial prototype installation is successful our customer plans to build up to 20 waste management plants over the next five to 10 years. In addition to these orders, our fluid handling business secured orders for four steam and condensate systems with combined bookings of more than 1 million in projects that included our multi-jet cleaning system. And finally our parts and consumables bookings in China has continued on an upward trend in Q1, up 24% compared to Q1 of last year and up 7% sequentially. As we look at our bookings and revenues in the rest of the world you can see on slide 16 that both were down in Q1 compared to the same period last year and sequentially. The relatively low sales volumes in these regions mean that the timing of capital orders had a large impact on bookings and revenues from quarter to quarter. Despite the negative booking trends in the last few quarters we do see a lot of project activity in developing regions such as South America, Southeast Asia and Middle East. Let me close my remarks with a few comments on our guidance for the Q2 and for the full year 2013. During the second quarter we estimate that we will realize a gain of approximately $0.10 per share from the anticipated sale of a building in China. In addition we expect a modest amount of accretion from the operating results of CBTI for the second quarter and the remainder of the year. Including these items we expect to generate $0.53 to $0.55 of GAAP diluted earnings per share on revenues of $79 to $82 million in the second quarter of 2013. For the full year we are raising our guidance and we now expect to achieve GAAP diluted earnings per share of $2 to $2.10 on revenues of $336 to $343 million, up from our pervious guidance of $1.80 to $1.90 on revenues of $320 to $330 million. This guidance does not include any potential restructuring costs from the CBTI acquisition or the results of the pending Noss acquisition. I will now pass the call over to Tom for additional details on our financial performance in Q1. Tom? Thomas O'Brien: Thank you, Jon. I will start with a review of our gross margin performance. Consolidated product gross margins were 47.3% in the first quarter of 2013, the second highest level we have ever achieved and increased 170 basis points compared to an excellent result in the first quarter of 2012. Looking at our major product lines the most notable performance was in stock-prep where margins were up significantly particularly in North America. North American stock-prep margins increased due to better margins on a number of smaller capital projects as well as the higher margins on parts and consumables. On a consolidated basis the gross margin improvement from last year was primarily due to a favorable product mix with higher margin parts and consumable revenues representing 67% of total revenues, a relatively high proportion and up considerably from 58% in the first quarter 2012. In addition parts and consumable margins were approximately 100% basis points higher than last year's first quarter. Looking ahead and including the results of CBTI, we still expect that full year 2013 consolidated product gross margins will be approximately equal to or perhaps even slightly higher than the annual record of 43.9% achieved in 2012. Note that there is likely to be some variability in the gross margin results by quarter due in part to product mix as well as to the timing and profitability of larger system orders. Now let's turn to slide 20 and our SG&A expenses. SG&A expenses were 27 million in the first quarter of 2013, up 800,000 or 3% from last year's first quarter. Almost half of this increase is attributable to due diligence and legal costs associated with the CBTI and Noss acquisition efforts. Due to the lower revenues in the 2013 period, along with a 3% increase in SG&A expenses, SG&A as a percentage of revenues increased to 35.4% in the first quarter of 2013 compared to 31.1% in the first quarter of 2012. Looking forward and including the results of CBTI we continue to expect that for the full year SG&A spending as a percentage of revenues will be approximately 32% to 33% compared to last year's 31%. Now let me turn to our EPS results for the quarter on slide 21, we reported GAAP diluted earnings per share from continuing operations of $0.47 in the first quarter of 2013 compared to $0.61 in the first quarter of 2012. This decrease of $0.14 in diluted EPS consists of the following: Decreases of $0.21 from lower revenues in the first quarter of 2013 compared to the first quarter of 2012; $0.04 due to higher operating expenses; and $0.03 due to acquisition due diligence and legal expenses. These decreases were partially offset by increase of $0.07 resulting from a higher gross margin percentage; $0.03 from facility consolidation expenses in the 2012 quarter; $0.02 from the lower effective tax rate; and $0.02 from lower weighted average shares outstanding. Turning to our cash flows, working capital and debt leverage starting on slide 22, operating cash from continuing operations were 7 million in the first quarter of 2013, compared to negative cash flows of 4 million in the first quarter of 2012, an increase of 11 million. The first quarter is often a weak quarter for cash flows and we were very encouraged with this excellent start to the year. We had only two notable non-operating uses of cash during the first quarter of 2013. We purchased 50,000 shares of our common stock for $1.3 million and we expended 1.2 million for CapEx. Also during the first quarter of 2013 we declared our first quarterly dividend of $0.125 per share, totaling approximately $1.4 million, which will be reflected in our cash flows in the second quarter when it is paid. Let's now look at our key working capital metrics on slide 23, as you can see the changes here were not significant other than perhaps a sequential increase of eight days in our days in inventory measure. That said days in inventory decreased by six days when compared to the first quarter of 2012. Looking at our overall working capital management, our cash conversion days calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable were 116 at the end of the first quarter of 2013, up slightly on a sequential basis, essentially unchanged from last year. Also working capital as a percentage of the last 12 months revenues was 14.8% in the first quarter of 2013 up slightly from last year's 13.7%. Our net cash position improved by over 4 million during the quarter, it is at its highest level since the first quarter of 2005. Net cash that is cash less debt at the end of the first quarter of 2013 was 51.8 million compared to 47.7 million in the fourth quarter of 2012 and 30.9 million in the first quarter of 2012. In our slide 26 you can see that our leverage ratio has declined substantially since the end of 2009 and now stands at 0.12 at the end of the first quarter of 2013. Under our new credit facility this ratio must be less than 3.5. That concludes my review of the financials and I will now turn the call back to the operator for our Q&A session. Catherine?

