KaKadadantnt IIncnc.. AnAnnunualal RRepeporortt
Kadant Inc Annual Report
2007
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Kadant Inc. One Technology Park Drive Westford, MA 01886 Tel 978 776 2000 Fax 978 635 1593 www.kadant.com
Kadant Inc. is a leading global supplier of innovative products and technologies such as stock
preparation systems, paper machine accessories, and equipment for fl uid handling and water
management. Our technologies improve productivity and quality for pulp and paper production
and optimize production in a range of other industries.
Kadant Inc. 2007 Product Lines
Stock Preparation
Pulping, cleaning, de-inking, and screening systems that recover usable fiber from
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recycled materials or prepare virgin fiber for entry into the paper machine.
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Accessories
Doctor blades, holders, systems, and consumables that clean roll surfaces to enhance
paper qualities and minimize sheet breaks.
Fluid Handling
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air between rotating cylinders and fi xed piping in a range of industries.
Water Management
Shower, fabric-conditioning, formation, and fi ltration systems that clean papermaking
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fabrics, form the sheet, and conserve water.
Other
Fiber-based granules made from papermaking byproducts for agricultural and
home lawn and garden applications.
Revennues
$366 Million
Ba
cklog
$110 Million
$110 Million
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300
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Shareholder Information Requests
Shareholders who desire information about Kadant Inc. may contact us at One Technology
Park Drive, Westford, Massachusetts 01886, (978) 776-2000. Information of interest to share-
holders and investors, such as our quarterly reports, annual reports, press releases and other
information, is available on our Web site at www.kadant.com, under “Investors.”
Stock Transfer Agent
American Stock Transfer & Trust Company is our stock transfer agent and maintains share-
holder activity records. The agent will respond to questions on issuance of stock certificates,
change of ownership, lost stock certifi cates, and change of address. For these and similar
matters, please direct inquiries to: American Stock Transfer & Trust Company, Shareholder
Services Department, 59 Maiden Lane, New York, NY 10038, (718) 921-8200,
(800) 937-5449, www.amstock.com.
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Annual Meeting
The annual meeting of shareholders will be held on Thursday, May 22, 2008, at 2:30 p.m., at
the Boston Marriott Burlington, One Mall Road, Burlington, Massachusetts.
Annual Report on Form 10-K
The accompanying Annual Report on Form 10-K for the fi scal year ended December 29,
2007, does not contain exhibits. Exhibits have been fi led with the Securities and Exchange
Commission (SEC). To obtain a copy of these exhibits, as well as periodic reports filed with
the SEC, please contact Thomas M. O’Brien, Executive Vice President and Chief Financial
Officer, Kadant Inc., One Technology Park Drive, Westford, Massachusetts 01886,
(978) 776-2000.
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Certifications
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The company’s Annual Report on Form 10-K for the fi scal year ended December 29, 2007,
contains the certifications of the chief executive offi
fi
nancial offi
cer provided to
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cer and chief fi
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the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley
Act of 2002. These certifi cations are included as exhibits 31.1 and 31.2 to the Form 10-K.
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The company’s chief executive officer submitted an annual certifi
fi
cation to the New York
Stock Exchange (NYSE) on June 15, 2007, stating that he was not aware of any violation
by the company of NYSE corporate governance listing standards. Kadant’s common stock
trades on the NYSE under the ticker symbol “KAI.”
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Forward-Looking Statements
This annual report contains “forward-looking statements” within the meaning of Section 21E
of the Securities Exchange Act of 1934. Any statements contained herein that are not state-
ments of historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,”
“would,” and similar expressions are intended to identify forward-looking statements. While
the company may elect to update forward-looking statements in the future, it specifi cally
disclaims its obligation to do so, even if the company’s estimates change. A number of fac-
tors could cause the results of the company to differ materially from those indicated by such
forward-looking statements, including those detailed under the heading “Risk Factors”in
Part 1, Item 1A in the accompanying Annual Report on Form 10-K for the fi scal year ended
December 29, 2007.
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Cert no. BV-COC-070805
The editorial section of this annual report is printed on 100% recycled FSC®CC certifi ed paper. The paper in the fi
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section contains 30% post-consumer waste and is FSC certified.fi
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nancial
To our Shareholders:
To our Shareholders:
Dear Shareholder:
In 2007, we implemented a number of initiatives to help us leverage our global platform and capitalize on
In 2007, we implemented a number of initiatives to help us leverage our global platform and capitalize on
emerging, high-growth geographic markets. Our customers’ confi dence and trust in Kadant products, technology,
emerging, high-growth geographic markets. Our customers’ confidence and trust in Kadant products, technology,
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and people have allowed us to deliver on all of our goals established for 2007.
and people have allowed us to deliver on all of our goals established for 2007.
Our primary goals for the year included:
Our primary goals for the year included:
(cid:122) Growing sales beyond the paper industry
(cid:122) Growing sales beyond the paper industry
(cid:122) Shifting more component manufacturing to lower-cost regions
(cid:122) Shifting more component manufacturing to lower-cost regions
(cid:122) Expanding our accessories and water management product lines in Asia
(cid:122) Increasing market share for screen baskets
(cid:122) Delivering on our fi nancial performance promises
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I am pleased to report that we accomplished or made progress on all of these objectives.
Our annual revenues from continuing operations rose by $25 million, or 7 percent, to a record-breaking high of $366
million in 2007. This performance was fueled by strong revenue growth in our stock preparation and fluid handling
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business units over the previous year’s solid performance.
Operating income from continuing operations in 2007 increased 26 percent to $37 million, while after-tax income
from continuing operations was $25 million in 2007, or $1.78 of diluted EPS. Our cash fl ow performance was
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particularly noteworthy. We generated $34 million in operating cash fl ows from our continuing operations in 2007,
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ending the year with approximately $62 million in cash. As our 2007 financial performance shows, Kadant remains a
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healthy company, well-positioned for continued growth.
EBITDA*
$45 Million
50
40
30
20
10
0
Earnings
per Share**
$1.78
2.00
1.50
1.00
0.50
0.00
2005 2006 2007
*EBITDA is a Non-GAAP Financial Measure
as detailed on page 8 of this annual report.
2005 2006 2007
**Refl ects diluted earnings per share from
continuing operations.
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1
Our customers continue to focus on optimizing energy utilization and this is driving our capital business,
particularly in mature markets. We have launched a number of energy-saving products and technologies to allow our
customers to save energy while maximizing productivity. This includes our DMS™ control software that minimizes
the steam energy used in drying paper, low-friction Syntek™ doctor blades shown to reduce frictional drag by
nearly 50 percent compared to fi berglass blades, and Vortech™ pulping rotors, which are designed to reduce power
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requirements by up to 30 percent compared to conventional rotors.
Energy savings related to water treatment and recycling are also benefi ting our customers and the environment.
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For example, at a paper m
For example, at a paper mill located in Australasia, water is drawn from the same
2007 – a year of milestones
Achieved 10 percent return from continuing
operations on average equity
Recorded after-tax income of $25 million from
continuing operations
Named one of the 200 Best Small Companies
by Forbes Magazine
Launched sales and manufacturing of shower
systems and blades in China
Kadant brand recognition exceeded 90 per-
cent in the North American paper market
Leveraged global platform to achieve record
revenues of $366 million
sou
urce as the water used for city residents. To reduce
ffre
fl
eshwater consumption and effl
uent discharge without
adv
versely affecting the process or production rate, the mill
inst
fi
ne fi
ltration system from Kadant and
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talled a Petax™ fi
reali
ized a substantial savings in freshwater consumption by
incre
easing its use of recycled water.
Our a
ability to capitalize on these and other energy-saving
proje
cts is complemented by Kadant’s strong brand.
Accor
rding to the 2007 Brand Awareness and Preference Study
condu
ucted by RISI, Inc., Kadant’s brand preference in North
Ameri
ca was the highest of all competing brands in the paper
machin
ne equipment categories for doctors, shower systems,
and dry
ying equipment. And in the case of doctor blades,
r
respond
dents preferred Kadant-brand equipment by a two-to-one
m
margin
over the closest competitor in the category. Innovative
p
products
s, process expertise, and a strong brand provide Kadant
c
ustome
ers with the tools and services they need to help reduce
energy c
onsumption and maximize productivity.
Penetrating High Growth Markets
Penetrating High Growth Markets
The expansion of industrial markets in China, Russia, and other regions of the world has created additional
opportunities for us to capitalize on our local presence in these high growth regions.
Revenues generated from our operations in Asia continued to grow, and in 2007 represented 26 percent of our
total revenue. In mature geographic regions, such as North America and Europe, we continue to see growth in new
markets and applications outside of our traditional areas of pulp and paper. For example, our business with one
of the world’s leading science-based companies, which serves diverse industries ranging from food and nutrition
to healthcare, apparel, and transportation, continues to expand. Kadant products are now used in several of the
company’s production processes, and are used to produce leading household brands marketed around the globe.
Kadant Annual Report 2007
2
Global Reach, Global Leadership
We’re entering 2008 with our largest backlog ever, and we continue to see encouraging opportunities for
several of our product lines, particularly as our customers focus on reducing energy costs and enhancing productivity.
During 2007, we strengthened our position in China, in all our product lines, and we built a strong foundation for our
accessories, water management, and aftermarket businesses there. Plans for a second manufacturing center in
Wuxi, the location of our fluid handling operations in the Jiangsu Province, are underway. The new plant, expected
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to be in full operation next year, will extend our manufacturing capabilities for our water
management and accessories lines for the growing Asian marketplace, as well as provide
yet another low-cost source for our products.
Moreover, we are now producing screen baskets and stock preparation products at our
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fiberline facilities in China, and see signifi
cant potential to service our new equipment with
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spare parts and other technical services. These steps, including our efforts to secure more
products from lower cost sources both internally and externally, will help us to continue to
grow our profitability in 2008.
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Latin
America 5%
Other 2%
Europe 23%
Asia 26%
North
America 44%
2007 Revenues
by Geographic Region
Although the global economy is showing some signs of weakness, Kadant’s global
platform and strong brand should allow us to continue to strengthen our global
position. Increasing activity in Russia and Eastern Europe and emerging opportunities
Other 3%
Water
Management 9 %
in Southeast Asia will help us to further extend our reach into these regions. With
Accessories 17%
operations in 16 countries and more than 2,000 employees worldwide, Kadant is well-
positioned to remain a leader in the global pulp and paper industry and to expand its
Fluid Handling 26%
Stock
Preparation 45%
presence in new markets around the globe.
2007 Revenues
by Product Line
To further support our growth initiatives, in February 2008, we positioned the company
with a new credit facility. This increases our ability to invest in the company’s future growth, buy back our stock, or
actively seek acquisitions that complement our core competencies.
It’s been a productive year, and I thank all of our employees for their dedication and continued support as we work
to achieve ongoing growth and success in all regions of the world. And to our shareholders, thank you for your
continued confi dence in Kadant.
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Sincerely,
William A. Rainville
Chairman and Chief Executive Officerfi
March 27, 2008
Kadant Annual Report 2007
3
Stay smart - Withh major research and
development facilitities in Europe and the USA,
Kadant is uniquely positioned to address
process industry chahallenges and needs for
improved fi ber proceessing, heat transfer,
doctoring, and fl uid hhandling. Our investments
in R&D continue to leeead to new innovations
including Kadant’s higggh-effi ciency rotor,
designed to reduce eennergy consumption during
fi ber processing by upp to 30 percent.
Stay sm
ar
t
B
e
t
h
e
r
e
M
a
ke more U s e l e
s
s
Stay smart - Another innovative technology we launched is the UnigyTM high-effi ciency pumping
system. Since its introduction, this patented system has been applied to more than 150 installations
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in the forging, automotive, paper, and food processing industries. As a result, our customers realize
energy savings, and their process equipment lasts longer and performs better.
Kadant Annual Report 2007
4
S
t
a
y
s
m
a
r
t
B
e
t
h
e
r
e
M
a
k
e
m
o
r
e
Be there - Guangxi Jindaxing Paper, located in southern China, looked to Kadant’s expertise and
In-mill Design service for its new doctoring system. What would typically require weeks of data gathering
and information exchange we have reduced to a single day with our on-site engineering service. Our
global footprint means delivering local service, wherever our customers may be.
U
s
e
l
e
s
s
Be there -The growth in paper and other
industrial markets
trial markets in Asia and Eastern
Europe has allowed Kadant
t to capitalize
on
its presence around the glo
obe. Our
commitment to the interna
national market-
-
place is refl ected in our lo
local presence in
n
industrial markets all ov
ver the world.
ver the world
And our global footprin
nt means customer
rs
can count on Kadant’s
s application expert
tise
and advanced techno
ologies to help solve
e
their manufacturing
g challenges no matte
er
where they are.
Kadant Annual Report t 20020002007777
Kadant Annual Report 2007
5
5
Make more - Kadant’s active development of markets beyond pa
example of this diversificatioon is Kadant’s strong relationship
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nd paper continues to expand. One
One
nship with Germany-based BHS Corrugated
Maschinen-und Anlagenbau, the world’s leading manufa
anufacturer of corrugating machinery. To handle the
high speeds and pressures reequired during the c
the corrugating and carton board manufacturing process,
BHS chose Kadant as its prefferred suppliepplier of steam joints for a variety of different BHS machines.
Make more - Alcoa Bohai Aluminum
Industries Company Limited, an
aluminum sheet and foil producer, looked
to Kadant for doctor blades to be
installed on its aluminum foil production
equipment in China. The local presence
of Kadant in China provided added
assurance and local support for the
installation, while allowing us to better
ter
address customer needs.
S t a y smart B
e t
h
e
r
e
M
a
k
e
m
o
r
e Use l e s s
Kadant Annual Report 2007
6
Use le
s
s
S t a y s mart Be there Make more
Use less -
Our commmitment to helping our custom-
m
ers use less enerergy and water in their production
ers se less ener
er
processes provovides value for all stakeholders and the
ov
environment.t. At one southern U.S. linerboard mill,
t.
the replacecement of conventional steam jet thermo-
ce
compressssors with Kadant’s high-effi ciency unit pro-
ss
vided aa 50 percent reduction in high-pressure steam
a
use. . When the Kadant technology is applied to all
.
igeigight thermocompressors used on the machine,
ttthe high-pressure steam use is expected to
be reduced by more than 500,000 pounds
per hour, estimated to save more than
$1,000,000 per year in energy costs to the mill.
Opptimizing energy utilization co
Use less - Optimizing energy utilization continues to be a strong focus for Kadant and our customers.rs
At an Australasian paper mill, Kadant’s PetaxTM water recycling system was installed to provide fiber-
free water. Petax filtration resulted in freshwater usage being reduced by 800,000 liters per day without
ontinues to be a stro
r customer
nt and our
ong focus
for Kadan
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adversely affecting the process or production rate. As a result of these savings, the mill was recognized
by the local government for achieving the highest volume reduction in water consumption during a
one year period.
Kadant Annual Report 2007
7
Non-GAAP Financial Measures
EBITDA
(in thousands)
Operating Income
Depreciation and Amortization
Loss on sale of subsidiary (a)
EBITDA
2007
$ 37,038
$ 37,038
7,363
7,363
388
$ 44,789
$ 44,789
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(a) Refl ects a pre-tax loss on the sale of the Casting Products
business on April 30, 2007.
$ 29,442
$ 29,442 $ 14,583
$ 37,200
$ 37,200 $ 21,514
2006
2006
7,758
7,758
–
–
–
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fi
2005
6,931
Earnings before interest, taxes, depreciation, and
amortization (EBITDA) is a non-GAAP financial mea-
sure. Non-GAAP fi nancial measures are not meant
to be considered superior to or a substitute for the
results of operations prepared in accordance with
GAAP. In addition, non-GAAP financial measures have
limitations associated with their use as compared
to the most directly comparable GAAP measures,
in that they may be different from, and therefore
not comparable to, similar measures used by other
companies. We believe that the inclusion of such a measure helps
investors to gain a better understanding of our underlying operations
and future prospects, consistent with how management measures
and forecasts Kadant’s performance, especially when comparing
such results to previous periods or forecasts.
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Performance Graph
$220
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
Kaddant Inc.
S&P 500
0
fi
This performance graph compares the cumulative, fi ve-year total
shareholder return assuming an investment of $100 (and the rein-
vestment of dividends) in our common stock, the Standard & Poor’s
500 Stock Index, and the Dow Jones US Paper Index. Our com-
mon stock trades on the New York Stock Exchange under the ticker
symbol “KAI.” Because our fi scal year ends on a Saturday, the graph
uses the last trading day of our fi scal year.
fi
fi
Doww Jones
US Paper
Comparison of five-year cumulative total returns
among Kadant Inc., the S&P 500 Index, and the Dow Jones US Paper Index
fi
$0
12/28/02 1/3/04 1/1/05 12/31/05 12/30/06 12/29/07
12/28/02
1/3/04
1/3/04
1/1/05
1/1/05
12/31/05
12/31/05
12/30/06
12/30/06
12/29/07
Kadant Inc.
100.00
100.00
136.63
136.63
134.34
134.34
121.23
121.23
159.76
159.76
204.59
S&P 500
100.00
100.00
128.68
128.68
142.69
142.69
149.70
149.70
173.34
173.34
182.87
Dow Jones
US Paper
100.00
126.01
126.01
132.57
132.57
109.33
109.33
112.71
112.71
101.01
Board of Directors
William A. Rainville
John M. Albertine
John K. Allen
Thomas C. Leonard
Francis L. McKone
Chairman of the Board, President,
and Chief Executive Officerfi
fi
Chairman and Chief Executive
Offi cer, Albertine Enterprises, Inc.
(Consulting and merchant
banking firm)
fi
Partner, West Falmouth Associates
(Management consulting)
Vice President, CRA International
(Business consulting and litigation
support)
Former Chairman of the Board and
Chief Executive Offi cer,
Albany International Corp.
(Supplier of paper machine fabrics)
fi
Offi cers
William A. Rainville*
Edward J. Sindoni*
Thomas M. O’Brien*
Chairman of the Board, President,
and Chief Executive Officerfi
Executive Vice President
and Chief Operating Officerfi
Executive Vice President
and Chief Financial Officerfi
Jonathan W. Painter*
Executive Vice President
Eric T. Langevin*
Senior Vice President
Edwin D. Healy
Vice President
Sandra L. Lambert*
Vice President, General Counsel,
and Secretary
Wesley A. Martz
Vice President, Marketing
Michael J. McKenney* Vice President, Finance
and Chief Accounting Officerfi
Jeffrey L. Powell
Vice President, New Ventures
Daniel J. Walsh
Treasurer
*Designates executive officerfi
Kadant Annual Report 2007
8
UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
WASHINGTON, DC 20549
FORM 10-K
FORM 10-K
(mark one)
(mark one)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2007
For the fiscal year ended December 29, 2007
OR
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
For the transition period from
to
to
Commission file number 1-11406
Commission file number 1-11406
KADANT INC.
KADANT INC.
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
Delaware
Delaware
(State or other jurisdiction of incorporation or organization)
(State or other jurisdiction of incorporation or organization)
52-1762325
52-1762325
(I.R.S. Employer Identification No.)
(I.R.S. Employer Identification No.)
One Technology Park Drive
One Technology Park Drive
Westford, Massachusetts
Westford, Massachusetts
(Address of principal executive offices)
(Address of principal executive offices)
01886
01886
(Zip Code)
(Zip Code)
Registrant’s telephone number, including area code: (978) 776-2000
Registrant’s telephone number, including area code: (978) 776-2000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Title of each class
Name of each exchange on which registered
Name of each exchange on which registered
Common Stock, $.01 par value
Common Stock, $.01 par value
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
Act. Yes ‘ No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No È
Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by
will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting
smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘
Large accelerated filer ‘
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No È
Act). Yes ‘ No È
The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant as of June 30,
The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant as of June 30,
2007, was approximately $431,456,000.
2007, was approximately $431,456,000.
As of February 29, 2008, the registrant had 14,272,414 shares of Common Stock outstanding.
As of February 29, 2008, the registrant had 14,272,414 shares of Common Stock outstanding.
Accelerated filer È
Accelerated filer È
Smaller reporting company ‘
Smaller reporting company ‘
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement pursuant to Regulation 14A promulgated under the Securities
Portions of the registrant’s definitive proxy statement pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, to be used in connection with the registrant’s 2008 Annual Meeting of Shareholders are
Exchange Act of 1934, as amended, to be used in connection with the registrant’s 2008 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K.
incorporated by reference into Part III of this Form 10-K.
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
Annual Report on Form 10-K
Annual Report on Form 10-K
for the Fiscal Year Ended December 29, 2007
for the Fiscal Year Ended December 29, 2007
Table of Contents
Table of Contents
Item 1.
Item 1.
PART I
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
Item 4.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
PART III
Item 10. Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10. Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Item 14.
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
PART IV
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Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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2007 Annual Report
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Forward-Looking Statements
Forward-Looking Statements
PART I
PART I
This Annual Report on Form 10-K and the documents that we incorporate by reference in this Report
This Annual Report on Form 10-K and the documents that we incorporate by reference in this Report
include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,
include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are
as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are
not statements of historical fact, and may include statements regarding possible or assumed future results of
not statements of historical fact, and may include statements regarding possible or assumed future results of
operations. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and
operations. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and
assumptions of our management, using information currently available to our management. When we use words
assumptions of our management, using information currently available to our management. When we use words
such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely,” “will,” “would,”
such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely,” “will,” “would,”
or similar expressions, we are making forward-looking statements.
or similar expressions, we are making forward-looking statements.
Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and
Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and
assumptions. Our future results of operations may differ materially from those expressed in the forward-looking
assumptions. Our future results of operations may differ materially from those expressed in the forward-looking
statements. Many of the important factors that will determine these results and values are beyond our ability to
statements. Many of the important factors that will determine these results and values are beyond our ability to
control or predict. You should not put undue reliance on any forward-looking statements. We undertake no
control or predict. You should not put undue reliance on any forward-looking statements. We undertake no
obligation to publicly update any forward-looking statement, whether as a result of new information, future
obligation to publicly update any forward-looking statement, whether as a result of new information, future
events, or otherwise. For a discussion of important factors that may cause our actual results to differ materially
events, or otherwise. For a discussion of important factors that may cause our actual results to differ materially
from those suggested by the forward-looking statements, you should read carefully the section captioned “Risk
from those suggested by the forward-looking statements, you should read carefully the section captioned “Risk
Factors” in Part I, Item 1A, of this Report.
Factors” in Part I, Item 1A, of this Report.
Item 1. Business
Item 1. Business
General Development of Business
General Development of Business
We were incorporated in Delaware in November 1991 to be the successor-in-interest to several papermaking
We were incorporated in Delaware in November 1991 to be the successor-in-interest to several papermaking
equipment businesses of Thermo Electron Corporation (Thermo Electron). In November 1992, we completed an
equipment businesses of Thermo Electron Corporation (Thermo Electron). In November 1992, we completed an
initial public offering of a portion of our outstanding common stock. On July 12, 2001, we changed our name to
initial public offering of a portion of our outstanding common stock. On July 12, 2001, we changed our name to
Kadant Inc. from Thermo Fibertek Inc. In August 2001, Thermo Electron disposed of its remaining equity
Kadant Inc. from Thermo Fibertek Inc. In August 2001, Thermo Electron disposed of its remaining equity
interest in Kadant by means of a stock dividend to its shareholders. Our common stock is listed on the New York
interest in Kadant by means of a stock dividend to its shareholders. Our common stock is listed on the New York
Stock Exchange, where it trades under the symbol “KAI.”
Stock Exchange, where it trades under the symbol “KAI.”
The terms “we,” “us,” “our,” “Registrant,” or “Company” in this Report refer to Kadant Inc. and its
The terms “we,” “us,” “our,” “Registrant,” or “Company” in this Report refer to Kadant Inc. and its
consolidated subsidiaries.
consolidated subsidiaries.
Description of Our Business
Description of Our Business
We are a leading supplier of equipment used in the global papermaking and paper recycling industries and
We are a leading supplier of equipment used in the global papermaking and paper recycling industries and
also a manufacturer of granules made from papermaking byproducts. Our continuing operations consist of one
also a manufacturer of granules made from papermaking byproducts. Our continuing operations consist of one
reportable operating segment, Pulp and Papermaking Systems (Papermaking Systems), and two separate product
reportable operating segment, Pulp and Papermaking Systems (Papermaking Systems), and two separate product
lines reported in Other Businesses, which include Fiber-based Products and, until its sale in April 2007, Casting
lines reported in Other Businesses, which include Fiber-based Products and, until its sale in April 2007, Casting
Products. In classifying operational entities into a particular segment, we considered how our management
Products. In classifying operational entities into a particular segment, we considered how our management
assesses performance and makes operating decisions, and aggregated businesses with similar economic
assesses performance and makes operating decisions, and aggregated businesses with similar economic
characteristics, products and services, production processes, customers, and methods of distribution. In addition,
characteristics, products and services, production processes, customers, and methods of distribution. In addition,
prior to its sale on October 21, 2005, we operated a composite building products business, which is presented as a
prior to its sale on October 21, 2005, we operated a composite building products business, which is presented as a
discontinued operation in the accompanying consolidated financial statements.
discontinued operation in the accompanying consolidated financial statements.
Papermaking Systems
Papermaking Systems
Our Papermaking Systems segment has a long and well-established history of developing, manufacturing,
Our Papermaking Systems segment has a long and well-established history of developing, manufacturing,
and marketing equipment for the global papermaking and paper recycling industries. Some of our businesses or
and marketing equipment for the global papermaking and paper recycling industries. Some of our businesses or
their predecessor companies have been in operation for more than 100 years. Our customer base includes major
their predecessor companies have been in operation for more than 100 years. Our customer base includes major
global paper manufacturers and, with our equipment found in most of the world’s pulp and paper mills, we
global paper manufacturers and, with our equipment found in most of the world’s pulp and paper mills, we
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2007 Annual Report
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believe we have one of the largest installed bases of equipment in the pulp and paper industry. We manufacture
believe we have one of the largest installed bases of equipment in the pulp and paper industry. We manufacture
our products in eleven countries in Europe, North and South America, and Asia.
our products in eleven countries in Europe, North and South America, and Asia.
On May 11, 2005, we acquired all the outstanding stock of The Johnson Corporation (Kadant Johnson), a
On May 11, 2005, we acquired all the outstanding stock of The Johnson Corporation (Kadant Johnson), a
leading supplier of fluid-handling systems and equipment, including steam and condensate systems, components,
leading supplier of fluid-handling systems and equipment, including steam and condensate systems, components,
and controls. These products are used primarily in the dryer section of the papermaking process and during the
and controls. These products are used primarily in the dryer section of the papermaking process and during the
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Kadant Johnson was a privately
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Kadant Johnson was a privately
held company based in Three Rivers, Michigan, with approximately 575 employees.
held company based in Three Rivers, Michigan, with approximately 575 employees.
On June 2, 2006, our subsidiary Kadant Light Machinery (Jining) Co., Ltd. (Kadant Jining), assumed
On June 2, 2006, our subsidiary Kadant Light Machinery (Jining) Co., Ltd. (Kadant Jining), assumed
responsibility for the operation of Jining Huayi Light Industry Machinery Co., Ltd. (Huayi) and, by
responsibility for the operation of Jining Huayi Light Industry Machinery Co., Ltd. (Huayi) and, by
September 30, 2006, acquired substantially all of the assets of Huayi, including cash, inventory, machinery,
September 30, 2006, acquired substantially all of the assets of Huayi, including cash, inventory, machinery,
equipment, and buildings for $21.2 million, net of $2.3 million of assumed liabilities (Kadant Jining acquisition).
equipment, and buildings for $21.2 million, net of $2.3 million of assumed liabilities (Kadant Jining acquisition).
The remaining purchase obligation, which has been accrued as of December 29, 2007, is $1.5 million, of which
The remaining purchase obligation, which has been accrued as of December 29, 2007, is $1.5 million, of which
$0.5 million was paid in January 2008 and the remainder will be paid in 2008 if certain indemnification
$0.5 million was paid in January 2008 and the remainder will be paid in 2008 if certain indemnification
obligations are satisfied. Huayi was a supplier of stock-preparation equipment in China.
obligations are satisfied. Huayi was a supplier of stock-preparation equipment in China.
Our Papermaking Systems segment consists of the following product lines: stock-preparation systems and
Our Papermaking Systems segment consists of the following product lines: stock-preparation systems and
equipment, fluid-handling systems and equipment, paper machine accessory equipment, and water-management
equipment, fluid-handling systems and equipment, paper machine accessory equipment, and water-management
systems.
systems.
Stock-preparation systems and equipment
Stock-preparation systems and equipment
We develop, manufacture, and market complete custom-engineered systems and equipment, as well as
We develop, manufacture, and market complete custom-engineered systems and equipment, as well as
standard individual components, for pulping, de-inking, screening, cleaning, and refining recycled and virgin
standard individual components, for pulping, de-inking, screening, cleaning, and refining recycled and virgin
fibers to prepare them for entry into the paper machine during the production of recycled paper. Our principal
fibers to prepare them for entry into the paper machine during the production of recycled paper. Our principal
stock-preparation products include:
stock-preparation products include:
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Recycling and approach flow systems: Our equipment includes pulping, screening, cleaning, and
Recycling and approach flow systems: Our equipment includes pulping, screening, cleaning, and
de-inking systems that blend pulp mixtures and remove contaminants, such as ink, glue, metals, and
de-inking systems that blend pulp mixtures and remove contaminants, such as ink, glue, metals, and
other impurities, to prepare them for entry into the paper machine during the production of recycled
other impurities, to prepare them for entry into the paper machine during the production of recycled
paper.
paper.
Virgin pulping process equipment: Our equipment includes pulp washing, evaporator, recausticizing,
Virgin pulping process equipment: Our equipment includes pulp washing, evaporator, recausticizing,
and condensate treatment systems used to remove lignin, concentrate and recycle process chemicals,
and condensate treatment systems used to remove lignin, concentrate and recycle process chemicals,
and remove condensate gases.
and remove condensate gases.
Fluid-handling systems and equipment
Fluid-handling systems and equipment
We develop, manufacture and market rotary joints, precision unions, steam and condensate systems,
We develop, manufacture and market rotary joints, precision unions, steam and condensate systems,
components, and controls used primarily in the dryer section of the papermaking process and during the
components, and controls used primarily in the dryer section of the papermaking process and during the
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Our principal fluid-handling
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Our principal fluid-handling
systems include:
systems include:
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Rotary joints: Our mechanical devices, used with rotating shafts, allow the transfer of pressurized fluid
Rotary joints: Our mechanical devices, used with rotating shafts, allow the transfer of pressurized fluid
from a stationary source into and out of rotating machinery for heating, cooling, or the transfer of fluid
from a stationary source into and out of rotating machinery for heating, cooling, or the transfer of fluid
power.
power.
Syphons: Our devices, installed primarily inside the rotating cylinders of paper machines, are used to
Syphons: Our devices, installed primarily inside the rotating cylinders of paper machines, are used to
force steam once it has cooled into a liquid state (condensate) out of the drying cylinders through rotary
force steam once it has cooled into a liquid state (condensate) out of the drying cylinders through rotary
joints located on either end.
joints located on either end.
Turbulator® tube bars: Our steel or stainless steel axial bars, installed on the inside of dryers, are used
Turbulator® tube bars: Our steel or stainless steel axial bars, installed on the inside of dryers, are used
to induce turbulence in the condensate layer to improve the uniformity and rate of heat transfer (drying
to induce turbulence in the condensate layer to improve the uniformity and rate of heat transfer (drying
rate) of the dryers.
rate) of the dryers.
Engineered steam and condensate systems: Our systems control the flow of steam from the boiler to the
Engineered steam and condensate systems: Our systems control the flow of steam from the boiler to the
paper drying cylinders, collect condensed steam, and return it to the boiler to improve energy-
paper drying cylinders, collect condensed steam, and return it to the boiler to improve energy-
efficiency during the paper drying process.
efficiency during the paper drying process.
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Paper machine accessory equipment
Paper machine accessory equipment
2007 Annual Report
2007 Annual Report
We develop, manufacture, and market a wide range of doctor systems and related consumables that
We develop, manufacture, and market a wide range of doctor systems and related consumables that
continuously clean papermaking rolls to keep paper machines running efficiently; doctor blades made of a
continuously clean papermaking rolls to keep paper machines running efficiently; doctor blades made of a
variety of materials to perform functions including cleaning, creping, web removal, and application of coatings;
variety of materials to perform functions including cleaning, creping, web removal, and application of coatings;
and profiling systems that control moisture, web curl, and gloss during paper production. Our principal paper
and profiling systems that control moisture, web curl, and gloss during paper production. Our principal paper
machine accessory products include:
machine accessory products include:
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Doctor systems and holders: Our doctor systems clean papermaking rolls to maintain the efficient
Doctor systems and holders: Our doctor systems clean papermaking rolls to maintain the efficient
operation of paper machines by placing a blade against the roll at a constant and uniform pressure. A
operation of paper machines by placing a blade against the roll at a constant and uniform pressure. A
doctor system consists of the structure supporting the blade and the blade holder. A large paper
doctor system consists of the structure supporting the blade and the blade holder. A large paper
machine may have as many as 100 doctor systems.
machine may have as many as 100 doctor systems.
Profiling systems: We offer profiling systems that control moisture, web curl, and gloss during paper
Profiling systems: We offer profiling systems that control moisture, web curl, and gloss during paper
production.
production.
Doctor blades: We manufacture doctor blades made of a variety of materials including metal, bi-metal,
Doctor blades: We manufacture doctor blades made of a variety of materials including metal, bi-metal,
or synthetic materials that perform a variety of functions including cleaning, creping, web removal, or
or synthetic materials that perform a variety of functions including cleaning, creping, web removal, or
the application of coatings. A typical doctor blade has a life ranging from eight hours to two months,
the application of coatings. A typical doctor blade has a life ranging from eight hours to two months,
depending on the application.
depending on the application.
Water-management systems
Water-management systems
We develop, manufacture, and market water-management systems and equipment used to continuously
We develop, manufacture, and market water-management systems and equipment used to continuously
clean paper machine fabrics, drain water from pulp mixtures, form the sheet or web, and filter the process water
clean paper machine fabrics, drain water from pulp mixtures, form the sheet or web, and filter the process water
for reuse. Our principal water-management systems include:
for reuse. Our principal water-management systems include:
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Shower and fabric-conditioning systems: Our shower and fabric-conditioning systems assist in the
Shower and fabric-conditioning systems: Our shower and fabric-conditioning systems assist in the
removal of contaminants that collect on paper machine fabrics used to convey the paper web through
removal of contaminants that collect on paper machine fabrics used to convey the paper web through
the forming, pressing, and drying sections of the paper machine. The average paper machine has
the forming, pressing, and drying sections of the paper machine. The average paper machine has
between 3 and 12 fabrics. These fabrics can easily become contaminated with fiber, fillers, pitch, and
between 3 and 12 fabrics. These fabrics can easily become contaminated with fiber, fillers, pitch, and
dirt that can have a detrimental effect on paper machine performance and paper quality. Our shower
dirt that can have a detrimental effect on paper machine performance and paper quality. Our shower
and fabric-conditioning systems assist in the removal of these contaminants.
and fabric-conditioning systems assist in the removal of these contaminants.
Formation systems: We supply structures that drain, purify, and recycle process water from the pulp
Formation systems: We supply structures that drain, purify, and recycle process water from the pulp
mixture during paper sheet and web formation.
mixture during paper sheet and web formation.
– Water-filtration systems: We offer a variety of filtration systems and strainers that remove
– Water-filtration systems: We offer a variety of filtration systems and strainers that remove
contaminants from process water before reuse and recover reusable fiber for recycling back into the
contaminants from process water before reuse and recover reusable fiber for recycling back into the
pulp mixture.
pulp mixture.
Other Businesses
Other Businesses
Our other businesses include our Fiber-based Products business and, prior to its sale on April 30, 2007, our
Our other businesses include our Fiber-based Products business and, prior to its sale on April 30, 2007, our
Casting Products business.
Casting Products business.
Our Fiber-based Products business produces biodegradable, absorbent granules from papermaking
Our Fiber-based Products business produces biodegradable, absorbent granules from papermaking
byproducts for use primarily as carriers for agricultural, home lawn and garden, and professional lawn, turf and
byproducts for use primarily as carriers for agricultural, home lawn and garden, and professional lawn, turf and
ornamental applications, as well as for oil and grease absorption.
ornamental applications, as well as for oil and grease absorption.
Our Casting Products business manufactured grey and ductile iron castings. We sold this business on
Our Casting Products business manufactured grey and ductile iron castings. We sold this business on
April 30, 2007.
April 30, 2007.
Discontinued Operation
Discontinued Operation
On October 21, 2005, our Kadant Composites LLC subsidiary (Composites LLC) sold substantially all of its
On October 21, 2005, our Kadant Composites LLC subsidiary (Composites LLC) sold substantially all of its
assets to LDI Composites Co. for approximately $11.9 million in cash and the assumption of $0.7 million of
assets to LDI Composites Co. for approximately $11.9 million in cash and the assumption of $0.7 million of
liabilities, resulting in a cumulative loss on sale of $0.1 million. Under the terms of the asset purchase agreement,
liabilities, resulting in a cumulative loss on sale of $0.1 million. Under the terms of the asset purchase agreement,
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Composites LLC retained certain liabilities associated with the operation of the business prior to the sale,
Composites LLC retained certain liabilities associated with the operation of the business prior to the sale,
including warranty obligations related to products manufactured prior to the sale date. All activity related to this
including warranty obligations related to products manufactured prior to the sale date. All activity related to this
business is classified in the results of the discontinued operation in the accompanying consolidated financial
business is classified in the results of the discontinued operation in the accompanying consolidated financial
statements.
statements.
Through the sale date of October 21, 2005, Composites LLC offered a standard limited warranty to the
Through the sale date of October 21, 2005, Composites LLC offered a standard limited warranty to the
owner of its decking and roofing products, limited to repair or replacement of the defective product or a refund of
owner of its decking and roofing products, limited to repair or replacement of the defective product or a refund of
the original purchase price. Through the second quarter of 2006, Composites LLC recorded an estimate for
the original purchase price. Through the second quarter of 2006, Composites LLC recorded an estimate for
warranty-related costs at the time of sale based on its actual historical return rates and repair costs, as well as
warranty-related costs at the time of sale based on its actual historical return rates and repair costs, as well as
other analytical tools for estimating future warranty claims. These estimates were revised for variances between
other analytical tools for estimating future warranty claims. These estimates were revised for variances between
actual and expected claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed
actual and expected claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed
assumptions associated with potential product returns, including the type of product sold, temperatures at the
assumptions associated with potential product returns, including the type of product sold, temperatures at the
location of installation, density of boards, and other factors. Certain assumptions, such as the effect of weather
location of installation, density of boards, and other factors. Certain assumptions, such as the effect of weather
conditions and high temperatures on the product installed, included inherent uncertainties that contributed to
conditions and high temperatures on the product installed, included inherent uncertainties that contributed to
variances between actual and expected claims rates.
variances between actual and expected claims rates.
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
represents a best estimate of the ultimate loss to be recorded, Composites LLC is required under SFAS No. 5,
represents a best estimate of the ultimate loss to be recorded, Composites LLC is required under SFAS No. 5,
“Accounting for Contingencies” (SFAS 5), to record the minimum amount of the potential range of loss for
“Accounting for Contingencies” (SFAS 5), to record the minimum amount of the potential range of loss for
products under warranty. As of December 29, 2007, the accrued warranty costs associated with the composites
products under warranty. As of December 29, 2007, the accrued warranty costs associated with the composites
business were $2.1 million, which represent the low end of the estimated range of warranty reserve required
business were $2.1 million, which represent the low end of the estimated range of warranty reserve required
based on the level of claims received through the end of 2007. Composites LLC has calculated that the total
based on the level of claims received through the end of 2007. Composites LLC has calculated that the total
potential warranty cost ranges from $2.1 million to approximately $13.1 million (See Warranty Obligations for
potential warranty cost ranges from $2.1 million to approximately $13.1 million (See Warranty Obligations for
Discontinued Operation in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Discontinued Operation in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of this Report for further information.). The high end of the range represents the estimated
Results of Operations” of this Report for further information.). The high end of the range represents the estimated
maximum level of warranty claims remaining based on the total sales of the products under warranty.
maximum level of warranty claims remaining based on the total sales of the products under warranty.
Composites LLC retained all of the cash proceeds received from the asset sale and continued to administer and
Composites LLC retained all of the cash proceeds received from the asset sale and continued to administer and
pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30, 2007, Composites
pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30, 2007, Composites
LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to pay or process
LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to pay or process
warranty claims, and ceased doing business. Composites LLC will continue to record adjustments to accrued
warranty claims, and ceased doing business. Composites LLC will continue to record adjustments to accrued
warranty costs to reflect the minimum amount of the potential range of loss for products under warranty based on
warranty costs to reflect the minimum amount of the potential range of loss for products under warranty based on
judgments entered against it in litigation.
judgments entered against it in litigation.
Composites LLC’s inability to pay or process warranty claims has exposed the Company to greater risks
Composites LLC’s inability to pay or process warranty claims has exposed the Company to greater risks
associated with litigation. For more information regarding our current litigation arising from these claims, please
associated with litigation. For more information regarding our current litigation arising from these claims, please
see Part I, Item 3 “Legal Proceedings” as well as the other risk factors related to litigation set forth in this section.
see Part I, Item 3 “Legal Proceedings” as well as the other risk factors related to litigation set forth in this section.
Research and Development
Research and Development
We develop a broad range of products for all facets of the markets we serve. We focus our research and
We develop a broad range of products for all facets of the markets we serve. We focus our research and
development efforts on the technological advancement of our stock-preparation, paper machine accessory, fluid-
development efforts on the technological advancement of our stock-preparation, paper machine accessory, fluid-
handling, and water-management products.
handling, and water-management products.
Our research and development expenses from continuing operations were $6.0 million, $6.2 million, and
Our research and development expenses from continuing operations were $6.0 million, $6.2 million, and
$4.9 million in 2007*, 2006, and 2005, respectively.
$4.9 million in 2007*, 2006, and 2005, respectively.
* Unless otherwise noted, references to 2007, 2006, and 2005 in this Annual Report on Form 10-K are for the
* Unless otherwise noted, references to 2007, 2006, and 2005 in this Annual Report on Form 10-K are for the
fiscal years ended December 29, 2007, December 30, 2006, and December 31, 2005, respectively.
fiscal years ended December 29, 2007, December 30, 2006, and December 31, 2005, respectively.
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Kadant Inc.
Raw Materials
Raw Materials
2007 Annual Report
2007 Annual Report
Raw materials, components, and supplies for our significant products are available either from a number of
Raw materials, components, and supplies for our significant products are available either from a number of
different suppliers or from alternative sources that we believe could be developed without a material adverse
different suppliers or from alternative sources that we believe could be developed without a material adverse
effect on our business.
effect on our business.
The raw material used in the manufacture of our fiber-based granules is obtained from three paper recycling
The raw material used in the manufacture of our fiber-based granules is obtained from three paper recycling
mills. The mills have the exclusive right to supply papermaking byproducts to our existing granulation plant in
mills. The mills have the exclusive right to supply papermaking byproducts to our existing granulation plant in
Green Bay, Wisconsin, under contracts which expire in December 2009 and are renewable every two years by
Green Bay, Wisconsin, under contracts which expire in December 2009 and are renewable every two years by
mutual agreement. Although we believe that our relationships with the mills are good, the mills may not agree to
mutual agreement. Although we believe that our relationships with the mills are good, the mills may not agree to
renew the contracts upon their expiration. In the past, we have experienced some difficulty in obtaining sufficient
renew the contracts upon their expiration. In the past, we have experienced some difficulty in obtaining sufficient
raw material to operate at optimal production levels. We continue to work with the mills to ensure a stable supply
raw material to operate at optimal production levels. We continue to work with the mills to ensure a stable supply
of raw material. To date, we have been able to meet all of our customer delivery requirements, but there can be
of raw material. To date, we have been able to meet all of our customer delivery requirements, but there can be
no assurance that we will be able to meet future delivery requirements. If the mills were unable or unwilling to
no assurance that we will be able to meet future delivery requirements. If the mills were unable or unwilling to
supply us sufficient fiber, we would be forced to find an alternative supplier for this raw material.
supply us sufficient fiber, we would be forced to find an alternative supplier for this raw material.
Patents, Licenses, and Trademarks
Patents, Licenses, and Trademarks
We protect our intellectual property rights by applying for and obtaining patents when appropriate. We also
We protect our intellectual property rights by applying for and obtaining patents when appropriate. We also
rely on technical know-how, trade secrets, and trademarks to maintain our competitive position. We also enter
rely on technical know-how, trade secrets, and trademarks to maintain our competitive position. We also enter
into license agreements with others to grant and/or receive rights to patents and know-how.
into license agreements with others to grant and/or receive rights to patents and know-how.
Papermaking Systems
Papermaking Systems
We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on
We have numerous U.S. and foreign patents, including foreign counterparts to our U.S. patents, expiring on
various dates ranging from 2008 to 2026. No particular patent, or related group of patents, is so important that its
various dates ranging from 2008 to 2026. No particular patent, or related group of patents, is so important that its
loss would significantly affect our operations. From time to time, we enter into licenses of products with other
loss would significantly affect our operations. From time to time, we enter into licenses of products with other
companies serving the pulp, papermaking, converting, and paper recycling industries.
companies serving the pulp, papermaking, converting, and paper recycling industries.
Other Businesses
Other Businesses
We currently hold several U.S. patents, expiring on various dates ranging from 2008 to 2021, related to
We currently hold several U.S. patents, expiring on various dates ranging from 2008 to 2021, related to
various aspects of the processing of fiber-based granules and the use of these materials in the agricultural,
various aspects of the processing of fiber-based granules and the use of these materials in the agricultural,
professional turf, home lawn and garden, general absorption, oil and grease absorption, and catbox filler markets.
professional turf, home lawn and garden, general absorption, oil and grease absorption, and catbox filler markets.
We also have foreign counterparts to certain of these U.S. patents in Canada.
We also have foreign counterparts to certain of these U.S. patents in Canada.
Seasonal Influences
Seasonal Influences
Papermaking Systems
Papermaking Systems
There are no material seasonal influences on this segment’s sales of products and services.
There are no material seasonal influences on this segment’s sales of products and services.
Other Businesses
Other Businesses
Our fiber-based granular products business experiences fluctuations in sales, usually in the third and fourth
Our fiber-based granular products business experiences fluctuations in sales, usually in the third and fourth
quarters, when sales decline due to the seasonality of the agricultural and home lawn and garden markets.
quarters, when sales decline due to the seasonality of the agricultural and home lawn and garden markets.
Working Capital Requirements
Working Capital Requirements
There are no special inventory requirements or credit terms extended to customers that would have a
There are no special inventory requirements or credit terms extended to customers that would have a
material adverse effect on our working capital.
material adverse effect on our working capital.
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Dependency on a Single Customer
Dependency on a Single Customer
2007 Annual Report
2007 Annual Report
No single customer accounted for more than 10% of our consolidated revenues or more than 10% of the
No single customer accounted for more than 10% of our consolidated revenues or more than 10% of the
Papermaking Systems segment’s revenues in any of the past three years. Revenues from China were $76.6
Papermaking Systems segment’s revenues in any of the past three years. Revenues from China were $76.6
million, $71.3 million, and $29.2 million in 2007, 2006, and 2005, respectively, representing 21% of total
million, $71.3 million, and $29.2 million in 2007, 2006, and 2005, respectively, representing 21% of total
revenues for each of 2007 and 2006 and 12% for 2005.
revenues for each of 2007 and 2006 and 12% for 2005.
Backlog
Backlog
Our backlog of firm orders for the Papermaking Systems segment was $108.6 million and $70.4 million at
Our backlog of firm orders for the Papermaking Systems segment was $108.6 million and $70.4 million at
year-end 2007 and 2006, respectively. We anticipate that substantially all of the backlog at December 29, 2007
year-end 2007 and 2006, respectively. We anticipate that substantially all of the backlog at December 29, 2007
will be shipped or completed during the next 12 months. Some of these orders can be canceled by the customer
will be shipped or completed during the next 12 months. Some of these orders can be canceled by the customer
upon payment of a cancellation fee.
upon payment of a cancellation fee.
Competition
Competition
We face significant competition in each of our principal markets. We compete primarily on the basis of
We face significant competition in each of our principal markets. We compete primarily on the basis of
quality, price, service, technical expertise, and product performance and innovation. We believe the reputation
quality, price, service, technical expertise, and product performance and innovation. We believe the reputation
that we have established for quality products and in-depth process knowledge provides us with a competitive
that we have established for quality products and in-depth process knowledge provides us with a competitive
advantage. In addition, a significant portion of our business is generated from our existing worldwide customer
advantage. In addition, a significant portion of our business is generated from our existing worldwide customer
base. To maintain this base, we have emphasized technology, service, and a problem-solving relationship with
base. To maintain this base, we have emphasized technology, service, and a problem-solving relationship with
our customers.
our customers.
We are a leading supplier of stock-preparation equipment used for the preparation of recycled and virgin
We are a leading supplier of stock-preparation equipment used for the preparation of recycled and virgin
fibers in the production of recycled paper. Several major competitors supply various pieces of equipment for this
fibers in the production of recycled paper. Several major competitors supply various pieces of equipment for this
process. Our principal competitors in this market are Voith Paper GmbH, Groupe Laperriere & Verrault Inc.,
process. Our principal competitors in this market are Voith Paper GmbH, Groupe Laperriere & Verrault Inc.,
Metso Corporation, and Maschinenfabrik Andritz AG. We compete in this market primarily on the basis of
Metso Corporation, and Maschinenfabrik Andritz AG. We compete in this market primarily on the basis of
technical expertise, product innovation, and price. Other competitors specialize in segments within the white- and
technical expertise, product innovation, and price. Other competitors specialize in segments within the white- and
brown-paper markets.
brown-paper markets.
We are a leading supplier of specialty accessory equipment for paper machines. Our principal global
We are a leading supplier of specialty accessory equipment for paper machines. Our principal global
competitors in this market are Joh. Clouth GmbH & Co. KG and Metso Corporation. Because of the high capital
competitors in this market are Joh. Clouth GmbH & Co. KG and Metso Corporation. Because of the high capital
cost of paper machines and the role of our accessories in maintaining the efficiency of these machines, we
cost of paper machines and the role of our accessories in maintaining the efficiency of these machines, we
generally compete in this market on the basis of service, technical expertise, performance, and price.
generally compete in this market on the basis of service, technical expertise, performance, and price.
We are a leading supplier of fluid-handling systems and equipment, offering global sales and service,
We are a leading supplier of fluid-handling systems and equipment, offering global sales and service,
application expertise, and an extensive rotary joint product line. There are numerous competitors in this market,
application expertise, and an extensive rotary joint product line. There are numerous competitors in this market,
including Deublin Company, Barco Company, Christian Maier GmbH & Co. KG, and Duff-Norton Company. In
including Deublin Company, Barco Company, Christian Maier GmbH & Co. KG, and Duff-Norton Company. In
addition, due to the highly fragmented nature of the rotary joint market, we compete with numerous local
addition, due to the highly fragmented nature of the rotary joint market, we compete with numerous local
competitors. We generally compete in this market based on process knowledge, technical competency, product
competitors. We generally compete in this market based on process knowledge, technical competency, product
and service quality, and price.
and service quality, and price.
In our water-management product line, various competitors exist in the formation, shower and fabric-
In our water-management product line, various competitors exist in the formation, shower and fabric-
conditioning systems, and filtration systems markets. Principal competitors are IBS-Paper Performance Group in
conditioning systems, and filtration systems markets. Principal competitors are IBS-Paper Performance Group in
formation and shower and fabric conditioning systems and Asten/Johnson Foils in formation tables. In addition, a
formation and shower and fabric conditioning systems and Asten/Johnson Foils in formation tables. In addition, a
variety of smaller companies compete within the shower and fabric-conditioning systems and filtration systems
variety of smaller companies compete within the shower and fabric-conditioning systems and filtration systems
markets. In each of these markets, we generally compete on the basis of process knowledge, application
markets. In each of these markets, we generally compete on the basis of process knowledge, application
experience, product quality, service, and price.
experience, product quality, service, and price.
Environmental Protection Regulations
Environmental Protection Regulations
We believe that our compliance with federal, state, and local environmental protection regulations will not
We believe that our compliance with federal, state, and local environmental protection regulations will not
have a material adverse effect on our capital expenditures, earnings, or competitive position.
have a material adverse effect on our capital expenditures, earnings, or competitive position.
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Employees
Employees
2007 Annual Report
2007 Annual Report
As of December 29, 2007, we had approximately 2,000 employees worldwide.
As of December 29, 2007, we had approximately 2,000 employees worldwide.
Financial Information
Financial Information
Financial information concerning our segment and product lines is summarized in Part IV, Item 15, Exhibits
Financial information concerning our segment and product lines is summarized in Part IV, Item 15, Exhibits
and Financial Statement Schedules, Note 11 to the audited consolidated financial statements, which begins on
and Financial Statement Schedules, Note 11 to the audited consolidated financial statements, which begins on
page F-1 of this Report.
page F-1 of this Report.
Financial information about exports by domestic operations and about foreign operations is summarized in
Financial information about exports by domestic operations and about foreign operations is summarized in
Part IV, Item 15, Exhibits and Financial Statement Schedules, Note 11 to the audited consolidated financial
Part IV, Item 15, Exhibits and Financial Statement Schedules, Note 11 to the audited consolidated financial
statements, which begins on page F-1 of this Report.
statements, which begins on page F-1 of this Report.
Available Information
Available Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities
and Exchange Commission (SEC) under the Exchange Act. The public may read and copy any materials that we
and Exchange Commission (SEC) under the Exchange Act. The public may read and copy any materials that we
file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public
file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Also, the SEC maintains a website that contains reports, proxy and information statements, and other information
Also, the SEC maintains a website that contains reports, proxy and information statements, and other information
regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that
regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that
we file with the SEC at www.sec.gov. We also make available free of charge through our website at
we file with the SEC at www.sec.gov. We also make available free of charge through our website at
www.kadant.com our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
www.kadant.com our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to these Reports filed with or furnished pursuant to Section 13(a) or 15(d) of the Exchange
8-K, and amendments to these Reports filed with or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the
Act, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the
SEC. We are not including the information contained in our website as part of this Report nor are we
SEC. We are not including the information contained in our website as part of this Report nor are we
incorporating the information on our website into this Report by reference.
incorporating the information on our website into this Report by reference.
Executive Officers of the Registrant
Executive Officers of the Registrant
The following table summarizes certain information concerning individuals who are our executive officers
The following table summarizes certain information concerning individuals who are our executive officers
as of March 1, 2008:
as of March 1, 2008:
Name
Name
Age
Age
Present Title (Fiscal Year First Became Executive Officer)
Present Title (Fiscal Year First Became Executive Officer)
William A. Rainville . . . . . . .
William A. Rainville . . . . . . .
Edward J. Sindoni . . . . . . . . .
Edward J. Sindoni . . . . . . . . .
Thomas M. O’Brien . . . . . . .
Thomas M. O’Brien . . . . . . .
Jonathan W. Painter . . . . . . .
Jonathan W. Painter . . . . . . .
Eric T. Langevin . . . . . . . . . .
Eric T. Langevin . . . . . . . . . .
Sandra L. Lambert
. . . . . . . .
Sandra L. Lambert
. . . . . . . .
Michael J. McKenney . . . . . .
Michael J. McKenney . . . . . .
66 Chairman of the Board, President, and Chief Executive Officer (1991)
66 Chairman of the Board, President, and Chief Executive Officer (1991)
63 Executive Vice President and Chief Operating Officer (1994)
63 Executive Vice President and Chief Operating Officer (1994)
56 Executive Vice President and Chief Financial Officer (1994)
56 Executive Vice President and Chief Financial Officer (1994)
49 Executive Vice President (1997)
49 Executive Vice President (1997)
45
Senior Vice President (2006)
Senior Vice President (2006)
45
52 Vice President, General Counsel, and Secretary (2001)
52 Vice President, General Counsel, and Secretary (2001)
46 Vice President, Finance and Chief Accounting Officer (2002)
46 Vice President, Finance and Chief Accounting Officer (2002)
Mr. Rainville has been president and chief executive officer since our incorporation in 1991, a member of
Mr. Rainville has been president and chief executive officer since our incorporation in 1991, a member of
our board of directors since 1992, and chairman of our board since 2001. Prior to our spin-off in 2001,
our board of directors since 1992, and chairman of our board since 2001. Prior to our spin-off in 2001,
Mr. Rainville also held various managerial positions with Thermo Electron, including chief operating officer,
Mr. Rainville also held various managerial positions with Thermo Electron, including chief operating officer,
recycling and resource recovery, a position he held since 1998, and for more than five years prior to that, senior
recycling and resource recovery, a position he held since 1998, and for more than five years prior to that, senior
vice president. Prior to joining Thermo Electron, Mr. Rainville held positions at Drott Manufacturing, Paper
vice president. Prior to joining Thermo Electron, Mr. Rainville held positions at Drott Manufacturing, Paper
Industry Engineering, and Sterling Pulp and Paper.
Industry Engineering, and Sterling Pulp and Paper.
Mr. Sindoni was named an executive vice president and our chief operating officer in March 2006 and is
Mr. Sindoni was named an executive vice president and our chief operating officer in March 2006 and is
responsible for global operations. Prior to that, he served as a senior vice president from 2001 to 2006 with
responsible for global operations. Prior to that, he served as a senior vice president from 2001 to 2006 with
responsibility for our paper machine accessory equipment and water-management systems product lines. From
responsibility for our paper machine accessory equipment and water-management systems product lines. From
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2007 Annual Report
1992 to 2001, he served as a vice president. Prior to joining us in 1987, he had a 21-year career with the General
1992 to 2001, he served as a vice president. Prior to joining us in 1987, he had a 21-year career with the General
Electric Company.
Electric Company.
Mr. O’Brien has been an executive vice president since 1998 and our chief financial officer since 2001. He
Mr. O’Brien has been an executive vice president since 1998 and our chief financial officer since 2001. He
served as our treasurer from 2001 to February 2005 and also as vice president, finance, from 1991 to 1998. Prior
served as our treasurer from 2001 to February 2005 and also as vice president, finance, from 1991 to 1998. Prior
to joining us, Mr. O’Brien held various finance positions at Racal Interlan, Inc., Prime Computer, Compugraphic
to joining us, Mr. O’Brien held various finance positions at Racal Interlan, Inc., Prime Computer, Compugraphic
Corporation, and the General Electric Company.
Corporation, and the General Electric Company.
Mr. Painter has been an executive vice president since 1997 and is responsible for our fiberline business,
Mr. Painter has been an executive vice president since 1997 and is responsible for our fiberline business,
consisting of our stock-preparation product line, and our fiber-based products business. Prior to that, he served as
consisting of our stock-preparation product line, and our fiber-based products business. Prior to that, he served as
president of our composite building products business from 2001 until its sale in 2005. He also served as our
president of our composite building products business from 2001 until its sale in 2005. He also served as our
treasurer and treasurer of Thermo Electron from 1994 until 1997. Prior to 1994, Mr. Painter held various
treasurer and treasurer of Thermo Electron from 1994 until 1997. Prior to 1994, Mr. Painter held various
managerial positions with us and at Thermo Electron.
managerial positions with us and at Thermo Electron.
Mr. Langevin has been a senior vice president since March 1, 2007 and is responsible for our paperline
Mr. Langevin has been a senior vice president since March 1, 2007 and is responsible for our paperline
business consisting of our paper machine accessory equipment, fluid-handling, and water-management systems
business consisting of our paper machine accessory equipment, fluid-handling, and water-management systems
product lines. Prior to that, he served as vice president, with responsibility for our paper machine accessory
product lines. Prior to that, he served as vice president, with responsibility for our paper machine accessory
equipment and water-management systems product lines from 2006 to 2007. From 2001 to 2006, Mr. Langevin
equipment and water-management systems product lines from 2006 to 2007. From 2001 to 2006, Mr. Langevin
was president of our Kadant Web Systems Inc. subsidiary and before that served as its senior vice president and
was president of our Kadant Web Systems Inc. subsidiary and before that served as its senior vice president and
vice president of operations. Prior to 2001, Mr. Langevin managed several product groups and departments
vice president of operations. Prior to 2001, Mr. Langevin managed several product groups and departments
within Kadant Web Systems after joining us in 1986 as a product development engineer.
within Kadant Web Systems after joining us in 1986 as a product development engineer.
Ms. Lambert has been a vice president and our general counsel since 2001, and our secretary since our
Ms. Lambert has been a vice president and our general counsel since 2001, and our secretary since our
incorporation in 1991. Prior to joining us, she was a vice president and secretary of Thermo Electron since 1999
incorporation in 1991. Prior to joining us, she was a vice president and secretary of Thermo Electron since 1999
and 1990, respectively, and before that was a member of Thermo Electron’s legal department.
and 1990, respectively, and before that was a member of Thermo Electron’s legal department.
Mr. McKenney has been our vice president, finance and chief accounting officer since January 2002, and
Mr. McKenney has been our vice president, finance and chief accounting officer since January 2002, and
served as our corporate controller since 1997. Mr. McKenney was controller of Kadant AES, our division
served as our corporate controller since 1997. Mr. McKenney was controller of Kadant AES, our division
acquired from Albany International Inc., from 1993 to 1997. Prior to 1993, Mr. McKenney held various financial
acquired from Albany International Inc., from 1993 to 1997. Prior to 1993, Mr. McKenney held various financial
positions at Albany International.
positions at Albany International.
Item 1A. Risk Factors
Item 1A. Risk Factors
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we
wish to caution readers that the following important factors, among others, in some cases have affected, and in
wish to caution readers that the following important factors, among others, in some cases have affected, and in
the future could affect, our actual results and could cause our actual results in 2008 and beyond to differ
the future could affect, our actual results and could cause our actual results in 2008 and beyond to differ
materially from those expressed in any forward-looking statements made by us, or on our behalf.
materially from those expressed in any forward-looking statements made by us, or on our behalf.
Our business is dependent on the condition of the pulp and paper industry.
Our business is dependent on the condition of the pulp and paper industry.
We sell products primarily to the pulp and paper industry, which is a cyclical industry. Generally, the
We sell products primarily to the pulp and paper industry, which is a cyclical industry. Generally, the
financial condition of the global pulp and paper industry corresponds to the condition of the general economy, as
financial condition of the global pulp and paper industry corresponds to the condition of the general economy, as
well as to a number of other factors, including pulp and paper production capacity relative to demand. In recent
well as to a number of other factors, including pulp and paper production capacity relative to demand. In recent
years, the paper industry in certain geographic regions, notably Europe and North America, has undergone a
years, the paper industry in certain geographic regions, notably Europe and North America, has undergone a
number of structural changes, including decreased spending, mill closures, consolidations, and bankruptcies, all
number of structural changes, including decreased spending, mill closures, consolidations, and bankruptcies, all
of which have adversely affected our business. In addition, paper producers have been and continue to be
of which have adversely affected our business. In addition, paper producers have been and continue to be
negatively affected by higher operating costs, especially higher energy and chemical costs. We believe paper
negatively affected by higher operating costs, especially higher energy and chemical costs. We believe paper
companies remain cautious about increasing their capital and operating spending in the current market
companies remain cautious about increasing their capital and operating spending in the current market
environment. As paper companies consolidate in response to market weakness, they frequently reduce capacity
environment. As paper companies consolidate in response to market weakness, they frequently reduce capacity
and postpone or even cancel capacity addition or expansion projects. These actions can adversely affect our
and postpone or even cancel capacity addition or expansion projects. These actions can adversely affect our
revenue and profitability globally or in a particular region or product line.
revenue and profitability globally or in a particular region or product line.
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2007 Annual Report
A significant portion of our international sales has, and may in the future, come from China and we operate
A significant portion of our international sales has, and may in the future, come from China and we operate
several manufacturing facilities in China, which expose us to political, economic, operational and other risks.
several manufacturing facilities in China, which expose us to political, economic, operational and other risks.
We have significant revenues from China, operate significant facilities in China, and expect to manufacture
We have significant revenues from China, operate significant facilities in China, and expect to manufacture
and source more of our equipment and components from China in the future. During 2007 and 2006,
and source more of our equipment and components from China in the future. During 2007 and 2006,
approximately $76.6 million and $71.3 million, respectively, or 21% of our total revenues in each year were from
approximately $76.6 million and $71.3 million, respectively, or 21% of our total revenues in each year were from
customers in China. Our manufacturing facilities in China, as well as the significant level of revenues from
customers in China. Our manufacturing facilities in China, as well as the significant level of revenues from
China, expose us to increased risk in the event of changes in the policies of the Chinese government, political
China, expose us to increased risk in the event of changes in the policies of the Chinese government, political
unrest, unstable economic conditions, or other developments in China or in U.S.-China relations that are adverse
unrest, unstable economic conditions, or other developments in China or in U.S.-China relations that are adverse
to trade, including enactment of protectionist legislation or trade or currency restrictions. In addition, orders from
to trade, including enactment of protectionist legislation or trade or currency restrictions. In addition, orders from
customers in China, particularly for large stock-preparation systems that have been tailored to a customer’s
customers in China, particularly for large stock-preparation systems that have been tailored to a customer’s
specific requirements, have credit risks higher than we generally incur elsewhere, and some orders are subject to
specific requirements, have credit risks higher than we generally incur elsewhere, and some orders are subject to
the receipt of financing approvals from the Chinese government. For this reason, we do not record signed
the receipt of financing approvals from the Chinese government. For this reason, we do not record signed
contracts from customers in China for large stock-preparation systems as orders until we receive the down
contracts from customers in China for large stock-preparation systems as orders until we receive the down
payments for such contracts. The timing of the receipt of these orders and the down payments are uncertain and
payments for such contracts. The timing of the receipt of these orders and the down payments are uncertain and
there is no assurance that we will be able to recognize revenue on these contracts. We may experience a loss if
there is no assurance that we will be able to recognize revenue on these contracts. We may experience a loss if
the contract is cancelled prior to the receipt of a down payment in the event we commence engineering or other
the contract is cancelled prior to the receipt of a down payment in the event we commence engineering or other
work associated with the contract. In addition, we may experience a loss if the contract is cancelled prior to the
work associated with the contract. In addition, we may experience a loss if the contract is cancelled prior to the
receipt of a letter of credit covering the remaining balance of the contract. Typically, the letter of credit
receipt of a letter of credit covering the remaining balance of the contract. Typically, the letter of credit
represents 80% or more of the total order.
represents 80% or more of the total order.
Our business is subject to economic, currency, political, and other risks associated with international sales and
Our business is subject to economic, currency, political, and other risks associated with international sales and
operations.
operations.
During 2007 and 2006, approximately 61% of our sales were to customers outside the United States,
During 2007 and 2006, approximately 61% of our sales were to customers outside the United States,
principally in China and Europe. In addition, we operate several manufacturing operations worldwide, including
principally in China and Europe. In addition, we operate several manufacturing operations worldwide, including
China, Mexico, and Brazil. International revenues and operations are subject to a number of risks, including the
China, Mexico, and Brazil. International revenues and operations are subject to a number of risks, including the
following:
following:
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agreements may be difficult to enforce and receivables difficult to collect through a foreign country’s
agreements may be difficult to enforce and receivables difficult to collect through a foreign country’s
legal system,
legal system,
foreign customers may have longer payment cycles,
foreign customers may have longer payment cycles,
foreign countries may impose additional withholding taxes or otherwise tax our foreign income,
foreign countries may impose additional withholding taxes or otherwise tax our foreign income,
impose tariffs, adopt other restrictions on foreign trade, impose currency restrictions or enact other
impose tariffs, adopt other restrictions on foreign trade, impose currency restrictions or enact other
protectionist or anti-trade measures,
protectionist or anti-trade measures,
it may be difficult to repatriate funds, due to unfavorable tax consequences or other restrictions or
it may be difficult to repatriate funds, due to unfavorable tax consequences or other restrictions or
limitations imposed by foreign governments, and
limitations imposed by foreign governments, and
the protection of intellectual property in foreign countries may be more difficult to enforce.
the protection of intellectual property in foreign countries may be more difficult to enforce.
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Although we seek to charge our customers in the same currency in which our operating costs are incurred,
Although we seek to charge our customers in the same currency in which our operating costs are incurred,
fluctuations in currency exchange rates may affect product demand and adversely affect the profitability in U.S.
fluctuations in currency exchange rates may affect product demand and adversely affect the profitability in U.S.
dollars of products we provide in international markets where payment for our products and services is made in
dollars of products we provide in international markets where payment for our products and services is made in
their local currencies. In addition, our inability to repatriate funds could adversely affect our ability to service our
their local currencies. In addition, our inability to repatriate funds could adversely affect our ability to service our
debt obligations. Any of these factors could have a material adverse impact on our business and results of
debt obligations. Any of these factors could have a material adverse impact on our business and results of
operations.
operations.
We are subject to intense competition in all our markets.
We are subject to intense competition in all our markets.
We believe that the principal competitive factors affecting the markets for our products include quality,
We believe that the principal competitive factors affecting the markets for our products include quality,
price, service, technical expertise, and product innovation. Our competitors include a number of large
price, service, technical expertise, and product innovation. Our competitors include a number of large
multinational corporations that may have substantially greater financial, marketing, and other resources than we
multinational corporations that may have substantially greater financial, marketing, and other resources than we
do. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in
do. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in
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customer requirements, or to devote greater resources to the promotion and sale of their services and products.
customer requirements, or to devote greater resources to the promotion and sale of their services and products.
Competitors’ technologies may prove to be superior to ours. Our current products, those under development, and
Competitors’ technologies may prove to be superior to ours. Our current products, those under development, and
our ability to develop new technologies may not be sufficient to enable us to compete effectively. Competition,
our ability to develop new technologies may not be sufficient to enable us to compete effectively. Competition,
especially in China, has increased as new companies enter the market and existing competitors expand their
especially in China, has increased as new companies enter the market and existing competitors expand their
product lines and manufacturing operations.
product lines and manufacturing operations.
Our debt may adversely affect our cash flow and may restrict our investment opportunities.
Our debt may adversely affect our cash flow and may restrict our investment opportunities.
In 2008, we entered into a five-year unsecured revolving credit facility (2008 Credit Agreement) in the
In 2008, we entered into a five-year unsecured revolving credit facility (2008 Credit Agreement) in the
aggregate principal amount of up to $75 million, which includes an uncommitted unsecured incremental
aggregate principal amount of up to $75 million, which includes an uncommitted unsecured incremental
borrowing facility of up to an additional $75 million. We borrowed $20 million under the 2008 Credit Agreement
borrowing facility of up to an additional $75 million. We borrowed $20 million under the 2008 Credit Agreement
and we have also borrowed additional amounts under other agreements to fund acquisitions and grow our
and we have also borrowed additional amounts under other agreements to fund acquisitions and grow our
business. We may also obtain additional long-term debt and working capital lines of credit to meet future
business. We may also obtain additional long-term debt and working capital lines of credit to meet future
financing needs, which would have the effect of increasing our total leverage.
financing needs, which would have the effect of increasing our total leverage.
Our indebtedness could have negative consequences, including:
Our indebtedness could have negative consequences, including:
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increasing our vulnerability to adverse economic and industry conditions,
increasing our vulnerability to adverse economic and industry conditions,
limiting our ability to obtain additional financing,
limiting our ability to obtain additional financing,
limiting our ability to pay dividends on or to repurchase our capital stock,
limiting our ability to pay dividends on or to repurchase our capital stock,
limiting our ability to acquire new products and technologies through acquisitions or licensing
limiting our ability to acquire new products and technologies through acquisitions or licensing
agreements, and
agreements, and
limiting our flexibility in planning for, or reacting to, changes in our business and the industries in
limiting our flexibility in planning for, or reacting to, changes in our business and the industries in
which we compete.
which we compete.
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Our existing indebtedness bears interest at floating rates and as a result, our interest payment obligations on
Our existing indebtedness bears interest at floating rates and as a result, our interest payment obligations on
our indebtedness will increase if interest rates increase. To reduce the exposure to floating rates, $24.3 million, or
our indebtedness will increase if interest rates increase. To reduce the exposure to floating rates, $24.3 million, or
70%, of our outstanding floating rate debt as of February 13, 2008 was hedged through interest rate swap
70%, of our outstanding floating rate debt as of February 13, 2008 was hedged through interest rate swap
agreements.
agreements.
Our ability to satisfy our obligations and to reduce our total debt depends on our future operating
Our ability to satisfy our obligations and to reduce our total debt depends on our future operating
performance and on economic, financial, competitive, and other factors beyond our control. Our business may
performance and on economic, financial, competitive, and other factors beyond our control. Our business may
not generate sufficient cash flows to meet these obligations or to successfully execute our business strategy. If we
not generate sufficient cash flows to meet these obligations or to successfully execute our business strategy. If we
are unable to service our debt and fund our business, we may be forced to reduce or delay capital expenditures or
are unable to service our debt and fund our business, we may be forced to reduce or delay capital expenditures or
research and development expenditures, seek additional financing or equity capital, restructure or refinance our
research and development expenditures, seek additional financing or equity capital, restructure or refinance our
debt, or sell assets. We may not be able to obtain additional financing or refinance existing debt or sell assets on
debt, or sell assets. We may not be able to obtain additional financing or refinance existing debt or sell assets on
terms acceptable to us or at all.
terms acceptable to us or at all.
Restrictions in our 2008 Credit Agreement may limit our activities.
Restrictions in our 2008 Credit Agreement may limit our activities.
Our 2008 Credit Agreement contains, and future debt instruments to which we may become subject may
Our 2008 Credit Agreement contains, and future debt instruments to which we may become subject may
contain, restrictive covenants that limit our ability to engage in activities that could otherwise benefit us,
contain, restrictive covenants that limit our ability to engage in activities that could otherwise benefit us,
including restrictions on our ability and the ability of our subsidiaries to:
including restrictions on our ability and the ability of our subsidiaries to:
incur additional indebtedness,
incur additional indebtedness,
pay dividends on, redeem, or repurchase our capital stock,
pay dividends on, redeem, or repurchase our capital stock,
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create liens,
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enter into transactions with affiliates, and
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enter into transactions with affiliates, and
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consolidate, merge, or transfer all or substantially all of our assets and the assets of our subsidiaries.
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consolidate, merge, or transfer all or substantially all of our assets and the assets of our subsidiaries.
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We are also required to meet specified financial ratios under the terms of our 2008 Credit Agreement. Our
We are also required to meet specified financial ratios under the terms of our 2008 Credit Agreement. Our
ability to comply with these financial restrictions and covenants is dependent on our future performance, which is
ability to comply with these financial restrictions and covenants is dependent on our future performance, which is
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subject to prevailing economic conditions and other factors, including factors that are beyond our control such as
subject to prevailing economic conditions and other factors, including factors that are beyond our control such as
foreign exchange rates, interest rates, changes in technology, and changes in the level of competition.
foreign exchange rates, interest rates, changes in technology, and changes in the level of competition.
Our failure to comply with any of these restrictions or covenants may result in an event of default under our
Our failure to comply with any of these restrictions or covenants may result in an event of default under our
2008 Credit Agreement and other loan obligations, which could permit acceleration of the debt under those
2008 Credit Agreement and other loan obligations, which could permit acceleration of the debt under those
instruments and require us to repay the debt before its scheduled due date.
instruments and require us to repay the debt before its scheduled due date.
If an event of default occurs, we may not have sufficient funds available to make the required payments
If an event of default occurs, we may not have sufficient funds available to make the required payments
under our indebtedness. If we are unable to repay amounts owed under our debt agreements, those lenders may
under our indebtedness. If we are unable to repay amounts owed under our debt agreements, those lenders may
be entitled to foreclose on and sell the collateral that secures our borrowings under the agreements.
be entitled to foreclose on and sell the collateral that secures our borrowings under the agreements.
The inability of Kadant Composites LLC to pay claims against it has exposed us to litigation, which if we are
The inability of Kadant Composites LLC to pay claims against it has exposed us to litigation, which if we are
unable to successfully defend, could have a material adverse effect on our consolidated financial results.
unable to successfully defend, could have a material adverse effect on our consolidated financial results.
On October 21, 2005, our Kadant Composites LLC subsidiary (Composites LLC) sold substantially all of its
On October 21, 2005, our Kadant Composites LLC subsidiary (Composites LLC) sold substantially all of its
assets to LDI Composites Co. (Buyer) for approximately $11.9 million in cash and the assumption of $0.7
assets to LDI Composites Co. (Buyer) for approximately $11.9 million in cash and the assumption of $0.7
million of liabilities, resulting in a cumulative loss on sale of $0.1 million. Under the terms of the asset purchase
million of liabilities, resulting in a cumulative loss on sale of $0.1 million. Under the terms of the asset purchase
agreement, Composites LLC retained certain liabilities associated with the operation of the business prior to the
agreement, Composites LLC retained certain liabilities associated with the operation of the business prior to the
sale, including warranty obligations related to products manufactured prior to the sale date (Retained Liabilities),
sale, including warranty obligations related to products manufactured prior to the sale date (Retained Liabilities),
and, jointly and severally with its parent company Kadant Inc., agreed to indemnify the Buyer against losses
and, jointly and severally with its parent company Kadant Inc., agreed to indemnify the Buyer against losses
caused to the Buyer arising from claims associated with the Retained Liabilities. The indemnification obligation
caused to the Buyer arising from claims associated with the Retained Liabilities. The indemnification obligation
is contractually limited to approximately $8.9 million. All activity related to this business is classified in the
is contractually limited to approximately $8.9 million. All activity related to this business is classified in the
results of the discontinued operation in our consolidated financial statements.
results of the discontinued operation in our consolidated financial statements.
Composites LLC retained all of the cash proceeds received from the asset sale and continued to administer
Composites LLC retained all of the cash proceeds received from the asset sale and continued to administer
and pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30, 2007,
and pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30, 2007,
Composites LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to pay or
Composites LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to pay or
process warranty claims, and ceased doing business. We are now co-defendants in a purported consumer class
process warranty claims, and ceased doing business. We are now co-defendants in a purported consumer class
action, together with Composites LLC and another defendant, arising from these warranty claims. In subsequent
action, together with Composites LLC and another defendant, arising from these warranty claims. In subsequent
disclosures in this litigation, plaintiffs claim that such damages exceed $50 million. A judgment or a settlement
disclosures in this litigation, plaintiffs claim that such damages exceed $50 million. A judgment or a settlement
of the claims against the defendants could have a material adverse impact on our consolidated financial results.
of the claims against the defendants could have a material adverse impact on our consolidated financial results.
For more information regarding our current litigation, see Part I, Item 3, “Legal Proceedings.” There also can be
For more information regarding our current litigation, see Part I, Item 3, “Legal Proceedings.” There also can be
no assurance that creditors or other claimants against Composites LLC will not seek other parties, including the
no assurance that creditors or other claimants against Composites LLC will not seek other parties, including the
Company, against whom to assert claims. While we believe any such asserted or possible claims against us or the
Company, against whom to assert claims. While we believe any such asserted or possible claims against us or the
Buyer would be without merit the cost of litigation and the outcome, if we were unable to successfully defend
Buyer would be without merit the cost of litigation and the outcome, if we were unable to successfully defend
such claims, could adversely affect our consolidated financial results.
such claims, could adversely affect our consolidated financial results.
An increase in the accrual for warranty costs of the discontinued operation adversely affects our consolidated
An increase in the accrual for warranty costs of the discontinued operation adversely affects our consolidated
financial results.
financial results.
The discontinued operation has experienced significant liabilities associated with warranty claims related to
The discontinued operation has experienced significant liabilities associated with warranty claims related to
its composite decking products manufactured prior to the sale date. The accrued warranty costs of the
its composite decking products manufactured prior to the sale date. The accrued warranty costs of the
discontinued operation are estimated based on the level of claims processed (see Discontinued Operation in the
discontinued operation are estimated based on the level of claims processed (see Discontinued Operation in the
Overview section for a detailed description of the methodology used). The accrued warranty costs of the
Overview section for a detailed description of the methodology used). The accrued warranty costs of the
discontinued operation as of December 29, 2007 represents the low end of the estimated range of warranty costs
discontinued operation as of December 29, 2007 represents the low end of the estimated range of warranty costs
required based on the level of claims received through the end of 2007. Composites LLC has calculated that the
required based on the level of claims received through the end of 2007. Composites LLC has calculated that the
total potential warranty cost ranges from $2.1 million to approximately $13.1 million. The high end of the range
total potential warranty cost ranges from $2.1 million to approximately $13.1 million. The high end of the range
represents the estimated maximum level of warranty claims remaining based on the total sales of the products
represents the estimated maximum level of warranty claims remaining based on the total sales of the products
under warranty. On September 30, 2007, the discontinued operation ceased doing business and has no employees
under warranty. On September 30, 2007, the discontinued operation ceased doing business and has no employees
or other service providers to collect or process warranty claims. Composites LLC will continue to record
or other service providers to collect or process warranty claims. Composites LLC will continue to record
adjustments to accrued warranty costs to reflect the minimum amount of the potential range of loss for products
adjustments to accrued warranty costs to reflect the minimum amount of the potential range of loss for products
under warranty based on judgments entered against it in litigation, which will adversely affect our consolidated
under warranty based on judgments entered against it in litigation, which will adversely affect our consolidated
results.
results.
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2007 Annual Report
Our inability to successfully identify and complete acquisitions or successfully integrate any new or previous
Our inability to successfully identify and complete acquisitions or successfully integrate any new or previous
acquisitions could have a material adverse effect on our business.
acquisitions could have a material adverse effect on our business.
Our strategy includes the acquisition of technologies and businesses that complement or augment our
Our strategy includes the acquisition of technologies and businesses that complement or augment our
existing products and services. Our most recent acquisition was the Kadant Jining acquisition in June 2006. Any
existing products and services. Our most recent acquisition was the Kadant Jining acquisition in June 2006. Any
such acquisition involves numerous risks that may adversely affect our future financial performance and cash
such acquisition involves numerous risks that may adversely affect our future financial performance and cash
flows. These risks include:
flows. These risks include:
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competition with other prospective buyers resulting in our inability to complete an acquisition or in us
competition with other prospective buyers resulting in our inability to complete an acquisition or in us
paying substantial premiums over the fair value of the net assets of the acquired business,
paying substantial premiums over the fair value of the net assets of the acquired business,
inability to obtain regulatory approval, including antitrust approvals,
inability to obtain regulatory approval, including antitrust approvals,
difficulty in assimilating operations, technologies, products and the key employees of the acquired
difficulty in assimilating operations, technologies, products and the key employees of the acquired
business,
business,
inability to maintain existing customers or to sell the products and services of the acquired business to
inability to maintain existing customers or to sell the products and services of the acquired business to
our existing customers,
our existing customers,
diversion of management’s attention away from other business concerns,
diversion of management’s attention away from other business concerns,
inability to improve the revenues and profitability or realize the cost savings and synergies expected in
inability to improve the revenues and profitability or realize the cost savings and synergies expected in
the acquisition,
the acquisition,
assumption of significant liabilities, some of which may be unknown at the time,
assumption of significant liabilities, some of which may be unknown at the time,
potential future impairment of the value of goodwill and intangible assets acquired, and
potential future impairment of the value of goodwill and intangible assets acquired, and
identification of internal control deficiencies of the acquired business.
identification of internal control deficiencies of the acquired business.
We may be required to reorganize our operations in response to changing conditions in the paper industry, and
We may be required to reorganize our operations in response to changing conditions in the paper industry, and
such actions may require significant expenditures and may not be successful.
such actions may require significant expenditures and may not be successful.
In the past, we have undertaken various restructuring measures in response to changing market conditions in
In the past, we have undertaken various restructuring measures in response to changing market conditions in
the paper industry. We may engage in additional cost reduction programs in the future. We may not recoup the
the paper industry. We may engage in additional cost reduction programs in the future. We may not recoup the
costs of programs we have already initiated, or other programs in which we may decide to engage in the future,
costs of programs we have already initiated, or other programs in which we may decide to engage in the future,
the costs of which may be significant. In connection with any future plant closures, delays or failures in the
the costs of which may be significant. In connection with any future plant closures, delays or failures in the
transition of production from existing facilities to our other facilities in other geographic regions could also
transition of production from existing facilities to our other facilities in other geographic regions could also
adversely affect our financial operations. In addition, our profitability may decline if our restructuring efforts do
adversely affect our financial operations. In addition, our profitability may decline if our restructuring efforts do
not sufficiently reduce our future costs and position us to maintain or increase our sales.
not sufficiently reduce our future costs and position us to maintain or increase our sales.
Our fiber-based products business is subject to a number of factors that may adversely influence its profitability,
Our fiber-based products business is subject to a number of factors that may adversely influence its profitability,
including high costs of natural gas and dependence on a few suppliers of raw materials.
including high costs of natural gas and dependence on a few suppliers of raw materials.
We use natural gas in the production of our fiber-based granular products, the price of which is subject to
We use natural gas in the production of our fiber-based granular products, the price of which is subject to
fluctuation. We seek to manage our exposure to natural gas price fluctuations by entering into short-term forward
fluctuation. We seek to manage our exposure to natural gas price fluctuations by entering into short-term forward
contracts to purchase specified quantities of natural gas from a supplier. We may not be able to effectively
contracts to purchase specified quantities of natural gas from a supplier. We may not be able to effectively
manage our exposure to natural gas price fluctuations. Higher costs of natural gas will adversely affect our
manage our exposure to natural gas price fluctuations. Higher costs of natural gas will adversely affect our
consolidated results if we are unable to effectively manage our exposure or pass these costs on to customers in
consolidated results if we are unable to effectively manage our exposure or pass these costs on to customers in
the form of surcharges.
the form of surcharges.
We are dependent on three paper mills for the fiber used in the manufacture of our fiber-based granular
We are dependent on three paper mills for the fiber used in the manufacture of our fiber-based granular
products. These mills have the exclusive right to supply the papermaking byproducts used in the manufacturing
products. These mills have the exclusive right to supply the papermaking byproducts used in the manufacturing
process. Due to process changes at the mills, we have experienced some difficulty obtaining sufficient raw
process. Due to process changes at the mills, we have experienced some difficulty obtaining sufficient raw
material to operate at optimal production levels. We continue to work with the mills to ensure a stable supply of
material to operate at optimal production levels. We continue to work with the mills to ensure a stable supply of
raw material. To date, we have been able to meet all of our customer delivery requirements, but there can be no
raw material. To date, we have been able to meet all of our customer delivery requirements, but there can be no
assurance that we will be able to meet future delivery requirements. Although we believe our relationship with
assurance that we will be able to meet future delivery requirements. Although we believe our relationship with
the mills is good, the mills could decide not to renew the contracts when they expire at the end of 2009, or may
the mills is good, the mills could decide not to renew the contracts when they expire at the end of 2009, or may
not agree to renew on commercially reasonable terms. If the mills were unable or unwilling to supply us
not agree to renew on commercially reasonable terms. If the mills were unable or unwilling to supply us
sufficient fiber, we would be forced to find an alternative supply for this raw material. We may be unable to find
sufficient fiber, we would be forced to find an alternative supply for this raw material. We may be unable to find
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2007 Annual Report
an alternative supply on commercially reasonable terms or could incur excessive transportation costs if an
an alternative supply on commercially reasonable terms or could incur excessive transportation costs if an
alternative supplier were found, which would increase our manufacturing costs, and might prevent prices for our
alternative supplier were found, which would increase our manufacturing costs, and might prevent prices for our
products from being competitive or require closure of the business.
products from being competitive or require closure of the business.
Our inability to protect our intellectual property could have a material adverse effect on our business. In
Our inability to protect our intellectual property could have a material adverse effect on our business. In
addition, third parties may claim that we infringe their intellectual property, and we could suffer significant
addition, third parties may claim that we infringe their intellectual property, and we could suffer significant
litigation or licensing expense as a result.
litigation or licensing expense as a result.
We seek patent and trade secret protection for significant new technologies, products, and processes because
We seek patent and trade secret protection for significant new technologies, products, and processes because
of the length of time and expense associated with bringing new products through the development process and
of the length of time and expense associated with bringing new products through the development process and
into the marketplace. We own numerous U.S. and foreign patents, and we intend to file additional applications,
into the marketplace. We own numerous U.S. and foreign patents, and we intend to file additional applications,
as appropriate, for patents covering our products. Patents may not be issued for any pending or future patent
as appropriate, for patents covering our products. Patents may not be issued for any pending or future patent
applications owned by or licensed to us, and the claims allowed under any issued patents may not be sufficiently
applications owned by or licensed to us, and the claims allowed under any issued patents may not be sufficiently
broad to protect our technology. Any issued patents owned by or licensed to us may be challenged, invalidated,
broad to protect our technology. Any issued patents owned by or licensed to us may be challenged, invalidated,
or circumvented, and the rights under these patents may not provide us with competitive advantages. In addition,
or circumvented, and the rights under these patents may not provide us with competitive advantages. In addition,
competitors may design around our technology or develop competing technologies. Intellectual property rights
competitors may design around our technology or develop competing technologies. Intellectual property rights
may also be unavailable or limited in some foreign countries, which could make it easier for competitors to
may also be unavailable or limited in some foreign countries, which could make it easier for competitors to
capture increased market share. We could incur substantial costs to defend ourselves in suits brought against us,
capture increased market share. We could incur substantial costs to defend ourselves in suits brought against us,
including for alleged infringement of third party rights, or in suits in which we may assert our intellectual
including for alleged infringement of third party rights, or in suits in which we may assert our intellectual
property rights against others. An unfavorable outcome of any such litigation could have a material adverse
property rights against others. An unfavorable outcome of any such litigation could have a material adverse
effect on our business and results of operations. In addition, as our patents expire, we rely on trade secrets and
effect on our business and results of operations. In addition, as our patents expire, we rely on trade secrets and
proprietary know-how to protect our products. We cannot be sure the steps we have taken or will take in the
proprietary know-how to protect our products. We cannot be sure the steps we have taken or will take in the
future will be adequate to deter misappropriation of our proprietary information and intellectual property. Of
future will be adequate to deter misappropriation of our proprietary information and intellectual property. Of
particular concern are developing economies such as China, where the laws, courts, and administrative agencies
particular concern are developing economies such as China, where the laws, courts, and administrative agencies
may not protect our intellectual property rights as fully as in other countries.
may not protect our intellectual property rights as fully as in other countries.
We seek to protect trade secrets and proprietary know-how, in part, through confidentiality agreements with
We seek to protect trade secrets and proprietary know-how, in part, through confidentiality agreements with
our collaborators, employees, and consultants. These agreements may be breached, we may not have adequate
our collaborators, employees, and consultants. These agreements may be breached, we may not have adequate
remedies for any breach, and our trade secrets may otherwise become known or be independently developed by
remedies for any breach, and our trade secrets may otherwise become known or be independently developed by
our competitors or our competitors may otherwise gain access to our intellectual property.
our competitors or our competitors may otherwise gain access to our intellectual property.
Fluctuations in our quarterly operating results may cause our stock price to decline.
Fluctuations in our quarterly operating results may cause our stock price to decline.
Given the nature of the markets in which we participate and the impact of accounting standards related to
Given the nature of the markets in which we participate and the impact of accounting standards related to
revenue recognition, we may not be able to reliably predict future revenues and profitability, and unexpected
revenue recognition, we may not be able to reliably predict future revenues and profitability, and unexpected
changes may cause us to adjust our operations. A large proportion of our costs are fixed, due in part to our
changes may cause us to adjust our operations. A large proportion of our costs are fixed, due in part to our
significant selling, research and development, and manufacturing costs. Thus, small declines in revenues could
significant selling, research and development, and manufacturing costs. Thus, small declines in revenues could
disproportionately affect our operating results. Other factors that could affect our quarterly operating results
disproportionately affect our operating results. Other factors that could affect our quarterly operating results
include:
include:
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
failure of our products to pass contractually agreed upon acceptance tests, which would delay or
failure of our products to pass contractually agreed upon acceptance tests, which would delay or
prohibit recognition of revenues under SAB No. 104,
prohibit recognition of revenues under SAB No. 104,
changes in the assumptions used for revenue recognized under the percentage-of-completion method of
changes in the assumptions used for revenue recognized under the percentage-of-completion method of
accounting,
accounting,
failure of a customer, particularly in China, to comply with an order’s contractual obligations,
failure of a customer, particularly in China, to comply with an order’s contractual obligations,
adverse changes in demand for and market acceptance of our products,
adverse changes in demand for and market acceptance of our products,
competitive pressures resulting in lower sales prices of our products,
competitive pressures resulting in lower sales prices of our products,
adverse changes in the pulp and paper industry,
adverse changes in the pulp and paper industry,
delays or problems in our introduction of new products,
delays or problems in our introduction of new products,
delays or problems in the manufacture of our products,
delays or problems in the manufacture of our products,
our competitors’ announcements of new products, services, or technological innovations,
our competitors’ announcements of new products, services, or technological innovations,
contractual liabilities incurred by us related to guarantees of our product performance,
contractual liabilities incurred by us related to guarantees of our product performance,
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
–
–
–
–
–
–
increased costs of raw materials or supplies, including the cost of energy,
increased costs of raw materials or supplies, including the cost of energy,
changes in the timing of product orders, and
changes in the timing of product orders, and
fluctuations in our effective tax rate.
fluctuations in our effective tax rate.
Anti-takeover provisions in our charter documents, under Delaware law, and in our shareholder rights plan
Anti-takeover provisions in our charter documents, under Delaware law, and in our shareholder rights plan
could prevent or delay transactions that our shareholders may favor.
could prevent or delay transactions that our shareholders may favor.
Provisions of our charter and bylaws may discourage, delay, or prevent a merger or acquisition that our
Provisions of our charter and bylaws may discourage, delay, or prevent a merger or acquisition that our
shareholders may consider favorable, including transactions in which shareholders might otherwise receive a
shareholders may consider favorable, including transactions in which shareholders might otherwise receive a
premium for their shares. For example, these provisions:
premium for their shares. For example, these provisions:
–
–
–
–
–
–
–
–
–
–
–
–
authorize the issuance of “blank check” preferred stock without any need for action by shareholders,
authorize the issuance of “blank check” preferred stock without any need for action by shareholders,
provide for a classified board of directors with staggered three-year terms,
provide for a classified board of directors with staggered three-year terms,
require supermajority shareholder voting to effect various amendments to our charter and bylaws,
require supermajority shareholder voting to effect various amendments to our charter and bylaws,
eliminate the ability of our shareholders to call special meetings of shareholders,
eliminate the ability of our shareholders to call special meetings of shareholders,
prohibit shareholder action by written consent, and
prohibit shareholder action by written consent, and
establish advance notice requirements for nominations for election to our board of directors or for
establish advance notice requirements for nominations for election to our board of directors or for
proposing matters that can be acted on by shareholders at shareholder meetings.
proposing matters that can be acted on by shareholders at shareholder meetings.