(Operator Instructions). And the first question is from Walt Liptak from Global Hunter Securities. Please proceed. Walter Liptak - Global Hunter Securities: Hi, thanks. Good morning guys. Jonathan W. Painter: Hey Walt, welcome back. Walter Liptak - Global Hunter Securities: Yeah, thank you. I want to ask you about the mix of business in the parts and consumables this quarter and the kind of visibility you might have going into the next quarter, you know maybe so the first question would be just, you said you had bookings of 55 million but sales of 51, is this booking shift so there is not much of a backlog buildup for parts? Jonathan W. Painter: Generally, the parts go in and out pretty quick. The stock-prep parts particularly things like screen baskets can take a month or two to go out. So it's a lot to do with the mix within parts as well as when does it come in March versus January. Walter Liptak - Global Hunter Securities: Okay, so what's the visibility looking like or it sounds like you are expecting less of a mix of parts in the second quarter. Jonathan W. Painter: Yeah you follow us Walt, 67% is definitely on one of our higher parts and consumables pieces and there is two parts of it, obviously the parts and consumables and the capital it's often the capital that will have a big revenue quarter that's what will bring it down. The parts is relatively stable but the capital you know moves right up. I will say as you know from the past Q1 does tend to be a stronger quarter for us for parts and consumables, that saying I was -- I am very pleased about the efforts that are going on our parts business in terms of really growing market share and we see this in China, we see this in screen baskets, you noticed in the call I kind of went through the improvement in parts that's really in every geographic region. So I do think we are making some solid kind of sustainable work but that said Q1 does tend to be a little stronger. Walter Liptak - Global Hunter Securities: Okay, got it. Your guidance I guess could have gone up more if you had confidence that the parts were going to come in, in the second quarter in the back half, is it that it's because you don't have much lead time on it, it's hard to forecast? Jonathan W. Painter: Well we kind of forecast the parts almost on a flow business. We don't have backlog or we don't -- we see parts coming in a long chain. I would say a lot of what goes into the forecast is really our projections for the timing of capital and the margins on those capital. So I said in the call we have some projects that are pretty big out there. We are not factoring those into our guidance. I mean I don't think you I am not sure that the timing would be such that we would get much revenue from them in this year if we got them but I would say it's more related to the capital than the parts in terms of our guidance for the year. Do you want to add anything to that Tom? Thomas O'Brien: I just wanted to say Walt if you are looking - if you are thinking about our margins or something going forward, I think the mix will still be good I think in the second quarter which will be good for margins in the second quarter, maybe quite as high as in the first. But I think it should be pretty strong in the second. Walter Liptak - Global Hunter Securities: Okay if we can switch over to China and it sounds like your bookings have picked up a little bit here, are you still expecting more as the year goes on. I wonder if you could provide a little bit more color on the visibility or the "work" that you are doing the past few levels I guess if you've got that. Jonathan W. Painter: You know the industry doesn't have great information on operating rates and capacity levels. It does seem, I guess you got, it's kind of a mixed message a little bit. The stuff you read about still talks about an overhang capacity that needs to be absorbed and is being absorbed. At the same time we do have active discussions on projects of you know both in our fluid handling product line, our stock-prep product line and really all of our product lines. So things are kind of moving forward, kind of I would say at levels that we are seeing right now. Walter Liptak - Global Hunter Securities: Okay I will get back in queue, I have got a couple more but I will let somebody else have a go. Thanks. Jonathan W. Painter: Okay.