In addition, our board of directors has adopted a shareholder rights plan intended to protect shareholders in
In addition, our board of directors has adopted a shareholder rights plan intended to protect shareholders in
the event of an unfair or coercive offer to acquire our company and to provide our board of directors with
the event of an unfair or coercive offer to acquire our company and to provide our board of directors with
adequate time to evaluate unsolicited offers. Preferred stock purchase rights have been distributed to our common
adequate time to evaluate unsolicited offers. Preferred stock purchase rights have been distributed to our common
shareholders pursuant to the rights plan. This rights plan may have anti-takeover effects. The rights plan will
shareholders pursuant to the rights plan. This rights plan may have anti-takeover effects. The rights plan will
cause substantial dilution to a person or group that attempts to acquire us on terms that our board of directors
cause substantial dilution to a person or group that attempts to acquire us on terms that our board of directors
does not believe are in our best interests and those of our shareholders and may discourage, delay, or prevent a
does not believe are in our best interests and those of our shareholders and may discourage, delay, or prevent a
merger or acquisition that shareholders may consider favorable, including transactions in which shareholders
merger or acquisition that shareholders may consider favorable, including transactions in which shareholders
might otherwise receive a premium for their shares.
might otherwise receive a premium for their shares.
Item 1B. Unresolved Staff Comments
Item 1B. Unresolved Staff Comments
Not applicable.
Not applicable.
Item 2. Properties
Item 2. Properties
We believe that our facilities are in good condition and are suitable and adequate for our present operations.
We believe that our facilities are in good condition and are suitable and adequate for our present operations.
We do not anticipate significant difficulty in obtaining lease renewals or alternative space as needed. The
We do not anticipate significant difficulty in obtaining lease renewals or alternative space as needed. The
location and general character of our principal properties as of December 29, 2007, are as follows:
location and general character of our principal properties as of December 29, 2007, are as follows:
Papermaking Systems
Papermaking Systems
We own approximately 1,855,000 square feet and lease approximately 129,000 square feet, under leases
We own approximately 1,855,000 square feet and lease approximately 129,000 square feet, under leases
expiring on various dates ranging from 2008 to 2012, of manufacturing, engineering, and office space. In
expiring on various dates ranging from 2008 to 2012, of manufacturing, engineering, and office space. In
addition, in China we lease the land associated with our buildings under long-term leases, which expire on dates
addition, in China we lease the land associated with our buildings under long-term leases, which expire on dates
ranging from 2044 to 2054. Our principal engineering and manufacturing facilities are located in
ranging from 2044 to 2054. Our principal engineering and manufacturing facilities are located in
Vitry-le-Francois, France; Jining, China; Three Rivers, Michigan, U.S.A; Auburn, Massachusetts, U.S.A;
Vitry-le-Francois, France; Jining, China; Three Rivers, Michigan, U.S.A; Auburn, Massachusetts, U.S.A;
Yangzhou, China; Theodore, Alabama, U.S.A; Queensbury, New York, U.S.A; Weesp, The Netherlands; Wuxi,
Yangzhou, China; Theodore, Alabama, U.S.A; Queensbury, New York, U.S.A; Weesp, The Netherlands; Wuxi,
China; Hindas, Sweden; Guadalajara, Mexico; Bury, England; Tengzhou, China; Summerstown, Ontario,
China; Hindas, Sweden; Guadalajara, Mexico; Bury, England; Tengzhou, China; Summerstown, Ontario,
Canada; Sao Paulo, Brazil; and Mason, Ohio, U.S.A.
Canada; Sao Paulo, Brazil; and Mason, Ohio, U.S.A.
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Kadant Inc.
Kadant Inc.
Corporate and Other Businesses
Corporate and Other Businesses
2007 Annual Report
2007 Annual Report
We lease approximately 10,000 square feet in Westford, Massachusetts, for our corporate headquarters
We lease approximately 10,000 square feet in Westford, Massachusetts, for our corporate headquarters
under a lease expiring in 2013. We own approximately 26,000 square feet of manufacturing and office space
under a lease expiring in 2013. We own approximately 26,000 square feet of manufacturing and office space
located in Green Bay, Wisconsin. We also lease approximately 25,000 square feet of manufacturing space
located in Green Bay, Wisconsin. We also lease approximately 25,000 square feet of manufacturing space
located in Green Bay, Wisconsin, on a tenant-at-will basis.
located in Green Bay, Wisconsin, on a tenant-at-will basis.
Item 3. Legal Proceedings
Item 3. Legal Proceedings
We have been named as a co-defendant in a consumer class action lawsuit brought by Terrence Fisher,
We have been named as a co-defendant in a consumer class action lawsuit brought by Terrence Fisher,
Joseph Jennings, Paula Moore, and Larry Boylen on behalf of a putative class of individuals who own
Joseph Jennings, Paula Moore, and Larry Boylen on behalf of a putative class of individuals who own
GeoDeck™ decking or railing products manufactured by Composites LLC between April 2002 and October 2003.
GeoDeck™ decking or railing products manufactured by Composites LLC between April 2002 and October 2003.
The complaint was filed in the United States District Court for the District of Massachusetts, Docket Number
The complaint was filed in the United States District Court for the District of Massachusetts, Docket Number
1:07-CV-12375-JLT, on December 27, 2007 and notice was served on the Company on January 7, 2008. Other
1:07-CV-12375-JLT, on December 27, 2007 and notice was served on the Company on January 7, 2008. Other
defendants are Kadant Composites LLC and Liberty Diversified Industries, Inc. The complaint in this matter
defendants are Kadant Composites LLC and Liberty Diversified Industries, Inc. The complaint in this matter
purports to assert, among other things, causes of action for unfair and deceptive trade practices, fraud,
purports to assert, among other things, causes of action for unfair and deceptive trade practices, fraud,
negligence, breach of warranty and unjust enrichment, and it seeks unspecified compensatory damages and
negligence, breach of warranty and unjust enrichment, and it seeks unspecified compensatory damages and
punitive damages under various state consumer protection statutes. In subsequent disclosures filed in this
punitive damages under various state consumer protection statutes. In subsequent disclosures filed in this
litigation, plaintiffs claim that such damages exceed $50 million. We intend to defend against this action
litigation, plaintiffs claim that such damages exceed $50 million. We intend to defend against this action
vigorously, but there is no assurance we will prevail in such litigation. A judgment or a settlement of the claims
vigorously, but there is no assurance we will prevail in such litigation. A judgment or a settlement of the claims
against the defendants could have a material adverse impact on our consolidated financial results.
against the defendants could have a material adverse impact on our consolidated financial results.
Item 4. Submission of Matters to a Vote of Security Holders
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Not applicable.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
PART II
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Equity Securities
Market Price of Common Stock
Market Price of Common Stock
Our common stock trades on the New York Stock Exchange under the symbol KAI.
Our common stock trades on the New York Stock Exchange under the symbol KAI.
The following table sets forth the high and low sales prices of our common stock for 2007 and 2006, as
The following table sets forth the high and low sales prices of our common stock for 2007 and 2006, as
reported in the consolidated transaction reporting system.
reported in the consolidated transaction reporting system.
Quarter
Quarter
2007
2007
2006
2006
High
High
Low
Low
High
High
Low
Low
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27.79
$27.79
31.70
31.70
31.58
31.58
33.76
33.76
$23.32
$22.11
$22.11 $23.32
27.10
24.47
27.10
24.47
26.55
25.06
26.55
25.06
27.98
26.85
27.98
26.85
$17.95
$17.95
20.70
20.70
19.50
19.50
22.79
22.79
Holders of Common Stock
Holders of Common Stock
As of February 29, 2008, we had approximately 4,993 holders of record of our common stock. This does not
As of February 29, 2008, we had approximately 4,993 holders of record of our common stock. This does not
include holdings in street or nominee name. The closing market price on the New York Stock Exchange for our
include holdings in street or nominee name. The closing market price on the New York Stock Exchange for our
common stock on February 29, 2008, was $25.10 per share.
common stock on February 29, 2008, was $25.10 per share.
Dividend Policy
Dividend Policy
We have never declared or paid cash dividends and we do not at this time expect to pay cash dividends in
We have never declared or paid cash dividends and we do not at this time expect to pay cash dividends in
the foreseeable future because our policy has been to use earnings to finance expansion and growth, as well as
the foreseeable future because our policy has been to use earnings to finance expansion and growth, as well as
repurchase our stock. Payment of dividends will rest within the discretion of the board of directors and will
repurchase our stock. Payment of dividends will rest within the discretion of the board of directors and will
depend upon, among other factors, our earnings, capital requirements, and financial condition. Our ability to pay
depend upon, among other factors, our earnings, capital requirements, and financial condition. Our ability to pay
dividends is restricted by the terms of our 2008 Credit Agreement.
dividends is restricted by the terms of our 2008 Credit Agreement.
Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
The following table provides information about purchases by us of our common stock during the fourth
The following table provides information about purchases by us of our common stock during the fourth
quarter of 2007:
quarter of 2007:
Period
Period
Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
Total Number
Total Number
of Shares
of Shares
Purchased (1)
Purchased (1)
Average Price Paid
Average Price Paid
per Share
per Share
Total Number of
Total Number of
Shares Purchased as
Shares Purchased as
Part of Publicly
Part of Publicly
Announced Plans (1)
Announced Plans (1)
Approximate Dollar Value
Approximate Dollar Value
of Shares that May Yet
of Shares that May Yet
Be Purchased Under the
Be Purchased Under the
Plans
Plans
9/30/07 – 10/31/07 . . . . . . . . . . . .
9/30/07 – 10/31/07 . . . . . . . . . . . .
11/1/07 – 11/30/07 . . . . . . . . . . . .
11/1/07 – 11/30/07 . . . . . . . . . . . .
12/1/07 – 12/29/07 . . . . . . . . . . . .
12/1/07 – 12/29/07 . . . . . . . . . . . .
Total
Total
. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$20,000,000
$20,000,000
$20,000,000
$20,000,000
$20,000,000
$20,000,000
(1) On May 2, 2007, our board of directors approved the repurchase by us of up to $20 million of our equity
(1) On May 2, 2007, our board of directors approved the repurchase by us of up to $20 million of our equity
securities during the period from May 2, 2007 through May 2, 2008. Repurchases may be made in public or
securities during the period from May 2, 2007 through May 2, 2008. Repurchases may be made in public or
private transactions, including under Securities Exchange Act Rule 10b-5-1 trading plans. As of
private transactions, including under Securities Exchange Act Rule 10b-5-1 trading plans. As of
December 29, 2007, no purchases had been made under this authorization.
December 29, 2007, no purchases had been made under this authorization.
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Kadant Inc.
Item 6. Selected Financial Data
Item 6. Selected Financial Data
2007 Annual Report
2007 Annual Report
(In thousands, except per share amounts)
(In thousands, except per share amounts)
2007
2007
2006 (a)
2006 (a)
2005
2005
2004 (b)
2004 (b)
2003 (c)
2003 (c)
Statement of Income Data
Statement of Income Data
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$366,496
$366,496
$341,613
$341,613
$243,713
$243,713
$194,966
$194,966
$191,507
$191,507
Income from Continuing Operations . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . .
Loss from Discontinued Operation, Net of Tax . . . . . .
Loss from Discontinued Operation, Net of Tax . . . . . .
25,418
25,418
(2,750)
(2,750)
18,281
18,281
(1,184)
(1,184)
9,865
9,865
(2,988)
(2,988)
5,753
5,753
(5,099)
(5,099)
13,123
13,123
(1,306)
(1,306)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,668
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,668
$ 17,097
$ 17,097
$
$
6,877
6,877
$
$
654
654
$ 11,817
$ 11,817
Basic Earnings per Share:
Basic Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . $
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . .
1.80
1.80
(.19)
(.19)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.61
1.61
Diluted Earnings per Share:
Diluted Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . $
Continuing Operations . . . . . . . . . . . . . . . . . . . . .
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . .
1.78
1.78
(.19)
(.19)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.59
1.59
$
$
$
$
$
$
$
$
1.32
1.32 $
$
(.08)
(.08)
1.24 $
1.24
$
1.30 $
1.30
$
(.09)
(.09)
1.21
1.21
$
$
.71
.71
(.21)
(.21)
.50
.50
.70
.70
(.21)
(.21)
.49
.49
$
$
$
$
$
$
$
$
.41
.41
(.36)
(.36)
.05
.05
.40
.40
(.35)
(.35)
.05
.05
$
$
$
$
$
$
$
$
.96
.96
(.09)
(.09)
.87
.87
.94
.94
(.09)
(.09)
.85
.85
Balance Sheet Data (d)
Balance Sheet Data (d)
Working Capital (e) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working Capital (e) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ Investment . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ Investment . . . . . . . . . . . . . . . . . . . . . . .
$107,487
$107,487
437,069
437,069
30,460
30,460
278,751
278,751
$ 80,542
$ 80,542
393,085
393,085
44,652
44,652
237,965
237,965
$ 75,446
$ 75,446
355,811
355,811
46,500
46,500
207,625
207,625
$113,650
$113,650
285,237
285,237
–
–
212,461
212,461
$114,935
$114,935
271,713
271,713
–
–
211,758
211,758
(a) Reflects $0.8 million of pre-tax restructuring costs.
(a) Reflects $0.8 million of pre-tax restructuring costs.
(b) Reflects $9.5 million of pre-tax restructuring costs.
(b) Reflects $9.5 million of pre-tax restructuring costs.
(c) Restated to reflect the composite building products business as a discontinued operation.
(c) Restated to reflect the composite building products business as a discontinued operation.
(d)
(d)
(e)
(e)
Includes the composite building products business, which is reflected as a discontinued operation.
Includes the composite building products business, which is reflected as a discontinued operation.
Includes ($1.1) million, $3.0 million, $7.4 million, $8.1 million, and $12.2 million in 2007, 2006, 2005,
Includes ($1.1) million, $3.0 million, $7.4 million, $8.1 million, and $12.2 million in 2007, 2006, 2005,
2004, and 2003, respectively, associated with the discontinued operation.
2004, and 2003, respectively, associated with the discontinued operation.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reference is made throughout this Management’s Discussion and Analysis of Financial Condition and
Reference is made throughout this Management’s Discussion and Analysis of Financial Condition and
Results of Operations to Notes included in the Consolidated Financial Statements, beginning on page F-1 of this
Results of Operations to Notes included in the Consolidated Financial Statements, beginning on page F-1 of this
Report.
Report.
Overview
Overview
Company Overview
Company Overview
We are a leading supplier of equipment used in the global papermaking and paper recycling industries and
We are a leading supplier of equipment used in the global papermaking and paper recycling industries and
are also a manufacturer of granules made from papermaking byproducts. Our continuing operations are
are also a manufacturer of granules made from papermaking byproducts. Our continuing operations are
comprised of one reportable operating segment: Pulp and Papermaking Systems (Papermaking Systems), and two
comprised of one reportable operating segment: Pulp and Papermaking Systems (Papermaking Systems), and two
product lines reported in Other Businesses, which include Fiber-based Products and, prior to its sale in April
product lines reported in Other Businesses, which include Fiber-based Products and, prior to its sale in April
2007, Casting Products. Through our Papermaking Systems segment, we develop, manufacture, and market a
2007, Casting Products. Through our Papermaking Systems segment, we develop, manufacture, and market a
range of equipment and products for the global papermaking and paper recycling industries. We have a large,
range of equipment and products for the global papermaking and paper recycling industries. We have a large,
stable customer base that includes most of the world’s major paper manufacturers. We believe our large installed
stable customer base that includes most of the world’s major paper manufacturers. We believe our large installed
base provides us with a spare parts and consumables business that yields higher margins than our capital
base provides us with a spare parts and consumables business that yields higher margins than our capital
equipment business, and which should be less susceptible to the cyclical trends in the paper industry.
equipment business, and which should be less susceptible to the cyclical trends in the paper industry.
Through our Fiber-based Products line, we manufacture and sell granules derived from pulp fiber for use as
Through our Fiber-based Products line, we manufacture and sell granules derived from pulp fiber for use as
carriers for agricultural, home lawn and garden, and professional lawn, turf and ornamental applications, as well
carriers for agricultural, home lawn and garden, and professional lawn, turf and ornamental applications, as well
as for oil and grease absorption. Our Casting Products business manufactured grey and ductile iron castings until
as for oil and grease absorption. Our Casting Products business manufactured grey and ductile iron castings until
its sale on April 30, 2007.
its sale on April 30, 2007.
In addition, prior to its sale on October 21, 2005, we operated a composite building products business,
In addition, prior to its sale on October 21, 2005, we operated a composite building products business,
which is presented as a discontinued operation in the accompanying consolidated financial statements.
which is presented as a discontinued operation in the accompanying consolidated financial statements.
International Sales
International Sales
During 2007 and 2006, approximately 61% of our sales were to customers outside the United States,
During 2007 and 2006, approximately 61% of our sales were to customers outside the United States,
principally in China and Europe. We generally seek to charge our customers in the same currency in which our
principally in China and Europe. We generally seek to charge our customers in the same currency in which our
operating costs are incurred. However, our financial performance and competitive position can be affected by
operating costs are incurred. However, our financial performance and competitive position can be affected by
currency exchange rate fluctuations affecting the relationship between the U.S. dollar and foreign currencies. We
currency exchange rate fluctuations affecting the relationship between the U.S. dollar and foreign currencies. We
seek to reduce our exposure to currency fluctuations through the use of forward currency exchange contracts. We
seek to reduce our exposure to currency fluctuations through the use of forward currency exchange contracts. We
may enter into forward contracts to hedge certain firm purchase and sale commitments denominated in currencies
may enter into forward contracts to hedge certain firm purchase and sale commitments denominated in currencies
other than our subsidiaries’ functional currencies. These contracts hedge transactions principally denominated in
other than our subsidiaries’ functional currencies. These contracts hedge transactions principally denominated in
U.S. dollars.
U.S. dollars.
Application of Critical Accounting Policies and Estimates
Application of Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our
The discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles generally
consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated financial statements requires us to make
accepted in the United States. The preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenues
assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Our actual results may differ from these estimates under different
and expenses during the reporting period. Our actual results may differ from these estimates under different
assumptions or conditions.
assumptions or conditions.
Critical accounting policies are defined as those that entail significant judgments and uncertainties, and
Critical accounting policies are defined as those that entail significant judgments and uncertainties, and
could potentially result in materially different results under different assumptions and conditions. We believe that
could potentially result in materially different results under different assumptions and conditions. We believe that
our most critical accounting policies upon which our financial position depends, and which involve the most
our most critical accounting policies upon which our financial position depends, and which involve the most
complex or subjective decisions or assessments, are those described below. For a discussion on the application of
complex or subjective decisions or assessments, are those described below. For a discussion on the application of
these and other accounting policies, see Note 1 in the Notes to Consolidated Financial Statements.
these and other accounting policies, see Note 1 in the Notes to Consolidated Financial Statements.
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Revenue Recognition and Accounts Receivable. We enter into arrangements with customers that have
Revenue Recognition and Accounts Receivable. We enter into arrangements with customers that have
multiple deliverables, such as equipment and installation, and we recognize revenues and profits on certain long-
multiple deliverables, such as equipment and installation, and we recognize revenues and profits on certain long-
term contracts using the percentage-of-completion method of accounting.
term contracts using the percentage-of-completion method of accounting.
–
–
–
–
Percentage-of-Completion. Revenues recorded under the percentage-of-completion method of
Percentage-of-Completion. Revenues recorded under the percentage-of-completion method of
accounting pursuant to Statement of Position No. 81-1, “Accounting for Performance of Construction-
accounting pursuant to Statement of Position No. 81-1, “Accounting for Performance of Construction-
Type and Certain Production-Type Contracts,” were $103.5 million in 2007, $91.9 million in 2006, and
Type and Certain Production-Type Contracts,” were $103.5 million in 2007, $91.9 million in 2006, and
$55.6 million in 2005. The percentage of completion is determined by comparing the actual costs
$55.6 million in 2005. The percentage of completion is determined by comparing the actual costs
incurred to date to an estimate of total costs to be incurred on each contract. If a loss is indicated on any
incurred to date to an estimate of total costs to be incurred on each contract. If a loss is indicated on any
contract in process, a provision is made currently for the entire loss. Our contracts generally provide for
contract in process, a provision is made currently for the entire loss. Our contracts generally provide for
billing of customers upon the attainment of certain milestones specified in each contract. Revenues
billing of customers upon the attainment of certain milestones specified in each contract. Revenues
earned on contracts in process in excess of billings are classified as unbilled contract costs and fees,
earned on contracts in process in excess of billings are classified as unbilled contract costs and fees,
and amounts billed in excess of revenues are classified as billings in excess of contract costs and fees.
and amounts billed in excess of revenues are classified as billings in excess of contract costs and fees.
The estimation process under the percentage-of-completion method affects the amounts reported in our
The estimation process under the percentage-of-completion method affects the amounts reported in our
consolidated financial statements. A number of internal and external factors affect our
consolidated financial statements. A number of internal and external factors affect our
percentage-of-completion and cost of sales estimates, including labor rate and efficiency variances,
percentage-of-completion and cost of sales estimates, including labor rate and efficiency variances,
estimates of warranty costs, estimated future material prices from vendors, and customer specification
estimates of warranty costs, estimated future material prices from vendors, and customer specification
and testing requirements. In addition, we are exposed to the risk, primarily relating to our orders in
and testing requirements. In addition, we are exposed to the risk, primarily relating to our orders in
China that a customer will not comply with the order’s contractual obligations to take delivery of the
China that a customer will not comply with the order’s contractual obligations to take delivery of the
equipment. The contractual obligations relating to the order may be difficult to enforce through a
equipment. The contractual obligations relating to the order may be difficult to enforce through a
foreign country’s legal system, which could result in a significant credit exposure in the period or
foreign country’s legal system, which could result in a significant credit exposure in the period or
periods that were to be affected by the breach of contract. Although we make every effort to ensure the
periods that were to be affected by the breach of contract. Although we make every effort to ensure the
accuracy of our estimates in the application of this accounting policy, if our actual results differed from
accuracy of our estimates in the application of this accounting policy, if our actual results differed from
our estimates, or if we were to use different assumptions, it is possible that materially different amounts
our estimates, or if we were to use different assumptions, it is possible that materially different amounts
could be reported as revenues in our consolidated financial statements.
could be reported as revenues in our consolidated financial statements.
SAB No. 104. Under SAB No. 104, “Revenue Recognition,” when the terms of sale include customer
SAB No. 104. Under SAB No. 104, “Revenue Recognition,” when the terms of sale include customer
acceptance provisions, and compliance with those provisions cannot be demonstrated until customer
acceptance provisions, and compliance with those provisions cannot be demonstrated until customer
acceptance, revenues are recognized upon such acceptance. When a sale arrangement involves multiple
acceptance, revenues are recognized upon such acceptance. When a sale arrangement involves multiple
elements (e.g., installation), we consider the guidance in Emerging Issues Task Force (EITF) No. 00-21
elements (e.g., installation), we consider the guidance in Emerging Issues Task Force (EITF) No. 00-21
“Revenue Arrangements with Multiple Deliverables.” Such transactions are evaluated to determine
“Revenue Arrangements with Multiple Deliverables.” Such transactions are evaluated to determine
whether the deliverables in the arrangement represent separate units of accounting. If equipment and
whether the deliverables in the arrangement represent separate units of accounting. If equipment and
installation do not meet the separation criteria under EITF No. 00-21, revenues for products sold that
installation do not meet the separation criteria under EITF No. 00-21, revenues for products sold that
require installation, for which the installation is essential to functionality or is not deemed
require installation, for which the installation is essential to functionality or is not deemed
inconsequential or perfunctory, are recognized upon completion of installation. Revenues for products
inconsequential or perfunctory, are recognized upon completion of installation. Revenues for products
sold where installation is not essential to functionality, and is deemed inconsequential or perfunctory,
sold where installation is not essential to functionality, and is deemed inconsequential or perfunctory,
are recognized upon shipment, with estimated installation costs accrued. We provide a reserve for the
are recognized upon shipment, with estimated installation costs accrued. We provide a reserve for the
estimated warranty and installation costs at the time revenue is recognized, as applicable. To the extent
estimated warranty and installation costs at the time revenue is recognized, as applicable. To the extent
that installation becomes a significant component of our business in the future, the judgment associated
that installation becomes a significant component of our business in the future, the judgment associated
with the determination of revenue recognition will increase. The complexity of all issues related to the
with the determination of revenue recognition will increase. The complexity of all issues related to the
assumptions, risks, and uncertainties inherent in the application of SAB No. 104 affects the amounts
assumptions, risks, and uncertainties inherent in the application of SAB No. 104 affects the amounts
reported as revenues in our consolidated financial statements. Under SAB No. 104, we may not be able
reported as revenues in our consolidated financial statements. Under SAB No. 104, we may not be able
to reliably predict future revenues and profitability due to the difficulty of estimating when installation
to reliably predict future revenues and profitability due to the difficulty of estimating when installation
will be performed or when we will meet the contractually agreed upon performance tests, which can
will be performed or when we will meet the contractually agreed upon performance tests, which can
delay or prohibit recognition of revenues. The determination of when we install the equipment or fulfill
delay or prohibit recognition of revenues. The determination of when we install the equipment or fulfill
the performance guarantees is largely dependent on our customers, their willingness to allow
the performance guarantees is largely dependent on our customers, their willingness to allow
installation of the equipment or performance of the appropriate tests in a timely manner, and their
installation of the equipment or performance of the appropriate tests in a timely manner, and their
cooperation in addressing possible problems that would impede achievement of the performance
cooperation in addressing possible problems that would impede achievement of the performance
guarantee criteria. Unexpected changes in the timing related to the completion of installation or
guarantee criteria. Unexpected changes in the timing related to the completion of installation or
performance guarantees could cause our revenues and earnings to be significantly affected.
performance guarantees could cause our revenues and earnings to be significantly affected.
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We exercise judgment in determining our allowance for bad debts, which is based on our historical
We exercise judgment in determining our allowance for bad debts, which is based on our historical
collection experience, current trends, credit policies, specific customer collection issues, and accounts receivable
collection experience, current trends, credit policies, specific customer collection issues, and accounts receivable
aging categories. In determining this allowance, we look at historical write offs of our receivables. We also look
aging categories. In determining this allowance, we look at historical write offs of our receivables. We also look
at current trends in the credit quality of our customer base as well as changes in our credit policies. We perform
at current trends in the credit quality of our customer base as well as changes in our credit policies. We perform
ongoing credit evaluations of our customers and adjust credit limits based upon payment history and each
ongoing credit evaluations of our customers and adjust credit limits based upon payment history and each
customer’s current creditworthiness. We continuously monitor collections and payments from our customers. In
customer’s current creditworthiness. We continuously monitor collections and payments from our customers. In
addition, in some instances we utilize letters of credit as a way to mitigate credit exposure. While actual bad
addition, in some instances we utilize letters of credit as a way to mitigate credit exposure. While actual bad
debts have historically been within our expectations and the provisions established, we cannot guarantee that we
debts have historically been within our expectations and the provisions established, we cannot guarantee that we
will continue to experience the same rate of bad debts that we have in the past, especially in light of business
will continue to experience the same rate of bad debts that we have in the past, especially in light of business
conditions in the paper industry. A significant change in the liquidity or financial position of any of our
conditions in the paper industry. A significant change in the liquidity or financial position of any of our
customers could result in the uncollectibility of the related accounts receivable and could adversely affect our
customers could result in the uncollectibility of the related accounts receivable and could adversely affect our
operating results and cash flows in that period.
operating results and cash flows in that period.
Warranty Obligations for Continuing Operations. We offer warranties of various durations to our customers
Warranty Obligations for Continuing Operations. We offer warranties of various durations to our customers
depending upon the specific product and terms of the customer purchase agreement. We typically negotiate terms
depending upon the specific product and terms of the customer purchase agreement. We typically negotiate terms
regarding warranty coverage and length of warranty depending on the products and their applications. Our
regarding warranty coverage and length of warranty depending on the products and their applications. Our
standard mechanical warranties require us to repair or replace a defective product during the warranty period at
standard mechanical warranties require us to repair or replace a defective product during the warranty period at
no cost to the customer. We record an estimate for warranty-related costs at the time of sale based on our actual
no cost to the customer. We record an estimate for warranty-related costs at the time of sale based on our actual
historical occurrence rates and repair costs, as well as other analytical tools for estimating future warranty claims.
historical occurrence rates and repair costs, as well as other analytical tools for estimating future warranty claims.
These estimates are revised for variances between actual and expected claims rates. While our warranty costs
These estimates are revised for variances between actual and expected claims rates. While our warranty costs
have historically been within our expectations and the provisions established, we cannot guarantee that we will
have historically been within our expectations and the provisions established, we cannot guarantee that we will
continue to experience the same warranty return rates or repair costs that we have in the past.
continue to experience the same warranty return rates or repair costs that we have in the past.
A significant increase in warranty occurrence rates or costs to repair our products would lead to an increase
A significant increase in warranty occurrence rates or costs to repair our products would lead to an increase
in the warranty provision and could have a material adverse impact on our consolidated results for the period or
in the warranty provision and could have a material adverse impact on our consolidated results for the period or
periods in which such returns or additional costs occur.
periods in which such returns or additional costs occur.
Warranty Obligations for Discontinued Operation. On October 21, 2005, our Kadant Composites LLC
Warranty Obligations for Discontinued Operation. On October 21, 2005, our Kadant Composites LLC
subsidiary (Composites LLC) sold substantially all of its assets to LDI Composites Co. for approximately $11.9
subsidiary (Composites LLC) sold substantially all of its assets to LDI Composites Co. for approximately $11.9
million in cash and the assumption of $0.7 million of liabilities, resulting in a cumulative loss on sale of $0.1
million in cash and the assumption of $0.7 million of liabilities, resulting in a cumulative loss on sale of $0.1
million. Under the terms of the asset purchase agreement, Composites LLC retained certain liabilities associated
million. Under the terms of the asset purchase agreement, Composites LLC retained certain liabilities associated
with the operation of the business prior to the sale, including warranty obligations related to products
with the operation of the business prior to the sale, including warranty obligations related to products
manufactured prior to the sale date. All activity related to this business is classified in the results of the
manufactured prior to the sale date. All activity related to this business is classified in the results of the
discontinued operation in the accompanying consolidated financial statements.
discontinued operation in the accompanying consolidated financial statements.
Through the second quarter of 2006, Composites LLC recorded an estimate for warranty-related costs at the
Through the second quarter of 2006, Composites LLC recorded an estimate for warranty-related costs at the
time of sale based on its actual historical return rates and repair costs, as well as other analytical tools for
time of sale based on its actual historical return rates and repair costs, as well as other analytical tools for
estimating future warranty claims. These estimates were revised for variances between actual and expected
estimating future warranty claims. These estimates were revised for variances between actual and expected
claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed assumptions
claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed assumptions
associated with potential product returns, including the type of product sold, temperatures at the location of
associated with potential product returns, including the type of product sold, temperatures at the location of
installation, density of boards, and other factors. Certain assumptions, such as the effect of weather conditions
installation, density of boards, and other factors. Certain assumptions, such as the effect of weather conditions
and high temperatures on the product installed, included inherent uncertainties that contributed to variances
and high temperatures on the product installed, included inherent uncertainties that contributed to variances
between actual and expected claims rates.
between actual and expected claims rates.
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
represents a best estimate of the ultimate loss to be recorded, Composites LLC is required under SFAS 5 to
represents a best estimate of the ultimate loss to be recorded, Composites LLC is required under SFAS 5 to
record the minimum amount of the potential range of loss for products under warranty. As of December 29,
record the minimum amount of the potential range of loss for products under warranty. As of December 29,
2007, the accrued warranty costs associated with the composites business were $2.1 million, which represent the
2007, the accrued warranty costs associated with the composites business were $2.1 million, which represent the
low end of the range of potential loss for products under warranty based on the level of claims received through
low end of the range of potential loss for products under warranty based on the level of claims received through
the end of 2007. Composites LLC has calculated that the potential warranty cost ranges from $2.1 million to
the end of 2007. Composites LLC has calculated that the potential warranty cost ranges from $2.1 million to
approximately $13.1 million. The high end of the range represents the estimated maximum level of warranty
approximately $13.1 million. The high end of the range represents the estimated maximum level of warranty
claims remaining based on the total sales of the products under warranty.
claims remaining based on the total sales of the products under warranty.
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Composites LLC retained all of the cash proceeds received from the asset sale and continued to administer
Composites LLC retained all of the cash proceeds received from the asset sale and continued to administer
and pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30, 2007,
and pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30, 2007,
Composites LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to pay or
Composites LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to pay or
process warranty claims, and ceased doing business. Composites LLC will continue to record adjustments to
process warranty claims, and ceased doing business. Composites LLC will continue to record adjustments to
accrued warranty costs to reflect the minimum amount of the potential range of loss for products under warranty
accrued warranty costs to reflect the minimum amount of the potential range of loss for products under warranty
based on judgments entered against it in litigation.
based on judgments entered against it in litigation.
Stock-Based Compensation. We issue a variety of stock-based compensation, including stock options and
Stock-Based Compensation. We issue a variety of stock-based compensation, including stock options and
restricted stock unit awards, primarily to our key employees and directors. Compensation expense associated
restricted stock unit awards, primarily to our key employees and directors. Compensation expense associated
with restricted stock units is recognized ratably over the vesting period based on the grant date fair value.
with restricted stock units is recognized ratably over the vesting period based on the grant date fair value.
On January 1, 2006, we adopted SFAS No. 123, “Share Based Payment” (SFAS 123R), which requires that
On January 1, 2006, we adopted SFAS No. 123, “Share Based Payment” (SFAS 123R), which requires that
we recognize stock-based compensation expense associated with stock options in the statement of income, rather
we recognize stock-based compensation expense associated with stock options in the statement of income, rather
than disclose it in a pro forma footnote to our consolidated financial statements. Determining the amount of
than disclose it in a pro forma footnote to our consolidated financial statements. Determining the amount of
stock-based compensation to be recorded requires us to develop estimates to be used in calculating the grant-date
stock-based compensation to be recorded requires us to develop estimates to be used in calculating the grant-date
fair value of stock options. We did not grant any stock options in 2007 and 2006. For options granted prior to
fair value of stock options. We did not grant any stock options in 2007 and 2006. For options granted prior to
January 1, 2006, we calculated the grant-date fair values using the Black-Scholes valuation model. The use of
January 1, 2006, we calculated the grant-date fair values using the Black-Scholes valuation model. The use of
valuation models requires us to make estimates of the following assumptions:
valuation models requires us to make estimates of the following assumptions:
Expected volatility—We derived the estimated stock price volatility based on a review of our actual historic
Expected volatility—We derived the estimated stock price volatility based on a review of our actual historic
stock prices commensurate with the expected life of the award.
stock prices commensurate with the expected life of the award.
Expected option life—Our estimate of an expected option life was derived based on a review of our historic
Expected option life—Our estimate of an expected option life was derived based on a review of our historic
option holding periods, including a consideration of the holding period inherent in currently vested, but
option holding periods, including a consideration of the holding period inherent in currently vested, but
unexercised options. We believe that this historical data is currently the best estimate of the expected term of a
unexercised options. We believe that this historical data is currently the best estimate of the expected term of a
new option.
new option.
Risk-free interest rate—We used the yield on zero-coupon U.S. Treasury securities for a period that is
Risk-free interest rate—We used the yield on zero-coupon U.S. Treasury securities for a period that is
commensurate with the expected term assumption as the risk-free interest rate.
commensurate with the expected term assumption as the risk-free interest rate.
The amount of stock-based compensation recognized during a period is based on the value of the portion of
The amount of stock-based compensation recognized during a period is based on the value of the portion of
the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of
the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term
“forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the
“forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the
surrendered option. Similar to the analysis for the expected option life, we reviewed historical forfeiture data and
surrendered option. Similar to the analysis for the expected option life, we reviewed historical forfeiture data and
have applied an annual forfeiture rate of 2.5% to all unvested options as of December 31, 2005. We reevaluate
have applied an annual forfeiture rate of 2.5% to all unvested options as of December 31, 2005. We reevaluate
this analysis quarterly and adjust the forfeiture rate as necessary. Ultimately, we will recognize the actual
this analysis quarterly and adjust the forfeiture rate as necessary. Ultimately, we will recognize the actual
expense over the vesting period only for the shares that vest.
expense over the vesting period only for the shares that vest.
Income Taxes. We estimate the degree to which tax assets and loss carryforwards will result in a benefit
Income Taxes. We estimate the degree to which tax assets and loss carryforwards will result in a benefit
based on expected profitability by tax jurisdiction, and provide a valuation allowance for tax assets and loss
based on expected profitability by tax jurisdiction, and provide a valuation allowance for tax assets and loss
carryforwards that we believe will more likely than not go unused. If it becomes more likely than not the tax
carryforwards that we believe will more likely than not go unused. If it becomes more likely than not the tax
asset or loss carryforward will be used, we would reverse the related valuation allowance. Our tax valuation
asset or loss carryforward will be used, we would reverse the related valuation allowance. Our tax valuation
allowance totaled $2.7 million at year-end 2007. Should our actual future taxable income by tax jurisdiction vary
allowance totaled $2.7 million at year-end 2007. Should our actual future taxable income by tax jurisdiction vary
from our estimate, additional allowances or reversals thereof may be necessary.
from our estimate, additional allowances or reversals thereof may be necessary.
We provide a liability for future income tax payments in the worldwide tax jurisdictions in which we
We provide a liability for future income tax payments in the worldwide tax jurisdictions in which we
operate. Should tax return positions that we expect are sustainable not be sustained upon audit, we could be
operate. Should tax return positions that we expect are sustainable not be sustained upon audit, we could be
required to record an incremental tax provision for such taxes. Should previously unrecognized tax benefits be
required to record an incremental tax provision for such taxes. Should previously unrecognized tax benefits be
sustained, a reduction in our tax provision would result.
sustained, a reduction in our tax provision would result.
It is our policy to provide for uncertain tax positions and the related interest and penalties based upon
It is our policy to provide for uncertain tax positions and the related interest and penalties based upon
management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by
management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by
tax authorities. At December 29, 2007, we believe that we have appropriately accounted for any unrecognized tax
tax authorities. At December 29, 2007, we believe that we have appropriately accounted for any unrecognized tax
benefits. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or
benefits. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or
are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period
are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period
may be affected.
may be affected.
Inventories. We value our inventory at the lower of the actual cost (on a first-in, first-out; or weighted
Inventories. We value our inventory at the lower of the actual cost (on a first-in, first-out; or weighted
average basis) or market value and include materials, labor, and manufacturing overhead. We regularly review
average basis) or market value and include materials, labor, and manufacturing overhead. We regularly review
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inventory quantities on hand and compare these amounts to historical and forecasted usage of and demand for
inventory quantities on hand and compare these amounts to historical and forecasted usage of and demand for
each particular product or product line. We record a charge to cost of revenues for excess and obsolete inventory
each particular product or product line. We record a charge to cost of revenues for excess and obsolete inventory
to reduce the carrying value of the inventories to net realizable value. Inventory writedowns have historically
to reduce the carrying value of the inventories to net realizable value. Inventory writedowns have historically
been within our expectations and the provisions established. A significant decrease in demand could result in an
been within our expectations and the provisions established. A significant decrease in demand could result in an
increase in the amount of excess inventory quantities on hand, resulting in a charge for the writedown of that
increase in the amount of excess inventory quantities on hand, resulting in a charge for the writedown of that
inventory in that period. In addition, our estimates of future product usage or demand may prove to be inaccurate,
inventory in that period. In addition, our estimates of future product usage or demand may prove to be inaccurate,
resulting in an understated or overstated provision for excess and obsolete inventory. Therefore, although we
resulting in an understated or overstated provision for excess and obsolete inventory. Therefore, although we
make every effort to ensure the accuracy of our forecasts of future product usage and demand, any significant
make every effort to ensure the accuracy of our forecasts of future product usage and demand, any significant
unanticipated changes in demand or technological developments could have a significant impact on the value of
unanticipated changes in demand or technological developments could have a significant impact on the value of
our inventory and our reported operating results.
our inventory and our reported operating results.
In the fourth quarter of 2007, we changed our method of accounting for inventories at one of our U.S.
In the fourth quarter of 2007, we changed our method of accounting for inventories at one of our U.S.
subsidiaries from the lower of cost, as determined by the last-in, first-out (LIFO) method of accounting, or
subsidiaries from the lower of cost, as determined by the last-in, first-out (LIFO) method of accounting, or
market to the lower of cost, as determined by the first-in, first-out (FIFO) method of accounting, or market. We
market to the lower of cost, as determined by the first-in, first-out (FIFO) method of accounting, or market. We
believe that this change is preferable because: 1) the change conforms to a single method of accounting for all
believe that this change is preferable because: 1) the change conforms to a single method of accounting for all
our inventories, 2) LIFO inventory values have not been materially different than FIFO inventory values for any
our inventories, 2) LIFO inventory values have not been materially different than FIFO inventory values for any
reporting period, and 3) the majority of our competitors use FIFO. Had we used FIFO instead of LIFO for each
reporting period, and 3) the majority of our competitors use FIFO. Had we used FIFO instead of LIFO for each
reporting period for this U.S. subsidiary since its acquisition in 2005, the difference between the LIFO and FIFO
reporting period for this U.S. subsidiary since its acquisition in 2005, the difference between the LIFO and FIFO
valuation methods and their resulting effects on the consolidated financial statements, would not have been
valuation methods and their resulting effects on the consolidated financial statements, would not have been
material for each such period. As a result, we recorded the cumulative change from the LIFO to the FIFO method
material for each such period. As a result, we recorded the cumulative change from the LIFO to the FIFO method
of accounting in the fourth quarter of 2007.
of accounting in the fourth quarter of 2007.
Derivatives. We use derivative instruments primarily to reduce our exposure to changes in currency
Derivatives. We use derivative instruments primarily to reduce our exposure to changes in currency
exchange rates and interest rates. When we enter into a derivative contract, we make a determination as to
exchange rates and interest rates. When we enter into a derivative contract, we make a determination as to
whether the transaction is deemed to be a hedge for accounting purposes. For contracts deemed to be a hedge, we
whether the transaction is deemed to be a hedge for accounting purposes. For contracts deemed to be a hedge, we
formally document the relationship between the derivative instrument and the risk being hedged. In this
formally document the relationship between the derivative instrument and the risk being hedged. In this
documentation, we specifically identify the asset, liability, forecasted transaction, cash flow, or net investment
documentation, we specifically identify the asset, liability, forecasted transaction, cash flow, or net investment
that has been designated as the hedged item, and evaluate whether the derivative instrument is expected to reduce
that has been designated as the hedged item, and evaluate whether the derivative instrument is expected to reduce
the risks associated with the hedged item. To the extent these criteria are not met, we do not use hedge
the risks associated with the hedged item. To the extent these criteria are not met, we do not use hedge
accounting for the derivative.
accounting for the derivative.
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires that
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires that
all derivatives be recognized on the balance sheet at fair value. For derivatives designated as cash flow hedges,
all derivatives be recognized on the balance sheet at fair value. For derivatives designated as cash flow hedges,
the related gains or losses on these contracts are deferred as a component of accumulated other comprehensive
the related gains or losses on these contracts are deferred as a component of accumulated other comprehensive
items. These deferred gains and losses are recognized in the period in which the underlying anticipated
items. These deferred gains and losses are recognized in the period in which the underlying anticipated
transaction occurs. For derivatives designated as fair value hedges, the unrealized gains and losses resulting from
transaction occurs. For derivatives designated as fair value hedges, the unrealized gains and losses resulting from
the impact of currency exchange rate movements are recognized in earnings in the period in which the exchange
the impact of currency exchange rate movements are recognized in earnings in the period in which the exchange
rates change and offset the currency gains and losses on the underlying exposures being hedged. We perform an
rates change and offset the currency gains and losses on the underlying exposures being hedged. We perform an
evaluation of the effectiveness of the hedge both at inception and on an ongoing basis. The ineffective portion of
evaluation of the effectiveness of the hedge both at inception and on an ongoing basis. The ineffective portion of
a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge, are recorded in the
a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge, are recorded in the
consolidated statement of income.
consolidated statement of income.
We use interest rate swap agreements to hedge our exposure to variable rate debt and have designated these
We use interest rate swap agreements to hedge our exposure to variable rate debt and have designated these
agreements as cash flow hedges of the forecasted interest payments related to these obligations. The fair value of
agreements as cash flow hedges of the forecasted interest payments related to these obligations. The fair value of
the interest rate swap agreements are included in other assets for unrecognized gains and in other liabilities for
the interest rate swap agreements are included in other assets for unrecognized gains and in other liabilities for
unrecognized losses with an offset in accumulated other comprehensive items (net of tax).
unrecognized losses with an offset in accumulated other comprehensive items (net of tax).
We use forward currency exchange contracts primarily to hedge certain operational (“cash flow” hedges)
We use forward currency exchange contracts primarily to hedge certain operational (“cash flow” hedges)
and balance sheet (“fair value” hedges) exposures resulting from fluctuations in currency exchange rates. Such
and balance sheet (“fair value” hedges) exposures resulting from fluctuations in currency exchange rates. Such
exposures primarily result from portions of our operations and assets that are denominated in currencies other
exposures primarily result from portions of our operations and assets that are denominated in currencies other
than the functional currencies of the businesses conducting the operations or holding the assets. We enter into
than the functional currencies of the businesses conducting the operations or holding the assets. We enter into
forward currency exchange contracts to hedge anticipated product sales and recorded accounts receivable made
forward currency exchange contracts to hedge anticipated product sales and recorded accounts receivable made
in the normal course of business, and accordingly, the hedges are not speculative in nature.
in the normal course of business, and accordingly, the hedges are not speculative in nature.
Valuation of Goodwill and Intangible Assets. We evaluate the recoverability of goodwill and indefinite-
Valuation of Goodwill and Intangible Assets. We evaluate the recoverability of goodwill and indefinite-
lived intangible assets annually in the fourth quarter, or more frequently if events or changes in circumstances,
lived intangible assets annually in the fourth quarter, or more frequently if events or changes in circumstances,
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Kadant Inc.
2007 Annual Report
2007 Annual Report
such as a decline in sales, earnings, or cash flows, or material adverse changes in the business climate, indicate
such as a decline in sales, earnings, or cash flows, or material adverse changes in the business climate, indicate
that the carrying value of an asset might be impaired. We completed our annual impairment tests in the fourth
that the carrying value of an asset might be impaired. We completed our annual impairment tests in the fourth
quarter of 2007 using estimates from our long-range forecasts. Intangible assets subject to amortization are
quarter of 2007 using estimates from our long-range forecasts. Intangible assets subject to amortization are
evaluated for impairment if events or changes in circumstances indicate that the carrying value of an asset might
evaluated for impairment if events or changes in circumstances indicate that the carrying value of an asset might
be impaired. No adjustment was required in 2007 to the carrying value of our goodwill or intangible assets based
be impaired. No adjustment was required in 2007 to the carrying value of our goodwill or intangible assets based
on the analysis performed.
on the analysis performed.
Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair
Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair
value. Fair values are primarily established using a discounted cash flow methodology (specifically, the income
value. Fair values are primarily established using a discounted cash flow methodology (specifically, the income
approach). The determination of discounted cash flows is based on our long-range forecasts. The revenue growth
approach). The determination of discounted cash flows is based on our long-range forecasts. The revenue growth
rates included in the forecasts are our best estimates based on current and anticipated market conditions, and the
rates included in the forecasts are our best estimates based on current and anticipated market conditions, and the
profit margin assumptions are projected based on current and anticipated cost structures. Our judgments and
profit margin assumptions are projected based on current and anticipated cost structures. Our judgments and
assumptions regarding the determination of the fair value of an intangible asset or goodwill associated with an
assumptions regarding the determination of the fair value of an intangible asset or goodwill associated with an
acquired business could change as future events impact such fair values. Any future impairment loss could have a
acquired business could change as future events impact such fair values. Any future impairment loss could have a
material adverse affect on our long-term assets and operating expenses in the period in which impairment is
material adverse affect on our long-term assets and operating expenses in the period in which impairment is
determined to exist.
determined to exist.