Thank you. The next question is from the line of Larry Stavitski from Sidoti. Please go ahead. Lawrence Stavitski - Sidoti & Company: Hey good morning guys. Thanks for taking my questions. You guys kind of covered a lot of them with your previous caller but I guess just turning to the bookings. What gives you confidence that you guys can kind of mirror what you did in the first quarter? I know you mentioned a lot of the orders are lumpy and I guess somebody mentioned visibility so what gives you guys confidence you guys can achieve what you did in the first quarter? Jonathan W. Painter: : Lawrence Stavitski - Sidoti & Company: Okay, got you. Jonathan W. Painter: You know that's about what we do. Lawrence Stavitski - Sidoti & Company: Okay. You know you purchased you said your share repurchases equaled about 1.3 million this quarter. Do you guy have any outlook on the rest of the year or maybe in next quarter? Jonathan W. Painter: We don't have a program. We buy a certain amount every quarter. We don't have a program or we look -- it's not formulaic in anyway. I think we try to be opportunistic. We try to look for blocks. We look at the value of the stock just like we look at when we do an acquisition is a good value for our shareholders so it's not very easy to predict it. The only thing I would say is we are committed to the concept of returning cash to shareholders both through the dividend and through stock buybacks. Lawrence Stavitski - Sidoti & Company: Right, got you. And I guess switching gears to the acquisitions you just alluded to, do you guys have a benchmark ROIC for these acquisitions or how do you, I guess view the return on them. Jonathan W. Painter: Tom, do you want to comment on that? Thomas O'Brien: As a general rule Larry what we try to say is three to five years out we like to see a 20% return on invested capital, that's the pretax measure for us from the acquisition. We did try to give you some indication of what it looked next year by giving some of the EBITDA forecast that Jon mentioned in his remarks so both of those you will see a good EBIT prospects and once we do some restructuring and some reorienting some of the business we expect in 2014. Lawrence Stavitski - Sidoti & Company: Okay, thanks a lot guys. Thomas O'Brien: Thanks a lot. Jonathan W. Painter: Thank you.

Thank you, the next question is from Walt Liptak from Global Hunter Securities. Please go ahead. Walter Liptak - Global Hunter Securities: Okay great. Yeah, I want to ask about just a fast one on accretion from the two deals, you mentioned that you thought in the second quarter in 2013, you would get some accretion, I wonder if you can give us a number. Jonathan W. Painter: Well, we didn't -- just to be clear, our guidance for this year, since Noss isn't closed there is no -- we didn't include Noss at all in our guidance. Walter Liptak - Global Hunter Securities: Okay, but the accretion from the CBTI I guess… Jonathan W. Painter: And CBTI, I think we just said, it's modest. It's kind of under $0.05 kind of thing. To be honest with you I mean this is a nicely profitable business over the years. We are not really I would say used to making forecasts by quarter and that kind of stuff. So we are taking it somewhat cautiously and we have got some acquisition expenses to work through that sort of thing. It's not a huge impact is really the answer for 2013. Walter Liptak - Global Hunter Securities: Well and congratulations on these two acquisitions. I know they are difficult to do. And you talked about, just so I understand the air drying system, is that an add-on to an existing product line that you had or is that a new system and… Jonathan W. Painter: Well, it's a totally new system. So this is not -- they license our products with the stock-prep and doctoring, screening and conditioning and this is a product that they have on their own. Walter Liptak - Global Hunter Securities: Okay, so what kind of a market opportunity do you think you have here? Jonathan W. Painter: They tend to be, I would say it's fairly volatile and one of the reasons we gave five year average revenues is because these systems can be fairly large and it's fairly lumpy. So when they get them it's not, sometimes you will get $5 million-$10 million orders but you could go a fair bit of time without having that. Walter Liptak - Global Hunter Securities: Okay, and then switching over to Europe kind of interesting that you had the strong ordering during the quarter given what's going on there, is it because of pent-up demand you think or these are just projects there were in the pipeline eventually that go despite the economies out there. Jonathan W. Painter: There a little element of both of that, Walt. So there is some -- our performance in Q1 was largely impacted by those two big orders of $9 million. So that's -- I would not say we are going to get that every quarter. That said we actually had one of our managers in last week and I was kind of contrasting to him the same thing you are doing. I am saying reading the paper seems a lot glummer than you seem, you seem more optimistic about your prospects. And he says I think our customers are just getting austerity fatigue and they are deciding to get along with the projects that they need to do. So I was actually encouraged after having talked to him. Walter Liptak - Global Hunter Securities: Okay, that's good. What is the profitability and the margins look like on that (inaudible) order. Are those very competitive to win? Jonathan W. Painter: Yes, I mean it goes with the -- there is two things, they are not as profitable as our overall gross margins, really for two reasons, one they are large stock-prep systems which are not as high margin as our other businesses. And these businesses often have a large percentage of buy-outs where we do installations and that kind of stuff. And it's almost like a pass-through for us. So that impacts the margins as well. Walter Liptak - Global Hunter Securities: Okay. Thanks again guys. And good luck next quarter. Jonathan W. Painter: Thanks Walt. I'd also add another encouraging thing about Europe is the pick-up in spares business. So the capital kind of comes and goes but the nice solid increase in their spare parts and consumables booking in Europe was to me quite encouraging. Walter Liptak - Global Hunter Securities: Okay, great. Jonathan W. Painter: Thanks, Walt. Operator Thank you. The next question comes from the line of Bill (inaudible).