Industry and Business Outlook
Industry and Business Outlook
Our products are primarily sold to the global pulp and paper industry. The paper industry in North America
Our products are primarily sold to the global pulp and paper industry. The paper industry in North America
and Europe has been in a prolonged down cycle for the past several years and has undergone important structural
and Europe has been in a prolonged down cycle for the past several years and has undergone important structural
changes during that time. In contrast, the paper industry in China has experienced strong growth over the last
changes during that time. In contrast, the paper industry in China has experienced strong growth over the last
several years. The performance of paper producers in North America and Europe had generally improved over the
several years. The performance of paper producers in North America and Europe had generally improved over the
past year. However, paper producers in those regions continue to be negatively affected by higher operating costs,
past year. However, paper producers in those regions continue to be negatively affected by higher operating costs,
especially higher energy and chemical costs. We believe paper companies are still cautious about increasing their
especially higher energy and chemical costs. We believe paper companies are still cautious about increasing their
capital and operating spending in the current market environment. As the financial performance of paper companies
capital and operating spending in the current market environment. As the financial performance of paper companies
has improved, they have increased their capital and operating spending, which has had a positive effect on paper
has improved, they have increased their capital and operating spending, which has had a positive effect on paper
company suppliers, including us. We continue to concentrate our efforts on several initiatives intended to improve
company suppliers, including us. We continue to concentrate our efforts on several initiatives intended to improve
our operating results, including: increasing sales of paper machine accessories and water-management products in
our operating results, including: increasing sales of paper machine accessories and water-management products in
China, increasing our use of low-cost manufacturing bases in China and Mexico, penetrating new markets outside
China, increasing our use of low-cost manufacturing bases in China and Mexico, penetrating new markets outside
the paper industry, and increasing aftermarket sales, especially in China. In addition, we continue to focus our
the paper industry, and increasing aftermarket sales, especially in China. In addition, we continue to focus our
efforts on managing our operating costs, capital expenditures, and working capital.
efforts on managing our operating costs, capital expenditures, and working capital.
On May 11, 2005, we acquired all the outstanding stock of The Johnson Corporation (Kadant Johnson), a
On May 11, 2005, we acquired all the outstanding stock of The Johnson Corporation (Kadant Johnson), a
leading supplier of fluid-handling systems and equipment, including steam and condensate systems, components,
leading supplier of fluid-handling systems and equipment, including steam and condensate systems, components,
and controls. These products are used primarily in the dryer section of the papermaking process and in the
and controls. These products are used primarily in the dryer section of the papermaking process and in the
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Kadant Johnson was a privately
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Kadant Johnson was a privately
held company based in Three Rivers, Michigan, with approximately 575 employees.
held company based in Three Rivers, Michigan, with approximately 575 employees.
On June 2, 2006, Kadant Jining, assumed responsibility for the operation of Huayi and, by September 30,
On June 2, 2006, Kadant Jining, assumed responsibility for the operation of Huayi and, by September 30,
2006, acquired the assets of Huayi, including cash, inventory, machinery, equipment, and buildings (Kadant
2006, acquired the assets of Huayi, including cash, inventory, machinery, equipment, and buildings (Kadant
Jining acquisition). Huayi was a supplier of stock-preparation equipment in China.
Jining acquisition). Huayi was a supplier of stock-preparation equipment in China.
In the last several years, China has become a significant market for our stock-preparation equipment. A
In the last several years, China has become a significant market for our stock-preparation equipment. A
large percentage of the world’s increases in paper production capacity are in China. Consequently, competition is
large percentage of the world’s increases in paper production capacity are in China. Consequently, competition is
intense and there is increasing pricing pressure particularly for large systems. To capitalize on this growing
intense and there is increasing pricing pressure particularly for large systems. To capitalize on this growing
market, we started manufacturing certain of our accessory and water-management products in our China facilities
market, we started manufacturing certain of our accessory and water-management products in our China facilities
in 2007. Currently, our revenues from China are primarily derived from large capital orders, the timing of which
in 2007. Currently, our revenues from China are primarily derived from large capital orders, the timing of which
is often difficult to predict. At times, our customers in China have experienced delays in obtaining financing for
is often difficult to predict. At times, our customers in China have experienced delays in obtaining financing for
their capital addition and expansion projects due to efforts by the Chinese government to control economic
their capital addition and expansion projects due to efforts by the Chinese government to control economic
growth, which are reflected in a slowdown in financing approvals in China’s banking system. These delays, as
growth, which are reflected in a slowdown in financing approvals in China’s banking system. These delays, as
well as, delays in receiving down payments, could cause us to recognize revenue on these projects in periods
well as, delays in receiving down payments, could cause us to recognize revenue on these projects in periods
later than originally anticipated. We plan to use Kadant Jining as a base for increasing our aftermarket business,
later than originally anticipated. We plan to use Kadant Jining as a base for increasing our aftermarket business,
which we believe will be more predictable.
which we believe will be more predictable.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
For 2008, we expect revenues and earnings per share from continuing operations, which exclude the results
For 2008, we expect revenues and earnings per share from continuing operations, which exclude the results
from our discontinued operation, as follows: For the first quarter of 2008, we expect to earn between $.30 and
from our discontinued operation, as follows: For the first quarter of 2008, we expect to earn between $.30 and
$.32 per diluted share, including a $.02 gain on the sale of assets, on revenues of $88 to $90 million. For the full
$.32 per diluted share, including a $.02 gain on the sale of assets, on revenues of $88 to $90 million. For the full
year, we expect to earn between $1.85 and $1.90 per diluted share on revenues of $385 to $395 million.
year, we expect to earn between $1.85 and $1.90 per diluted share on revenues of $385 to $395 million.
Results of Operations
Results of Operations
2007 Compared to 2006
2007 Compared to 2006
The following table sets forth our consolidated statement of income expressed as a percentage of total
The following table sets forth our consolidated statement of income expressed as a percentage of total
revenue:
revenue:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100%
100% 100%
2007
2007
2006
2006
Costs and Operating Expenses:
Costs and Operating Expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations Before Provision for Income Taxes and Minority Interest
Income from Continuing Operations Before Provision for Income Taxes and Minority Interest
Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
62
26
26
2
2
–
–
–
–
90
90
10
10
1
1
(1)
(1)
10
10
3
3
–
–
7
7
(1)
(1)
63
63
26
26
2
2
–
–
–
–
91
91
9
9
–
–
(1)
(1)
8
8
3
3
–
–
5
5
–
–
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6% 5%
6% 5%
Revenues
Revenues
Revenues increased $24.9 million, or 7%, to $366.5 million in 2007 from $341.6 million in 2006, including
Revenues increased $24.9 million, or 7%, to $366.5 million in 2007 from $341.6 million in 2006, including
a $13.0 million increase from the favorable effects of currency translation. Excluding the effects of currency
a $13.0 million increase from the favorable effects of currency translation. Excluding the effects of currency
translation, revenues in 2007 increased primarily due to a $14.9 million, or 10%, increase from stock-preparation
translation, revenues in 2007 increased primarily due to a $14.9 million, or 10%, increase from stock-preparation
equipment sales due to higher capital equipment sales and a $4.6 million, or 5%, increase in our fluid-handling
equipment sales due to higher capital equipment sales and a $4.6 million, or 5%, increase in our fluid-handling
product line due in part to increased demand caused by higher energy prices. Offsetting these increases,
product line due in part to increased demand caused by higher energy prices. Offsetting these increases,
excluding the favorable effects of currency translation, was a $3.4 million, or 10%, decrease in revenues in our
excluding the favorable effects of currency translation, was a $3.4 million, or 10%, decrease in revenues in our
water-management product line due to lower capital equipment sales, a $2.5 million, or 63%, decrease in
water-management product line due to lower capital equipment sales, a $2.5 million, or 63%, decrease in
revenues in our Casting Products business due to the sale of this business in April 2007, and a $1.4 million, or
revenues in our Casting Products business due to the sale of this business in April 2007, and a $1.4 million, or
14%, decrease in revenues in our Fiber-based Products business.
14%, decrease in revenues in our Fiber-based Products business.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
Revenues for 2007 and 2006 for our Papermaking Systems segment and other businesses are as follows:
Revenues for 2007 and 2006 for our Papermaking Systems segment and other businesses are as follows:
(In thousands)
(In thousands)
Revenues:
Revenues:
2007
2007
2006
2006
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$356,334
$356,334
10,162
10,162
$327,501
$327,501
14,112
14,112
$366,496
$366,496
$341,613
$341,613
Papermaking Systems Segment. Revenues at the Papermaking Systems segment increased $28.8 million, or
Papermaking Systems Segment. Revenues at the Papermaking Systems segment increased $28.8 million, or
9%, to $356.3 million in 2007 from $327.5 million in 2006. The increase in revenues in 2007 was primarily due
9%, to $356.3 million in 2007 from $327.5 million in 2006. The increase in revenues in 2007 was primarily due
to a $16.1 million, or 34%, increase in our stock-preparation equipment sales in North America and a $13.0
to a $16.1 million, or 34%, increase in our stock-preparation equipment sales in North America and a $13.0
million increase from the favorable effects of currency translation.
million increase from the favorable effects of currency translation.
The following table presents revenues at the Papermaking Systems segment by product line, the changes in
The following table presents revenues at the Papermaking Systems segment by product line, the changes in
revenues by product line between 2007 and 2006, and the changes in revenues by product line between 2007 and
revenues by product line between 2007 and 2006, and the changes in revenues by product line between 2007 and
2006, excluding the effect of currency translation. The presentation of the changes in revenues by product line,
2006, excluding the effect of currency translation. The presentation of the changes in revenues by product line,
excluding the effect of currency translation, is a non-GAAP (generally accepted accounting principles) measure.
excluding the effect of currency translation, is a non-GAAP (generally accepted accounting principles) measure.
We believe this non-GAAP measure helps investors gain a better understanding of our underlying operations,
We believe this non-GAAP measure helps investors gain a better understanding of our underlying operations,
consistent with how management measures and forecasts our performance, especially when comparing such
consistent with how management measures and forecasts our performance, especially when comparing such
results to prior periods.
results to prior periods.
(In millions)
(In millions)
Papermaking Systems Product Lines:
Papermaking Systems Product Lines:
2007
2007
2006
2006
Increase
Increase
(Decrease)
(Decrease)
Stock-Preparation Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-Preparation Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fluid-Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fluid-Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Water-Management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Water-Management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$165.8
$165.8
94.0
94.0
63.1
63.1
31.1
31.1
2.3
2.3
$146.2
$146.2
84.4
84.4
60.6
60.6
33.8
33.8
2.5
2.5
$19.6
$19.6
9.6
9.6
2.5
2.5
(2.7)
(2.7)
(0.2)
(0.2)
$356.3
$356.3
$327.5
$327.5
$28.8
$28.8
Increase
Increase
(Decrease)
(Decrease)
Excluding
Excluding
Effect of
Effect of
Currency
Currency
Translation
Translation
$15.0
$15.0
4.6
4.6
(0.2)
(0.2)
(3.4)
(3.4)
(0.2)
(0.2)
$15.8
$15.8
Revenues from the segment’s stock-preparation equipment product line increased $19.6 million, or 13%, in
Revenues from the segment’s stock-preparation equipment product line increased $19.6 million, or 13%, in
2007 compared to 2006, including a $4.6 million increase from the favorable effect of currency translation.
2007 compared to 2006, including a $4.6 million increase from the favorable effect of currency translation.
Excluding the effect of currency translation, revenues in 2007 increased $15.0 million, or 10%, primarily due to a
Excluding the effect of currency translation, revenues in 2007 increased $15.0 million, or 10%, primarily due to a
$16.1 million, or 34%, increase in demand for stock-preparation equipment in North America due to increased
$16.1 million, or 34%, increase in demand for stock-preparation equipment in North America due to increased
demand, offset, in part, by a $2.6 million decrease from sales in Europe.
demand, offset, in part, by a $2.6 million decrease from sales in Europe.
Revenues from the segment’s fluid-handling product line increased $9.6 million, or 11%, in 2007 compared
Revenues from the segment’s fluid-handling product line increased $9.6 million, or 11%, in 2007 compared
to 2006, including a $5.0 million increase from the favorable effect of currency translation. Excluding the effect
to 2006, including a $5.0 million increase from the favorable effect of currency translation. Excluding the effect
of currency translation, revenues increased $4.6 million, or 5%, in 2007 due in part to increased demand caused
of currency translation, revenues increased $4.6 million, or 5%, in 2007 due in part to increased demand caused
by higher energy prices.
by higher energy prices.
Revenues from the segment’s accessories product line increased $2.5 million, or 4%, in 2007 compared to
Revenues from the segment’s accessories product line increased $2.5 million, or 4%, in 2007 compared to
2006, including a $2.7 million increase from the favorable effect of currency transaction. Excluding the effect of
2006, including a $2.7 million increase from the favorable effect of currency transaction. Excluding the effect of
currency translation, revenues decreased $0.2 million in 2007 compared to 2006.
currency translation, revenues decreased $0.2 million in 2007 compared to 2006.
Revenues from the segment’s water-management product line decreased $2.7 million, or 8%, in 2007
Revenues from the segment’s water-management product line decreased $2.7 million, or 8%, in 2007
compared to 2006, including a $0.7 million increase from the favorable effect of currency transaction. Excluding
compared to 2006, including a $0.7 million increase from the favorable effect of currency transaction. Excluding
the effect of currency translation, revenues decreased $3.4 million, or 10%, in 2007 due primarily to a decrease in
the effect of currency translation, revenues decreased $3.4 million, or 10%, in 2007 due primarily to a decrease in
capital sales.
capital sales.
25
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Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
Other Businesses. Revenues from our other businesses decreased $3.9 million, or 28%, to $10.2 million in
Other Businesses. Revenues from our other businesses decreased $3.9 million, or 28%, to $10.2 million in
2007 from $14.1 million in 2006. Revenues from our Casting Products business decreased $2.5 million, or 63%,
2007 from $14.1 million in 2006. Revenues from our Casting Products business decreased $2.5 million, or 63%,
to $1.5 million in 2007 compared to $4.0 million in 2006 due to its sale in April 2007. Revenues from the Fiber-
to $1.5 million in 2007 compared to $4.0 million in 2006 due to its sale in April 2007. Revenues from the Fiber-
based Products business decreased $1.4 million, or 14%, to $8.7 million in 2007 from $10.1 million in 2006 due
based Products business decreased $1.4 million, or 14%, to $8.7 million in 2007 from $10.1 million in 2006 due
to increased competition which decreased sales of our fiber-based granules products sold under the tradename
to increased competition which decreased sales of our fiber-based granules products sold under the tradename
Biodac™.
Biodac™.
Gross Profit Margin
Gross Profit Margin
Gross profit margin for 2007 and 2006 for our Papermaking Systems segment and our other businesses are
Gross profit margin for 2007 and 2006 for our Papermaking Systems segment and our other businesses are
as follows:
as follows:
Gross Profit Margin:
Gross Profit Margin:
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
2006
2006
38% 37%
38% 37%
32% 28%
32% 28%
38% 37%
38% 37%
Gross profit margin was 38% and 37% in 2007 and 2006, respectively. The gross profit margin at the
Gross profit margin was 38% and 37% in 2007 and 2006, respectively. The gross profit margin at the
Papermaking Systems segment increased to 38% in 2007 from 37% in 2006. The gross profit margin at our other
Papermaking Systems segment increased to 38% in 2007 from 37% in 2006. The gross profit margin at our other
businesses increased to 32% in 2007 from 28% in 2006 due to the sale of our lower-margin Casting Products
businesses increased to 32% in 2007 from 28% in 2006 due to the sale of our lower-margin Casting Products
business in April 2007.
business in April 2007.
Operating Expenses
Operating Expenses
Selling, general, and administrative expenses as a percentage of revenues were 26% in 2007 and 2006.
Selling, general, and administrative expenses as a percentage of revenues were 26% in 2007 and 2006.
Selling, general, and administrative expenses increased $5.4 million, or 6%, to $95.6 million in 2007 from $90.2
Selling, general, and administrative expenses increased $5.4 million, or 6%, to $95.6 million in 2007 from $90.2
million in 2006. This increase was primarily due to a $3.5 million unfavorable effect of currency translation and
million in 2006. This increase was primarily due to a $3.5 million unfavorable effect of currency translation and
a $0.9 million increase in stock-based compensation expense due primarily to the grant of restricted stock units in
a $0.9 million increase in stock-based compensation expense due primarily to the grant of restricted stock units in
May 2007.
May 2007.
Research and development expenses decreased $0.2 million, or 4%, to $6.0 million in 2007 from $6.2
Research and development expenses decreased $0.2 million, or 4%, to $6.0 million in 2007 from $6.2
million in 2006 and represented 2% of revenues in both periods.
million in 2006 and represented 2% of revenues in both periods.
Total stock-based compensation expense was $1.8 million and $0.9 million in 2007 and 2006, respectively,
Total stock-based compensation expense was $1.8 million and $0.9 million in 2007 and 2006, respectively,
and is included in selling, general, and administrative expenses. As of year-end 2007, unrecognized
and is included in selling, general, and administrative expenses. As of year-end 2007, unrecognized
compensation cost related to stock options and restricted stock awards was approximately $4.4 million, which
compensation cost related to stock options and restricted stock awards was approximately $4.4 million, which
will be recognized over a weighted average period of 2.5 years.
will be recognized over a weighted average period of 2.5 years.
Loss on Sale of Subsidiary
Loss on Sale of Subsidiary
In April 2007, our Kadant Johnson Holdings Inc. (formerly Specialty Castings Inc.) subsidiary sold its
In April 2007, our Kadant Johnson Holdings Inc. (formerly Specialty Castings Inc.) subsidiary sold its
Casting Products business for $0.4 million, resulting in a pre-tax loss of $0.4 million on the sale.
Casting Products business for $0.4 million, resulting in a pre-tax loss of $0.4 million on the sale.
Restructuring Costs (Income), Net
Restructuring Costs (Income), Net
During 2007, we recorded net restructuring income in our Papermaking Systems segment of $0.2 million,
During 2007, we recorded net restructuring income in our Papermaking Systems segment of $0.2 million,
which included restructuring costs of $0.3 million related to exiting a facility and restructuring income of $0.5
which included restructuring costs of $0.3 million related to exiting a facility and restructuring income of $0.5
million related to a reduction in the restructuring reserve as the reserve was no longer required.
million related to a reduction in the restructuring reserve as the reserve was no longer required.
During 2006, we recorded restructuring costs in our Papermaking Systems segment of $0.8 million, which
During 2006, we recorded restructuring costs in our Papermaking Systems segment of $0.8 million, which
included $0.7 million of severance and associated costs due to a reduction of 15 full-time employees in Canada
included $0.7 million of severance and associated costs due to a reduction of 15 full-time employees in Canada
and France and $0.1 million of equipment relocation costs associated with our 2005 restructuring actions.
and France and $0.1 million of equipment relocation costs associated with our 2005 restructuring actions.
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Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
Interest Income
Interest Income
2007 Annual Report
2007 Annual Report
Interest income increased $0.5 million, or 40%, to $1.6 million in 2007 from $1.1 million in 2006 primarily
Interest income increased $0.5 million, or 40%, to $1.6 million in 2007 from $1.1 million in 2006 primarily
due to higher prevailing interest rates.
due to higher prevailing interest rates.
Interest Expense
Interest Expense
Interest expense decreased $0.2 million, or 7%, to $3.1 million in 2007 from $3.3 million in 2006 primarily
Interest expense decreased $0.2 million, or 7%, to $3.1 million in 2007 from $3.3 million in 2006 primarily
due to lower average outstanding borrowings as a result of a prepayment of $7.8 million of debt in May 2006.
due to lower average outstanding borrowings as a result of a prepayment of $7.8 million of debt in May 2006.
Provision for Income Taxes
Provision for Income Taxes
Our effective tax rate was 28% and 32% in 2007 and 2006, respectively. The 28% effective tax rate in 2007
Our effective tax rate was 28% and 32% in 2007 and 2006, respectively. The 28% effective tax rate in 2007
consisted of our 30% recurring tax rate, offset by 2% of non-recurring tax benefit related to reductions in tax
consisted of our 30% recurring tax rate, offset by 2% of non-recurring tax benefit related to reductions in tax
reserves largely as a result of the expiration of statues of limitation and return to provision true-up items mostly
reserves largely as a result of the expiration of statues of limitation and return to provision true-up items mostly
related to the U.S. tax cost of foreign earnings. The 32% effective tax rate in 2006 consisted of our 33% recurring
related to the U.S. tax cost of foreign earnings. The 32% effective tax rate in 2006 consisted of our 33% recurring
tax rate, slightly offset by a 1% non-recurring tax benefit related to reductions in tax reserves associated with the
tax rate, slightly offset by a 1% non-recurring tax benefit related to reductions in tax reserves associated with the
favorable resolution of a state tax audit. We saw a 3% decrease in our recurring tax rate from 2006 to 2007
favorable resolution of a state tax audit. We saw a 3% decrease in our recurring tax rate from 2006 to 2007
primarily due to a favorable geographical distribution of earnings and a reduction in nondeductible expenses. We
primarily due to a favorable geographical distribution of earnings and a reduction in nondeductible expenses. We
expect our effective tax rate to be approximately 30% in 2008 due to the continuation of a favorable geographical
expect our effective tax rate to be approximately 30% in 2008 due to the continuation of a favorable geographical
distribution of earnings.
distribution of earnings.
Income from Continuing Operations
Income from Continuing Operations
Income from continuing operations increased $7.1 million, or 39%, to $25.4 million in 2007 from $18.3
Income from continuing operations increased $7.1 million, or 39%, to $25.4 million in 2007 from $18.3
million in 2006. The increase in 2007 was primarily due to a $24.9 million, or 7%, increase in revenues which
million in 2006. The increase in 2007 was primarily due to a $24.9 million, or 7%, increase in revenues which
contributed to an increase in operating income of $7.6 million (see Revenues, Gross Profit Margin and Operating
contributed to an increase in operating income of $7.6 million (see Revenues, Gross Profit Margin and Operating
Expenses discussed above).
Expenses discussed above).
Loss from Discontinued Operation
Loss from Discontinued Operation
The net loss from our discontinued operation increased $1.6 million, or 132%, to $2.8 million in 2007 from
The net loss from our discontinued operation increased $1.6 million, or 132%, to $2.8 million in 2007 from
$1.2 million in 2006 due primarily to a $2.7 million pre-tax increase in warranty costs.
$1.2 million in 2006 due primarily to a $2.7 million pre-tax increase in warranty costs.
As of December 29, 2007, the accrued warranty costs associated with the composites business were $2.1
As of December 29, 2007, the accrued warranty costs associated with the composites business were $2.1
million, which represents the low end of the estimated range of warranty reserve required based on the level of
million, which represents the low end of the estimated range of warranty reserve required based on the level of
claims received through the end of 2007. Composites LLC has calculated that the total potential warranty cost
claims received through the end of 2007. Composites LLC has calculated that the total potential warranty cost
ranges from $2.1 million to approximately $13.1 million. The high end of the range represents the estimated
ranges from $2.1 million to approximately $13.1 million. The high end of the range represents the estimated
maximum level of warranty claims remaining based on the total sales of the products under warranty.
maximum level of warranty claims remaining based on the total sales of the products under warranty.
Composites LLC retained all of the cash proceeds received from the asset sale in October 2005 and
Composites LLC retained all of the cash proceeds received from the asset sale in October 2005 and
continued to administer and pay warranty claims from the sale proceeds into the third quarter of 2007. On
continued to administer and pay warranty claims from the sale proceeds into the third quarter of 2007. On
September 30, 2007, Composites LLC announced that it no longer had sufficient funds to honor warranty claims,
September 30, 2007, Composites LLC announced that it no longer had sufficient funds to honor warranty claims,
was unable to pay or process warranty claims, and ceased doing business. Composites LLC will continue to
was unable to pay or process warranty claims, and ceased doing business. Composites LLC will continue to
record adjustments to accrued warranty costs to reflect the minimum amount of the potential range of loss for
record adjustments to accrued warranty costs to reflect the minimum amount of the potential range of loss for
products under warranty based on judgments entered against it in litigation. Our consolidated results in future
products under warranty based on judgments entered against it in litigation. Our consolidated results in future
reporting periods will be negatively impacted if the future level of warranty claims exceed the warranty reserve.
reporting periods will be negatively impacted if the future level of warranty claims exceed the warranty reserve.
27
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Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2006 Compared to 2005
2006 Compared to 2005
2007 Annual Report
2007 Annual Report
The following table sets forth our consolidated statement of income expressed as a percentage of total
The following table sets forth our consolidated statement of income expressed as a percentage of total
revenue:
revenue:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100%
100% 100%
2006
2006
2005
2005
Costs and Operating Expenses:
Costs and Operating Expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other costs (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other costs (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations Before Provision for Income Taxes and Minority Interest
Income from Continuing Operations Before Provision for Income Taxes and Minority Interest
Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
63
26
26
2
2
–
–
91
91
9
9
–
–
(1)
(1)
8
8
3
3
–
–
5
5
–
–
61
61
31
31
2
2
–
–
94
94
6
6
1
1
(1)
(1)
6
6
2
2
–
–
4
4
(1)
(1)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5% 3%
5% 3%
Revenues
Revenues
Revenues increased $97.9 million, or 40%, to $341.6 million in 2006 from $243.7 million in 2005.
Revenues increased $97.9 million, or 40%, to $341.6 million in 2006 from $243.7 million in 2005.
Revenues in 2006 increased primarily due to a $40.4 million, or 84%, increase from Kadant Johnson acquired in
Revenues in 2006 increased primarily due to a $40.4 million, or 84%, increase from Kadant Johnson acquired in
May 2005, a $39.4 million, or 165%, increase in stock-preparation equipment sales in China, which includes a
May 2005, a $39.4 million, or 165%, increase in stock-preparation equipment sales in China, which includes a
$6.0 million increase from Kadant Jining acquired in June 2006. Also contributing to the increase in 2006 was a
$6.0 million increase from Kadant Jining acquired in June 2006. Also contributing to the increase in 2006 was a
$2.8 million increase for an additional month of revenue recognized at our Kadant Lamort subsidiary to conform
$2.8 million increase for an additional month of revenue recognized at our Kadant Lamort subsidiary to conform
to our fiscal year end and a $2.6 million increase from the favorable effects of currency translation.
to our fiscal year end and a $2.6 million increase from the favorable effects of currency translation.
Revenues for 2006 and 2005 for our Papermaking Systems segment and other businesses are as follows:
Revenues for 2006 and 2005 for our Papermaking Systems segment and other businesses are as follows:
(In thousands)
(In thousands)
Revenues:
Revenues:
2006
2006
2005
2005
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$327,501
$327,501
14,112
14,112
$232,615
$232,615
11,098
11,098
$341,613
$341,613
$243,713
$243,713
Papermaking Systems Segment. Revenues at the Papermaking Systems segment increased $94.9 million, or
Papermaking Systems Segment. Revenues at the Papermaking Systems segment increased $94.9 million, or
41%, to $327.5 million in 2006 from $232.6 million in 2005. The increase in revenues in 2006 was primarily due
41%, to $327.5 million in 2006 from $232.6 million in 2005. The increase in revenues in 2006 was primarily due
to a $38.9 million, or 85%, increase in revenues from Kadant Johnson acquired in May 2005, and a $39.4
to a $38.9 million, or 85%, increase in revenues from Kadant Johnson acquired in May 2005, and a $39.4
million, or 165%, increase in stock-preparation equipment sales in China, which includes a $6.0 million increase
million, or 165%, increase in stock-preparation equipment sales in China, which includes a $6.0 million increase
from Kadant Jining acquired in June 2006. Also contributing to the increase in 2006 was a $2.8 million increase
from Kadant Jining acquired in June 2006. Also contributing to the increase in 2006 was a $2.8 million increase
for an additional month of revenue recognized at our Kadant Lamort subsidiary to conform to our fiscal year end
for an additional month of revenue recognized at our Kadant Lamort subsidiary to conform to our fiscal year end
and a $2.6 million increase from the favorable effects of currency translation.
and a $2.6 million increase from the favorable effects of currency translation.
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Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
The following table presents revenues at the Papermaking Systems segment by product line, the changes in
The following table presents revenues at the Papermaking Systems segment by product line, the changes in
revenues by product line between 2006 and 2005, and the changes in revenues by product line between 2006 and
revenues by product line between 2006 and 2005, and the changes in revenues by product line between 2006 and
2005 excluding the effect of currency translation. The presentation of the changes in revenues by product line,
2005 excluding the effect of currency translation. The presentation of the changes in revenues by product line,
excluding the effect of currency translation, is a non-GAAP (generally accepted accounting principles) measure.
excluding the effect of currency translation, is a non-GAAP (generally accepted accounting principles) measure.
We believe this non-GAAP measure helps investors gain a better understanding of our underlying operations,
We believe this non-GAAP measure helps investors gain a better understanding of our underlying operations,
consistent with how management measures and forecasts our performance, especially when comparing such
consistent with how management measures and forecasts our performance, especially when comparing such
results to prior periods.
results to prior periods.
(In millions)
(In millions)
Papermaking System Product Lines:
Papermaking System Product Lines:
2006
2006
2005
2005
Increase
Increase
Stock-Preparation Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-Preparation Equipment
Fluid-Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fluid-Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Water-Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Water-Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$146.2
$146.2
84.4
84.4
60.6
60.6
33.8
33.8
2.5
2.5
$ 98.2
$ 98.2
45.5
45.5
58.8
58.8
28.3
28.3
1.8
1.8
$48.0
$48.0
38.9
38.9
1.8
1.8
5.5
5.5
0.7
0.7
$327.5
$327.5
$232.6
$232.6
$94.9
$94.9
Increase
Increase
Excluding
Excluding
Effect of
Effect of
Currency
Currency
Translation
Translation
$48.2
$48.2
36.9
36.9
1.2
1.2
5.3
5.3
0.7
0.7
$92.3
$92.3
Revenues from the segment’s stock-preparation equipment product line increased $48.0 million, or 49%, in
Revenues from the segment’s stock-preparation equipment product line increased $48.0 million, or 49%, in
2006 compared to 2005, including a $0.2 million decrease from the unfavorable effect of currency translation.
2006 compared to 2005, including a $0.2 million decrease from the unfavorable effect of currency translation.
The increase was primarily due to a $39.4 million, or 165%, increase in capital equipment sales in China which
The increase was primarily due to a $39.4 million, or 165%, increase in capital equipment sales in China which
includes a $6.0 million increase from Kadant Jining acquired in June 2006. In addition, revenues in this product
includes a $6.0 million increase from Kadant Jining acquired in June 2006. In addition, revenues in this product
line increased $4.6 million, or 15%, in 2006 at our European-based business primarily due to an increase in sales
line increased $4.6 million, or 15%, in 2006 at our European-based business primarily due to an increase in sales
of both capital and aftermarket products and the inclusion of an additional month of revenue at our Kadant
of both capital and aftermarket products and the inclusion of an additional month of revenue at our Kadant
Lamort subsidiary to conform to our fiscal year end. Revenues in this product line also increased $4.0 million, or
Lamort subsidiary to conform to our fiscal year end. Revenues in this product line also increased $4.0 million, or
9%, from sales in North America primarily due to stronger sales of both capital and aftermarket products.
9%, from sales in North America primarily due to stronger sales of both capital and aftermarket products.
Revenues from the segment’s fluid-handling product line increased $38.9 million, or 85%, in 2006
Revenues from the segment’s fluid-handling product line increased $38.9 million, or 85%, in 2006
compared to 2005, including a $2.0 million increase from the favorable effect of currency translation. This
compared to 2005, including a $2.0 million increase from the favorable effect of currency translation. This
increase was primarily due to the inclusion of revenues from Kadant Johnson for the full 2006 period compared
increase was primarily due to the inclusion of revenues from Kadant Johnson for the full 2006 period compared
to their inclusion from May 11, 2005 in the prior year period.
to their inclusion from May 11, 2005 in the prior year period.
Revenues from the segment’s accessories product line increased $1.8 million, or 3%, in 2006 compared to
Revenues from the segment’s accessories product line increased $1.8 million, or 3%, in 2006 compared to
2005 primarily due to an increase in sales in Europe.
2005 primarily due to an increase in sales in Europe.
Revenues from the segment’s water-management product line increased $5.5 million, or 19%, in 2006
Revenues from the segment’s water-management product line increased $5.5 million, or 19%, in 2006
compared to 2005, due primarily to an increase in capital sales in North America and, to a lesser extent, in
compared to 2005, due primarily to an increase in capital sales in North America and, to a lesser extent, in
Europe.
Europe.
Other Businesses. Revenues from our other businesses increased $3.0 million, or 27%, to $14.1 million in
Other Businesses. Revenues from our other businesses increased $3.0 million, or 27%, to $14.1 million in
2006 from $11.1 million in 2005. Revenues from the Fiber-based Products business increased $1.5 million, or
2006 from $11.1 million in 2005. Revenues from the Fiber-based Products business increased $1.5 million, or
18%, to $10.1 million in 2006 from $8.6 million in 2005 due to increased sales of our Biodac™ products.
18%, to $10.1 million in 2006 from $8.6 million in 2005 due to increased sales of our Biodac™ products.
Revenues from our Casting Products business increased $1.5 million, or 60%, to $4.0 million in 2006 compared
Revenues from our Casting Products business increased $1.5 million, or 60%, to $4.0 million in 2006 compared
to $2.5 million in 2005 due to the inclusion of revenues from Kadant Johnson for the entire 2006 period
to $2.5 million in 2005 due to the inclusion of revenues from Kadant Johnson for the entire 2006 period
compared to their inclusion from May 11, 2005 in the prior year period.
compared to their inclusion from May 11, 2005 in the prior year period.
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Kadant Inc.
Kadant Inc.
Gross Profit Margin
Gross Profit Margin
2007 Annual Report
2007 Annual Report
Gross profit margin for 2006 and 2005 for our Papermaking Systems segment and our other businesses are
Gross profit margin for 2006 and 2005 for our Papermaking Systems segment and our other businesses are
as follows:
as follows:
Gross Profit Margin:
Gross Profit Margin:
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
2006
2005
2005
37% 39%
37% 39%
28% 28%
28% 28%
37% 39%
37% 39%
Gross profit margin was 37% and 39% in 2006 and 2005, respectively. The gross profit margin at the
Gross profit margin was 37% and 39% in 2006 and 2005, respectively. The gross profit margin at the
Papermaking Systems segment decreased to 37% in 2006 from 39% in 2005. This decrease was primarily due to
Papermaking Systems segment decreased to 37% in 2006 from 39% in 2005. This decrease was primarily due to
lower margins in our stock-preparation equipment product line as a result of several large capital equipment
lower margins in our stock-preparation equipment product line as a result of several large capital equipment
orders from China, which had lower than normal gross profit margin levels. Also contributing to the decrease
orders from China, which had lower than normal gross profit margin levels. Also contributing to the decrease
was an unfavorable product mix that shifted toward lower-margin capital products. Partially offsetting this were
was an unfavorable product mix that shifted toward lower-margin capital products. Partially offsetting this were
improved gross margins at our fluid-handling product line. The gross profit margin at our other businesses was
improved gross margins at our fluid-handling product line. The gross profit margin at our other businesses was
28% in 2006 and 2005.
28% in 2006 and 2005.
Operating Expenses
Operating Expenses
Selling, general, and administrative expenses as a percentage of revenues decreased to 26% in 2006 from
Selling, general, and administrative expenses as a percentage of revenues decreased to 26% in 2006 from
31% in 2005 primarily due to higher operating leverage associated with increased revenues. Selling, general, and
31% in 2005 primarily due to higher operating leverage associated with increased revenues. Selling, general, and
administrative expenses increased to $90.2 million in 2006 from $74.6 million in 2005, an increase of $15.6
administrative expenses increased to $90.2 million in 2006 from $74.6 million in 2005, an increase of $15.6
million, or 21%. This increase was primarily due to a $9.7 million, or 51%, increase from Kadant Johnson
million, or 21%. This increase was primarily due to a $9.7 million, or 51%, increase from Kadant Johnson
resulting from its inclusion for the full 2006 period compared to its inclusion from May 11, 2005 in the prior year
resulting from its inclusion for the full 2006 period compared to its inclusion from May 11, 2005 in the prior year
period. Also contributing to the increase was a $1.5 million increase from our Kadant Jining subsidiary acquired
period. Also contributing to the increase was a $1.5 million increase from our Kadant Jining subsidiary acquired
in June 2006, a $1.4 million increase from our Kadant Lamort subsidiary due to the inclusion of an additional
in June 2006, a $1.4 million increase from our Kadant Lamort subsidiary due to the inclusion of an additional
month of selling, general, and administrative expenses to conform to our fiscal year end and a $0.8 million
month of selling, general, and administrative expenses to conform to our fiscal year end and a $0.8 million
unfavorable effect of currency translation.
unfavorable effect of currency translation.
Research and development expenses increased to $6.2 million in 2006 from $4.9 million in 2005, an
Research and development expenses increased to $6.2 million in 2006 from $4.9 million in 2005, an
increase of $1.3 million, or 27%, and represented 2% of revenues in both periods. The increase in research and
increase of $1.3 million, or 27%, and represented 2% of revenues in both periods. The increase in research and
development expenses was primarily due to a $0.7 million increase from Kadant Johnson resulting from its
development expenses was primarily due to a $0.7 million increase from Kadant Johnson resulting from its
inclusion for the full 2006 period compared to its inclusion from May 11, 2005 in the prior year period.
inclusion for the full 2006 period compared to its inclusion from May 11, 2005 in the prior year period.
On January 1, 2006, we adopted SFAS 123R using the modified prospective method. There were no stock
On January 1, 2006, we adopted SFAS 123R using the modified prospective method. There were no stock
option awards granted in 2006. For stock option awards granted to employees prior to the effective date of SFAS
option awards granted in 2006. For stock option awards granted to employees prior to the effective date of SFAS
123R that remain unvested on the effective date, SFAS 123R under the modified prospective method allowed us
123R that remain unvested on the effective date, SFAS 123R under the modified prospective method allowed us
to recognize compensation cost beginning with the effective date based on the requirements of SFAS 123. For
to recognize compensation cost beginning with the effective date based on the requirements of SFAS 123. For
these stock option awards, we calculated compensation cost on the date of grant using the fair value of the stock
these stock option awards, we calculated compensation cost on the date of grant using the fair value of the stock
options as determined by the Black-Scholes valuation model. In 2006, we recognized $0.3 million of pre-tax
options as determined by the Black-Scholes valuation model. In 2006, we recognized $0.3 million of pre-tax
stock-based compensation expense, or $.01 per diluted share, related to unvested stock option awards granted
stock-based compensation expense, or $.01 per diluted share, related to unvested stock option awards granted
prior to 2006 as a result of the adoption of SFAS 123R. Prior to the adoption of SFAS 123R, we accounted for
prior to 2006 as a result of the adoption of SFAS 123R. Prior to the adoption of SFAS 123R, we accounted for
share based payments to employees using Accounting Principles Board Opinion No. 25’s (APB 25), “Accounting
share based payments to employees using Accounting Principles Board Opinion No. 25’s (APB 25), “Accounting
for Stock Issued to Employees,” intrinsic value method and, as such, generally recognized no compensation cost
for Stock Issued to Employees,” intrinsic value method and, as such, generally recognized no compensation cost
for employee stock options. As of December 30, 2006, the total compensation cost related to unvested stock
for employee stock options. As of December 30, 2006, the total compensation cost related to unvested stock
option awards not yet recognized in the consolidated statement of income was approximately $0.1 million, which
option awards not yet recognized in the consolidated statement of income was approximately $0.1 million, which
will be recognized over a weighted average period of 1.2 years. Under the modified prospective method, prior
will be recognized over a weighted average period of 1.2 years. Under the modified prospective method, prior
periods are not restated for the effect of SFAS 123R.
periods are not restated for the effect of SFAS 123R.
Total stock-based compensation expense, including compensation expense associated with restricted stock
Total stock-based compensation expense, including compensation expense associated with restricted stock
and the employee stock purchase plan, was $0.9 million and $0.3 million in 2006 and 2005, respectively, and is
and the employee stock purchase plan, was $0.9 million and $0.3 million in 2006 and 2005, respectively, and is
included in selling, general, and administrative expenses.
included in selling, general, and administrative expenses.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
Restructuring and Other Costs (Income), Net
Restructuring and Other Costs (Income), Net
During 2006, we recorded restructuring costs of $0.8 million, which included $0.7 million of severance and
During 2006, we recorded restructuring costs of $0.8 million, which included $0.7 million of severance and
associated costs due to a reduction of 15 full-time employees in Canada and France and $0.1 million of
associated costs due to a reduction of 15 full-time employees in Canada and France and $0.1 million of
equipment relocation costs associated with our 2005 restructuring actions. These costs related to our
equipment relocation costs associated with our 2005 restructuring actions. These costs related to our
Papermaking Systems segment.
Papermaking Systems segment.
During 2005, we recorded restructuring income of $0.1 million, which included $0.2 million of restructuring
During 2005, we recorded restructuring income of $0.1 million, which included $0.2 million of restructuring
costs and $0.3 million of curtailment gain. The restructuring costs of $0.2 million in 2005 included $0.1 million
costs and $0.3 million of curtailment gain. The restructuring costs of $0.2 million in 2005 included $0.1 million
of income resulting from the reduction in the estimated restructuring costs associated with the Kadant Lamort
of income resulting from the reduction in the estimated restructuring costs associated with the Kadant Lamort
restructuring initiated in 2004 and $0.3 million in restructuring costs associated with 2005 restructuring actions.
restructuring initiated in 2004 and $0.3 million in restructuring costs associated with 2005 restructuring actions.
The 2005 restructuring costs include $0.2 million of severance and associated costs related to the reduction of 14
The 2005 restructuring costs include $0.2 million of severance and associated costs related to the reduction of 14
full-time positions in the U.S. and $0.1 million for equipment relocation costs, both in our Papermaking Systems
full-time positions in the U.S. and $0.1 million for equipment relocation costs, both in our Papermaking Systems
segment. The $0.3 million curtailment gain in 2005 resulted from a reduction in the accrued liability for Kadant
segment. The $0.3 million curtailment gain in 2005 resulted from a reduction in the accrued liability for Kadant
Lamort’s pension plan associated with the Kadant Lamort restructuring initiated in 2004.
Lamort’s pension plan associated with the Kadant Lamort restructuring initiated in 2004.
Interest Income
Interest Income
Interest income decreased to $1.1 million in 2006 from $1.5 million in 2005 primarily due to lower average
Interest income decreased to $1.1 million in 2006 from $1.5 million in 2005 primarily due to lower average
cash balances as a result of the acquisitions of Kadant Johnson in May 2005 and Kadant Jining in June 2006.
cash balances as a result of the acquisitions of Kadant Johnson in May 2005 and Kadant Jining in June 2006.
Interest Expense
Interest Expense
Interest expense increased to $3.3 million in 2006 from $2.1 million in 2005 primarily due to the increase in
Interest expense increased to $3.3 million in 2006 from $2.1 million in 2005 primarily due to the increase in
interest expense associated with the $60.0 million in borrowings entered into in May 2005 to fund the Kadant
interest expense associated with the $60.0 million in borrowings entered into in May 2005 to fund the Kadant
Johnson acquisition, the $10 million in borrowings entered into in May 2006, and the $5.1 million in borrowings
Johnson acquisition, the $10 million in borrowings entered into in May 2006, and the $5.1 million in borrowings
entered into in 2006 to fund the Kadant Jining acquisition.
entered into in 2006 to fund the Kadant Jining acquisition.
Provision for Income Taxes
Provision for Income Taxes
Our effective tax rate was 32% and 28% in 2006 and 2005, respectively. The 32% effective tax rate in 2006
Our effective tax rate was 32% and 28% in 2006 and 2005, respectively. The 32% effective tax rate in 2006
consisted of our 33% recurring tax rate, slightly offset by a 1%, or $0.2 million, non-recurring tax benefit related
consisted of our 33% recurring tax rate, slightly offset by a 1%, or $0.2 million, non-recurring tax benefit related
to reductions in tax reserves associated with the favorable resolution of a state tax audit. The 28% effective tax
to reductions in tax reserves associated with the favorable resolution of a state tax audit. The 28% effective tax
rate in 2005 consisted of our 35% recurring tax rate, offset by a 6% non-recurring tax benefit resulting from a
rate in 2005 consisted of our 35% recurring tax rate, offset by a 6% non-recurring tax benefit resulting from a
payment of $0.9 million received from our former parent company under a tax agreement and a 1%
payment of $0.9 million received from our former parent company under a tax agreement and a 1%
non-recurring tax benefit related to a reduction of $0.1 million in tax reserves.
non-recurring tax benefit related to a reduction of $0.1 million in tax reserves.
Income from Continuing Operations
Income from Continuing Operations
Income from continuing operations increased to $18.3 million in 2006 from $9.9 million in 2005, an
Income from continuing operations increased to $18.3 million in 2006 from $9.9 million in 2005, an
increase of $8.4 million, or 85%. The increase in 2006 was primarily due to a $97.9 million, or 40% increase in
increase of $8.4 million, or 85%. The increase in 2006 was primarily due to a $97.9 million, or 40% increase in
revenues which contributed to an increase in operating income of $14.9 million (see Revenues, Gross Profit
revenues which contributed to an increase in operating income of $14.9 million (see Revenues, Gross Profit
Margin and Operating Expenses discussed above), offset in part by an increase in interest expense of $1.2
Margin and Operating Expenses discussed above), offset in part by an increase in interest expense of $1.2
million associated with an increase in borrowings in 2005 and 2006.
million associated with an increase in borrowings in 2005 and 2006.
Loss from Discontinued Operation
Loss from Discontinued Operation
The net loss from our discontinued operation decreased to $1.2 million in 2006 from $3.0 million in 2005.
The net loss from our discontinued operation decreased to $1.2 million in 2006 from $3.0 million in 2005.
Net losses in 2006 and 2005 were primarily due to $1.2 million and $5.5 million, respectively, of pre-tax
Net losses in 2006 and 2005 were primarily due to $1.2 million and $5.5 million, respectively, of pre-tax
warranty provisions.
warranty provisions.
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Kadant Inc.
Kadant Inc.
Liquidity and Capital Resources
Liquidity and Capital Resources
2007 Annual Report
2007 Annual Report
Consolidated working capital was $107.5 million at December 29, 2007, compared with $80.5 million at
Consolidated working capital was $107.5 million at December 29, 2007, compared with $80.5 million at
December 30, 2006. Included in working capital are cash and cash equivalents of $61.6 million at December 29,
December 30, 2006. Included in working capital are cash and cash equivalents of $61.6 million at December 29,
2007, compared with $39.6 million at December 30, 2006. At December 29, 2007, $45.7 million of cash and cash
2007, compared with $39.6 million at December 30, 2006. At December 29, 2007, $45.7 million of cash and cash
equivalents was held by our foreign subsidiaries.
equivalents was held by our foreign subsidiaries.
2007
2007
Our operating activities provided cash of $31.6 million in 2007, including $33.5 million provided by our
Our operating activities provided cash of $31.6 million in 2007, including $33.5 million provided by our
continuing operations, offset by $1.9 million used by the discontinued operation. The cash provided by our
continuing operations, offset by $1.9 million used by the discontinued operation. The cash provided by our
continuing operations in 2007 was primarily due to income from continuing operations of $25.4 million, a
continuing operations in 2007 was primarily due to income from continuing operations of $25.4 million, a
non-cash charge of $7.4 million for depreciation and amortization expense, and a deferred tax provision of $5.9
non-cash charge of $7.4 million for depreciation and amortization expense, and a deferred tax provision of $5.9
million. Offsetting these sources of cash in 2007 was an increase in accounts receivable of $5.7 million and an
million. Offsetting these sources of cash in 2007 was an increase in accounts receivable of $5.7 million and an
increase in unbilled contract costs and fees of $3.2 million primarily associated with an increase in revenues in
increase in unbilled contract costs and fees of $3.2 million primarily associated with an increase in revenues in
our stock-preparation equipment product line. The $1.9 million of cash used by the discontinued operation in
our stock-preparation equipment product line. The $1.9 million of cash used by the discontinued operation in
2007 was primarily related to the payment of $2.9 million for warranty claims.
2007 was primarily related to the payment of $2.9 million for warranty claims.
Our investing activities used cash of $7.6 million in 2007, including $8.3 million used by continuing
Our investing activities used cash of $7.6 million in 2007, including $8.3 million used by continuing
operations and $0.7 million provided by the discontinued operation. The cash used in continuing operations was
operations and $0.7 million provided by the discontinued operation. The cash used in continuing operations was
primarily due to the purchase of $4.9 million of property, plant, and equipment. We also used $2.9 million of
primarily due to the purchase of $4.9 million of property, plant, and equipment. We also used $2.9 million of
cash as consideration in acquisitions, including $2.2 million associated with the Kadant Jining acquisition and
cash as consideration in acquisitions, including $2.2 million associated with the Kadant Jining acquisition and
$0.9 million associated with the Kadant Johnson acquisition, offset in part by $0.2 million of cash received from
$0.9 million associated with the Kadant Johnson acquisition, offset in part by $0.2 million of cash received from
the sale of our Casting Products business. The cash provided by the discontinued operation of $0.7 million relates
the sale of our Casting Products business. The cash provided by the discontinued operation of $0.7 million relates
to cash proceeds received in the first quarter of 2007 from the buyer of the assets of Composites LLC for post-
to cash proceeds received in the first quarter of 2007 from the buyer of the assets of Composites LLC for post-
closing adjustments.
closing adjustments.
Our financing activities used cash of $6.7 million in 2007 related entirely to our continuing operations. We
Our financing activities used cash of $6.7 million in 2007 related entirely to our continuing operations. We
used cash of $13.6 million in 2007 for principal payments on our debt obligations, including a $4.3 million
used cash of $13.6 million in 2007 for principal payments on our debt obligations, including a $4.3 million
prepayment in December 2007, and $5.2 million to repurchase our common stock on the open market. These
prepayment in December 2007, and $5.2 million to repurchase our common stock on the open market. These
uses of cash were partially offset by $9.2 million of proceeds from the issuance of common stock in connection
uses of cash were partially offset by $9.2 million of proceeds from the issuance of common stock in connection
with the exercise of employee stock options and $2.9 million of excess tax benefits from share-based payments.
with the exercise of employee stock options and $2.9 million of excess tax benefits from share-based payments.
2006
2006
Our operating activities provided cash of $8.2 million in 2006, including $12.3 million provided by
Our operating activities provided cash of $8.2 million in 2006, including $12.3 million provided by
continuing operations and $4.1 million used by the discontinued operation. The cash provided by operating
continuing operations and $4.1 million used by the discontinued operation. The cash provided by operating
activities in 2006 was primarily due to income from continuing operations of $18.3 million, an increase in
activities in 2006 was primarily due to income from continuing operations of $18.3 million, an increase in
accounts payable of $11.3 million, and a non-cash charge of $7.8 million for depreciation and amortization
accounts payable of $11.3 million, and a non-cash charge of $7.8 million for depreciation and amortization
expense. Offsetting these sources of cash in 2006 was an increase in unbilled contract costs and fees of $12.1
expense. Offsetting these sources of cash in 2006 was an increase in unbilled contract costs and fees of $12.1
million and an increase in accounts receivable of $6.9 million. These increases were primarily associated with an
million and an increase in accounts receivable of $6.9 million. These increases were primarily associated with an
increase in revenues in our stock-preparation equipment product line. An additional $8.4 million of cash was
increase in revenues in our stock-preparation equipment product line. An additional $8.4 million of cash was
used in 2006 due to a reduction of other current liabilities. The reduction of other current liabilities was due
used in 2006 due to a reduction of other current liabilities. The reduction of other current liabilities was due
primarily to a decrease of $6.7 million in billings in excess of contract costs and fees due to the timing of
primarily to a decrease of $6.7 million in billings in excess of contract costs and fees due to the timing of
contracts recognized under the percentage-of-completion method and a decrease of $4.0 million in accrued
contracts recognized under the percentage-of-completion method and a decrease of $4.0 million in accrued
restructuring costs due to payments made in 2006, offset by an increase in customer deposits of $5.1 million. The
restructuring costs due to payments made in 2006, offset by an increase in customer deposits of $5.1 million. The
$4.1 million of cash used by the discontinued operation in 2006 was primarily related to the payment of $5.8
$4.1 million of cash used by the discontinued operation in 2006 was primarily related to the payment of $5.8
million for warranty claims.
million for warranty claims.
Our investing activities used cash of $18.1 million in 2006, including $22.4 million used by continuing
Our investing activities used cash of $18.1 million in 2006, including $22.4 million used by continuing
operations and $4.3 million provided by the discontinued operation. The cash used in continuing operations was
operations and $4.3 million provided by the discontinued operation. The cash used in continuing operations was
primarily due to the use of cash as consideration in acquisitions, including $15.1 million associated with the
primarily due to the use of cash as consideration in acquisitions, including $15.1 million associated with the
Kadant Jining acquisition and $2.5 million associated with the Kadant Johnson acquisition. We also purchased
Kadant Jining acquisition and $2.5 million associated with the Kadant Johnson acquisition. We also purchased
$4.1 million of property, plant, and equipment. The cash provided by the discontinued operation of $4.3 million
$4.1 million of property, plant, and equipment. The cash provided by the discontinued operation of $4.3 million
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
relates to the reduction of restricted cash of $3.5 million held in escrow to satisfy warranty claims and cash
relates to the reduction of restricted cash of $3.5 million held in escrow to satisfy warranty claims and cash
proceeds of $0.8 million received in the first quarter of 2006 from the buyer of the assets of Composites LLC for
proceeds of $0.8 million received in the first quarter of 2006 from the buyer of the assets of Composites LLC for
post-closing adjustments.
post-closing adjustments.
Our financing activities provided cash of $3.0 million in 2006 related entirely to our continuing operations. We
Our financing activities provided cash of $3.0 million in 2006 related entirely to our continuing operations. We
received $10.0 million in proceeds from a commercial real estate loan entered into in May 2006 and $5.1 million in
received $10.0 million in proceeds from a commercial real estate loan entered into in May 2006 and $5.1 million in
loan proceeds in June 2006 associated with the Kadant Jining acquisition. In addition, we received $9.4 million of
loan proceeds in June 2006 associated with the Kadant Jining acquisition. In addition, we received $9.4 million of
proceeds from the issuance of common stock in connection with the exercise of employee stock options and $2.5
proceeds from the issuance of common stock in connection with the exercise of employee stock options and $2.5
million of excess tax benefits from share-based payments. We used cash of $16.6 million in 2006 for principal
million of excess tax benefits from share-based payments. We used cash of $16.6 million in 2006 for principal
payments on our debt obligations and $7.2 million to repurchase our common stock on the open market.
payments on our debt obligations and $7.2 million to repurchase our common stock on the open market.
Kadant Johnson Acquisition and 2005 Credit Agreement
Kadant Johnson Acquisition and 2005 Credit Agreement
We completed our acquisition of Kadant Johnson on May 11, 2005 for approximately $114.0 million, of
We completed our acquisition of Kadant Johnson on May 11, 2005 for approximately $114.0 million, of
which $101.5 million was paid in cash at closing, $1.6 million was paid in 2006 in settlement of post-closing
which $101.5 million was paid in cash at closing, $1.6 million was paid in 2006 in settlement of post-closing
adjustments, $4.8 million was paid for acquisition-related costs, and $6.1 million of additional consideration is to
adjustments, $4.8 million was paid for acquisition-related costs, and $6.1 million of additional consideration is to
be paid from 2006 to 2010 related to certain tax assets of Kadant Johnson, the value of which we expect to
be paid from 2006 to 2010 related to certain tax assets of Kadant Johnson, the value of which we expect to
realize. We paid $0.9 million of this additional consideration in each of 2006 and 2007. The remaining balance,
realize. We paid $0.9 million of this additional consideration in each of 2006 and 2007. The remaining balance,
of which $0.9 million is included in other current liabilities and $3.4 million is included in other long-term
of which $0.9 million is included in other current liabilities and $3.4 million is included in other long-term
liabilities in the accompanying consolidated balance sheet, is due over the next three years as follows: $0.9
liabilities in the accompanying consolidated balance sheet, is due over the next three years as follows: $0.9
million in each of 2008 and 2009, and $2.5 million in 2010. To fund $60 million of the purchase price, we
million in each of 2008 and 2009, and $2.5 million in 2010. To fund $60 million of the purchase price, we
entered into a term loan and revolving credit facility (2005 Credit Agreement) effective as of May 9, 2005, as
entered into a term loan and revolving credit facility (2005 Credit Agreement) effective as of May 9, 2005, as
subsequently amended, in the aggregate principal amount of up to $95 million, including a $35 million revolver.
subsequently amended, in the aggregate principal amount of up to $95 million, including a $35 million revolver.
The 2005 Credit Agreement included a $60 million term loan (2005 Term Loan), which was repayable in
The 2005 Credit Agreement included a $60 million term loan (2005 Term Loan), which was repayable in
quarterly installments over a five-year period.
quarterly installments over a five-year period.
In addition, the 2005 Credit Agreement contained negative covenants applicable to us and our subsidiaries,
In addition, the 2005 Credit Agreement contained negative covenants applicable to us and our subsidiaries,
including financial covenants requiring us to comply with a maximum consolidated leverage ratio and a
including financial covenants requiring us to comply with a maximum consolidated leverage ratio and a
minimum consolidated fixed charge coverage ratio. In addition to the financial covenants, we were also required
minimum consolidated fixed charge coverage ratio. In addition to the financial covenants, we were also required
to comply with covenants related to restrictions on liens, indebtedness, fundamental changes, dispositions of
to comply with covenants related to restrictions on liens, indebtedness, fundamental changes, dispositions of
property, making certain restricted payments (including dividends and stock repurchases), investments,
property, making certain restricted payments (including dividends and stock repurchases), investments,
transactions with affiliates, sale and leaseback transactions, swap agreements, changing our fiscal year, negative
transactions with affiliates, sale and leaseback transactions, swap agreements, changing our fiscal year, negative
pledges, arrangements affecting subsidiary distributions, and entering into new lines of business. As of
pledges, arrangements affecting subsidiary distributions, and entering into new lines of business. As of
December 29, 2007, we were in compliance with these covenants.
December 29, 2007, we were in compliance with these covenants.
On February 13, 2008, in connection with our entering the 2008 Credit Agreement, the 2005 Term Loan of
On February 13, 2008, in connection with our entering the 2008 Credit Agreement, the 2005 Term Loan of
$26 million was repaid and the 2005 Credit Agreement was terminated, including the joinder and guarantee
$26 million was repaid and the 2005 Credit Agreement was terminated, including the joinder and guarantee
agreements entered into by foreign subsidiary borrowers and certain domestic subsidiaries of Kadant.
agreements entered into by foreign subsidiary borrowers and certain domestic subsidiaries of Kadant.
2008 Credit Agreement
2008 Credit Agreement
On February 13, 2008, we entered into a five-year unsecured revolving credit facility (2008 Credit
On February 13, 2008, we entered into a five-year unsecured revolving credit facility (2008 Credit
Agreement) in the aggregate principal amount of up to $75 million, which includes an uncommitted unsecured
Agreement) in the aggregate principal amount of up to $75 million, which includes an uncommitted unsecured
incremental borrowing facility of up to an additional $75 million. We can borrow up to $75 million under the
incremental borrowing facility of up to an additional $75 million. We can borrow up to $75 million under the
2008 Credit Agreement with a sublimit of $60 million within the 2008 Credit Agreement available for the
2008 Credit Agreement with a sublimit of $60 million within the 2008 Credit Agreement available for the
issuances of letters of credit and bank guarantees. The principal on any borrowings made under the Credit
issuances of letters of credit and bank guarantees. The principal on any borrowings made under the Credit
Agreement is due on February 13, 2013. Interest on any loans outstanding under the 2008 Credit Agreement
Agreement is due on February 13, 2013. Interest on any loans outstanding under the 2008 Credit Agreement
accrues and is payable quarterly in arrears at one of the following rates selected by us (a) the prime rate plus an
accrues and is payable quarterly in arrears at one of the following rates selected by us (a) the prime rate plus an
applicable margin (up to .20%) or (b) a Eurocurrency rate plus an applicable margin (up to 1.20%). The
applicable margin (up to .20%) or (b) a Eurocurrency rate plus an applicable margin (up to 1.20%). The
applicable margin is determined based upon our total debt to earnings before interest, taxes, depreciation and
applicable margin is determined based upon our total debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) ratio. On February 13, 2008, we borrowed $20 million under the 2008 Credit Agreement
amortization (EBITDA) ratio. On February 13, 2008, we borrowed $20 million under the 2008 Credit Agreement
and applied the proceeds to repay a portion of our existing outstanding debt under the 2005 Credit Agreement.
and applied the proceeds to repay a portion of our existing outstanding debt under the 2005 Credit Agreement.
We used available cash of $6 million to repay the balance of our outstanding debt under the 2005 Credit
We used available cash of $6 million to repay the balance of our outstanding debt under the 2005 Credit
Agreement, which was then terminated.
Agreement, which was then terminated.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
The obligations of Kadant under the 2008 Credit Agreement may be accelerated upon the occurrence of an
The obligations of Kadant under the 2008 Credit Agreement may be accelerated upon the occurrence of an
event of default under the 2008 Credit Agreement, which includes customary events of default including without
event of default under the 2008 Credit Agreement, which includes customary events of default including without
limitation payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of
limitation payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of
representations or warranties, bankruptcy and insolvency related defaults, defaults relating to such matters as
representations or warranties, bankruptcy and insolvency related defaults, defaults relating to such matters as
Employment Retirement Income Security Act (ERISA), uninsured judgments and the failure to pay certain
Employment Retirement Income Security Act (ERISA), uninsured judgments and the failure to pay certain
indebtedness, and a change of control default.
indebtedness, and a change of control default.
The loans under the 2008 Credit Agreement are guaranteed by certain of our domestic subsidiaries pursuant
The loans under the 2008 Credit Agreement are guaranteed by certain of our domestic subsidiaries pursuant
to the Guarantee Agreement effective as of February 13, 2008. In addition, the 2008 Credit Agreement contains
to the Guarantee Agreement effective as of February 13, 2008. In addition, the 2008 Credit Agreement contains
negative covenants applicable to Kadant and its subsidiaries, including financial covenants requiring Kadant to
negative covenants applicable to Kadant and its subsidiaries, including financial covenants requiring Kadant to
comply with a maximum consolidated leverage ratio of 3.5 and a minimum consolidated fixed charge coverage
comply with a maximum consolidated leverage ratio of 3.5 and a minimum consolidated fixed charge coverage
ratio of 1.2, and restrictions on liens, indebtedness, fundamental changes, dispositions of property, making
ratio of 1.2, and restrictions on liens, indebtedness, fundamental changes, dispositions of property, making
certain restricted payments (including dividends and stock repurchases), investments, transactions with affiliates,
certain restricted payments (including dividends and stock repurchases), investments, transactions with affiliates,
sale and leaseback transactions, swap agreements, changing its fiscal year, arrangements affecting subsidiary
sale and leaseback transactions, swap agreements, changing its fiscal year, arrangements affecting subsidiary
distributions, entering into new lines of business, and certain actions related to the discontinued operation.
distributions, entering into new lines of business, and certain actions related to the discontinued operation.
The amount we are able to borrow under the 2008 Credit Agreement is the total borrowing capacity less any
The amount we are able to borrow under the 2008 Credit Agreement is the total borrowing capacity less any
outstanding borrowings, letters of credit and multi-currency borrowings issued under the 2008 Credit Agreement.
outstanding borrowings, letters of credit and multi-currency borrowings issued under the 2008 Credit Agreement.
As of February 13, 2008, we had $50.6 million of borrowing capacity available under the committed portion of
As of February 13, 2008, we had $50.6 million of borrowing capacity available under the committed portion of
the 2008 Credit Agreement.
the 2008 Credit Agreement.
Commercial Real Estate Loan
Commercial Real Estate Loan
On May 4, 2006, we borrowed $10 million under a promissory note (2006 Commercial Real Estate Loan).
On May 4, 2006, we borrowed $10 million under a promissory note (2006 Commercial Real Estate Loan).
The 2006 Commercial Real Estate Loan is repayable in quarterly installments of $125 thousand over a ten-year
The 2006 Commercial Real Estate Loan is repayable in quarterly installments of $125 thousand over a ten-year
period with the remaining principal balance of $5 million due upon maturity. Interest on the 2006 Commercial
period with the remaining principal balance of $5 million due upon maturity. Interest on the 2006 Commercial
Real Estate Loan accrues and is payable quarterly in arrears at one of the following rates selected by us (a) the
Real Estate Loan accrues and is payable quarterly in arrears at one of the following rates selected by us (a) the
prime rate or (b) the three-month London Inter-Bank Offered Rate (LIBOR) plus a 1% margin. Effective
prime rate or (b) the three-month London Inter-Bank Offered Rate (LIBOR) plus a 1% margin. Effective
February 14, 2008, this margin was lowered to .75%. The 2006 Commercial Real Estate Loan is guaranteed and
February 14, 2008, this margin was lowered to .75%. The 2006 Commercial Real Estate Loan is guaranteed and
secured by real estate and related personal property of Kadant and certain of its domestic subsidiaries, located in
secured by real estate and related personal property of Kadant and certain of its domestic subsidiaries, located in
Theodore, Alabama; Auburn, Massachusetts; Three Rivers, Michigan; and Queensbury, New York, pursuant to
Theodore, Alabama; Auburn, Massachusetts; Three Rivers, Michigan; and Queensbury, New York, pursuant to
mortgage and security agreements dated May 4, 2006 (Mortgage and Security Agreements).
mortgage and security agreements dated May 4, 2006 (Mortgage and Security Agreements).
Our obligations under the 2006 Commercial Real Estate Loan may be accelerated upon the occurrence of an
Our obligations under the 2006 Commercial Real Estate Loan may be accelerated upon the occurrence of an
event of default under the 2006 Commercial Real Estate Loan and the Mortgage and Security Agreements, which
event of default under the 2006 Commercial Real Estate Loan and the Mortgage and Security Agreements, which
includes customary events of default including without limitation payment defaults, defaults in the performance
includes customary events of default including without limitation payment defaults, defaults in the performance
of covenants and obligations, the inaccuracy of representations or warranties, bankruptcy- and insolvency-related
of covenants and obligations, the inaccuracy of representations or warranties, bankruptcy- and insolvency-related
defaults, liens on the properties or collateral and uninsured judgments. In addition, the occurrence of an event of
defaults, liens on the properties or collateral and uninsured judgments. In addition, the occurrence of an event of
default under the 2008 Credit Agreement or any successor credit facility would be an event of default under the
default under the 2008 Credit Agreement or any successor credit facility would be an event of default under the
2006 Commercial Real Estate Loan.
2006 Commercial Real Estate Loan.
Kadant Jining Acquisition, Loans, and Credit Facilities
Kadant Jining Acquisition, Loans, and Credit Facilities
On June 2, 2006, our Kadant Jining subsidiary assumed responsibility for the operation of Huayi and, by
On June 2, 2006, our Kadant Jining subsidiary assumed responsibility for the operation of Huayi and, by
September 30, 2006, acquired the assets of Huayi for approximately $21.2 million, net of assumed liabilities of
September 30, 2006, acquired the assets of Huayi for approximately $21.2 million, net of assumed liabilities of
$2.3 million. Of the total consideration, $17.3 million was paid in cash, including $1.0 million for acquisition-
$2.3 million. Of the total consideration, $17.3 million was paid in cash, including $1.0 million for acquisition-
related costs. Of the remaining purchase obligation totaling $3.8 million, $2.4 million was paid as of
related costs. Of the remaining purchase obligation totaling $3.8 million, $2.4 million was paid as of
December 29, 2007, $0.5 million was paid in January 2008 and the remainder will be paid in 2008 if certain
December 29, 2007, $0.5 million was paid in January 2008 and the remainder will be paid in 2008 if certain
indemnification obligations are satisfied.
indemnification obligations are satisfied.
To finance a portion of the acquisition, on June 6, 2006, Kadant Jining borrowed 40 million Chinese
To finance a portion of the acquisition, on June 6, 2006, Kadant Jining borrowed 40 million Chinese
renminbi, or $5.5 million at the December 29, 2007 exchange rate, under a 47-month interest-only loan (2006
renminbi, or $5.5 million at the December 29, 2007 exchange rate, under a 47-month interest-only loan (2006
Kadant Jining Loan). Interest on the 2006 Kadant Jining Loan accrued and was payable quarterly in arrears based
Kadant Jining Loan). Interest on the 2006 Kadant Jining Loan accrued and was payable quarterly in arrears based
on the interest rate published by The People’s Bank of China for a loan of the same term less 10%. The 2006
on the interest rate published by The People’s Bank of China for a loan of the same term less 10%. The 2006
Kadant Jining Loan was repaid in January 2008.
Kadant Jining Loan was repaid in January 2008.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
On July 30, 2007, our Kadant Jining subsidiary and our Kadant Pulp and Paper Equipment Light Machinery
On July 30, 2007, our Kadant Jining subsidiary and our Kadant Pulp and Paper Equipment Light Machinery
Co., Ltd. subsidiary (Kadant Yanzhou) each entered into a short-term credit line facility agreement (Facilities)
Co., Ltd. subsidiary (Kadant Yanzhou) each entered into a short-term credit line facility agreement (Facilities)
that would allow Kadant Jining to borrow up to an aggregate principal amount of 45 million Chinese renminbi, or
that would allow Kadant Jining to borrow up to an aggregate principal amount of 45 million Chinese renminbi, or
approximately $6.2 million as of December 29, 2007, and Kadant Yanzhou to borrow up to an aggregate
approximately $6.2 million as of December 29, 2007, and Kadant Yanzhou to borrow up to an aggregate
principal amount of 15 million Chinese renminbi, or approximately $2.1 million as of December 29, 2007. Both
principal amount of 15 million Chinese renminbi, or approximately $2.1 million as of December 29, 2007. Both
credit facilities have a term of 364 days. Borrowings made under the Facilities will bear interest at 90% of the
credit facilities have a term of 364 days. Borrowings made under the Facilities will bear interest at 90% of the
applicable short-term interest rate for a Chinese renminbi loan of comparable term as published by The People’s
applicable short-term interest rate for a Chinese renminbi loan of comparable term as published by The People’s
Bank of China. The Facilities will be used for general working capital purposes. We have provided a guaranty,
Bank of China. The Facilities will be used for general working capital purposes. We have provided a guaranty,
dated July 30, 2007, securing the payment of all obligations made under the Facilities and providing a cross-
dated July 30, 2007, securing the payment of all obligations made under the Facilities and providing a cross-
default to our other senior indebtedness, including the 2008 Credit Agreement.
default to our other senior indebtedness, including the 2008 Credit Agreement.
On January 28, 2008, our Kadant Jining subsidiary borrowed 40 million Chinese renminbi, or approximately
On January 28, 2008, our Kadant Jining subsidiary borrowed 40 million Chinese renminbi, or approximately
$5.5 million at the December 29, 2007 exchange rate (2008 Kadant Jining Loan). Principal on the 2008 Kadant
$5.5 million at the December 29, 2007 exchange rate (2008 Kadant Jining Loan). Principal on the 2008 Kadant
Jining Loan is due as follows: 24 million Chinese renminbi, or approximately $3.3 million, on January 28, 2010
Jining Loan is due as follows: 24 million Chinese renminbi, or approximately $3.3 million, on January 28, 2010
and 16 million Chinese renminbi, or approximately $2.2 million, on January 28, 2011. Interest on the 2008
and 16 million Chinese renminbi, or approximately $2.2 million, on January 28, 2011. Interest on the 2008
Kadant Jining Loan accrues and is payable quarterly in arrears based on the interest rate published by The
Kadant Jining Loan accrues and is payable quarterly in arrears based on the interest rate published by The
People’s Bank of China for a loan of the same term less 5%. The proceeds from the 2008 Kadant Jining Loan
People’s Bank of China for a loan of the same term less 5%. The proceeds from the 2008 Kadant Jining Loan
were used to repay the 2006 Kadant Jining Loan totaling $5.5 million at December 29, 2007.
were used to repay the 2006 Kadant Jining Loan totaling $5.5 million at December 29, 2007.
Interest Rate Swap Agreements
Interest Rate Swap Agreements
To hedge exposure to movements in the variable interest rate on the 2005 Term Loan, we entered into a
To hedge exposure to movements in the variable interest rate on the 2005 Term Loan, we entered into a
swap agreement (2005 Swap Agreement), which was effective May 17, 2005, to convert $36 million of the
swap agreement (2005 Swap Agreement), which was effective May 17, 2005, to convert $36 million of the
principal balance of the $60 million term loan from a floating rate to a fixed rate of interest. The 2005 Swap
principal balance of the $60 million term loan from a floating rate to a fixed rate of interest. The 2005 Swap
Agreement had a five-year term, the same quarterly payment dates as the hedged portion of the term loan, and
Agreement had a five-year term, the same quarterly payment dates as the hedged portion of the term loan, and
reduces proportionately in line with the amortization of the 2005 Term Loan. Under the 2005 Swap Agreement,
reduces proportionately in line with the amortization of the 2005 Term Loan. Under the 2005 Swap Agreement,
we received a three-month LIBOR rate and paid a fixed rate of interest of 4.125%. On February 13, 2008, we
we received a three-month LIBOR rate and paid a fixed rate of interest of 4.125%. On February 13, 2008, we
terminated the 2005 Swap Agreement with a resulting loss of $0.4 million, which will be amortized to interest
terminated the 2005 Swap Agreement with a resulting loss of $0.4 million, which will be amortized to interest
expense through the original maturity date of the 2005 Term Loan.
expense through the original maturity date of the 2005 Term Loan.
To hedge the exposure to movements in the variable interest rate on the 2006 Commercial Real Estate Loan,
To hedge the exposure to movements in the variable interest rate on the 2006 Commercial Real Estate Loan,
on May 3, 2006, we entered into a swap agreement effective May 5, 2006, which converts the 2006 Commercial
on May 3, 2006, we entered into a swap agreement effective May 5, 2006, which converts the 2006 Commercial
Real Estate Loan from a floating rate to a fixed rate of interest (2006 Swap Agreement). The 2006 Swap
Real Estate Loan from a floating rate to a fixed rate of interest (2006 Swap Agreement). The 2006 Swap
Agreement has a ten-year term; the same quarterly payment dates as the 2006 Commercial Real Estate Loan, and
Agreement has a ten-year term; the same quarterly payment dates as the 2006 Commercial Real Estate Loan, and
reduces in line with the amortization of the 2006 Commercial Real Estate Loan. The 2006 Swap Agreement
reduces in line with the amortization of the 2006 Commercial Real Estate Loan. The 2006 Swap Agreement
automatically terminates in the event there are no outstanding borrowings under the 2008 Credit Agreement (or
automatically terminates in the event there are no outstanding borrowings under the 2008 Credit Agreement (or
successor credit facility), the 2006 Commercial Real Estate Loan, or any other borrowing under which Citizens
successor credit facility), the 2006 Commercial Real Estate Loan, or any other borrowing under which Citizens
Bank of Massachusetts is a lender. Under the 2006 Swap Agreement, we will receive a three-month LIBOR rate
Bank of Massachusetts is a lender. Under the 2006 Swap Agreement, we will receive a three-month LIBOR rate
and pay a fixed rate of interest of 5.63%. The guarantee and default provisions of the 2008 Credit Agreement
and pay a fixed rate of interest of 5.63%. The guarantee and default provisions of the 2008 Credit Agreement
(and any successor credit facility) and the 2006 Commercial Real Estate Loan, including those contained in the
(and any successor credit facility) and the 2006 Commercial Real Estate Loan, including those contained in the
Mortgage and Security Agreements, also apply to the 2006 Swap Agreement.
Mortgage and Security Agreements, also apply to the 2006 Swap Agreement.
To hedge the exposure to movements in the 3-month LIBOR rate on outstanding debt, on February 13,
To hedge the exposure to movements in the 3-month LIBOR rate on outstanding debt, on February 13,
2008, we entered into a swap agreement (2008 Swap Agreement). The 2008 Swap Agreement has a five-year
2008, we entered into a swap agreement (2008 Swap Agreement). The 2008 Swap Agreement has a five-year
term and a $15 million notional value, which decreases to $10 million on December 31, 2010, and $5 million on
term and a $15 million notional value, which decreases to $10 million on December 31, 2010, and $5 million on
December 30, 2011. Under the 2008 Swap Agreement, on a quarterly basis we will receive a 3-month LIBOR
December 30, 2011. Under the 2008 Swap Agreement, on a quarterly basis we will receive a 3-month LIBOR
rate and pay a fixed rate of interest of 3.265%.
rate and pay a fixed rate of interest of 3.265%.
Additional Liquidity and Capital Resources
Additional Liquidity and Capital Resources
On May 3, 2006, our board of directors authorized the repurchase of up to $15.0 million of our equity
On May 3, 2006, our board of directors authorized the repurchase of up to $15.0 million of our equity
securities during the period from May 18, 2006 through May 18, 2007. We purchased 508,500 shares for $12.4
securities during the period from May 18, 2006 through May 18, 2007. We purchased 508,500 shares for $12.4
million under this authorization. On May 2, 2007, our board of directors approved the repurchase by us of up to
million under this authorization. On May 2, 2007, our board of directors approved the repurchase by us of up to
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
$20 million of our equity securities during the period from May 2, 2007 through May 2, 2008. Repurchases under
$20 million of our equity securities during the period from May 2, 2007 through May 2, 2008. Repurchases under
the May 2007 authorization may be made in public or private transactions, including under Securities Exchange
the May 2007 authorization may be made in public or private transactions, including under Securities Exchange
Act Rule 10b-5-1 trading plans. As of December 29, 2007, no purchases had been made under the May 2007
Act Rule 10b-5-1 trading plans. As of December 29, 2007, no purchases had been made under the May 2007
authorization.
authorization.
It is our practice to reinvest indefinitely the earnings of our international subsidiaries, except in instances in
It is our practice to reinvest indefinitely the earnings of our international subsidiaries, except in instances in
which we can remit such earnings without a significant associated tax cost. Through December 29, 2007, we
which we can remit such earnings without a significant associated tax cost. Through December 29, 2007, we
have not provided for U.S. income taxes on approximately $80.9 million of unremitted foreign earnings. The
have not provided for U.S. income taxes on approximately $80.9 million of unremitted foreign earnings. The
U.S. tax cost has not been determined due to the fact that it is not practicable to estimate at this time. The related
U.S. tax cost has not been determined due to the fact that it is not practicable to estimate at this time. The related
foreign tax withholding, which would be required if we remitted the foreign earnings to the U.S., would be
foreign tax withholding, which would be required if we remitted the foreign earnings to the U.S., would be
approximately $3.1 million.
approximately $3.1 million.
It is our policy to provide for uncertain tax positions and the related interest and penalties based upon
It is our policy to provide for uncertain tax positions and the related interest and penalties based upon
management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by
management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by
tax authorities. At December 29, 2007, we had a liability for unrecognized tax benefits and an accrual for the
tax authorities. At December 29, 2007, we had a liability for unrecognized tax benefits and an accrual for the
payment of interest and penalties totaling $5.3 million. To the extent we prevail in matters for which a liability
payment of interest and penalties totaling $5.3 million. To the extent we prevail in matters for which a liability
for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability, our
for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability, our
effective tax rate in a given financial statement period may be affected.
effective tax rate in a given financial statement period may be affected.
On October 21, 2005, Composites LLC sold its composites business, presented as a discontinued operation
On October 21, 2005, Composites LLC sold its composites business, presented as a discontinued operation
in the accompanying consolidated financial statements. Under the terms of the asset purchase agreement,
in the accompanying consolidated financial statements. Under the terms of the asset purchase agreement,
Composites LLC retained certain liabilities associated with the operation of the business prior to the sale,
Composites LLC retained certain liabilities associated with the operation of the business prior to the sale,
including warranty obligations related to products manufactured prior to the sale date. Composites LLC retained
including warranty obligations related to products manufactured prior to the sale date. Composites LLC retained
all of the cash proceeds received from the asset sale and continued to administer and pay warranty claims from
all of the cash proceeds received from the asset sale and continued to administer and pay warranty claims from
the sale proceeds into the third quarter of 2007. On September 30, 2007, Composites LLC announced that it no
the sale proceeds into the third quarter of 2007. On September 30, 2007, Composites LLC announced that it no
longer had sufficient funds to honor warranty claims, was unable to pay or process warranty claims, and ceased
longer had sufficient funds to honor warranty claims, was unable to pay or process warranty claims, and ceased
doing business. At December 29, 2007, the accrued warranty costs for Composites LLC were $2.1 million.
doing business. At December 29, 2007, the accrued warranty costs for Composites LLC were $2.1 million.
Although we currently have no material commitments for capital expenditures, we plan to make
Although we currently have no material commitments for capital expenditures, we plan to make
expenditures of approximately $8 to $9 million during 2008 for property, plant, and equipment.
expenditures of approximately $8 to $9 million during 2008 for property, plant, and equipment.
In the future, our liquidity position will be primarily affected by the level of cash flows from operations,
In the future, our liquidity position will be primarily affected by the level of cash flows from operations,
cash paid to satisfy debt repayments, capital projects, stock repurchases, or additional acquisitions, if any. We
cash paid to satisfy debt repayments, capital projects, stock repurchases, or additional acquisitions, if any. We
believe that our existing resources, together with the cash available from our credit facilities and the cash we
believe that our existing resources, together with the cash available from our credit facilities and the cash we
expect to generate from continuing operations, will be sufficient to meet the capital requirements of our current
expect to generate from continuing operations, will be sufficient to meet the capital requirements of our current
operations for the foreseeable future.
operations for the foreseeable future.
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Kadant Inc.
Kadant Inc.
2007 Annual Report
2007 Annual Report
Contractual Obligations and Other Commercial Commitments
Contractual Obligations and Other Commercial Commitments
The following table summarizes our known contractual obligations and commercial commitments to make
The following table summarizes our known contractual obligations and commercial commitments to make
future payments or other consideration pursuant to certain contracts as of December 29, 2007, as well as an
future payments or other consideration pursuant to certain contracts as of December 29, 2007, as well as an
estimate of the timing in which these obligations are expected to be satisfied. Detailed information concerning
estimate of the timing in which these obligations are expected to be satisfied. Detailed information concerning
these obligations and commitments can be found in Notes 2, 6 and 7 to our consolidated financial statements.
these obligations and commitments can be found in Notes 2, 6 and 7 to our consolidated financial statements.
(In millions)
(In millions)
Contractual Obligations and Other Commitments: (a)(b)
Contractual Obligations and Other Commitments: (a)(b)
Long-term debt obligations (c) . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt obligations (c) . . . . . . . . . . . . . . . . . . . . . . . .
Interest (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Kadant Johnson acquisition consideration (e) . . . . . . . . . . . .
Kadant Johnson acquisition consideration (e) . . . . . . . . . . . .
Kadant Jining acquisition consideration (f) . . . . . . . . . . . . . .
Kadant Jining acquisition consideration (f) . . . . . . . . . . . . . .
Letters of credit (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letters of credit (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total (h)(i)
Total (h)(i)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments Due by Period or Expiration of Commitment
Payments Due by Period or Expiration of Commitment
Less than
Less than
1 Year
1 Year
1-3
1-3
Years
Years
4-5
4-5
Years
Years
After
After
5 Years
5 Years
Total
Total
$10.2
$10.2
1.9
1.9
2.0
2.0
0.9
0.9
1.5
1.5
14.7
14.7
$31.2
$31.2
$22.7
$22.7
2.1
2.1
2.3
2.3
3.4
3.4
–
–
9.2
9.2
$39.7
$39.7
$1.0
$1.0
1.0
1.0
1.4
1.4
–
–
–
–
0.1
0.1
$3.5
$3.5
$6.8
$6.8
1.3
1.3
0.3
0.3
–
–
–
–
–
–
$8.4
$8.4
$40.7
$40.7
6.3
6.3
6.0
6.0
4.3
4.3
1.5
1.5
24.0
24.0
$82.8
$82.8
(a) We have purchase obligations related to the acquisition of raw material made in the ordinary course of
(a) We have purchase obligations related to the acquisition of raw material made in the ordinary course of
(b)
(b)
business that may be terminated with minimal notice and are excluded from this analysis.
business that may be terminated with minimal notice and are excluded from this analysis.
In the ordinary course of business, we are required to issue limited performance guarantees, which do not
In the ordinary course of business, we are required to issue limited performance guarantees, which do not
require letters of credit, relating to our equipment and systems. We typically limit our liability under these
require letters of credit, relating to our equipment and systems. We typically limit our liability under these
guarantees to amounts that would not exceed the value of the contract. We believe that we have adequate
guarantees to amounts that would not exceed the value of the contract. We believe that we have adequate
reserves for any potential liability in connection with such guarantees. These guarantees are not included in
reserves for any potential liability in connection with such guarantees. These guarantees are not included in
this table.
this table.
(c) As of February 13, 2008, based on the terms of the 2008 Credit Agreement and the termination of the 2005
(c) As of February 13, 2008, based on the terms of the 2008 Credit Agreement and the termination of the 2005
Credit Agreement, the annual payment requirements for long-term debt obligations are $0.5 million in 2008,
Credit Agreement, the annual payment requirements for long-term debt obligations are $0.5 million in 2008,
$6.5 million in 2009 to 2010, $1.0 million in 2011 to 2012, and $26.7 million in 2013 to 2016.
$6.5 million in 2009 to 2010, $1.0 million in 2011 to 2012, and $26.7 million in 2013 to 2016.
(d) Amounts assume interest rates on variable rate debt remain unchanged from rates as of December 29, 2007.
(d) Amounts assume interest rates on variable rate debt remain unchanged from rates as of December 29, 2007.
In addition to the consideration paid at closing for Kadant Johnson, $4.3 million will be paid through 2010
In addition to the consideration paid at closing for Kadant Johnson, $4.3 million will be paid through 2010
(e)
(e)
related to certain tax assets of Kadant Johnson, the value of which we expect to realize.
related to certain tax assets of Kadant Johnson, the value of which we expect to realize.
In addition to the consideration paid at closing for Kadant Jining, $0.5 million was paid in January 2008 and
In addition to the consideration paid at closing for Kadant Jining, $0.5 million was paid in January 2008 and
the remaining $1.0 million will be paid in 2008 if certain indemnification obligations are satisfied.
the remaining $1.0 million will be paid in 2008 if certain indemnification obligations are satisfied.
(f)
(f)
(g) Primarily relates to performance obligations and customer deposit guarantees. This total excludes letters of
(g) Primarily relates to performance obligations and customer deposit guarantees. This total excludes letters of
credit of $11.3 million, which guarantee payment of amounts accrued on the balance sheet and reflected in
credit of $11.3 million, which guarantee payment of amounts accrued on the balance sheet and reflected in
the table within long-term debt obligations, Kadant Johnson acquisition consideration, and Kadant Jining
the table within long-term debt obligations, Kadant Johnson acquisition consideration, and Kadant Jining
acquisition consideration. Typically, these performance obligations and customer deposit guarantees have
acquisition consideration. Typically, these performance obligations and customer deposit guarantees have
expired without being drawn upon.
expired without being drawn upon.
(h) This table excludes $0.3 million of accrued restructuring costs and $8.3 million of accrued pension and
(h) This table excludes $0.3 million of accrued restructuring costs and $8.3 million of accrued pension and
other post-retirement plans, included in other long-term liabilities in the accompanying consolidated
other post-retirement plans, included in other long-term liabilities in the accompanying consolidated
financial statements, as these liabilities are not subject to fixed payment terms. We expect that the accrued
financial statements, as these liabilities are not subject to fixed payment terms. We expect that the accrued
restructuring costs will be paid in 2008.
restructuring costs will be paid in 2008.
(i) This table excludes a liability for unrecognized tax benefits and an accrual for the payment of interest and
(i) This table excludes a liability for unrecognized tax benefits and an accrual for the payment of interest and
penalties totaling $5.3 million. Due to the uncertain nature related to these tax matters, we are unable to
penalties totaling $5.3 million. Due to the uncertain nature related to these tax matters, we are unable to
make a reasonably reliable estimate if and when cash settlements with the appropriate taxing authorities will
make a reasonably reliable estimate if and when cash settlements with the appropriate taxing authorities will
occur.
occur.
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Provisions in financial guarantees or commitments, debt or lease agreements, or other arrangements could
Provisions in financial guarantees or commitments, debt or lease agreements, or other arrangements could
trigger a requirement for an early payment, additional collateral support, amended terms, or acceleration of
trigger a requirement for an early payment, additional collateral support, amended terms, or acceleration of
maturity.
maturity.
We do not have special-purpose entities nor do we use off-balance-sheet financing arrangements.
We do not have special-purpose entities nor do we use off-balance-sheet financing arrangements.
In the future, our liquidity position will be primarily affected by the level of cash flows from operations and
In the future, our liquidity position will be primarily affected by the level of cash flows from operations and
the amount of cash expended on debt repayments, capital projects, stock repurchases, or additional acquisitions,
the amount of cash expended on debt repayments, capital projects, stock repurchases, or additional acquisitions,
if any. We believe that our existing resources, together with the cash available from our credit facility and the
if any. We believe that our existing resources, together with the cash available from our credit facility and the
cash we expect to generate from continuing operations, are sufficient to meet the capital requirements of our
cash we expect to generate from continuing operations, are sufficient to meet the capital requirements of our
current operations for the foreseeable future.
current operations for the foreseeable future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which
We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which
could affect our future results of operations and financial condition. We manage our exposure to these risks
could affect our future results of operations and financial condition. We manage our exposure to these risks
through our regular operating and financing activities. We entered into “receive-variable and pay-fixed” swap
through our regular operating and financing activities. We entered into “receive-variable and pay-fixed” swap
agreements in 2006 and 2005 to hedge a portion of our variable rate long-term debt. Additionally, we use short-
agreements in 2006 and 2005 to hedge a portion of our variable rate long-term debt. Additionally, we use short-
term forward contracts to manage certain exposures to foreign currencies. We enter into forward foreign
term forward contracts to manage certain exposures to foreign currencies. We enter into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than our
exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than our
subsidiaries’ local currencies. We do not engage in extensive foreign currency hedging activities; however, the
subsidiaries’ local currencies. We do not engage in extensive foreign currency hedging activities; however, the
purpose of our foreign currency hedging activities is to protect our local currency cash flows related to these
purpose of our foreign currency hedging activities is to protect our local currency cash flows related to these
commitments from fluctuations in foreign exchange rates. Our forward foreign exchange contracts principally
commitments from fluctuations in foreign exchange rates. Our forward foreign exchange contracts principally
hedge transactions denominated in U.S. dollars. Gains and losses arising from forward contracts are recognized
hedge transactions denominated in U.S. dollars. Gains and losses arising from forward contracts are recognized
as offsets to gains and losses resulting from the transactions being hedged. We do not use financial instruments
as offsets to gains and losses resulting from the transactions being hedged. We do not use financial instruments
for trading purposes.
for trading purposes.
Interest Rates
Interest Rates
Our cash and cash equivalents are sensitive to changes in interest rates. Interest rate changes would result in
Our cash and cash equivalents are sensitive to changes in interest rates. Interest rate changes would result in
a change in interest income due to the difference between the current interest rates on cash and cash equivalents
a change in interest income due to the difference between the current interest rates on cash and cash equivalents
and the variable rates to which these financial instruments may adjust in the future. A 10% decrease in year-end
and the variable rates to which these financial instruments may adjust in the future. A 10% decrease in year-end
interest rates would have resulted in a negative impact on our net income of $0.1 million in both 2007 and 2006.
interest rates would have resulted in a negative impact on our net income of $0.1 million in both 2007 and 2006.
A portion of our outstanding debt is sensitive to changes in interest rates. We hedged $30.9 million and
A portion of our outstanding debt is sensitive to changes in interest rates. We hedged $30.9 million and
$37.9 million of our debt at year-end 2007 and 2006, respectively, with “receive-variable pay-fixed” swap
$37.9 million of our debt at year-end 2007 and 2006, respectively, with “receive-variable pay-fixed” swap
agreements. The fair values of the swap agreements are sensitive to changes in long-term swap rates. A 10%
agreements. The fair values of the swap agreements are sensitive to changes in long-term swap rates. A 10%
decrease in the long-term swap rates would have resulted in an increase in unrealized losses of $0.3 million and
decrease in the long-term swap rates would have resulted in an increase in unrealized losses of $0.3 million and
$0.1 million as of year-end 2007 and 2006, respectively. The remaining unhedged portion of the debt totaling
$0.1 million as of year-end 2007 and 2006, respectively. The remaining unhedged portion of the debt totaling
$9.8 million and $16.1 million as of year-end 2007 and 2006, respectively, is sensitive to changes in interest
$9.8 million and $16.1 million as of year-end 2007 and 2006, respectively, is sensitive to changes in interest
rates. As of year-end 2007 and 2006, the interest rate on the unhedged portion of our U.S. debt was based on
rates. As of year-end 2007 and 2006, the interest rate on the unhedged portion of our U.S. debt was based on
LIBOR and for our foreign debt based on rates established by The People’s Bank of China. A 10% increase in
LIBOR and for our foreign debt based on rates established by The People’s Bank of China. A 10% increase in
the year-end rates would have resulted in a negative impact on our net income of $0.1 million in both 2007 and
the year-end rates would have resulted in a negative impact on our net income of $0.1 million in both 2007 and
2006.
2006.
Currency Exchange Rates
Currency Exchange Rates
We generally view our investment in foreign subsidiaries in a functional currency other than our reporting
We generally view our investment in foreign subsidiaries in a functional currency other than our reporting
currency as long-term. Our investment in foreign subsidiaries is sensitive to fluctuations in foreign currency
currency as long-term. Our investment in foreign subsidiaries is sensitive to fluctuations in foreign currency
exchange rates. The functional currencies of our foreign subsidiaries are principally denominated in euros,
exchange rates. The functional currencies of our foreign subsidiaries are principally denominated in euros,
British pounds sterling, Mexican pesos, Canadian dollars, Chinese renminbi and Brazilian reals. The effect of
British pounds sterling, Mexican pesos, Canadian dollars, Chinese renminbi and Brazilian reals. The effect of
changes in foreign exchange rates on our net investment in foreign subsidiaries is reflected in the “accumulated
changes in foreign exchange rates on our net investment in foreign subsidiaries is reflected in the “accumulated
other comprehensive items” component of shareholders’ investment. A 10% depreciation in functional currencies
other comprehensive items” component of shareholders’ investment. A 10% depreciation in functional currencies
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2007 Annual Report
at year-end 2007 and 2006, relative to the U.S. dollar, would have resulted in a reduction in shareholders’
at year-end 2007 and 2006, relative to the U.S. dollar, would have resulted in a reduction in shareholders’
investment of $16.6 million and $13.3 million, respectively.
investment of $16.6 million and $13.3 million, respectively.