Yes, good morning. Thank you. I have a couple of questions. One, I know you break down your approximate exposure to the various paper markets. But it sounds like the growth in container board and packaging, U.S. and globally is more than offsetting the decline in newsprint and paper for you guys and helping the longer term outlook, but do you tend to sell more equipment into these type of facilities generally, the container board and packaging as compared to the newsprint and paper. Jonathan W. Painter: Absolutely, if you look at our, if you look on the investor section of our website, there is a presentation that we kind of we often give when we go see investors, and it shows in a newsprint and printing and writing last year we were about 15% of our revenue. The container board is by far the largest and box board which is similar that can be nearly half our revenue and tissue which is a nice solid steadily growing business, was around 15%, 14%.

I see. So if we add two plants of the same tonnage, paper or newsprint or paper and container board you would sell more equipment into the packaging and more parts and consumables, it's just more intense, more intensity. Jonathan W. Painter: And we have larger market shares. Our biggest product line which is stock-prep, they have the largest market share in containerboard. But we are the strongest. They are actually relatively weak in newsprint. So…

Okay, and just one quick follow-up, I missed it. You said something about waste management, I think it was in China. Jonathan W. Painter: Yes.

Is that a new end market for you? Jonathan W. Painter: Yeah, it is and it's especially quite interesting. So what -- I will say that we have been asked by mills sometimes can you help us separate out, we are obviously separating and giving them clean fiber, separating out the contaminants. But often in that waste paper mix is things like plastics and metals that they would also like to remove and chemicals. So this is a little different it's actually for municipal waste. So this is post-consumer municipal waste where the customer is trying to do just that. He is recovering a metals stream, a plastics stream and he is going to reuse those. So it will be and we will see how it goes. This is the first, it's a kind of a prototype installation but it's quite interesting.

Interesting, yes. Okay, thank you. Jonathan W. Painter: All right, thank you.

Thank you, sir. You have no questions at this time. (Operator Instructions). Jonathan W. Painter: Okay there are no more questions, operator.

No questions coming through at the moment. Jonathan W. Painter: Okay, well thanks very much. Let me conclude the call by going through, what I think are the three key takeaway points from our performance this quarter. First we had excellent quarter for bookings, exceeding $92 million and most particularly we had significant strength in Europe. Second we had a very strong aftermarket parts and consumables bookings, 55 million. And finally we are in the process of adding two new businesses to Kadant which are going to further our strategy of increasing our presence in the faster growing developing markets, increasing our spare parts business and expanding our product offering to adjacent markets such as virgin pulp and approach flow. I look forward to updating on the next quarter on our progress. Thanks very much.

Thank you for joining in today's conference. This concludes the presentation. You may now disconnect and have a very good day.