The fair value of forward foreign exchange contracts is sensitive to fluctuations in foreign currency
The fair value of forward foreign exchange contracts is sensitive to fluctuations in foreign currency
exchange rates. The fair value of forward foreign exchange contracts is the estimated amount that we would pay
exchange rates. The fair value of forward foreign exchange contracts is the estimated amount that we would pay
or receive upon termination of the contracts, taking into account the change in foreign currency exchange rates. A
or receive upon termination of the contracts, taking into account the change in foreign currency exchange rates. A
10% depreciation in year-end 2007 and 2006 foreign currency exchange rates related to our contracts would have
10% depreciation in year-end 2007 and 2006 foreign currency exchange rates related to our contracts would have
resulted in an increase in unrealized losses on forward foreign exchange contracts of $1.5 million and
resulted in an increase in unrealized losses on forward foreign exchange contracts of $1.5 million and
$0.5 million in 2007 and 2006, respectively. Since we use forward foreign exchange contracts as hedges of firm
$0.5 million in 2007 and 2006, respectively. Since we use forward foreign exchange contracts as hedges of firm
purchase and sale commitments, the unrealized gain or loss on forward foreign currency exchange contracts
purchase and sale commitments, the unrealized gain or loss on forward foreign currency exchange contracts
resulting from changes in foreign currency exchange rates would be offset by corresponding changes in the fair
resulting from changes in foreign currency exchange rates would be offset by corresponding changes in the fair
value of the hedged items.
value of the hedged items.
Item 8. Financial Statements and Supplementary Data
Item 8. Financial Statements and Supplementary Data
This data is submitted as a separate section to this Report. See Item 15, “Exhibits and Financial Statement
This data is submitted as a separate section to this Report. See Item 15, “Exhibits and Financial Statement
Schedules.”
Schedules.”
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Not applicable.
Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 29, 2007.
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 29, 2007.
The term “disclosure controls and procedures,” as defined in Securities Exchange Act Rules 13a-15(e) and
The term “disclosure controls and procedures,” as defined in Securities Exchange Act Rules 13a-15(e) and
15d-15(e), means controls and other procedures of a company that are designed to ensure that information
15d-15(e), means controls and other procedures of a company that are designed to ensure that information
required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded,
required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure
processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information
controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its principal executive and principal
accumulated and communicated to the company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes
financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable
that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-
assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-
benefit relationship of possible controls and procedures. Based upon the evaluation of our disclosure controls and
benefit relationship of possible controls and procedures. Based upon the evaluation of our disclosure controls and
procedures as of December 29, 2007, our Chief Executive Officer and Chief Financial Officer concluded that as
procedures as of December 29, 2007, our Chief Executive Officer and Chief Financial Officer concluded that as
of December 29, 2007, our disclosure controls and procedures were effective at the reasonable assurance level.
of December 29, 2007, our disclosure controls and procedures were effective at the reasonable assurance level.
Evaluation of Changes in Internal Controls over Financial Reporting
Evaluation of Changes in Internal Controls over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rules
There have not been any changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended
December 29, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control
December 29, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
over financial reporting.
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Management’s Report on Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Our management
reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Our management
assessed the effectiveness of our internal control over financial reporting as of December 29, 2007. In making
assessed the effectiveness of our internal control over financial reporting as of December 29, 2007. In making
this assessment, our management used the criteria set forth in “Internal Control – Integrated Framework” issued
this assessment, our management used the criteria set forth in “Internal Control – Integrated Framework” issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment,
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment,
management believes that, as of December 29, 2007 our internal control over financial reporting is effective
management believes that, as of December 29, 2007 our internal control over financial reporting is effective
based on the criteria issued by COSO.
based on the criteria issued by COSO.
Because of inherent limitations, internal control over financial reporting may not prevent or detect
Because of inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
procedures may deteriorate.
Our independent registered public accountants, Ernst & Young LLP, have issued an audit report on our
Our independent registered public accountants, Ernst & Young LLP, have issued an audit report on our
internal control over financial reporting, which is included herein on page F-3 and incorporated into this Item 9A
internal control over financial reporting, which is included herein on page F-3 and incorporated into this Item 9A
by reference.
by reference.
Item 9B. Other Information
Item 9B. Other Information
Not applicable.
Not applicable.
PART III
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 10. Directors, Executive Officers, and Corporate Governance
This information will be under the heading “Election of Directors” in our 2008 proxy statement for our 2008
This information will be under the heading “Election of Directors” in our 2008 proxy statement for our 2008
Annual Meeting of Shareholders and is incorporated in this Report by reference, except as follows. The
Annual Meeting of Shareholders and is incorporated in this Report by reference, except as follows. The
information concerning executive officers is included under the heading “Executive Officers of the Registrant” in
information concerning executive officers is included under the heading “Executive Officers of the Registrant” in
Item 1 of Part I of this Report.
Item 1 of Part I of this Report.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) Beneficial Ownership Reporting Compliance
The information required under Item 405 of Regulation S-K is included under the heading “Stock
The information required under Item 405 of Regulation S-K is included under the heading “Stock
Ownership–Section 16(a) Beneficial Ownership Reporting Compliance” in our 2008 proxy statement and is
Ownership–Section 16(a) Beneficial Ownership Reporting Compliance” in our 2008 proxy statement and is
incorporated in this Report by reference.
incorporated in this Report by reference.
Corporate Governance
Corporate Governance
The information required under Item 406 of Regulation S-K will be included under the heading “Election of
The information required under Item 406 of Regulation S-K will be included under the heading “Election of
Directors – Corporate Governance – Code of Business Conduct and Ethics” in our 2008 proxy statement and is
Directors – Corporate Governance – Code of Business Conduct and Ethics” in our 2008 proxy statement and is
incorporated in this Report by reference.
incorporated in this Report by reference.
Item 11. Executive Compensation
Item 11. Executive Compensation
This information will be included under the headings “Executive Compensation”, “Compensation
This information will be included under the headings “Executive Compensation”, “Compensation
Committee Interlocks and Insider Participation”, and “Compensation Committee Report” in our 2008 proxy
Committee Interlocks and Insider Participation”, and “Compensation Committee Report” in our 2008 proxy
statement and is incorporated in this Report by reference.
statement and is incorporated in this Report by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Matters
Except for the information concerning equity compensation plans, this information will be included under
Except for the information concerning equity compensation plans, this information will be included under
the heading “Stock Ownership” in our 2008 proxy statement and is incorporated in this Report by reference.
the heading “Stock Ownership” in our 2008 proxy statement and is incorporated in this Report by reference.
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2007 Annual Report
The following table provides information about the securities authorized for issuance under our equity
The following table provides information about the securities authorized for issuance under our equity
compensation plans as of December 29, 2007:
compensation plans as of December 29, 2007:
Equity Compensation Plan Information
Equity Compensation Plan Information
(a)
(a)
Number of Securities
Number of Securities
to be Issued upon
to be Issued upon
Exercise of
Exercise of
Outstanding Options,
Outstanding Options,
Warrants, and
Warrants, and
Rights
Rights
(b)
(b)
Weighted-Average
Weighted-Average
Exercise Price of
Exercise Price of
Outstanding Options,
Outstanding Options,
Warrants, and
Warrants, and
Rights
Rights
(c)
(c)
Number of Securities
Number of Securities
Remaining Available for
Remaining Available for
Future Issuance Under
Future Issuance Under
Equity Compensation
Equity Compensation
Plans (Excluding
Plans (Excluding
Securities Reflected in
Securities Reflected in
Column (a))
Column (a))
Plan Category
Plan Category
Equity compensation plans approved by
Equity compensation plans approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . .
security holders . . . . . . . . . . . . . . . . . . . . . . . .
420,217(1)
420,217(1)
$26.61(1)
$26.61(1)
1,186,423(2)
1,186,423(2)
Equity compensation plans not approved by
Equity compensation plans not approved by
security holders (3) . . . . . . . . . . . . . . . . . . . . .
security holders (3) . . . . . . . . . . . . . . . . . . . . .
68,067
68,067
Total
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
488,284(1)
488,284(1)
$13.95
$13.95
$24.84(1)
$24.84(1)
12,002
12,002
1,198,425(2)
1,198,425(2)
(1) Excludes an aggregate of 263,950 shares of common stock issuable under our employees’ stock purchase
(1) Excludes an aggregate of 263,950 shares of common stock issuable under our employees’ stock purchase
plan in connection with current and future offering periods under the plan. Excludes 2,569 shares reserved
plan in connection with current and future offering periods under the plan. Excludes 2,569 shares reserved
for issuance pursuant to our deferred compensation plan for directors.
for issuance pursuant to our deferred compensation plan for directors.
Includes 263,950 shares of common stock issuable under our employees’ stock purchase plan in connection
Includes 263,950 shares of common stock issuable under our employees’ stock purchase plan in connection
with current and future offering periods under the plan. Excludes 2,569 shares reserved for issuance
with current and future offering periods under the plan. Excludes 2,569 shares reserved for issuance
pursuant to our deferred compensation plan for directors.
pursuant to our deferred compensation plan for directors.
(2)
(2)
(3) The material features of our 2001 employee equity incentive plan are described in Part IV, Item 15, Exhibits
(3) The material features of our 2001 employee equity incentive plan are described in Part IV, Item 15, Exhibits
and Financial Statement Schedules, Note 3 to the audited consolidated financial statements of this Report.
and Financial Statement Schedules, Note 3 to the audited consolidated financial statements of this Report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 13. Certain Relationships and Related Transactions, and Director Independence
This information will be included under the heading “Election of Directors” in our 2008 proxy statement
This information will be included under the heading “Election of Directors” in our 2008 proxy statement
and is incorporated in this Report by reference.
and is incorporated in this Report by reference.
Item 14. Principal Accountant Fees and Services
Item 14. Principal Accountant Fees and Services
This information will be included under the heading “Independent Registered Public Accounting Firm” in
This information will be included under the heading “Independent Registered Public Accounting Firm” in
our 2008 proxy statement and is incorporated in this Report by reference.
our 2008 proxy statement and is incorporated in this Report by reference.
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Item 15. Exhibits and Financial Statement Schedules
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
(a) The following documents are filed as part of this Report:
PART IV
PART IV
(1) Consolidated Financial Statements (see Index on Page F-1 of this Report):
(1) Consolidated Financial Statements (see Index on Page F-1 of this Report):
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
and Schedule
and Schedule
Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting
Reporting
Consolidated Statement of Income
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders’ Investment
Consolidated Statement of Comprehensive Income and Shareholders’ Investment
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedule (see Index on Page F-1 of this Report):
(2) Consolidated Financial Statement Schedule (see Index on Page F-1 of this Report):
Schedule II: Valuation and Qualifying Accounts
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not required, or because the required
All other schedules are omitted because they are not applicable or not required, or because the required
information is shown either in the consolidated financial statements or in the notes thereto.
information is shown either in the consolidated financial statements or in the notes thereto.
(3) Exhibits filed herewith or incorporated in this Report by reference are set forth in the Exhibit Index
(3) Exhibits filed herewith or incorporated in this Report by reference are set forth in the Exhibit Index
beginning on page 44. This list of exhibits identifies each management contract or compensatory plan
beginning on page 44. This list of exhibits identifies each management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Report.
or arrangement required to be filed as an exhibit to this Report.
(b) Exhibits
(b) Exhibits
See the Exhibit Index beginning on page 44.
See the Exhibit Index beginning on page 44.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
Signatures
Date: March 11, 2008
Date: March 11, 2008
KADANT INC.
KADANT INC.
By: /s/ WILLIAM A. RAINVILLE
By: /s/ WILLIAM A. RAINVILLE
William A. Rainville
William A. Rainville
Chairman of the Board, Chief Executive Officer,
Chairman of the Board, Chief Executive Officer,
and President
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities indicated, on March 11, 2008.
the following persons on behalf of the Registrant and in the capacities indicated, on March 11, 2008.
Signature
Signature
Title
Title
By:
By:
/s/ WILLIAM A. RAINVILLE
/s/ WILLIAM A. RAINVILLE
William A. Rainville
William A. Rainville
Chairman of the Board, Chief Executive Officer, and
Chairman of the Board, Chief Executive Officer, and
President
President
By:
By:
/s/ THOMAS M. O’BRIEN
/s/ THOMAS M. O’BRIEN
Executive Vice President, Chief Financial Officer
Executive Vice President, Chief Financial Officer
Thomas M. O’Brien
Thomas M. O’Brien
By:
By:
/s/ MICHAEL J. MCKENNEY
/s/ MICHAEL J. MCKENNEY
Michael J. McKenney
Michael J. McKenney
Vice President, Finance and Chief Accounting
Vice President, Finance and Chief Accounting
Officer
Officer
By:
By:
/s/
/s/
JOHN M. ALBERTINE
JOHN M. ALBERTINE
John M. Albertine
John M. Albertine
By:
By:
/s/
/s/
JOHN K. ALLEN
JOHN K. ALLEN
John K. Allen
John K. Allen
By:
By:
/s/ THOMAS C. LEONARD
/s/ THOMAS C. LEONARD
Thomas C. Leonard
Thomas C. Leonard
By:
By:
/s/ FRANCIS L. MCKONE
/s/ FRANCIS L. MCKONE
Francis L. McKone
Francis L. McKone
Director
Director
Director
Director
Director
Director
Director
Director
43
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Enfocus Software - Customer Support
Exhibit
Exhibit
Number
Number
2.1
2.1
2.2
2.2
2.3
2.3
3.1
3.1
3.2
3.2
4.1
4.1
10.1*
10.1*
10.2*
10.2*
10.3*
10.3*
10.4*
10.4*
10.5*
10.5*
Exhibit Index
Exhibit Index
Description of Exhibit
Description of Exhibit
Purchase Agreement among the Registrant, Johnson Acquisition Corp., The Johnson Corporation and
Purchase Agreement among the Registrant, Johnson Acquisition Corp., The Johnson Corporation and
the principal shareholders of Johnson identified in the Purchase Agreement (filed as Exhibit 99.2 to
the principal shareholders of Johnson identified in the Purchase Agreement (filed as Exhibit 99.2 to
the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on
the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on
April 12, 2005 and incorporated in this document by reference). (1)
April 12, 2005 and incorporated in this document by reference). (1)
Purchase Agreement dated October 21, 2005, among the Registrant, its Kadant Composites LLC
Purchase Agreement dated October 21, 2005, among the Registrant, its Kadant Composites LLC
subsidiary, LDI Composites Co., a Minnesota corporation, and Liberty Diversified Industries, Inc., a
subsidiary, LDI Composites Co., a Minnesota corporation, and Liberty Diversified Industries, Inc., a
Minnesota corporation, and parent corporation of the Buyer (filed as Exhibit 99.1 to the Registrant’s
Minnesota corporation, and parent corporation of the Buyer (filed as Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on October 27, 2005 and
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on October 27, 2005 and
incorporated in this document by reference). (1)
incorporated in this document by reference). (1)
First Amendment dated as of October 10, 2006 to the Asset Purchase Agreement dated as of October
First Amendment dated as of October 10, 2006 to the Asset Purchase Agreement dated as of October
21, 2005, among the Registrant, its Kadant Composites LLC subsidiary, LDI Composites Co., a
21, 2005, among the Registrant, its Kadant Composites LLC subsidiary, LDI Composites Co., a
Minnesota corporation, and Liberty Diversified Industries, Inc., a Minnesota corporation, and parent
Minnesota corporation, and Liberty Diversified Industries, Inc., a Minnesota corporation, and parent
corporation of the Buyer (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for
corporation of the Buyer (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 29, 2007 [File No. 1-11406] and incorporated in this document by
the quarter ended September 29, 2007 [File No. 1-11406] and incorporated in this document by
reference).
reference).
Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s
Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 [File No. 1-11406] and
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 [File No. 1-11406] and
incorporated in this document by reference).
incorporated in this document by reference).
Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant’s Quarterly
Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001 [File No. 1-11406] and incorporated in this
Report on Form 10-Q for the quarter ended June 30, 2001 [File No. 1-11406] and incorporated in this
document by reference).
document by reference).
Rights Agreement, dated as of July 16, 2001, between the Registrant and American Stock Transfer &
Rights Agreement, dated as of July 16, 2001, between the Registrant and American Stock Transfer &
Trust Company, which includes as Exhibit A the Form of Certificate of Designations, as Exhibit B
Trust Company, which includes as Exhibit A the Form of Certificate of Designations, as Exhibit B
the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock
the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock
(filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the
(filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the
Commission on July 17, 2001, and incorporated in this document by reference).
Commission on July 17, 2001, and incorporated in this document by reference).
Form of Indemnification Agreement between the Registrant and its directors and officers (filed as
Form of Indemnification Agreement between the Registrant and its directors and officers (filed as
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
[File No. 1-11406] and incorporated in this document by reference).
[File No. 1-11406] and incorporated in this document by reference).
Form of Change in Control Agreement between the Company and Mr. William A. Rainville,
Form of Change in Control Agreement between the Company and Mr. William A. Rainville,
chairman and chief executive officer of the Company (filed as Exhibit 99.1 to the Registrant’s
chairman and chief executive officer of the Company (filed as Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on December 8, 2006,
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on December 8, 2006,
and incorporated in this document by reference).
and incorporated in this document by reference).
Form of Change in Control Agreement between the Company and Other Senior Officers (filed as
Form of Change in Control Agreement between the Company and Other Senior Officers (filed as
Exhibit 99.2 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the
Exhibit 99.2 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the
Commission on December 8, 2006, and incorporated in this document by reference).
Commission on December 8, 2006, and incorporated in this document by reference).
Amended and Restated Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10.6 to the
Amended and Restated Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10.6 to the
Registrant’s Annual Report on Form 10-K for the year ended December 28, 2002 [File No. 1-11406]
Registrant’s Annual Report on Form 10-K for the year ended December 28, 2002 [File No. 1-11406]
and incorporated in this document by reference).
and incorporated in this document by reference).
Amended and Restated Equity Incentive Plan of the Registrant (filed as Exhibit 10.7 to the
Amended and Restated Equity Incentive Plan of the Registrant (filed as Exhibit 10.7 to the
Registrant’s Annual Report on Form 10-K for the year ended December 28, 2002 [File No. 1-11406]
Registrant’s Annual Report on Form 10-K for the year ended December 28, 2002 [File No. 1-11406]
and incorporated in this document by reference).
and incorporated in this document by reference).
44
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Enfocus Software - Customer Support
Exhibit Index
Exhibit Index
Exhibit
Exhibit
Number
Number
10.6*
10.6*
10.7*
10.7*
10.8*
10.8*
10.9*
10.9*
Description of Exhibit
Description of Exhibit
2001 Employee Equity Incentive Plan of the Registrant (filed as Exhibit 10.11 to the Registrant’s
2001 Employee Equity Incentive Plan of the Registrant (filed as Exhibit 10.11 to the Registrant’s
Annual Report on Form 10-K for the year ended December 28, 2002 [File No. 1-11406] and
Annual Report on Form 10-K for the year ended December 28, 2002 [File No. 1-11406] and
incorporated in this document by reference).
incorporated in this document by reference).
Kadant Inc. 2006 Equity Incentive Plan (filed as Exhibit 99.1 to the Registrant’s Current Report on
Kadant Inc. 2006 Equity Incentive Plan (filed as Exhibit 99.1 to the Registrant’s Current Report on
Form 8-K [File No. 1-11406] filed with the Commission on May 31, 2006, and incorporated in this
Form 8-K [File No. 1-11406] filed with the Commission on May 31, 2006, and incorporated in this
document by reference).
document by reference).
Amended and Restated Deferred Compensation Plan for Directors of the Registrant (filed as
Amended and Restated Deferred Compensation Plan for Directors of the Registrant (filed as
Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No. 1-11406] and incorporated in this document by reference).
[File No. 1-11406] and incorporated in this document by reference).
Amended and Restated Directors’ Restricted Stock Plan (filed as Exhibit 10.10 to the Registrant’s
Amended and Restated Directors’ Restricted Stock Plan (filed as Exhibit 10.10 to the Registrant’s
Annual Report on Form 10-K for the year ended January 3, 2004 [File No. 1-11406] and
Annual Report on Form 10-K for the year ended January 3, 2004 [File No. 1-11406] and
incorporated in this document by reference).
incorporated in this document by reference).
10.10*
10.10*
Cash Incentive Plan of the Registrant.
Cash Incentive Plan of the Registrant.
10.11*
10.11*
Summary of Non-employee Director Compensation of the Registrant.
Summary of Non-employee Director Compensation of the Registrant.
10.12*
10.12*
10.13
10.13
10.14*
10.14*
10.15*
10.15*
10.16*
10.16*
10.17
10.17
10.18
10.18
Form of Restricted Stock Agreement for award of restricted shares to non-employee directors used
Form of Restricted Stock Agreement for award of restricted shares to non-employee directors used
for restricted stock awards prior to February 27, 2007 (filed as Exhibit 99.1 to the Registrant’s
for restricted stock awards prior to February 27, 2007 (filed as Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on June 13, 2005 and
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on June 13, 2005 and
incorporated in this document by reference).
incorporated in this document by reference).
Form of Restricted Stock Agreement for award of restricted shares to non-employee directors used
Form of Restricted Stock Agreement for award of restricted shares to non-employee directors used
for restricted stock awards on and after February 27, 2007 (filed as Exhibit 10.13 to the Registrant’s
for restricted stock awards on and after February 27, 2007 (filed as Exhibit 10.13 to the Registrant’s
Annual Report on Form 10-K for the year ended December 30, 2006 [File No. 1-11406] and
Annual Report on Form 10-K for the year ended December 30, 2006 [File No. 1-11406] and
incorporated in this document by reference).
incorporated in this document by reference).
Form of Performance-Based Restricted Stock Unit Award Agreement dated May 24, 2007 between
Form of Performance-Based Restricted Stock Unit Award Agreement dated May 24, 2007 between
the Company and its executive officers (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on
the Company and its executive officers (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007 [File No. 1-11406] filed with the Commission on
Form 10-Q for the quarter ended June 30, 2007 [File No. 1-11406] filed with the Commission on
August 8, 2007 and incorporated in this document by reference).
August 8, 2007 and incorporated in this document by reference).
Form of Performance-Based Restricted Stock Unit Award Agreement between the Company and its
Form of Performance-Based Restricted Stock Unit Award Agreement between the Company and its
executive officers used for restricted stock unit awards on and after March 3, 2008.
executive officers used for restricted stock unit awards on and after March 3, 2008.
Form of Restricted Stock Unit Award Agreement between the Company and its non-employee
Form of Restricted Stock Unit Award Agreement between the Company and its non-employee
directors used for restricted stock unit awards on and after March 3, 2008.
directors used for restricted stock unit awards on and after March 3, 2008.
Credit Agreement among the Registrant, the Foreign Subsidiary Borrowers from time to time parties
Credit Agreement among the Registrant, the Foreign Subsidiary Borrowers from time to time parties
thereto, the several banks and other financial institutions or entities from time to time parties thereto,
thereto, the several banks and other financial institutions or entities from time to time parties thereto,
and JPMorgan Chase Bank, N.A., as Administrative Agent, dated May 9, 2005 (filed as Exhibit 99.1
and JPMorgan Chase Bank, N.A., as Administrative Agent, dated May 9, 2005 (filed as Exhibit 99.1
to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on
to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on
May 11, 2005 and incorporated in this document by reference). (1)
May 11, 2005 and incorporated in this document by reference). (1)
First Amendment to Credit Agreement dated May 9, 2005 among the Registrant, the Foreign
First Amendment to Credit Agreement dated May 9, 2005 among the Registrant, the Foreign
Subsidiary Borrowers from time to time parties thereto, the several lenders from time to time parties
Subsidiary Borrowers from time to time parties thereto, the several lenders from time to time parties
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, dated October 21, 2005 (filed as
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, dated October 21, 2005 (filed as
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 1,
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 1,
2005 [File No. 1-11406] and incorporated in this document by reference).
2005 [File No. 1-11406] and incorporated in this document by reference).
45
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Enfocus Software - Customer Support
Exhibit
Exhibit
Number
Number
10.19
10.19
10.20
10.20
10.21
10.21
10.22
10.22
10.23
10.23
10.24
10.24
10.25
10.25
10.26
10.26
10.27
10.27
10.28
10.28
Exhibit Index
Exhibit Index
Description of Exhibit
Description of Exhibit
Second Amendment to Credit Agreement dated May 9, 2005 among the Registrant, the Foreign
Second Amendment to Credit Agreement dated May 9, 2005 among the Registrant, the Foreign
Subsidiary Borrowers from time to time parties thereto, the several lenders from time to time parties
Subsidiary Borrowers from time to time parties thereto, the several lenders from time to time parties
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, effective December 28, 2005
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, effective December 28, 2005
(filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with
(filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with
the Commission on January 4, 2006 and incorporated in this document by reference).
the Commission on January 4, 2006 and incorporated in this document by reference).
International Swap Dealers Association, Inc. Master Agreement dated May 13, 2005 between the
International Swap Dealers Association, Inc. Master Agreement dated May 13, 2005 between the
Registrant and Citizens Bank of Massachusetts and Swap Confirmation dated May 18, 2005 (filed as
Registrant and Citizens Bank of Massachusetts and Swap Confirmation dated May 18, 2005 (filed as
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2005
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2005
[File No. 1-11406] and incorporated in this document by reference).
[File No. 1-11406] and incorporated in this document by reference).
Third Amendment to the Credit Agreement dated April 3, 2006, among Kadant, the Foreign
Third Amendment to the Credit Agreement dated April 3, 2006, among Kadant, the Foreign
Subsidiary Borrowers from time to time parties thereto, the several lenders from time to time parties
Subsidiary Borrowers from time to time parties thereto, the several lenders from time to time parties
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, (filed as Exhibit 99.1 to the
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, (filed as Exhibit 99.1 to the
Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on April 7,
Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on April 7,
2006 and incorporated in this document by reference).
2006 and incorporated in this document by reference).
Fourth Amendment dated May 9, 2007 to the Credit Agreement dated May 9, 2005 (as amended to
Fourth Amendment dated May 9, 2007 to the Credit Agreement dated May 9, 2005 (as amended to
date) among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the
date) among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the
several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A., as Administrative
several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent, (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q [File No. 1-11406]
Agent, (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q [File No. 1-11406]
and incorporated in this document by reference).
and incorporated in this document by reference).
Promissory Note in the principal amount of $10,000,000 dated May 4, 2006, between Kadant and
Promissory Note in the principal amount of $10,000,000 dated May 4, 2006, between Kadant and
Citizens Bank of Massachusetts (filed as Exhibit 99.1 to the Registrant’s Current Report on
Citizens Bank of Massachusetts (filed as Exhibit 99.1 to the Registrant’s Current Report on
Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated in this
Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated in this
document by reference).
document by reference).
Limited Guaranty Agreement dated May 4, 2006 between Kadant Web Systems Inc., a
Limited Guaranty Agreement dated May 4, 2006 between Kadant Web Systems Inc., a
Massachusetts corporation, and Citizens Bank of Massachusetts (filed as Exhibit 99.2 to the
Massachusetts corporation, and Citizens Bank of Massachusetts (filed as Exhibit 99.2 to the
Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9,
Registrant’s Current Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9,
2006 and incorporated in this document by reference).
2006 and incorporated in this document by reference).
Limited Guaranty Agreement dated May 4, 2006 between Kadant Black Clawson Inc., a Delaware
Limited Guaranty Agreement dated May 4, 2006 between Kadant Black Clawson Inc., a Delaware
corporation, and Citizens Bank of Massachusetts (filed as Exhibit 99.3 to the Registrant’s Current
corporation, and Citizens Bank of Massachusetts (filed as Exhibit 99.3 to the Registrant’s Current
Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated
Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated
in this document by reference).
in this document by reference).
Limited Guaranty Agreement dated May 4, 2006 between Kadant Johnson Inc., a Michigan
Limited Guaranty Agreement dated May 4, 2006 between Kadant Johnson Inc., a Michigan
corporation, and Citizens Bank of Massachusetts (filed as Exhibit 99.4 to the Registrant’s Current
corporation, and Citizens Bank of Massachusetts (filed as Exhibit 99.4 to the Registrant’s Current
Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated
Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated
in this document by reference).
in this document by reference).
Mortgage and Security Agreement dated May 4, 2006 between Kadant and Citizens Bank of
Mortgage and Security Agreement dated May 4, 2006 between Kadant and Citizens Bank of
Massachusetts relating to the real property and related personal property located in Queensbury, New
Massachusetts relating to the real property and related personal property located in Queensbury, New
York (filed as Exhibit 99.5 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed
York (filed as Exhibit 99.5 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed
with the Commission on May 9, 2006 and incorporated in this document by reference). (1)
with the Commission on May 9, 2006 and incorporated in this document by reference). (1)
Mortgage and Security Agreement dated May 4, 2006 between Kadant Web Systems Inc., a
Mortgage and Security Agreement dated May 4, 2006 between Kadant Web Systems Inc., a
Massachusetts corporation, and Citizens Bank of Massachusetts relating to the real property and
Massachusetts corporation, and Citizens Bank of Massachusetts relating to the real property and
related personal property located in Auburn, Massachusetts (filed as Exhibit 99.6 to the Registrant’s
related personal property located in Auburn, Massachusetts (filed as Exhibit 99.6 to the Registrant’s
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and
Current Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and
incorporated in this document by reference). (1)
incorporated in this document by reference). (1)
46
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Exhibit Index
Exhibit Index
Description of Exhibit
Description of Exhibit
Mortgage and Security Agreement dated May 4, 2006 between Kadant Black Clawson Inc., a
Mortgage and Security Agreement dated May 4, 2006 between Kadant Black Clawson Inc., a
Delaware corporation, and Citizens Bank of Massachusetts relating to the real property and related
Delaware corporation, and Citizens Bank of Massachusetts relating to the real property and related
personal property located in Theodore, Alabama (filed as Exhibit 99.7 to the Registrant’s Current
personal property located in Theodore, Alabama (filed as Exhibit 99.7 to the Registrant’s Current
Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated
Report on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated
in this document by reference). (1)
in this document by reference). (1)
Mortgage and Security Agreement dated May 9, 2006 between Kadant Johnson Inc., a Michigan
Mortgage and Security Agreement dated May 9, 2006 between Kadant Johnson Inc., a Michigan
corporation, and Citizens Bank of Massachusetts relating to the real property and related personal
corporation, and Citizens Bank of Massachusetts relating to the real property and related personal
property located in Three Rivers, Michigan (filed as Exhibit 99.8 to the Registrant’s Current Report
property located in Three Rivers, Michigan (filed as Exhibit 99.8 to the Registrant’s Current Report
on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated in this
on Form 8-K [File No. 1-11406] filed with the Commission on May 9, 2006 and incorporated in this
document by reference). (1)
document by reference). (1)
Short-term Advised Credit Line Facility Agreement dated as of July 30, 2007 between Kadant Jining
Short-term Advised Credit Line Facility Agreement dated as of July 30, 2007 between Kadant Jining
Light Machinery Co., Ltd. and JPMorgan Chase Bank, N.A., Shanghai Branch (filed as Exhibit 10.2
Light Machinery Co., Ltd. and JPMorgan Chase Bank, N.A., Shanghai Branch (filed as Exhibit 10.2
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 [File No. 1-
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 [File No. 1-
11406] and incorporated in this document by reference).
11406] and incorporated in this document by reference).
Short-term Advised Credit Line Facility Agreement dated as of July 30, 2007 between Kadant Pulp
Short-term Advised Credit Line Facility Agreement dated as of July 30, 2007 between Kadant Pulp
and Paper Equipment (Yanzhou) Co., Ltd. and JPMorgan Chase Bank, N.A., Shanghai Branch (filed
and Paper Equipment (Yanzhou) Co., Ltd. and JPMorgan Chase Bank, N.A., Shanghai Branch (filed
as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2007 [File No. 1-11406] and incorporated in this document by reference).
2007 [File No. 1-11406] and incorporated in this document by reference).
Guaranty Agreement dated as of July 30, 2007 between the Registrant and JPMorgan Chase Bank,
Guaranty Agreement dated as of July 30, 2007 between the Registrant and JPMorgan Chase Bank,
N.A., Shanghai Branch (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for
N.A., Shanghai Branch (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007 [File No. 1-11406] and incorporated in this document by reference).
the quarter ended June 30, 2007 [File No. 1-11406] and incorporated in this document by reference).
Amendment, Acknowledgement and Consent to the Guaranty dated as of January 28, 2008 to the
Amendment, Acknowledgement and Consent to the Guaranty dated as of January 28, 2008 to the
Guaranty Agreement dated as of July 30, 2007 of the Registrant in favor of JPMorgan Chase Bank,
Guaranty Agreement dated as of July 30, 2007 of the Registrant in favor of JPMorgan Chase Bank,
N.A., Shanghai Branch.
N.A., Shanghai Branch.
Swap Confirmation dated February 13, 2008 between the Registrant and RBS Citizens, N.A.
Swap Confirmation dated February 13, 2008 between the Registrant and RBS Citizens, N.A.
RMB 40,000,000 Term Loan Agreement dated as of January 28, 2008 between Kadant Light
RMB 40,000,000 Term Loan Agreement dated as of January 28, 2008 between Kadant Light
Machinery (Jining) Co., Ltd. and JPMorgan Chase Bank (China) Company Limited, Shanghai
Machinery (Jining) Co., Ltd. and JPMorgan Chase Bank (China) Company Limited, Shanghai
Branch (filed as Exhibit 99 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed
Branch (filed as Exhibit 99 to the Registrant’s Current Report on Form 8-K [File No. 1-11406] filed
with the Commission on February 1, 2008, and incorporated in this document by reference).
with the Commission on February 1, 2008, and incorporated in this document by reference).
Plan and Agreement of Distribution, dated as of August 3, 2001, between the Registrant and Thermo
Plan and Agreement of Distribution, dated as of August 3, 2001, between the Registrant and Thermo
Electron Corporation (filed as Exhibit 99.3 to the Registrant’s Current Report on Form 8-K
Electron Corporation (filed as Exhibit 99.3 to the Registrant’s Current Report on Form 8-K
[File No. 1-11406] filed with the Commission on August 6, 2001, and incorporated in this document
[File No. 1-11406] filed with the Commission on August 6, 2001, and incorporated in this document
by reference).
by reference).
First Amendment to Plan and Agreement of Distribution, dated as of December 27, 2001, between
First Amendment to Plan and Agreement of Distribution, dated as of December 27, 2001, between
the Registrant and Thermo Electron Corporation (filed as Exhibit 10.4 to the Registrant’s Annual
the Registrant and Thermo Electron Corporation (filed as Exhibit 10.4 to the Registrant’s Annual
Report on Form 10-K for the year ended December 29, 2001 [File No. 1-11406] and incorporated in
Report on Form 10-K for the year ended December 29, 2001 [File No. 1-11406] and incorporated in
this document by reference).
this document by reference).
Tax Matters Agreement, dated as of August 8, 2001, between the Registrant and Thermo Electron
Tax Matters Agreement, dated as of August 8, 2001, between the Registrant and Thermo Electron
Corporation (filed as Exhibit 99.4 to the Registrant’s Current Report on Form 8-K [File No. 1-11406]
Corporation (filed as Exhibit 99.4 to the Registrant’s Current Report on Form 8-K [File No. 1-11406]
filed with the Commission on August 6, 2001, and incorporated in this document by reference).
filed with the Commission on August 6, 2001, and incorporated in this document by reference).
Letter of Independent Registered Public Accounting Firm regarding change in accounting principle.
Letter of Independent Registered Public Accounting Firm regarding change in accounting principle.
Subsidiaries of the Registrant.
Subsidiaries of the Registrant.
Exhibit
Exhibit
Number
Number
10.29
10.29
10.30
10.30
10.31
10.31
10.32
10.32
10.33
10.33
10.34
10.34
10.35
10.35
10.36
10.36
10.37
10.37
10.38
10.38
10.39
10.39
18
18
21
21
47
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Exhibit
Exhibit
Number
Number
Description of Exhibit
Description of Exhibit
Exhibit Index
Exhibit Index
23.1
23.1
31.1
31.1
31.2
31.2
32
32
Consent of Independent Registered Public Accounting Firm.
Consent of Independent Registered Public Accounting Firm.
Certification of the Principal Executive Officer of the Registrant Pursuant to Rule 13a-15(e) and Rule
Certification of the Principal Executive Officer of the Registrant Pursuant to Rule 13a-15(e) and Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.
15d-14(a) of the Securities Exchange Act of 1934, as amended.
Certification of the Principal Financial Officer of the Registrant Pursuant to Rule 13a-15(e) and Rule
Certification of the Principal Financial Officer of the Registrant Pursuant to Rule 13a-15(e) and Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.
15d-14(a) of the Securities Exchange Act of 1934, as amended.
Certification of the Chief Executive Officer and the Chief Financial Officer of the Registrant
Certification of the Chief Executive Officer and the Chief Financial Officer of the Registrant
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
2002.
*Management contract or compensatory plan or arrangement.
*Management contract or compensatory plan or arrangement.
(1) The schedules to this document have been omitted from this filing pursuant to Item 601(b)(2) of Regulation
(1) The schedules to this document have been omitted from this filing pursuant to Item 601(b)(2) of Regulation
S-K. The Company will furnish copies of any of the schedules to the U.S. Securities and Exchange
S-K. The Company will furnish copies of any of the schedules to the U.S. Securities and Exchange
Commission upon request.
Commission upon request.
48
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Kadant Inc.
Kadant Inc.
Annual Report on Form 10-K
Annual Report on Form 10-K
Index to Consolidated Financial Statements and Schedule
Index to Consolidated Financial Statements and Schedule
The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be
The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be
included in Item 8:
included in Item 8:
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and
Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting . .
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting . .
Consolidated Statement of Income for the years ended December 29, 2007, December 30, 2006, and
Consolidated Statement of Income for the years ended December 29, 2007, December 30, 2006, and
December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheet as of December 29, 2007 and December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheet as of December 29, 2007 and December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . .
Page
Page
F-2
F-2
F-3
F-3
F-4
F-4
F-5
F-5
Consolidated Statement of Cash Flows for the years ended December 29, 2007, December 30, 2006, and
Consolidated Statement of Cash Flows for the years ended December 29, 2007, December 30, 2006, and
December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
F-6
Consolidated Statement of Comprehensive Income and Shareholders’ Investment for the years ended
Consolidated Statement of Comprehensive Income and Shareholders’ Investment for the years ended
December 29, 2007, December 30, 2006, and December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 29, 2007, December 30, 2006, and December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-7
F-7
F-8
F-8
The following Consolidated Financial Statement Schedule of the Registrant and its subsidiaries is filed as
The following Consolidated Financial Statement Schedule of the Registrant and its subsidiaries is filed as
part of this Report as required to be included in Item 15(a)(2):
part of this Report as required to be included in Item 15(a)(2):
Schedule II – Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-49
Schedule II – Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-49
Page
Page
F-1
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Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
on Consolidated Financial Statements and Schedule
on Consolidated Financial Statements and Schedule
To the Board of Directors and Shareholders of Kadant Inc.:
To the Board of Directors and Shareholders of Kadant Inc.:
We have audited the accompanying consolidated balance sheets of Kadant Inc. as of December 29, 2007
We have audited the accompanying consolidated balance sheets of Kadant Inc. as of December 29, 2007
and December 30, 2006, and the related consolidated statements of income, comprehensive income and
and December 30, 2006, and the related consolidated statements of income, comprehensive income and
shareholders’ investment, and cash flows for each of the three fiscal years in the period ended December 29,
shareholders’ investment, and cash flows for each of the three fiscal years in the period ended December 29,
2007. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). These
2007. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to
financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits.
express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Kadant Inc. at December 29, 2007 and December 30, 2006, and the
consolidated financial position of Kadant Inc. at December 29, 2007 and December 30, 2006, and the
consolidated results of their operations and their cash flows for each of the three years in the fiscal period ended
consolidated results of their operations and their cash flows for each of the three years in the fiscal period ended
December 29, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
December 29, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial statements taken as a
related financial statement schedule, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth therein.
whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective December 31, 2006, Kadant Inc.
As discussed in Note 1 to the consolidated financial statements, effective December 31, 2006, Kadant Inc.
adopted Statement of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
adopted Statement of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 and effective December 30, 2006,
Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 and effective December 30, 2006,
Kadant Inc. adopted Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined
Kadant Inc. adopted Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined
Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R)
Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R)
and effective January 1, 2006, Kadant Inc. adopted Statement of Financial Accounting Standards No. 123(R),
and effective January 1, 2006, Kadant Inc. adopted Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment.
Share-Based Payment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Kadant Inc.’s internal control over financial reporting as of December 29, 2007, based on criteria
(United States), Kadant Inc.’s internal control over financial reporting as of December 29, 2007, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 7, 2008 expressed an unqualified opinion thereon.
the Treadway Commission and our report dated March 7, 2008 expressed an unqualified opinion thereon.
Boston, Massachusetts
Boston, Massachusetts
March 7, 2008
March 7, 2008
/s/ Ernst & Young LLP
/s/ Ernst & Young LLP
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Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting
on Internal Control over Financial Reporting
To the Board of Directors and Shareholders of Kadant Inc.:
To the Board of Directors and Shareholders of Kadant Inc.:
We have audited Kadant Inc.’s internal control over financial reporting as of December 29, 2007, based on
We have audited Kadant Inc.’s internal control over financial reporting as of December 29, 2007, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Kadant Inc.’s management is responsible for
Organizations of the Treadway Commission (the COSO criteria). Kadant Inc.’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control
internal control over financial reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over
over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
policies or procedures may deteriorate.
In our opinion, Kadant Inc. maintained, in all material respects, effective internal control over financial
In our opinion, Kadant Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 29, 2007, based on the COSO criteria.
reporting as of December 29, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the 2007 consolidated financial statements of Kadant Inc. and our report dated March 7, 2008
(United States), the 2007 consolidated financial statements of Kadant Inc. and our report dated March 7, 2008
expressed an unqualified opinion thereon.
expressed an unqualified opinion thereon.
Boston, Massachusetts
Boston, Massachusetts
March 7, 2008
March 7, 2008
/s/ Ernst & Young LLP
/s/ Ernst & Young LLP
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Consolidated Statement of Income
Consolidated Statement of Income
(In thousands, except per share amounts)
(In thousands, except per share amounts)
2007
2007
2006
2006
2005
2005
Revenues (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$366,496
$366,496
$341,613 $243,713
$341,613
$243,713
Costs and Operating Expenses:
Costs and Operating Expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of subsidiary (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of subsidiary (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Restructuring and other costs (income), net (Note 8)
. . . . . . . . . . . . . . . .
Restructuring and other costs (income), net (Note 8)
227,716
227,716
95,616
95,616
5,957
5,957
388
388
(219)
(219)
214,919
214,919
90,236
90,236
6,201
6,201
–
–
815
815
149,744
149,744
74,617
74,617
4,887
4,887
–
–
(118)
(118)
329,458
329,458
312,171
312,171
229,130
229,130
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,038
37,038
1,570
1,570
(3,086)
(3,086)
29,442
29,442
1,121
1,121
(3,328)
(3,328)
14,583
14,583
1,505
1,505
(2,114)
(2,114)
Income from Continuing Operations Before Provision for Income Taxes and
Income from Continuing Operations Before Provision for Income Taxes and
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation (net of income tax benefit of $1,508, $702
Loss from Discontinued Operation (net of income tax benefit of $1,508, $702
and $1,608 in 2007, 2006, and 2005, respectively; Note 9) . . . . . . . . . . . . . .
and $1,608 in 2007, 2006, and 2005, respectively; Note 9) . . . . . . . . . . . . . .
35,522
35,522
9,784
9,784
320
320
25,418
25,418
27,235
27,235
8,688
8,688
266
266
18,281
18,281
13,974
13,974
3,925
3,925
184
184
9,865
9,865
(2,750)
(2,750)
(1,184)
(1,184)
(2,988)
(2,988)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,668
$ 22,668
$ 17,097
$ 17,097
$
$
6,877
6,877
Basic Earnings per Share (Note 12)
Basic Earnings per Share (Note 12)
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.80
1.80 $
$
(.19)
(.19)
1.32
1.32
(.08)
(.08)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.61 $
1.61
$
1.24
1.24
Diluted Earnings per Share (Note 12)
Diluted Earnings per Share (Note 12)
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.78
1.78 $
$
(.19)
(.19)
1.30
1.30
(.09)
(.09)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.59
1.59
$
$
1.21
1.21
$
$
$
$
$
$
$
$
.71
.71
(.21)
(.21)
.50
.50
.70
.70
(.21)
(.21)
.49
.49
Weighted Average Shares (Note 12)
Weighted Average Shares (Note 12)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,116
14,116
13,816
13,816
13,829
13,829
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,290
14,290
14,097
14,097
14,104
14,104
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
F-4
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
(In thousands, except share amounts)
(In thousands, except share amounts)
2007
2007
2006
2006
Consolidated Balance Sheet
Consolidated Balance Sheet
Assets
Assets
Current Assets:
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowances of $2,639 and $2,623 . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowances of $2,639 and $2,623 . . . . . . . . . . . . . . . . . . . .
Unbilled contract costs and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled contract costs and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets of discontinued operation (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets of discontinued operation (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 61,553
$ 61,553
58,404
58,404
27,487
27,487
47,470
47,470
11,046
11,046
1,293
1,293
$ 39,634
$ 39,634
49,963
49,963
24,087
24,087
41,679
41,679
8,575
8,575
4,461
4,461
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
207,253
207,253
168,399
168,399
Property, Plant, and Equipment, at Cost, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, Plant, and Equipment, at Cost, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,904
41,904
14,156
14,156
32,944
32,944
40,939
40,939
11,983
11,983
34,686
34,686
Goodwill
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140,812
140,812
137,078
137,078
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$437,069
$437,069
$393,085
$393,085
Liabilities and Shareholders’ Investment
Liabilities and Shareholders’ Investment
Current Liabilities:
Current Liabilities:
Current maturities of long-term obligations (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term obligations (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,240 $
$
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities of discontinued operation (Note 9)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities of discontinued operation (Note 9)
$ 10,240
37,132
37,132
17,510
17,510
12,956
12,956
19,500
19,500
2,428
2,428
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99,766
99,766
Deferred Income Taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Income Taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Long-Term Liabilities (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Long-Term Liabilities (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Obligations (Note 6)
Long-Term Obligations (Note 6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,899
8,899
17,731
17,731
30,460
30,460
1,462
1,462
9,330
9,330
32,934
32,934
15,685
15,685
8,688
8,688
19,761
19,761
1,459
1,459
87,857
87,857
8,761
8,761
12,833
12,833
44,652
44,652
1,017
1,017
Commitments and Contingencies (Note 7)
Commitments and Contingencies (Note 7)
Shareholders’ Investment (Notes 3 and 4):
Shareholders’ Investment (Notes 3 and 4):
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued . . . . . . . . .
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued . . . . . . . . .
Common stock, $.01 par value, 150,000,000 shares authorized; 14,604,520 shares
Common stock, $.01 par value, 150,000,000 shares authorized; 14,604,520 shares
issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 174,045 and 616,737 shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 174,045 and 616,737 shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive items (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive items (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
146
146
91,753
91,753
175,106
175,106
(4,152)
(4,152)
15,898
15,898
146
146
93,002
93,002
153,147
153,147
(14,401)
(14,401)
6,071
6,071
Total Shareholders’ Investment
Total Shareholders’ Investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
278,751
278,751
237,965
237,965
Total Liabilities and Shareholders’ Investment
Total Liabilities and Shareholders’ Investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$437,069
$437,069
$393,085
$393,085
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
F-5
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
(In thousands)
(In thousands)
Operating Activities
Operating Activities
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
2007
2007
2006
2006
2005
2005
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,668 $ 17,097 $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,668 $ 17,097 $
Loss from discontinued operation (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operation (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile income from continuing operations to net cash provided
Adjustments to reconcile income from continuing operations to net cash provided
2,750
2,750
25,418
25,418
1,184
1,184
18,281
18,281
by operating activities:
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in current accounts, net of effects of acquisitions and disposition
Changes in current accounts, net of effects of acquisitions and disposition
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled contract costs and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled contract costs and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by continuing operations . . . . . . . . . . . . . . . . . . .
Net cash provided by continuing operations . . . . . . . . . . . . . . . . . . .
Net cash used by discontinued operation . . . . . . . . . . . . . . . . . . . . . .
Net cash used by discontinued operation . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .
Investing Activities
Investing Activities
Acquisitions and disposition, net of cash acquired (Note 2) . . . . . . . . . . . . . . . . . . .
Acquisitions and disposition, net of cash acquired (Note 2) . . . . . . . . . . . . . . . . . . .
Acquisition costs capitalized, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs capitalized, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property, plant, and equipment
Purchases of property, plant, and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by discontinued operation . . . . . . . . . . . . . . . . . . .
Net cash provided by discontinued operation . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Financing Activities
7,363
7,363
1,796
1,796
388
388
216
216
320
320
4,930
4,930
(2,084)
(2,084)
(5,657)
(5,657)
(3,213)
(3,213)
(3,827)
(3,827)
(923)
(923)
2,806
2,806
5,976
5,976
33,509
33,509
(1,866)
(1,866)
31,643
31,643
(2,867)
(2,867)
–
–
–
–
(4,908)
(4,908)
157
157
(633)
(633)
(8,251)
(8,251)
660
660
(7,591)
(7,591)
7,758
7,758
926
926
–
–
725
725
266
266
5,065
5,065
(1,403)
(1,403)
(6,941)
(6,941)
(12,137)
(12,137)
(3,126)
(3,126)
22
22
11,280
11,280
(8,383)
(8,383)
12,333
12,333
(4,172)
(4,172)
8,161
8,161
(17,639)
(17,639)
–
–
(701)
(701)
(4,097)
(4,097)
412
412
(316)
(316)
(22,341)
(22,341)
4,271
4,271
(18,070)
(18,070)
6,877
6,877
2,988
2,988
9,865
9,865
6,931
6,931
–
–
–
–
185
185
184
184
1,511
1,511
1,293
1,293
(35)
(35)
(493)
(493)
4,362
4,362
542
542
(4,465)
(4,465)
(817)
(817)
19,063
19,063
(1,360)
(1,360)
17,703
17,703
(103,614)
(103,614)
1,563
1,563
(1,129)
(1,129)
(3,245)
(3,245)
507
507
(501)
(501)
(106,419)
(106,419)
5,548
5,548
(100,871)
(100,871)
Proceeds from issuance of short- and long-term obligations (Note 6) . . . . . . . . . . . .
Proceeds from issuance of short- and long-term obligations (Note 6) . . . . . . . . . . . .
Increase in short- and long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in short- and long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term obligations (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term obligations (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of Company common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of Company common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of Company common stock (Note 3) . . . . . . . . . . . . . . . . . .
Proceeds from issuance of Company common stock (Note 3) . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by continuing operations . . . . . . . . . . . .
Net cash (used in) provided by continuing operations . . . . . . . . . . . .
Net cash (used in) provided by discontinued operation . . . . . . . . . . .
Net cash (used in) provided by discontinued operation . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . . .
Exchange Rate Effect on Cash from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . .
Exchange Rate Effect on Cash from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . .
Change in Cash from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Cash from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (Decrease) in Cash and Cash Equivalents from Continuing Operations . . . . . . .
Increase (Decrease) in Cash and Cash Equivalents from Continuing Operations . . . . . . .
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at End of Year
Cash and Cash Equivalents at End of Year
60,000
60,000
4,000
4,000
(5,522)
(5,522)
(9,116)
(9,116)
1,393
1,393
–
–
(652)
(652)
50,103
50,103
–
–
50,103
50,103
(2,498)
(2,498)
(5,704)
(5,704)
(41,267)
(41,267)
82,089
82,089
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,553 $ 39,634 $ 40,822
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,553 $ 39,634 $ 40,822
–
–
–
–
(13,633)
(13,633)
(5,185)
(5,185)
9,225
9,225
2,946
2,946
(25)
(25)
(6,672)
(6,672)
–
–
(6,672)
(6,672)
1,945
1,945
2,594
2,594
21,919
21,919
39,634
39,634
15,124
15,124
–
–
(16,642)
(16,642)
(7,181)
(7,181)
9,380
9,380
2,529
2,529
(173)
(173)
3,037
3,037
–
–
3,037
3,037
2,538
2,538
3,146
3,146
(1,188)
(1,188)
40,822
40,822
See Note 1 for supplemental cash flow information.
See Note 1 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
F-6
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Consolidated Statement of Comprehensive Income and
Consolidated Statement of Comprehensive Income and
Shareholders’ Investment
Shareholders’ Investment
(In thousands)
(In thousands)
Comprehensive Income
Comprehensive Income
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,668 $ 17,097 $
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,668 $ 17,097 $
Other Comprehensive Items (Note 13):
Other Comprehensive Items (Note 13):
2007
2007
2006
2006
2005
2005
6,877
6,877
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loss on pension and other post-retirement plans (net of
Deferred loss on pension and other post-retirement plans (net of
10,859
10,859
7,909
7,909
(4,564)
(4,564)
reclassification adjustment and net of tax of $211) (Note 3) . . . . . . . . . . .
reclassification adjustment and net of tax of $211) (Note 3) . . . . . . . . . . .
(578)
(578)
Unrecognized prior service loss (net of reclassification adjustment and net
Unrecognized prior service loss (net of reclassification adjustment and net
of tax of $3) (Note 3)
of tax of $3) (Note 3)
Unrecognized transition obligation (net of tax of $2) (Note 3)
Unrecognized transition obligation (net of tax of $2) (Note 3)
Deferred (loss) gain on hedging instruments (net of tax of $95, $141 and
Deferred (loss) gain on hedging instruments (net of tax of $95, $141 and
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
(10)
(10)
(5)
(5)
–
–
–
–
–
–
$133 in 2007, 2006, and 2005, respectively) . . . . . . . . . . . . . . . . . . . . . . .
$133 in 2007, 2006, and 2005, respectively) . . . . . . . . . . . . . . . . . . . . . . .
Other Comprehensive Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Comprehensive Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,901 $ 24,794 $
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,901 $ 24,794 $
(33)
(33)
10,233
10,233
(212)
(212)
7,697
7,697
–
–
–
–
–
–
174
174
(4,390)
(4,390)
2,487
2,487
Shareholders’ Investment
Shareholders’ Investment
Common Stock, $.01 Par Value:
Common Stock, $.01 Par Value:
Balance at beginning and end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Balance at beginning and end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
146 $
146 $
146 $
146 $
146
146
Capital in Excess of Par Value:
Capital in Excess of Par Value:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS 123R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS 123R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity under employees’ and directors’ stock plans . . . . . . . . . . . . . . . . . .
Activity under employees’ and directors’ stock plans . . . . . . . . . . . . . . . . . .
Tax benefit related to employees’ and directors’ stock plans . . . . . . . . . . . . .
Tax benefit related to employees’ and directors’ stock plans . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,002
93,002
–
–
(4,195)
(4,195)
2,946
2,946
91,753
91,753
97,297
97,297
(124)
(124)
(6,700)
(6,700)
2,529
2,529
93,002
93,002
98,450
98,450
–
–
(1,276)
(1,276)
123
123
97,297
97,297
Retained Earnings:
Retained Earnings:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of FIN 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of FIN 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
153,147
153,147
22,668
22,668
(709)
(709)
175,106
175,106
136,050
136,050
17,097
17,097
–
–
153,147
153,147
129,173
129,173
6,877
6,877
–
–
136,050
136,050
Treasury Stock, at Cost:
Treasury Stock, at Cost:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of Company common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of Company common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity under employees’ and directors’ stock plans . . . . . . . . . . . . . . . . . .
Activity under employees’ and directors’ stock plans . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,401)
(14,401)
(5,185)
(5,185)
15,434
15,434
(4,152)
(4,152)
(24,254)
(24,254)
(7,181)
(7,181)
17,034
17,034
(14,401)
(14,401)
(18,158)
(18,158)
(9,116)
(9,116)
3,020
3,020
(24,254)
(24,254)
Deferred Compensation:
Deferred Compensation:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS 123R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS 123R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock under directors’ stock plans (Note 3) . . . . . . . . .
Issuance of restricted stock under directors’ stock plans (Note 3) . . . . . . . . .
Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
(124)
(124)
124
124
–
–
–
–
–
–
(50)
(50)
–
–
(352)
(352)
278
278
(124)
(124)
Accumulated Other Comprehensive Items (Note 13):
Accumulated Other Comprehensive Items (Note 13):
2,900
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,900
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,390)
Other comprehensive items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,390)
Other comprehensive items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,490)
(1,490)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $278,751 $237,965 $207,625
Shareholders’ Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $278,751 $237,965 $207,625
(1,490)
(1,490)
7,561
7,561
6,071
6,071
6,071
6,071
9,827
9,827
15,898
15,898
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-7
F-7
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Nature of Operations
Kadant Inc.’s (the Company) continuing operations include one operating segment, Pulp and Papermaking
Kadant Inc.’s (the Company) continuing operations include one operating segment, Pulp and Papermaking
Systems (Papermaking Systems), and two separate product lines reported in Other Businesses, Fiber-based
Systems (Papermaking Systems), and two separate product lines reported in Other Businesses, Fiber-based
Products and Casting Products, through its sale in April 2007. Through its Papermaking Systems segment, the
Products and Casting Products, through its sale in April 2007. Through its Papermaking Systems segment, the
Company develops, manufactures, and markets a range of equipment and products for the global papermaking
Company develops, manufactures, and markets a range of equipment and products for the global papermaking
and paper recycling industries. The Company’s principal products in this segment include custom-engineered
and paper recycling industries. The Company’s principal products in this segment include custom-engineered
stock-preparation systems and equipment for the preparation of wastepaper for conversion into recycled paper;
stock-preparation systems and equipment for the preparation of wastepaper for conversion into recycled paper;
fluid-handling systems used primarily in the dryer section of the papermaking process and during the production
fluid-handling systems used primarily in the dryer section of the papermaking process and during the production
of corrugated boxboard, metals, plastics, rubber, textiles, and food; paper machine accessory equipment and
of corrugated boxboard, metals, plastics, rubber, textiles, and food; paper machine accessory equipment and
related consumables important to the efficient operation of paper machines; and water-management systems
related consumables important to the efficient operation of paper machines; and water-management systems
essential for draining, purifying, and recycling process water. Through its Fiber-based Products line, the
essential for draining, purifying, and recycling process water. Through its Fiber-based Products line, the
Company manufactures and sells granules derived from papermaking byproducts primarily for use as agricultural
Company manufactures and sells granules derived from papermaking byproducts primarily for use as agricultural
carriers and for home lawn and garden applications. The Company manufactured grey and ductile iron castings
carriers and for home lawn and garden applications. The Company manufactured grey and ductile iron castings
through its Casting Products business until its sale in April 2007.
through its Casting Products business until its sale in April 2007.
On October 21, 2005, our Kadant Composites LLC subsidiary (Composites LLC) sold its composites
On October 21, 2005, our Kadant Composites LLC subsidiary (Composites LLC) sold its composites
business, which is presented as a discontinued operation in the accompanying consolidated financial statements.
business, which is presented as a discontinued operation in the accompanying consolidated financial statements.
Under the terms of the asset purchase agreement, Composites LLC retained certain liabilities associated with the
Under the terms of the asset purchase agreement, Composites LLC retained certain liabilities associated with the
operation of the business prior to the sale, including warranty obligations related to products manufactured prior
operation of the business prior to the sale, including warranty obligations related to products manufactured prior
to the sale date. Composites LLC retained all of the cash proceeds received from the asset sale and continued to
to the sale date. Composites LLC retained all of the cash proceeds received from the asset sale and continued to
administer and pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30,
administer and pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30,
2007, Composites LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to
2007, Composites LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to
pay or process warranty claims, and ceased doing business. At December 29, 2007, the accrued warranty costs
pay or process warranty claims, and ceased doing business. At December 29, 2007, the accrued warranty costs
for Composites LLC were $2,142,000, which represents the low end of the range of potential loss for products
for Composites LLC were $2,142,000, which represents the low end of the range of potential loss for products
under warranty based on the level of claims received through the end of 2007. Composites LLC has calculated
under warranty based on the level of claims received through the end of 2007. Composites LLC has calculated
that the potential warranty cost ranges from $2,142,000 to approximately $13,100,000. See Warranty Obligation
that the potential warranty cost ranges from $2,142,000 to approximately $13,100,000. See Warranty Obligation
for Discontinued Operation below for further information. All future activity associated with this warranty
for Discontinued Operation below for further information. All future activity associated with this warranty
reserve will continue to be classified in the results of the discontinued operation in the Company’s consolidated
reserve will continue to be classified in the results of the discontinued operation in the Company’s consolidated
financial statements. See Note 15 for information related to pending litigation associated with the composites
financial statements. See Note 15 for information related to pending litigation associated with the composites
business.
business.
Company History and Former Relationship with Thermo Electron Corporation
Company History and Former Relationship with Thermo Electron Corporation
The Company was incorporated in November 1991 to be the successor-in-interest to several papermaking
The Company was incorporated in November 1991 to be the successor-in-interest to several papermaking
equipment businesses of Thermo Electron Corporation (Thermo Electron). In November 1992, the Company
equipment businesses of Thermo Electron Corporation (Thermo Electron). In November 1992, the Company
completed an initial public offering of a portion of its common stock. On July 12, 2001, the Company changed its
completed an initial public offering of a portion of its common stock. On July 12, 2001, the Company changed its
name to Kadant Inc. from Thermo Fibertek Inc. Thermo Electron disposed of its remaining equity interest in the
name to Kadant Inc. from Thermo Fibertek Inc. Thermo Electron disposed of its remaining equity interest in the
Company by means of a dividend to Thermo Electron shareholders on August 8, 2001 (Spinoff Date). On
Company by means of a dividend to Thermo Electron shareholders on August 8, 2001 (Spinoff Date). On
May 14, 2003, the Company began trading on the New York Stock Exchange under the ticker symbol “KAI.”
May 14, 2003, the Company began trading on the New York Stock Exchange under the ticker symbol “KAI.”
Previously, the Company’s common stock traded on the American Stock Exchange under the same symbol.
Previously, the Company’s common stock traded on the American Stock Exchange under the same symbol.
Principles of Consolidation
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly
The accompanying consolidated financial statements include the accounts of the Company and its wholly
and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
F-8
F-8
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Fiscal Year
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest to December 31. References to 2007,
The Company has adopted a fiscal year ending the Saturday nearest to December 31. References to 2007,
2006, and 2005 are for the fiscal years ended December 29, 2007, December 30, 2006, and December 31, 2005,
2006, and 2005 are for the fiscal years ended December 29, 2007, December 30, 2006, and December 31, 2005,
respectively. Prior to 2006, the Company’s Kadant Lamort subsidiary, based in France, had a fiscal year ending
respectively. Prior to 2006, the Company’s Kadant Lamort subsidiary, based in France, had a fiscal year ending
on November 30 to allow sufficient time for the Company to consolidate the financial statements of that
on November 30 to allow sufficient time for the Company to consolidate the financial statements of that
business. In 2006, the Kadant Lamort subsidiary changed its fiscal year end to conform to the Company’s fiscal
business. In 2006, the Kadant Lamort subsidiary changed its fiscal year end to conform to the Company’s fiscal
year end. This change resulted in the inclusion of an additional month of operating results for Kadant Lamort,
year end. This change resulted in the inclusion of an additional month of operating results for Kadant Lamort,
which had an immaterial effect on the Company’s consolidated income from continuing operations and net
which had an immaterial effect on the Company’s consolidated income from continuing operations and net
income in 2006.
income in 2006.
Use of Estimates and Critical Accounting Policies
Use of Estimates and Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period.
revenues and expenses during the reporting period.
Critical accounting policies are defined as those that entail significant judgments and estimates, and could
Critical accounting policies are defined as those that entail significant judgments and estimates, and could
potentially result in materially different results under different assumptions and conditions. The Company
potentially result in materially different results under different assumptions and conditions. The Company
believes that the most critical accounting policies upon which its financial position depends, and which involve
believes that the most critical accounting policies upon which its financial position depends, and which involve
the most complex or subjective decisions or assessments, concern revenue recognition, warranty obligations for
the most complex or subjective decisions or assessments, concern revenue recognition, warranty obligations for
continuing operations and the discontinued operation, stock-based compensation, income taxes, accounts
continuing operations and the discontinued operation, stock-based compensation, income taxes, accounts
receivable, inventories, derivatives, and the valuation of intangible assets and goodwill. A discussion on the
receivable, inventories, derivatives, and the valuation of intangible assets and goodwill. A discussion on the
application of these and other accounting policies is included in Note 1.
application of these and other accounting policies is included in Note 1.
Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in
Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in
the preparation of its consolidated financial statements or in the application of accounting policies, if business
the preparation of its consolidated financial statements or in the application of accounting policies, if business
conditions were different, or if the Company used different estimates and assumptions, it is possible that
conditions were different, or if the Company used different estimates and assumptions, it is possible that
materially different amounts could be reported in the Company’s consolidated financial statements.
materially different amounts could be reported in the Company’s consolidated financial statements.
Revenue Recognition and Accounts Receivable
Revenue Recognition and Accounts Receivable
The Company recognizes revenue under Securities and Exchange Commission (SEC) Staff Accounting
The Company recognizes revenue under Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No. 104, “Revenue Recognition.” Revenue is generally recognized when products are delivered
Bulletin (SAB) No. 104, “Revenue Recognition.” Revenue is generally recognized when products are delivered
or services are performed. The Company includes in revenue amounts invoiced for shipping and handling with
or services are performed. The Company includes in revenue amounts invoiced for shipping and handling with
the corresponding costs reflected in cost of revenues. When the terms of the sale include customer acceptance
the corresponding costs reflected in cost of revenues. When the terms of the sale include customer acceptance
provisions, and compliance with those provisions cannot be demonstrated until customer acceptance, revenues
provisions, and compliance with those provisions cannot be demonstrated until customer acceptance, revenues
are recognized upon such acceptance.
are recognized upon such acceptance.
Due to the significance of the Company’s capital goods and spare parts businesses, most of the Company’s
Due to the significance of the Company’s capital goods and spare parts businesses, most of the Company’s
revenue is recognized in accordance with the accounting policies in the preceding paragraph. However, when a
revenue is recognized in accordance with the accounting policies in the preceding paragraph. However, when a
sale arrangement involves multiple elements (e.g., installation), the Company considers the guidance in
sale arrangement involves multiple elements (e.g., installation), the Company considers the guidance in
Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.” Such
Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.” Such
transactions are evaluated to determine whether the deliverables in the arrangement represent separate units of
transactions are evaluated to determine whether the deliverables in the arrangement represent separate units of
accounting. If equipment and installation do not meet the separation criteria under EITF 00-21, revenues for
accounting. If equipment and installation do not meet the separation criteria under EITF 00-21, revenues for
products sold that require installation for which the installation is essential to functionality, or is not deemed
products sold that require installation for which the installation is essential to functionality, or is not deemed
inconsequential or perfunctory, are recognized upon completion of installation. Revenues for products sold where
inconsequential or perfunctory, are recognized upon completion of installation. Revenues for products sold where
installation is not essential to functionality, and is deemed inconsequential or perfunctory, are recognized upon
installation is not essential to functionality, and is deemed inconsequential or perfunctory, are recognized upon
shipment with estimated installation costs accrued.
shipment with estimated installation costs accrued.
F-9
F-9
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
In addition, revenues and profits on certain long-term contracts are recognized using the
In addition, revenues and profits on certain long-term contracts are recognized using the
percentage-of-completion method pursuant to Statement of Position No. 81-1, “Accounting for Performance of
percentage-of-completion method pursuant to Statement of Position No. 81-1, “Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.” Revenues recorded under the
Construction-Type and Certain Production-Type Contracts.” Revenues recorded under the
percentage-of-completion method were $103,489,000 in 2007, $91,947,000 in 2006, and $55,590,000 in 2005.
percentage-of-completion method were $103,489,000 in 2007, $91,947,000 in 2006, and $55,590,000 in 2005.
The percentage of completion is determined by comparing the actual costs incurred to date to an estimate of total
The percentage of completion is determined by comparing the actual costs incurred to date to an estimate of total
costs to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made
costs to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made
currently for the entire loss. The Company’s contracts generally provide for billing of customers upon the
currently for the entire loss. The Company’s contracts generally provide for billing of customers upon the
attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of
attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of
billings are classified as unbilled contract costs and fees, and amounts billed in excess of revenues earned are
billings are classified as unbilled contract costs and fees, and amounts billed in excess of revenues earned are
classified as billings in excess of contract costs and fees, which are included in other current liabilities in the
classified as billings in excess of contract costs and fees, which are included in other current liabilities in the
accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that
accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that
are not expected to be recovered from existing contracts at current contract values, or that are not expected to be
are not expected to be recovered from existing contracts at current contract values, or that are not expected to be
collected within one year, including amounts that are billed but not paid under retainage provisions.
collected within one year, including amounts that are billed but not paid under retainage provisions.
The Company exercises judgment in determining its allowance for bad debts, which is based on its historical
The Company exercises judgment in determining its allowance for bad debts, which is based on its historical
collection experience, current trends, credit policies, specific customer collection issues, and accounts receivable
collection experience, current trends, credit policies, specific customer collection issues, and accounts receivable
aging categories. In determining this allowance, the Company looks at historical write offs of its receivables. The
aging categories. In determining this allowance, the Company looks at historical write offs of its receivables. The
Company also looks at current trends in the credit quality of its customer base as well as changes in its credit
Company also looks at current trends in the credit quality of its customer base as well as changes in its credit
policies. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon
policies. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon
payment history and each customer’s current creditworthiness. The Company continuously monitors collections
payment history and each customer’s current creditworthiness. The Company continuously monitors collections
and payments from its customers. In addition, in some instances the Company utilizes letters of credit as a way to
and payments from its customers. In addition, in some instances the Company utilizes letters of credit as a way to
mitigate its credit exposure. In addition, the Company obtains letters of credit, principally issued by banks in
mitigate its credit exposure. In addition, the Company obtains letters of credit, principally issued by banks in
China, related to certain contracts with its Chinese customers under which revenue is recognized using the
China, related to certain contracts with its Chinese customers under which revenue is recognized using the
percentage-of-completion method of accounting. While actual bad debts have historically been within its
percentage-of-completion method of accounting. While actual bad debts have historically been within its
expectations and the provisions established, the Company cannot guarantee that it will continue to experience the
expectations and the provisions established, the Company cannot guarantee that it will continue to experience the
same rate of bad debts that it had in the past, especially in light of business conditions in the paper industry. A
same rate of bad debts that it had in the past, especially in light of business conditions in the paper industry. A
significant change in the liquidity or financial position of any of the Company’s customers could result in the
significant change in the liquidity or financial position of any of the Company’s customers could result in the
uncollectibility of the related accounts receivable and could adversely affect its operating cash flows in that
uncollectibility of the related accounts receivable and could adversely affect its operating cash flows in that
period.
period.
Warranty Obligations for Continuing Operations
Warranty Obligations for Continuing Operations
The Company provides for the estimated cost of product warranties at the time of sale based on the actual
The Company provides for the estimated cost of product warranties at the time of sale based on the actual
historical occurrence rates and repair costs. The Company typically negotiates the terms regarding warranty
historical occurrence rates and repair costs. The Company typically negotiates the terms regarding warranty
coverage and length of warranty depending on the products and applications. While the Company engages in
coverage and length of warranty depending on the products and applications. While the Company engages in
extensive product quality programs and processes, the Company’s warranty obligation is affected by product
extensive product quality programs and processes, the Company’s warranty obligation is affected by product
failure rates, repair costs, service delivery costs incurred in correcting a product failure, and supplier warranties
failure rates, repair costs, service delivery costs incurred in correcting a product failure, and supplier warranties
on parts delivered to the Company. Should actual product failure rates, repair costs, service delivery costs, or
on parts delivered to the Company. Should actual product failure rates, repair costs, service delivery costs, or
supplier warranties on parts differ from the Company’s estimates, revisions to the estimated warranty liability
supplier warranties on parts differ from the Company’s estimates, revisions to the estimated warranty liability
would be required. The changes in the carrying amount of accrued warranty costs included in other current
would be required. The changes in the carrying amount of accrued warranty costs included in other current
liabilities in the accompanying consolidated balance sheet are as follows:
liabilities in the accompanying consolidated balance sheet are as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,164
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,164
3,516
Provision charged to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,516
Provision charged to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,242)
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,242)
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,836
$ 2,836
1,541
1,541
(1,352)
(1,352)
139
139
Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,619
Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,619
$ 3,164
$ 3,164
F-10
F-10
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Warranty Obligations for Discontinued Operation
Warranty Obligations for Discontinued Operation
On October 21, 2005, Composites LLC sold its composites business and retained certain liabilities associated
On October 21, 2005, Composites LLC sold its composites business and retained certain liabilities associated
with the operation of the business prior to the sale, including the warranty obligations associated with products
with the operation of the business prior to the sale, including the warranty obligations associated with products
manufactured prior to the sale date. Activity associated with the warranty reserve is classified in the results of the
manufactured prior to the sale date. Activity associated with the warranty reserve is classified in the results of the
discontinued operation in the Company’s consolidated financial statements. Through the sale date of October 21,
discontinued operation in the Company’s consolidated financial statements. Through the sale date of October 21,
2005, Composites LLC offered a standard limited warranty to the owner of its decking and roofing products, limited
2005, Composites LLC offered a standard limited warranty to the owner of its decking and roofing products, limited
to repair or replacement of the defective product or a refund of the original purchase price.
to repair or replacement of the defective product or a refund of the original purchase price.
Through the second quarter of 2006, Composites LLC recorded an estimate for warranty-related costs at the
Through the second quarter of 2006, Composites LLC recorded an estimate for warranty-related costs at the
time of sale based on its actual historical return rates and repair costs, as well as other analytical tools for
time of sale based on its actual historical return rates and repair costs, as well as other analytical tools for
estimating future warranty claims. These estimates were revised for variances between actual and expected
estimating future warranty claims. These estimates were revised for variances between actual and expected
claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed assumptions
claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed assumptions
associated with potential product returns, including the type of product sold, temperatures at the location of
associated with potential product returns, including the type of product sold, temperatures at the location of
installation, density of boards, and other factors. Certain assumptions, such as the effect of weather conditions
installation, density of boards, and other factors. Certain assumptions, such as the effect of weather conditions
and high temperatures on the product installed, included inherent uncertainties that contributed to variances
and high temperatures on the product installed, included inherent uncertainties that contributed to variances
between actual and expected claims rates.
between actual and expected claims rates.
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
represents a best estimate of the ultimate loss to be recorded, the Company is required under Statement of
represents a best estimate of the ultimate loss to be recorded, the Company is required under Statement of
Financial Accounting Standards (SFAS) No. 5 (SFAS 5), “Accounting for Contingencies,” to record the
Financial Accounting Standards (SFAS) No. 5 (SFAS 5), “Accounting for Contingencies,” to record the
minimum amount of the potential range of loss for products under warranty. As of December 29, 2007, the
minimum amount of the potential range of loss for products under warranty. As of December 29, 2007, the
accrued warranty costs associated with the composites business were $2,142,000, which represent the low end of
accrued warranty costs associated with the composites business were $2,142,000, which represent the low end of
the estimated range of warranty reserve required based on the level of claims received through the end of 2007.
the estimated range of warranty reserve required based on the level of claims received through the end of 2007.
Composites LLC has calculated that the total potential warranty cost ranges from $2,142,000 to approximately
Composites LLC has calculated that the total potential warranty cost ranges from $2,142,000 to approximately
$13,100,000. The high end of the range represents the estimated maximum level of warranty claims remaining
$13,100,000. The high end of the range represents the estimated maximum level of warranty claims remaining
based on the total sales of the products under warranty. Composites LLC will continue to record adjustments to
based on the total sales of the products under warranty. Composites LLC will continue to record adjustments to
accrued warranty costs to reflect the minimum amount of the potential range of loss for products under warranty
accrued warranty costs to reflect the minimum amount of the potential range of loss for products under warranty
based on judgments entered against it in litigation.
based on judgments entered against it in litigation.
Stock-Based Compensation
Stock-Based Compensation
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised
2004), “Share-Based Payment” (SFAS 123R). SFAS 123R replaces SFAS No. 123, “Accounting for Stock-Based
2004), “Share-Based Payment” (SFAS 123R). SFAS 123R replaces SFAS No. 123, “Accounting for Stock-Based
Compensation” (SFAS 123), supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock
Compensation” (SFAS 123), supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees” (APB Opinion No. 25), and amends SFAS No. 95 “Statement of Cash Flows.” SFAS 123R
Issued to Employees” (APB Opinion No. 25), and amends SFAS No. 95 “Statement of Cash Flows.” SFAS 123R
requires all share-based payments to employees that are ultimately expected to vest and do actually vest,
requires all share-based payments to employees that are ultimately expected to vest and do actually vest,
including grants of employee stock options, to be recognized in the financial statements based on their fair
including grants of employee stock options, to be recognized in the financial statements based on their fair
values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to
values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to
recognition of compensation expense in the income statement under SFAS 123R.
recognition of compensation expense in the income statement under SFAS 123R.
Effective January 1, 2006, the Company adopted SFAS 123R, using the modified prospective method.
Effective January 1, 2006, the Company adopted SFAS 123R, using the modified prospective method.
Under this method, beginning on January 1, 2006, the Company recognized compensation cost for all share-
Under this method, beginning on January 1, 2006, the Company recognized compensation cost for all share-
based payments to employees based on the grant date estimate of fair value for those awards. The Company uses
based payments to employees based on the grant date estimate of fair value for those awards. The Company uses
the Black-Scholes option-pricing model to determine fair value for option grants and the grant date trading price
the Black-Scholes option-pricing model to determine fair value for option grants and the grant date trading price
of the Company’s common stock to determine the fair value for restricted stock awards. Compensation expense
of the Company’s common stock to determine the fair value for restricted stock awards. Compensation expense
is recognized over the vesting period of the award. Prior-period financial information has not been restated for
is recognized over the vesting period of the award. Prior-period financial information has not been restated for
the adoption of SFAS 123R.
the adoption of SFAS 123R.
F-11
F-11
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
As a result of the adoption of SFAS 123R on January 1, 2006, the Company’s results of operations for 2007
As a result of the adoption of SFAS 123R on January 1, 2006, the Company’s results of operations for 2007
and 2006 included incremental share-based pre-tax compensation expense related to stock options of $90,000 and
and 2006 included incremental share-based pre-tax compensation expense related to stock options of $90,000 and
$296,000, respectively. This incremental expense, net of related tax benefits, decreased basic and diluted
$296,000, respectively. This incremental expense, net of related tax benefits, decreased basic and diluted
earnings per share by less than $.01 in 2007 and $.01 in 2006. As of December 29, 2007, the Company had
earnings per share by less than $.01 in 2007 and $.01 in 2006. As of December 29, 2007, the Company had
approximately $21,000 of unrecognized compensation cost related to stock option awards that will be recognized
approximately $21,000 of unrecognized compensation cost related to stock option awards that will be recognized
as expense in 2008. The total share-based compensation cost, including compensation expense associated with
as expense in 2008. The total share-based compensation cost, including compensation expense associated with
restricted stock and the employee stock purchase plan, was $1,796,000, $926,000, and $278,000 in 2007, 2006,
restricted stock and the employee stock purchase plan, was $1,796,000, $926,000, and $278,000 in 2007, 2006,
and 2005, respectively, and is included in selling, general, and administrative expenses in the accompanying
and 2005, respectively, and is included in selling, general, and administrative expenses in the accompanying
consolidated statement of income. The adoption of SFAS 123R in 2006 resulted in the inclusion in cash flows
consolidated statement of income. The adoption of SFAS 123R in 2006 resulted in the inclusion in cash flows
from financing activities of $2,946,000 and $2,529,000 of total tax benefits realized from stock options exercised
from financing activities of $2,946,000 and $2,529,000 of total tax benefits realized from stock options exercised
during 2007 and 2006, respectively, that would have been reflected in cash flows from operating activities prior
during 2007 and 2006, respectively, that would have been reflected in cash flows from operating activities prior
to the adoption of SFAS 123R.
to the adoption of SFAS 123R.
For periods prior to the adoption of SFAS 123R, the Company elected to follow APB Opinion No. 25 and
For periods prior to the adoption of SFAS 123R, the Company elected to follow APB Opinion No. 25 and
related interpretations to account for its stock-based compensation plans. For these prior periods, no stock-based
related interpretations to account for its stock-based compensation plans. For these prior periods, no stock-based
employee compensation cost related to stock option awards is reflected in net income, as all options granted
employee compensation cost related to stock option awards is reflected in net income, as all options granted
under the plans had an exercise price equal to the market price of the underlying common stock on the date of
under the plans had an exercise price equal to the market price of the underlying common stock on the date of
grant.
grant.
The following table illustrates the impact on net income and earnings per share as if the Company had
The following table illustrates the impact on net income and earnings per share as if the Company had
applied the fair value recognition provisions of SFAS 123 to the Company’s stock-based employee compensation
applied the fair value recognition provisions of SFAS 123 to the Company’s stock-based employee compensation
for 2005.
for 2005.
(In thousands, except per share amounts)
(In thousands, except per share amounts)
2005
2005
$ 9,865
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,865
(2,988)
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,988)
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduct: Total stock-based employee compensation expense determined under the fair-value-based
Deduct: Total stock-based employee compensation expense determined under the fair-value-based
6,877
6,877
method for all awards, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
method for all awards, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(561)
(561)
Pro Forma Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,316
Pro Forma Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,316
Basic Earnings per Share:
Basic Earnings per Share:
As reported:
As reported:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma:
Pro forma:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings per Share:
Diluted Earnings per Share:
As reported:
As reported:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma:
Pro forma:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
.71
.71
.50
.50
.67
.67
.46
.46
.70
.70
.49
.49
.66
.66
.45
.45
F-12
F-12
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Income Taxes
Income Taxes
In accordance with SFAS No. 109, “Accounting for Income Taxes,” (SFAS 109) the Company recognizes
In accordance with SFAS No. 109, “Accounting for Income Taxes,” (SFAS 109) the Company recognizes
deferred income taxes based on the expected future tax consequences of differences between the financial
deferred income taxes based on the expected future tax consequences of differences between the financial
statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year
statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year
in which the differences are expected to reverse. A tax valuation allowance is established, as needed, to reduce
in which the differences are expected to reverse. A tax valuation allowance is established, as needed, to reduce
net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than not that
net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than not that
some or all of the deferred tax asset allowances will not be needed, the valuation allowance will be adjusted.
some or all of the deferred tax asset allowances will not be needed, the valuation allowance will be adjusted.
It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based
It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based
upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination
upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination
by tax authorities. At December 29, 2007, the Company believes that it has appropriately accounted for any
by tax authorities. At December 29, 2007, the Company believes that it has appropriately accounted for any
unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an
unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an
unrecognized tax benefit is established or is required to pay amounts in excess of the liability, its effective tax
unrecognized tax benefit is established or is required to pay amounts in excess of the liability, its effective tax
rate in a given financial statement period may be affected.
rate in a given financial statement period may be affected.
Prior to the spinoff from Thermo Electron, the Company and Thermo Electron were parties to a tax
Prior to the spinoff from Thermo Electron, the Company and Thermo Electron were parties to a tax
allocation agreement under which the Company and its subsidiaries, except its foreign operations, its Fiberprep
allocation agreement under which the Company and its subsidiaries, except its foreign operations, its Fiberprep
subsidiary, and in 2000, its Kadant Composites Inc. subsidiary, were included in the consolidated federal and
subsidiary, and in 2000, its Kadant Composites Inc. subsidiary, were included in the consolidated federal and
certain state income tax returns filed by Thermo Electron. The tax allocation agreement provided that, in years in
certain state income tax returns filed by Thermo Electron. The tax allocation agreement provided that, in years in
which these entities had taxable income, the Company would pay to Thermo Electron amounts comparable to the
which these entities had taxable income, the Company would pay to Thermo Electron amounts comparable to the
taxes it would have paid if the Company had filed separate tax returns. The tax allocation agreement terminated
taxes it would have paid if the Company had filed separate tax returns. The tax allocation agreement terminated
as of the Spinoff Date, at which time the Company and Thermo Electron entered into a tax matters agreement.
as of the Spinoff Date, at which time the Company and Thermo Electron entered into a tax matters agreement.
The tax matters agreement requires, among other things, that the Company file its own income tax returns for tax
The tax matters agreement requires, among other things, that the Company file its own income tax returns for tax
periods beginning immediately after the Spinoff Date. In addition, the tax matters agreement requires that the
periods beginning immediately after the Spinoff Date. In addition, the tax matters agreement requires that the
Company indemnify Thermo Electron, but not the shareholders of Thermo Electron, against liability for taxes
Company indemnify Thermo Electron, but not the shareholders of Thermo Electron, against liability for taxes
resulting from (a) the conduct of the Company’s business following the distribution or (b) the failure of the
resulting from (a) the conduct of the Company’s business following the distribution or (b) the failure of the
distribution to Thermo Electron shareholders of shares of the Company’s common stock or of Viasys Healthcare
distribution to Thermo Electron shareholders of shares of the Company’s common stock or of Viasys Healthcare
Inc. (another Thermo Electron spinoff) common stock to continue to qualify as a tax-free spinoff under
Inc. (another Thermo Electron spinoff) common stock to continue to qualify as a tax-free spinoff under
Section 355 of the Internal Revenue Code as a result of certain actions that the Company takes following the
Section 355 of the Internal Revenue Code as a result of certain actions that the Company takes following the
distribution. Thermo Electron has agreed to indemnify the Company against taxes resulting from the conduct of
distribution. Thermo Electron has agreed to indemnify the Company against taxes resulting from the conduct of
Thermo Electron’s business prior to and following the distribution, or from the failure of the distribution of
Thermo Electron’s business prior to and following the distribution, or from the failure of the distribution of
shares of the Company’s common stock to Thermo Electron shareholders to continue to qualify as a tax-free
shares of the Company’s common stock to Thermo Electron shareholders to continue to qualify as a tax-free
spinoff other than as a result of some actions that the Company may take following the distribution. Although not
spinoff other than as a result of some actions that the Company may take following the distribution. Although not
anticipated, if any of the Company’s post-distribution activities cause the distribution to become taxable, the
anticipated, if any of the Company’s post-distribution activities cause the distribution to become taxable, the
Company could incur a liability to Thermo Electron and/or various taxing authorities, which could adversely
Company could incur a liability to Thermo Electron and/or various taxing authorities, which could adversely
affect the Company’s results of operations, financial position, and cash flows.
affect the Company’s results of operations, financial position, and cash flows.
Earnings per Share
Earnings per Share
Basic earnings per share has been computed by dividing net income by the weighted average number of
Basic earnings per share has been computed by dividing net income by the weighted average number of
shares outstanding during the year. Diluted earnings per share was computed assuming the effect of all
shares outstanding during the year. Diluted earnings per share was computed assuming the effect of all
potentially dilutive securities, including stock options and restricted stock awards, as well as their related tax
potentially dilutive securities, including stock options and restricted stock awards, as well as their related tax
effects.
effects.
Cash and Cash Equivalents
Cash and Cash Equivalents
At year-end 2007 and 2006, the Company’s cash equivalents included investments in money market funds
At year-end 2007 and 2006, the Company’s cash equivalents included investments in money market funds
and other marketable securities of its domestic and foreign subsidiaries, which had maturities of three months or
and other marketable securities of its domestic and foreign subsidiaries, which had maturities of three months or
F-13
F-13
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
less at the date of purchase. The carrying amounts of cash equivalents approximate their fair values due to the
less at the date of purchase. The carrying amounts of cash equivalents approximate their fair values due to the
short-term nature of these instruments.
short-term nature of these instruments.
Supplemental Cash Flow Information
Supplemental Cash Flow Information
(In thousands)
(In thousands)
2007
2007
2006
2006
2005
2005
$ 3,182
$ 3,182
Cash Paid for Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Paid for Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Paid for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,095
$ 5,095
Cash Paid for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Cash Investing Activities (Note 2):
Non-Cash Investing Activities (Note 2):
$ 3,232
$
$
$ 3,232
$ 2,250 $
$
$ 2,250
2,096
2,096
2,422
2,422
Fair Value of Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value of Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Paid for Acquired Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Paid for Acquired Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities Assumed of Acquired Business . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities Assumed of Acquired Business . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
–
–
–
–
–
–
$ 26,249
$ 26,249
(20,520)
(20,520)
$ 158,694
$ 158,694
(106,146)
(106,146)
$ 5,729
$ 5,729
$ 52,548
$ 52,548
Non-Cash Financing Activities:
Non-Cash Financing Activities:
Issuance of Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Issuance of Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
464
464
$
$
478
478
$
$
352
352
Inventories
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out; or weighted average basis) or market value
Inventories are stated at the lower of cost (on a first-in, first-out; or weighted average basis) or market value
and include materials, labor, and manufacturing overhead. The components of inventories are as follows:
and include materials, labor, and manufacturing overhead. The components of inventories are as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
Raw Materials and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw Materials and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished Goods (includes $2,405 and $624 at customer locations) . . . . . . . . . . . . . . . . . . . . .
Finished Goods (includes $2,405 and $624 at customer locations) . . . . . . . . . . . . . . . . . . . . .
$22,418
$23,587
$23,587 $22,418
9,916
9,855
9,916
9,855
9,345
9,345
14,028
14,028
$47,470
$47,470
$41,679
$41,679
The Company periodically reviews its quantities of inventories on hand and compares these amounts to the
The Company periodically reviews its quantities of inventories on hand and compares these amounts to the
expected usage of each particular product or product line. The Company records as a charge to cost of revenues
expected usage of each particular product or product line. The Company records as a charge to cost of revenues
any amounts required to reduce the carrying value of inventories to net realizable value.
any amounts required to reduce the carrying value of inventories to net realizable value.
In the fourth quarter of 2007, the Company changed its method of accounting for inventories at one of its
In the fourth quarter of 2007, the Company changed its method of accounting for inventories at one of its
U.S. subsidiaries from the lower of cost, as determined by the last-in, first-out (LIFO) method of accounting, or
U.S. subsidiaries from the lower of cost, as determined by the last-in, first-out (LIFO) method of accounting, or
market to the lower of cost, as determined by the first-in, first-out (FIFO) method of accounting, or market. The
market to the lower of cost, as determined by the first-in, first-out (FIFO) method of accounting, or market. The
Company believes that this change is preferable because: 1) the change conforms to a single method of
Company believes that this change is preferable because: 1) the change conforms to a single method of
accounting for all the Company’s inventories, 2) LIFO inventory values have not been materially different than
accounting for all the Company’s inventories, 2) LIFO inventory values have not been materially different than
FIFO inventory values for any reporting period, and 3) the majority of the Company’s competitors use FIFO.
FIFO inventory values for any reporting period, and 3) the majority of the Company’s competitors use FIFO.
Had the Company used FIFO instead of LIFO for each reporting period for this U.S. subsidiary, the difference
Had the Company used FIFO instead of LIFO for each reporting period for this U.S. subsidiary, the difference
between the LIFO and FIFO valuation methods and their resulting effects on the consolidated financial
between the LIFO and FIFO valuation methods and their resulting effects on the consolidated financial
statements would not have been material for each such period. As a result, the Company recorded the cumulative
statements would not have been material for each such period. As a result, the Company recorded the cumulative
change from the LIFO to the FIFO method of accounting in the fourth quarter of 2007.
change from the LIFO to the FIFO method of accounting in the fourth quarter of 2007.
Property, Plant, and Equipment
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance and repairs are charged to
The costs of additions and improvements are capitalized, while maintenance and repairs are charged to
expense as incurred. The Company provides for depreciation and amortization primarily using the straight-line
expense as incurred. The Company provides for depreciation and amortization primarily using the straight-line
method over the estimated useful lives of the property as follows: buildings, 10 to 40 years; machinery and
method over the estimated useful lives of the property as follows: buildings, 10 to 40 years; machinery and
F-14
F-14
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
equipment, 2 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset.
equipment, 2 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset.
Property, plant, and equipment consist of the following:
Property, plant, and equipment consist of the following:
(In thousands)
(In thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, Equipment, and Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, Equipment, and Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2007
2007
5,251
5,251
37,672
37,672
62,966
62,966
105,889
105,889
63,985
63,985
$ 41,904
$ 41,904
2006
2006
$ 5,002
$ 5,002
36,275
36,275
56,718
56,718
97,995
97,995
57,056
57,056
$40,939
$40,939
Depreciation and amortization expense was $4,871,000, $4,960,000, and $5,019,000 in 2007, 2006, and
Depreciation and amortization expense was $4,871,000, $4,960,000, and $5,019,000 in 2007, 2006, and
2005, respectively.
2005, respectively.
Intangible Assets
Intangible Assets
Intangible assets in the accompanying balance sheet include the costs of acquired intellectual property,
Intangible assets in the accompanying balance sheet include the costs of acquired intellectual property,
tradename, patents, customer relationships, non-compete agreements and other specifically identifiable intangible
tradename, patents, customer relationships, non-compete agreements and other specifically identifiable intangible
assets. An intangible asset of $8,100,000 associated with the acquisition of the Johnson tradename as part of the
assets. An intangible asset of $8,100,000 associated with the acquisition of the Johnson tradename as part of the
Company’s acquisition of The Johnson Corporation in 2005 has an indefinite life and is not being amortized. The
Company’s acquisition of The Johnson Corporation in 2005 has an indefinite life and is not being amortized. The
remaining intangible assets have been amortized using the straight-line method over periods ranging from 1 to 20
remaining intangible assets have been amortized using the straight-line method over periods ranging from 1 to 20
years with a weighted-average amortization period of 14 years. The intangible asset lives have been determined
years with a weighted-average amortization period of 14 years. The intangible asset lives have been determined
based on the anticipated period over which the Company will derive future cash flow benefits from the intangible
based on the anticipated period over which the Company will derive future cash flow benefits from the intangible
assets. The Company has considered the effects of legal, regulatory, contractual, competitive, and other
assets. The Company has considered the effects of legal, regulatory, contractual, competitive, and other
economic factors in determining these useful lives.
economic factors in determining these useful lives.
Acquired intangible assets are as follows:
Acquired intangible assets are as follows:
(In thousands)
(In thousands)
December 29, 2007
December 29, 2007
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 30, 2006
December 30, 2006
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross
Gross
Currency
Currency
Translation
Translation
Accumulated
Accumulated
Amortization
Amortization
Net
Net
$16,308
$16,308
13,057
13,057
8,100
8,100
3,119
3,119
2,400
2,400
400
400
$43,384
$43,384
$16,317
$16,317
13,057
13,057
8,100
8,100
3,119
3,119
2,400
2,400
400
400
260
260
$43,653
$43,653
$ 1,364
$ 1,364
–
–
–
–
–
–
–
–
–
–
$ 1,364
$ 1,364
$
$
$
$
345
345
–
–
–
–
–
–
–
–
–
–
–
–
345
345
$ (3,013)
$ (3,013)
(5,252)
(5,252)
–
–
(3,114)
(3,114)
(372)
(372)
(53)
(53)
$(11,804)
$(11,804)
$ (1,779)
$ (1,779)
(4,163)
(4,163)
–
–
(2,976)
(2,976)
(231)
(231)
(33)
(33)
(130)
(130)
$ (9,312)
$ (9,312)
$14,659
$14,659
7,805
7,805
8,100
8,100
5
5
2,028
2,028
347
347
$32,944
$32,944
$14,883
$14,883
8,894
8,894
8,100
8,100
143
143
2,169
2,169
367
367
130
130
$34,686
$34,686
Amortization of acquired intangible assets was $2,492,000 in 2007, $2,798,000 in 2006 and $1,912,000 in
Amortization of acquired intangible assets was $2,492,000 in 2007, $2,798,000 in 2006 and $1,912,000 in
2005. The estimated future amortization expense of acquired intangible assets is $2,481,000 in 2008; $2,431,000
2005. The estimated future amortization expense of acquired intangible assets is $2,481,000 in 2008; $2,431,000
in 2009; $2,431,000 in 2010, $2,239,000 in 2011, and $15,262,000 in the aggregate thereafter.
in 2009; $2,431,000 in 2010, $2,239,000 in 2011, and $15,262,000 in the aggregate thereafter.
F-15
F-15
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Goodwill
Goodwill
Goodwill as of year-end 2007 and 2006 relates entirely to the Company’s Papermaking Systems segment.
Goodwill as of year-end 2007 and 2006 relates entirely to the Company’s Papermaking Systems segment.
The changes in the carrying amount of goodwill in 2007 and 2006 are as follows:
The changes in the carrying amount of goodwill in 2007 and 2006 are as follows:
(In thousands)
(In thousands)
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) Increase due to Kadant Johnson acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) Increase due to Kadant Johnson acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to Kadant Jining acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to Kadant Jining acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to Purchase of Minority Interest in Subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to Purchase of Minority Interest in Subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
Currency Translation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency Translation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
2006
2006
$137,078
$137,078
(1,237)
(1,237)
441
441
–
–
4,530
4,530
$124,425
$124,425
4,389
4,389
5,267
5,267
344
344
2,653
2,653
$140,812
$140,812
$137,078
$137,078
During 2006, the Company acquired the remaining minority interest in one of its Kadant Johnson
During 2006, the Company acquired the remaining minority interest in one of its Kadant Johnson
subsidiaries for $701,000 in cash and recorded $344,000 of goodwill.
subsidiaries for $701,000 in cash and recorded $344,000 of goodwill.
Impairment of Long-Lived Assets
Impairment of Long-Lived Assets
The Company evaluates the recoverability of goodwill and intangible assets with indefinite useful lives
The Company evaluates the recoverability of goodwill and intangible assets with indefinite useful lives
annually in the fourth quarter, or more frequently if events or changes in circumstances, such as a decline in
annually in the fourth quarter, or more frequently if events or changes in circumstances, such as a decline in
sales, earnings, or cash flows, or material adverse changes in the business climate, indicate that the carrying
sales, earnings, or cash flows, or material adverse changes in the business climate, indicate that the carrying
value of an asset might be impaired. The Company completed its annual impairment test in the fourth quarter of
value of an asset might be impaired. The Company completed its annual impairment test in the fourth quarter of
2007 using the estimates from its long-range forecasts. No adjustment was required to the carrying value of its
2007 using the estimates from its long-range forecasts. No adjustment was required to the carrying value of its
goodwill or indefinite-lived intangible assets based on the analysis performed.
goodwill or indefinite-lived intangible assets based on the analysis performed.
The Company assesses its long-lived assets, other than goodwill and indefinite-lived intangible assets, for
The Company assesses its long-lived assets, other than goodwill and indefinite-lived intangible assets, for
impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable.
impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable.
To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of
To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of
such assets. If these projected cash flows were to be less than the carrying amounts, an impairment loss would be
such assets. If these projected cash flows were to be less than the carrying amounts, an impairment loss would be
recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss
recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss
would be measured based upon the difference between the carrying amounts and the fair values of the assets.
would be measured based upon the difference between the carrying amounts and the fair values of the assets.
Foreign Currency Translation
Foreign Currency Translation
All assets and liabilities of the Company’s foreign subsidiaries are translated at year-end exchange rates, and
All assets and liabilities of the Company’s foreign subsidiaries are translated at year-end exchange rates, and
revenues and expenses are translated at average exchange rates for each quarter in accordance with SFAS No. 52,
revenues and expenses are translated at average exchange rates for each quarter in accordance with SFAS No. 52,
“Foreign Currency Translation.” Resulting translation adjustments are reflected in the “accumulated other
“Foreign Currency Translation.” Resulting translation adjustments are reflected in the “accumulated other
comprehensive items” component of shareholders’ investment (see Note 13). Foreign currency transaction gains
comprehensive items” component of shareholders’ investment (see Note 13). Foreign currency transaction gains
and losses are included in the accompanying consolidated statement of income and are not material for the three
and losses are included in the accompanying consolidated statement of income and are not material for the three
years presented.
years presented.
Derivatives
Derivatives
The Company uses derivative instruments primarily to reduce its exposure to changes in currency exchange
The Company uses derivative instruments primarily to reduce its exposure to changes in currency exchange
rates and interest rates. When the Company enters into a derivative contract, the Company makes a determination
rates and interest rates. When the Company enters into a derivative contract, the Company makes a determination
as to whether the transaction is deemed to be a hedge for accounting purposes. For contracts deemed to be a
as to whether the transaction is deemed to be a hedge for accounting purposes. For contracts deemed to be a
hedge, the Company formally documents the relationship between the derivative instrument and the risk being
hedge, the Company formally documents the relationship between the derivative instrument and the risk being
hedged. In this documentation, the Company specifically identifies the asset, liability, forecasted transaction,
hedged. In this documentation, the Company specifically identifies the asset, liability, forecasted transaction,
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
cash flow, or net investment that has been designated as the hedged item, and evaluates whether the derivative
cash flow, or net investment that has been designated as the hedged item, and evaluates whether the derivative
instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria are not
instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria are not
met, the Company does not use hedge accounting for the derivative.
met, the Company does not use hedge accounting for the derivative.
SFAS No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities,” as amended,
SFAS No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities,” as amended,
requires that all derivatives be recognized on the balance sheet at fair value. For derivatives designated as cash
requires that all derivatives be recognized on the balance sheet at fair value. For derivatives designated as cash
flow hedges, the related gains or losses on these contracts are deferred as a component of accumulated other
flow hedges, the related gains or losses on these contracts are deferred as a component of accumulated other
comprehensive items. These deferred gains and losses are recognized in the period in which the underlying
comprehensive items. These deferred gains and losses are recognized in the period in which the underlying
anticipated transaction occurs. For derivatives designated as fair value hedges, the unrealized gains and losses
anticipated transaction occurs. For derivatives designated as fair value hedges, the unrealized gains and losses
resulting from the impact of currency exchange rate movements are recognized in earnings in the period in which
resulting from the impact of currency exchange rate movements are recognized in earnings in the period in which
the exchange rates change and offset the currency gains and losses on the underlying exposures being hedged.
the exchange rates change and offset the currency gains and losses on the underlying exposures being hedged.
The Company performs an evaluation of the effectiveness of the hedge both at inception and on an ongoing basis.
The Company performs an evaluation of the effectiveness of the hedge both at inception and on an ongoing basis.
The ineffective portion of a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge,
The ineffective portion of a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge,
are recorded in the consolidated statement of income.
are recorded in the consolidated statement of income.
The Company entered into interest rate swap agreements in 2007 and 2006 to hedge a portion of its variable
The Company entered into interest rate swap agreements in 2007 and 2006 to hedge a portion of its variable
rate debt and has designated these agreements as cash flow hedges of the underlying obligations. The fair values
rate debt and has designated these agreements as cash flow hedges of the underlying obligations. The fair values
of the interest rate swap agreements are included in other assets for unrecognized gains and in other liabilities for
of the interest rate swap agreements are included in other assets for unrecognized gains and in other liabilities for
unrecognized losses with an offset in accumulated other comprehensive items (net of tax). The Company has
unrecognized losses with an offset in accumulated other comprehensive items (net of tax). The Company has
structured these interest rate swap agreements to be 100% effective and as a result, there is no current impact to
structured these interest rate swap agreements to be 100% effective and as a result, there is no current impact to
earnings resulting from hedge ineffectiveness.
earnings resulting from hedge ineffectiveness.
The Company uses forward currency exchange contracts primarily to hedge certain operational (“cash flow”
The Company uses forward currency exchange contracts primarily to hedge certain operational (“cash flow”
hedges) and balance sheet (“fair value” hedges) exposures resulting from fluctuations in currency exchange rates.
hedges) and balance sheet (“fair value” hedges) exposures resulting from fluctuations in currency exchange rates.
Such exposures primarily result from portions of the Company’s operations and assets that are denominated in
Such exposures primarily result from portions of the Company’s operations and assets that are denominated in
currencies other than the functional currencies of the businesses conducting the operations or holding the assets.
currencies other than the functional currencies of the businesses conducting the operations or holding the assets.
The Company enters into forward currency exchange contracts to hedge anticipated product sales and recorded
The Company enters into forward currency exchange contracts to hedge anticipated product sales and recorded
accounts receivable made in the normal course of business, and accordingly, the hedges are not speculative in
accounts receivable made in the normal course of business, and accordingly, the hedges are not speculative in
nature.
nature.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157 (SFAS 157), “Fair Value Measurements.” SFAS 157
In September 2006, the FASB issued SFAS No. 157 (SFAS 157), “Fair Value Measurements.” SFAS 157
defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 is effective for the Company in the first quarter of 2008. The adoption of SFAS 157 is
measurements. SFAS 157 is effective for the Company in the first quarter of 2008. The adoption of SFAS 157 is
not expected to materially affect the Company’s financial position or results of operations.
not expected to materially affect the Company’s financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial
In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial
Assets and Financial Liabilities—including an Amendment of FASB Statement No. 115.” SFAS 159 permits
Assets and Financial Liabilities—including an Amendment of FASB Statement No. 115.” SFAS 159 permits
entities to measure eligible financial assets, financial liabilities and certain other assets and liabilities at fair value
entities to measure eligible financial assets, financial liabilities and certain other assets and liabilities at fair value
on an instrument-by-instrument basis. The fair value measurement election is irrevocable once made and
on an instrument-by-instrument basis. The fair value measurement election is irrevocable once made and
subsequent changes in fair value must be recorded in earnings. The effect of adoption will be reported as a
subsequent changes in fair value must be recorded in earnings. The effect of adoption will be reported as a
cumulative-effect adjustment to beginning retained earnings. SFAS 159 is effective for the Company in the first
cumulative-effect adjustment to beginning retained earnings. SFAS 159 is effective for the Company in the first
quarter of 2008. The adoption of SFAS 159 is not expected to materially affect the Company’s financial position
quarter of 2008. The adoption of SFAS 159 is not expected to materially affect the Company’s financial position
or results of operations.
or results of operations.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS 141(R)), which
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS 141(R)), which
replaces SFAS No. 141. SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the liabilities
replaces SFAS No. 141. SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the liabilities
assumed, any non-controlling interest in the acquiree, and any goodwill acquired to be measured at their fair
assumed, any non-controlling interest in the acquiree, and any goodwill acquired to be measured at their fair
values at the acquisition date. SFAS 141(R) also establishes disclosure requirements, which will enable users to
values at the acquisition date. SFAS 141(R) also establishes disclosure requirements, which will enable users to
evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years
evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 141(R) will have an impact on accounting for
beginning after December 15, 2008. The adoption of SFAS 141(R) will have an impact on accounting for
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
business combinations completed subsequent to its adoption. As of December 29, 2007, the Company had a
business combinations completed subsequent to its adoption. As of December 29, 2007, the Company had a
valuation allowance of $1,270,000 relating to the Kadant Johnson acquisition, a liability for unrecognized tax
valuation allowance of $1,270,000 relating to the Kadant Johnson acquisition, a liability for unrecognized tax
benefits of $517,000, and accrued interest and penalties of $843,000, all of which if recognized would affect
benefits of $517,000, and accrued interest and penalties of $843,000, all of which if recognized would affect
goodwill. However, if those tax benefits are recognized after the adoption of SFAS No. 141(R), the amounts
goodwill. However, if those tax benefits are recognized after the adoption of SFAS No. 141(R), the amounts
would have an impact on the Company’s annual effective tax rate.
would have an impact on the Company’s annual effective tax rate.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements—an amendment of Accounting Research Bulletin No. 51” (SFAS 160), which establishes accounting
Statements—an amendment of Accounting Research Bulletin No. 51” (SFAS 160), which establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of
and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s
consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s
ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is
ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly
deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests of the non-controlling owners.
identify and distinguish between the interests of the parent and the interests of the non-controlling owners.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating
the effect that SFAS 160 will have on its consolidated financial statements.
the effect that SFAS 160 will have on its consolidated financial statements.
Reclassifications
Reclassifications
Certain reclassifications have been made to the prior years’ presentations to conform to the 2007
Certain reclassifications have been made to the prior years’ presentations to conform to the 2007
presentation.
presentation.
2. Acquisitions and Disposition
2. Acquisitions and Disposition
Disposition
Disposition
On April 30, 2007, the Company’s Kadant Johnson Holdings Inc. (formerly Specialty Castings Inc.)
On April 30, 2007, the Company’s Kadant Johnson Holdings Inc. (formerly Specialty Castings Inc.)
subsidiary sold substantially all the assets of its Casting Products business for $390,000, consisting of $250,000
subsidiary sold substantially all the assets of its Casting Products business for $390,000, consisting of $250,000
received in cash and a $140,000 note receivable. The note receivable bears interest at a rate of 8% annually and is
received in cash and a $140,000 note receivable. The note receivable bears interest at a rate of 8% annually and is
to be repaid by the buyer on a monthly basis over a 5-year period, commencing on January 1, 2008. The
to be repaid by the buyer on a monthly basis over a 5-year period, commencing on January 1, 2008. The
Company recorded a pre-tax loss of $388,000 ($233,000 after-tax, or $.02 per diluted share) on the sale in 2007.
Company recorded a pre-tax loss of $388,000 ($233,000 after-tax, or $.02 per diluted share) on the sale in 2007.
Kadant Jining Acquisition
Kadant Jining Acquisition
On June 2, 2006, the Company’s subsidiary, Kadant Light Machinery (Jining) Co., Ltd. (Kadant Jining),
On June 2, 2006, the Company’s subsidiary, Kadant Light Machinery (Jining) Co., Ltd. (Kadant Jining),
assumed responsibility for the operation of Jining Huayi Light Industry Machinery Co., Ltd. (Huayi), and, by
assumed responsibility for the operation of Jining Huayi Light Industry Machinery Co., Ltd. (Huayi), and, by
September 30, 2006, acquired substantially all of the assets of Huayi (Kadant Jining acquisition) including cash,
September 30, 2006, acquired substantially all of the assets of Huayi (Kadant Jining acquisition) including cash,
inventory, machinery, equipment, and buildings for $21,153,000, net of assumed liabilities of $2,253,000 related
inventory, machinery, equipment, and buildings for $21,153,000, net of assumed liabilities of $2,253,000 related
primarily to acquired customer deposits. Of the total consideration, $17,331,000 was paid in cash, including
primarily to acquired customer deposits. Of the total consideration, $17,331,000 was paid in cash, including
$1,032,000 for acquisition-related costs. To finance a portion of the purchase price, Kadant Jining borrowed
$1,032,000 for acquisition-related costs. To finance a portion of the purchase price, Kadant Jining borrowed
40 million Chinese renminbi, originally translated at $5,072,000. Of the remaining purchase obligation of
40 million Chinese renminbi, originally translated at $5,072,000. Of the remaining purchase obligation of
$3,822,000, $2,365,000 was paid as of December 29, 2007, $542,000 was paid in January 2008, and the
$3,822,000, $2,365,000 was paid as of December 29, 2007, $542,000 was paid in January 2008, and the
remainder will be paid in 2008 if certain indemnification obligations are satisfied. Huayi was a supplier of stock-
remainder will be paid in 2008 if certain indemnification obligations are satisfied. Huayi was a supplier of stock-
preparation equipment in China. The Company believes that the acquisition of this business will allow the
preparation equipment in China. The Company believes that the acquisition of this business will allow the
Company to deliver its stock-preparation systems and aftermarket products to customers in China more
Company to deliver its stock-preparation systems and aftermarket products to customers in China more
efficiently, supply parts and components to North America and Europe, and extend the Company’s customer base
efficiently, supply parts and components to North America and Europe, and extend the Company’s customer base
to include more small-to-midsize mills in China.
to include more small-to-midsize mills in China.
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
2. Acquisitions and Disposition (continued)
2. Acquisitions and Disposition (continued)
This acquisition was accounted for under the purchase method of accounting and the operating results for
This acquisition was accounted for under the purchase method of accounting and the operating results for
Kadant Jining have been included in the accompanying consolidated financial statements from the acquisition
Kadant Jining have been included in the accompanying consolidated financial statements from the acquisition
date of June 2, 2006. The following table summarizes the purchase method of accounting for this acquisition (in
date of June 2, 2006. The following table summarizes the purchase method of accounting for this acquisition (in
thousands):
thousands):
Allocation of Purchase Price:
Allocation of Purchase Price:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,180
$ 2,180
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,312
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,312
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
415
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
415
8,928
Property, Plant, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,928
Property, Plant, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,254
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,254
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
608
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
608
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,709
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,709
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,406
23,406
Current Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,253
2,253
Net Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,153
$21,153
Consideration:
Consideration:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
Short- and Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short- and Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,227
$11,227
5,072
5,072
3,822
3,822
1,032
1,032
Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,153
$21,153
The allocation of the purchase price was based on the fair value of the assets acquired. Intangible assets of
The allocation of the purchase price was based on the fair value of the assets acquired. Intangible assets of
$608,000 relate to customer relationships with a five year useful life. The excess of the purchase price over the
$608,000 relate to customer relationships with a five year useful life. The excess of the purchase price over the
tangible and identifiable intangible assets was recorded as goodwill and amounted to approximately $5,709,000,
tangible and identifiable intangible assets was recorded as goodwill and amounted to approximately $5,709,000,
which is fully deductible for tax purposes.
which is fully deductible for tax purposes.
Pro forma disclosure of the results of operations as if the Kadant Jining acquisition had occurred at the
Pro forma disclosure of the results of operations as if the Kadant Jining acquisition had occurred at the
beginning of 2006 is not required, as the acquisition did not meet the definition of a material business
beginning of 2006 is not required, as the acquisition did not meet the definition of a material business
combination outlined in SFAS No. 141, “Business Combinations.”
combination outlined in SFAS No. 141, “Business Combinations.”
Kadant Johnson Acquisition
Kadant Johnson Acquisition
On May 11, 2005, the Company acquired all the outstanding stock of The Johnson Corporation (Kadant
On May 11, 2005, the Company acquired all the outstanding stock of The Johnson Corporation (Kadant
Johnson), a leading supplier of fluid-handling systems and equipment, including steam and condensate systems,
Johnson), a leading supplier of fluid-handling systems and equipment, including steam and condensate systems,
components, and controls. These products are used primarily in the dryer section of the papermaking process and
components, and controls. These products are used primarily in the dryer section of the papermaking process and
during the production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Kadant Johnson was a
during the production of corrugated boxboard, metals, plastics, rubber, textiles, and food. Kadant Johnson was a
privately held company based in Three Rivers, Michigan, with approximately 575 employees. The acquisition of
privately held company based in Three Rivers, Michigan, with approximately 575 employees. The acquisition of
Kadant Johnson allows the Company to offer Kadant Johnson’s complementary products and extends the
Kadant Johnson allows the Company to offer Kadant Johnson’s complementary products and extends the
Company’s technology-based offerings in the paper industry, while allowing it to capitalize on Kadant Johnson’s
Company’s technology-based offerings in the paper industry, while allowing it to capitalize on Kadant Johnson’s
significant aftermarket business. The purchase price for the acquisition was $114,037,000, of which $101,458,000
significant aftermarket business. The purchase price for the acquisition was $114,037,000, of which $101,458,000
was paid in cash at closing, $1,576,000 was paid in 2006 in settlement of post-closing adjustments, $4,856,000 was
was paid in cash at closing, $1,576,000 was paid in 2006 in settlement of post-closing adjustments, $4,856,000 was
paid for acquisition-related costs, and $6,147,000 is additional cash consideration to be paid from 2006 to 2010. The
paid for acquisition-related costs, and $6,147,000 is additional cash consideration to be paid from 2006 to 2010. The
additional consideration of $6,147,000 relates to certain tax assets of Kadant Johnson, the value of which the
additional consideration of $6,147,000 relates to certain tax assets of Kadant Johnson, the value of which the
F-19
F-19
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
2. Acquisitions and Disposition (continued)
2. Acquisitions and Disposition (continued)
Company expects to realize. The Company paid $922,000 of this additional consideration in each of 2006 and 2007.
Company expects to realize. The Company paid $922,000 of this additional consideration in each of 2006 and 2007.
The remaining balance, of which $922,000 is included in other current liabilities and $3,381,000 is included in other
The remaining balance, of which $922,000 is included in other current liabilities and $3,381,000 is included in other
long-term liabilities in the accompanying consolidated balance sheet as of year-end 2007, is due over the next three
long-term liabilities in the accompanying consolidated balance sheet as of year-end 2007, is due over the next three
years as follows: $922,000 in each of 2008 and 2009, and $2,459,000 in 2010.
years as follows: $922,000 in each of 2008 and 2009, and $2,459,000 in 2010.
The acquisition was recorded under the purchase method of accounting and the operating results of Kadant
The acquisition was recorded under the purchase method of accounting and the operating results of Kadant
Johnson have been included in the accompanying consolidated financial statements from the acquisition date of
Johnson have been included in the accompanying consolidated financial statements from the acquisition date of
May 11, 2005. The following table summarizes the purchase method of accounting for the acquisition (in
May 11, 2005. The following table summarizes the purchase method of accounting for the acquisition (in
thousands):
thousands):
Allocation of Purchase Price:
Allocation of Purchase Price:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable, Net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable, Net
Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, Plant, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, Plant, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short- and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short- and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority Interest
Total Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration:
Consideration:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
Short- and Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short- and Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
4,071
4,071
17,585
17,585
5,577
5,577
12,552
12,552
5,323
5,323
17,892
17,892
9,317
9,317
657
657
34,480
34,480
53,619
53,619
$161,073
$161,073
6,751
$
6,751
$
14,491
14,491
3,286
3,286
16,651
16,651
4,727
4,727
1,130
1,130
47,036
47,036
$114,037
$114,037
$ 43,034
$ 43,034
60,000
60,000
6,147
6,147
4,856
4,856
$114,037
$114,037
The following are the identifiable intangible assets acquired and the respective periods over which the assets
The following are the identifiable intangible assets acquired and the respective periods over which the assets
will be amortized on a straight-line basis:
will be amortized on a straight-line basis:
(In thousands)
(In thousands)
Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life
Life
11 years*
11 years*
17 years*
17 years*
17 years
17 years
Indefinite
Indefinite
20 years
20 years
3 years
3 years
Amount
Amount
$ 7,840
$ 7,840
15,700
15,700
2,400
2,400
8,100
8,100
400
400
40
40
$34,480
$34,480
* approximate weighted-average lives
* approximate weighted-average lives
F-20
F-20
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
2. Acquisitions and Disposition (continued)
2. Acquisitions and Disposition (continued)
The amounts assigned to identifiable intangible assets acquired were based on their respective fair values
The amounts assigned to identifiable intangible assets acquired were based on their respective fair values
determined as of the acquisition date using income and cost approaches. As part of the acquisition, the Company
determined as of the acquisition date using income and cost approaches. As part of the acquisition, the Company
acquired the Johnson tradename valued at $8,100,000. The Company has no plan or intention to stop using the
acquired the Johnson tradename valued at $8,100,000. The Company has no plan or intention to stop using the
Johnson tradename and does not foresee any legal, regulatory, contractual, competitive, economic, or other
Johnson tradename and does not foresee any legal, regulatory, contractual, competitive, economic, or other
factors that would limit the remaining useful life of the Johnson tradename, and therefore has assigned it an
factors that would limit the remaining useful life of the Johnson tradename, and therefore has assigned it an
indefinite useful life.
indefinite useful life.
The excess of the purchase price over the tangible and identifiable intangible assets was recorded as
The excess of the purchase price over the tangible and identifiable intangible assets was recorded as
goodwill and amounted to approximately $53,619,000, none of which is deductible for tax purposes.
goodwill and amounted to approximately $53,619,000, none of which is deductible for tax purposes.
The following condensed consolidated statement of operations is presented as if the acquisition of Kadant
The following condensed consolidated statement of operations is presented as if the acquisition of Kadant
Johnson had been made at the beginning of the period presented. This information is not necessarily indicative of
Johnson had been made at the beginning of the period presented. This information is not necessarily indicative of
what the actual condensed combined statement of operations of the Company and Kadant Johnson would have
what the actual condensed combined statement of operations of the Company and Kadant Johnson would have
been for the period presented, nor does it purport to represent the future combined results of operations of the
been for the period presented, nor does it purport to represent the future combined results of operations of the
Company and Kadant Johnson.
Company and Kadant Johnson.
(In thousands)
(In thousands)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
2005
$272,778
$272,778
Operating Income * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,912
3,912
462
462
(2,988)
(2,988)
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,526)
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,526)
Basic Earnings (Loss) per Share:
Basic Earnings (Loss) per Share:
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings (Loss) per Share:
Diluted Earnings (Loss) per Share:
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03
.03
(.18)
(.18)
.03
.03
(.18)
(.18)
* Included in operating income in 2005 was $11.0 million in one-time bonuses and approximately $3.1 million in
* Included in operating income in 2005 was $11.0 million in one-time bonuses and approximately $3.1 million in
acquisition-related costs that Kadant Johnson incurred prior to the acquisition.
acquisition-related costs that Kadant Johnson incurred prior to the acquisition.
The Company’s acquisitions have historically been made at prices above the fair value of the acquired
The Company’s acquisitions have historically been made at prices above the fair value of the acquired
assets, resulting in goodwill, due to the expectation of synergies of combining the businesses. The synergies
assets, resulting in goodwill, due to the expectation of synergies of combining the businesses. The synergies
expected as a result of the acquisitions include the use of the Company’s existing infrastructure such as its sales
expected as a result of the acquisitions include the use of the Company’s existing infrastructure such as its sales
force, distribution channels and customer relations to expand sales of the acquiree’s products; use of the
force, distribution channels and customer relations to expand sales of the acquiree’s products; use of the
acquiree’s infrastructure to cost effectively expand sales of the Company’s products; and elimination of
acquiree’s infrastructure to cost effectively expand sales of the Company’s products; and elimination of
duplicative functions. In accordance with current accounting standards, the goodwill will not be amortized and
duplicative functions. In accordance with current accounting standards, the goodwill will not be amortized and
will be tested for impairment annually (in the fourth quarter of the Company’s fiscal year) as required by SFAS
will be tested for impairment annually (in the fourth quarter of the Company’s fiscal year) as required by SFAS
No. 142, “Goodwill and Other Intangible Assets.”
No. 142, “Goodwill and Other Intangible Assets.”
3. Employee Benefit Plans
3. Employee Benefit Plans
Stock-Based Compensation Plans
Stock-Based Compensation Plans
The Company maintains stock-based compensation plans primarily for its key employees and directors,
The Company maintains stock-based compensation plans primarily for its key employees and directors,
although the plans permit awards to others expected to make significant contributions to the future of the
although the plans permit awards to others expected to make significant contributions to the future of the
Company. The plans authorize the compensation committee of the Company’s board of directors (the board
Company. The plans authorize the compensation committee of the Company’s board of directors (the board
committee) to award a variety of stock and stock-based incentives, such as restricted stock, nonqualified and
committee) to award a variety of stock and stock-based incentives, such as restricted stock, nonqualified and
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
incentive stock options, stock bonus shares, or performance-based shares. The award recipients and the terms of
incentive stock options, stock bonus shares, or performance-based shares. The award recipients and the terms of
awards, including price, granted under these plans are determined by the board committee. Upon a
awards, including price, granted under these plans are determined by the board committee. Upon a
change-of-control, as defined in the plans, all options or other awards become fully vested and all restrictions
change-of-control, as defined in the plans, all options or other awards become fully vested and all restrictions
lapse. The Company had 934,475 shares available for grant under stock-based compensation plans at
lapse. The Company had 934,475 shares available for grant under stock-based compensation plans at
December 29, 2007.
December 29, 2007.
Restricted Stock Awards
Restricted Stock Awards
Restricted Stock—In 2007, the Company granted an aggregate of 20,000 restricted shares to its outside
Restricted Stock—In 2007, the Company granted an aggregate of 20,000 restricted shares to its outside
directors with an aggregate fair value of $464,000, which vested at a rate of 5,000 shares per quarter on the last
directors with an aggregate fair value of $464,000, which vested at a rate of 5,000 shares per quarter on the last
day of each quarter. The Company recognized a tax benefit of $53,000 associated with these restricted shares. In
day of each quarter. The Company recognized a tax benefit of $53,000 associated with these restricted shares. In
2007, the Company also granted an aggregate of 40,000 restricted shares with an aggregate fair value of
2007, the Company also granted an aggregate of 40,000 restricted shares with an aggregate fair value of
$928,000 to its outside directors, which will only vest and compensation expense will only be recognized upon a
$928,000 to its outside directors, which will only vest and compensation expense will only be recognized upon a
change in control as defined in the Company’s equity incentive plans. These restricted shares are forfeited if a
change in control as defined in the Company’s equity incentive plans. These restricted shares are forfeited if a
change in control does not occur by the end of the first quarter of 2008. In 2006 and 2005, the Company awarded
change in control does not occur by the end of the first quarter of 2008. In 2006 and 2005, the Company awarded
20,000 shares and 17,500 shares, respectively, of its restricted common stock with an aggregate fair value of
20,000 shares and 17,500 shares, respectively, of its restricted common stock with an aggregate fair value of
$478,000 and $352,000, respectively, to its outside directors. These restricted shares vested immediately, but are
$478,000 and $352,000, respectively, to its outside directors. These restricted shares vested immediately, but are
restricted from resale for three years from the date of award.
restricted from resale for three years from the date of award.
Performance-Based Restricted Stock Units—On May 24, 2007, the Company granted restricted stock units
Performance-Based Restricted Stock Units—On May 24, 2007, the Company granted restricted stock units
(RSU) which represented, in aggregate, the right to receive 104,000 shares (the target RSU amount), subject to
(RSU) which represented, in aggregate, the right to receive 104,000 shares (the target RSU amount), subject to
adjustment, with a grant date fair value of $28.21 per share to certain officers of the Company. Each RSU
adjustment, with a grant date fair value of $28.21 per share to certain officers of the Company. Each RSU
represents the right to receive one share of the Company’s common stock upon vesting. The RSUs will cliff vest
represents the right to receive one share of the Company’s common stock upon vesting. The RSUs will cliff vest
in their entirety on the last day of the Company’s 2009 fiscal year, provided that the officer remains employed by
in their entirety on the last day of the Company’s 2009 fiscal year, provided that the officer remains employed by
the Company through the vesting date. The target RSU amount was subject to adjustment based on the
the Company through the vesting date. The target RSU amount was subject to adjustment based on the
achievement of specified earnings before interest, taxes, depreciation and amortization (EBITDA) targets
achievement of specified earnings before interest, taxes, depreciation and amortization (EBITDA) targets
generated from continuing operations for the nine-month period ended December 29, 2007, which were
generated from continuing operations for the nine-month period ended December 29, 2007, which were
exceeded, and resulted in an adjusted RSU amount of 134,160 shares deliverable upon vesting. The Company is
exceeded, and resulted in an adjusted RSU amount of 134,160 shares deliverable upon vesting. The Company is
recognizing compensation expense associated with these RSUs ratably over the vesting period based on the grant
recognizing compensation expense associated with these RSUs ratably over the vesting period based on the grant
date fair value. In the second and third quarters of 2007, the Company recognized compensation expense based
date fair value. In the second and third quarters of 2007, the Company recognized compensation expense based
on the probable number of RSUs to be granted, which was 125% of the target RSU amount. The actual EBITDA
on the probable number of RSUs to be granted, which was 125% of the target RSU amount. The actual EBITDA
for the nine-month period ended December 29, 2007 was 114% of the EBITDA target and in the fourth quarter of
for the nine-month period ended December 29, 2007 was 114% of the EBITDA target and in the fourth quarter of
2007, compensation expense was adjusted to reflect the actual number of RSUs to be issued, which is 129% of
2007, compensation expense was adjusted to reflect the actual number of RSUs to be issued, which is 129% of
the target RSU amount, or 134,160 RSUs.
the target RSU amount, or 134,160 RSUs.
The RSU agreement provides for forfeiture in certain events, such as voluntary or involuntary termination of
The RSU agreement provides for forfeiture in certain events, such as voluntary or involuntary termination of
employment, and for acceleration of vesting in certain events, such as death, disability or a change in control of
employment, and for acceleration of vesting in certain events, such as death, disability or a change in control of
the Company. If the officer dies or is disabled prior to the vesting date, then a ratable portion of the RSUs will
the Company. If the officer dies or is disabled prior to the vesting date, then a ratable portion of the RSUs will
vest. If a change in control occurs prior to the end of the Company’s 2009 fiscal year, the officer will receive the
vest. If a change in control occurs prior to the end of the Company’s 2009 fiscal year, the officer will receive the
number of deliverable RSUs based on the achievement of the performance goal, as stated in the RSU agreement.
number of deliverable RSUs based on the achievement of the performance goal, as stated in the RSU agreement.
Compensation expense of $869,000 was recognized in 2007 associated with the performance-based RSUs.
Compensation expense of $869,000 was recognized in 2007 associated with the performance-based RSUs.
Unrecognized compensation expense related to the unvested performance-based RSUs totaled approximately
Unrecognized compensation expense related to the unvested performance-based RSUs totaled approximately
$2,916,000 as of December 29, 2007 and will be recognized over the next 2 years.
$2,916,000 as of December 29, 2007 and will be recognized over the next 2 years.
Time-Based Restricted Stock Units—On May 24, 2007, the Company granted 61,550 RSUs (Time-Based
Time-Based Restricted Stock Units—On May 24, 2007, the Company granted 61,550 RSUs (Time-Based
RSU) with a grant date fair value of $28.21 per share to certain employees of the Company. Each Time-Based
RSU) with a grant date fair value of $28.21 per share to certain employees of the Company. Each Time-Based
RSU represents the right to receive one share of the Company’s common stock upon vesting. The Time-Based
RSU represents the right to receive one share of the Company’s common stock upon vesting. The Time-Based
RSUs will cliff vest in their entirety on May 24, 2011, provided the recipient remains employed with the
RSUs will cliff vest in their entirety on May 24, 2011, provided the recipient remains employed with the
Company through the vesting date. The Time-Based RSU agreement provides for forfeiture in certain events,
Company through the vesting date. The Time-Based RSU agreement provides for forfeiture in certain events,
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Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
such as voluntary or involuntary termination of employment, and for acceleration of vesting in certain events,
such as voluntary or involuntary termination of employment, and for acceleration of vesting in certain events,
such as death, disability, or a change in control of the Company. The Company is recognizing compensation
such as death, disability, or a change in control of the Company. The Company is recognizing compensation
expense associated with these Time-Based RSUs ratably over the vesting period based on the grant date fair
expense associated with these Time-Based RSUs ratably over the vesting period based on the grant date fair
value. Compensation expense of $260,000 was recognized in 2007 associated with the Time-Based RSUs.
value. Compensation expense of $260,000 was recognized in 2007 associated with the Time-Based RSUs.
Unrecognized compensation expense related to the Time-Based RSUs totaled approximately $1,476,000 as of
Unrecognized compensation expense related to the Time-Based RSUs totaled approximately $1,476,000 as of
December 29, 2007 and will be recognized over the next 3.5 years.
December 29, 2007 and will be recognized over the next 3.5 years.
A summary of the status of the Company’s unvested restricted share/unit awards for year-end 2007 is as
A summary of the status of the Company’s unvested restricted share/unit awards for year-end 2007 is as
follows:
follows:
Unvested Restricted Share/Unit Awards
Unvested Restricted Share/Unit Awards
Shares/Units
Shares/Units
(In thousands)
(In thousands)
Weighted
Weighted
Average Grant-
Average Grant-
Date Fair Value
Date Fair Value
Unvested at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
256
256
(20)
(20)
–
–
236
236
–
–
$27.03
$27.03
$23.20
$23.20
–
–
$27.36
$27.36
Stock Options
Stock Options
Outstanding options granted prior to 2001 are nonqualified options that are exercisable immediately, but are
Outstanding options granted prior to 2001 are nonqualified options that are exercisable immediately, but are
subject to provisions similar to vesting that restrict transfer and afford the Company the right to repurchase the
subject to provisions similar to vesting that restrict transfer and afford the Company the right to repurchase the
shares at the exercise price upon certain events. The restrictions and repurchase rights for these options generally
shares at the exercise price upon certain events. The restrictions and repurchase rights for these options generally
lapse over five to ten years and the terms of the options may range from five to twelve years. Options granted
lapse over five to ten years and the terms of the options may range from five to twelve years. Options granted
under these plans in 2001 and after have been nonqualified options that vest over three years and are not
under these plans in 2001 and after have been nonqualified options that vest over three years and are not
exercisable until vested. To date, all options have been granted at an exercise price equal to the fair market value
exercisable until vested. To date, all options have been granted at an exercise price equal to the fair market value
of the Company’s common stock on the date of grant. The Company generally issues its common stock out of
of the Company’s common stock on the date of grant. The Company generally issues its common stock out of
treasury stock to satisfy option exercises.
treasury stock to satisfy option exercises.
There were no stock options granted in 2007 and 2006. For 2005, the fair value of each option grant was
There were no stock options granted in 2007 and 2006. For 2005, the fair value of each option grant was
estimated on the grant date using the Black-Scholes option-pricing model, assuming no expected dividends, with
estimated on the grant date using the Black-Scholes option-pricing model, assuming no expected dividends, with
the following assumptions:
the following assumptions:
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Weighted-average Grant Date Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average Grant Date Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-Free Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-Free Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected Life of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected Life of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
2005
140,000
140,000
19.17
19.17
8.07
8.07
42%
42%
4.0%
4.0%
5 years
5 years
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. In addition, option-pricing models require
options, which have no vesting restrictions and are fully transferable. In addition, option-pricing models require
the input of highly subjective assumptions, including expected stock price volatility. Expected stock price
the input of highly subjective assumptions, including expected stock price volatility. Expected stock price
volatility was calculated based on a review of the Company’s actual historic stock prices commensurate with the
volatility was calculated based on a review of the Company’s actual historic stock prices commensurate with the
expected life of the award. The expected option life was derived based on a review of the Company’s historic
expected life of the award. The expected option life was derived based on a review of the Company’s historic
option holding periods, including consideration of the holding period inherent in currently vested but unexercised
option holding periods, including consideration of the holding period inherent in currently vested but unexercised
options. The risk-free interest rate is based on the yield on zero-coupon U.S. Treasury securities for a period that
options. The risk-free interest rate is based on the yield on zero-coupon U.S. Treasury securities for a period that
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
is commensurate with the expected term of the option. The compensation expense recognized for all equity-based
is commensurate with the expected term of the option. The compensation expense recognized for all equity-based
awards is net of estimated forfeitures. Forfeitures are estimated based on an analysis of actual option forfeitures.
awards is net of estimated forfeitures. Forfeitures are estimated based on an analysis of actual option forfeitures.
A summary of the Company’s stock option activity for 2007 is as follows:
A summary of the Company’s stock option activity for 2007 is as follows:
(in thousands, except per share amounts)
(in thousands, except per share amounts)
Options Outstanding, Beginning of Year . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding, Beginning of Year . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding, End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding, End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and Unvested Expected to Vest, End of Year . . . . . . . . . . . . .
Vested and Unvested Expected to Vest, End of Year . . . . . . . . . . . . .
Options Exercisable, End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercisable, End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Market price per share on December 29, 2007 was $31.22.
(a) Market price per share on December 29, 2007 was $31.22.
Weighted
Weighted
Average
Average
Remaining
Remaining
Contractual
Contractual
Life
Life
Aggregate
Aggregate
Intrinsic
Intrinsic
Value (a)
Value (a)
Weighted
Weighted
Average
Average
Exercise
Exercise
Price
Price
$ 17.58
$ 17.58
–
–
15.00
15.00
110.80
110.80
$ 22.59
$ 22.59
1.5 years
1.5 years
$3,844
$3,844
$ 22.59
$ 22.59
1.5 years
1.5 years
$3,844
$3,844
$ 22.74
$ 22.74
1.4 years
1.4 years
$3,689
$3,689
Number
Number
of
of
Shares
Shares
900
900
–
–
(606)
(606)
(1)
(1)
293
293
293
293
279
279
Unrecognized compensation expense related to unvested stock options totaled approximately $21,000 as of
Unrecognized compensation expense related to unvested stock options totaled approximately $21,000 as of
December 29, 2007 and will be recognized in 2008.
December 29, 2007 and will be recognized in 2008.
A summary of the Company’s stock option exercises in 2007, 2006, and 2005 are as follows:
A summary of the Company’s stock option exercises in 2007, 2006, and 2005 are as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
2005
2005
Total intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefits from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefits from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,508
$8,508
9,225
9,225
2,893
2,893
$ 649
$7,492
$7,492 $ 649
1,393
9,380
1,393
9,380
123
123
2,529
2,529
Employee Stock Purchase Plan
Employee Stock Purchase Plan
Substantially all of the Company’s full-time U.S. employees are eligible to participate in its employee stock
Substantially all of the Company’s full-time U.S. employees are eligible to participate in its employee stock
purchase plan. Under the plan, shares of the Company’s common stock may be purchased at a 15% discount
purchase plan. Under the plan, shares of the Company’s common stock may be purchased at a 15% discount
from the fair market value at the beginning or end of the purchase period, whichever is lower. Shares purchased
from the fair market value at the beginning or end of the purchase period, whichever is lower. Shares purchased
under the plan are subject to a one-year resale restriction and are purchased through payroll deductions of up to
under the plan are subject to a one-year resale restriction and are purchased through payroll deductions of up to
10% of each participating employee’s gross wages. For the 2007, 2006, and 2005 plan years, the Company issued
10% of each participating employee’s gross wages. For the 2007, 2006, and 2005 plan years, the Company issued
19,639 shares (issued December 31, 2007), 22,007 shares, and 14,775 shares, respectively, of its common stock
19,639 shares (issued December 31, 2007), 22,007 shares, and 14,775 shares, respectively, of its common stock
under this plan.
under this plan.
Profit-Sharing, 401(k) Savings and Other Defined Contribution Plans
Profit-Sharing, 401(k) Savings and Other Defined Contribution Plans
Several of the Company’s U.S. subsidiaries participate in the Company’s 401(k) retirement savings plan.
Several of the Company’s U.S. subsidiaries participate in the Company’s 401(k) retirement savings plan.
Contributions to the plan are made by both the employee and the Company. Company contributions are based
Contributions to the plan are made by both the employee and the Company. Company contributions are based
upon the level of employee contributions.
upon the level of employee contributions.
Through October 2, 2006, one of the Company’s U.S. subsidiaries had a 401(k) retirement savings plan with
Through October 2, 2006, one of the Company’s U.S. subsidiaries had a 401(k) retirement savings plan with
a profit-sharing feature under which the Company annually contributed approximately 10% of the subsidiary’s
a profit-sharing feature under which the Company annually contributed approximately 10% of the subsidiary’s
pre-tax income before profit-sharing expense. Effective October 2, 2006, the Company eliminated the profit-
pre-tax income before profit-sharing expense. Effective October 2, 2006, the Company eliminated the profit-
sharing feature and replaced it with Company contributions based on the level of employee contributions. All
sharing feature and replaced it with Company contributions based on the level of employee contributions. All
contributions related to this plan are immediately vested.
contributions related to this plan are immediately vested.
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
Through June 30, 2006, another of the Company’s U.S. subsidiaries had a 401(k) retirement savings plan
Through June 30, 2006, another of the Company’s U.S. subsidiaries had a 401(k) retirement savings plan
with a profit-sharing feature that required a minimum annual Company contribution of 3% of eligible employee
with a profit-sharing feature that required a minimum annual Company contribution of 3% of eligible employee
compensation and allowed for an additional contribution of up to 12% of eligible compensation at the discretion
compensation and allowed for an additional contribution of up to 12% of eligible compensation at the discretion
of the Company. Effective July 1, 2006, the total Company contribution was reduced to 6% of eligible
of the Company. Effective July 1, 2006, the total Company contribution was reduced to 6% of eligible
compensation. Effective January 1, 2007, this plan was restated to eliminate the profit-sharing feature and to base
compensation. Effective January 1, 2007, this plan was restated to eliminate the profit-sharing feature and to base
Company contributions on the level of employee contributions instead of eligible compensation. All
Company contributions on the level of employee contributions instead of eligible compensation. All
contributions related to this plan are immediately vested.
contributions related to this plan are immediately vested.
Certain of the Company’s subsidiaries offer other retirement plans, the majority of which are defined
Certain of the Company’s subsidiaries offer other retirement plans, the majority of which are defined
contribution plans. Company contributions to these plans are based on formulas determined by the Company.
contribution plans. Company contributions to these plans are based on formulas determined by the Company.
For these plans, the Company contributed and charged to expense approximately $3,342,000, $3,446,000,
For these plans, the Company contributed and charged to expense approximately $3,342,000, $3,446,000,
and $2,790,000 in 2007, 2006, and 2005, respectively.
and $2,790,000 in 2007, 2006, and 2005, respectively.
Defined Benefit Pension Plan and Post-Retirement Welfare Benefits Plans
Defined Benefit Pension Plan and Post-Retirement Welfare Benefits Plans
The Company’s Kadant Web Systems subsidiary has a noncontributory defined benefit retirement plan.
The Company’s Kadant Web Systems subsidiary has a noncontributory defined benefit retirement plan.
Benefits under the plan are based on years of service and employee compensation. Funds are contributed to a
Benefits under the plan are based on years of service and employee compensation. Funds are contributed to a
trustee as necessary to provide for current service and for any unfunded projected benefit obligation over a
trustee as necessary to provide for current service and for any unfunded projected benefit obligation over a
reasonable period. Effective December 31, 2005, this plan was closed to new participants. Effective January 1,
reasonable period. Effective December 31, 2005, this plan was closed to new participants. Effective January 1,
2007, the provision limiting lump sum distributions upon termination of employment to $10,000 was removed.
2007, the provision limiting lump sum distributions upon termination of employment to $10,000 was removed.
This same subsidiary also has a post-retirement welfare benefits plan (included in the table below in “Other
This same subsidiary also has a post-retirement welfare benefits plan (included in the table below in “Other
Benefits”). No future retirees are eligible for this post-retirement welfare benefits plan, and the plans include
Benefits”). No future retirees are eligible for this post-retirement welfare benefits plan, and the plans include
limits on the subsidiary’s contributions.
limits on the subsidiary’s contributions.
The Company’s Kadant Lamort subsidiary sponsors a defined benefit pension plan (included in the table below
The Company’s Kadant Lamort subsidiary sponsors a defined benefit pension plan (included in the table below
in “Other Benefits”). Benefits under this plan are based on years of service and projected employee compensation.
in “Other Benefits”). Benefits under this plan are based on years of service and projected employee compensation.
The Company’s Kadant Johnson subsidiary also offers a post-retirement welfare benefits plan (included in
The Company’s Kadant Johnson subsidiary also offers a post-retirement welfare benefits plan (included in
the table below in “Other Benefits”) to its U.S. employees upon attainment of eligible retirement age. This post-
the table below in “Other Benefits”) to its U.S. employees upon attainment of eligible retirement age. This post-
retirement benefit plan was amended to reduce the annual subsidy provided under the plan effective January 1,
retirement benefit plan was amended to reduce the annual subsidy provided under the plan effective January 1,
2007. In addition, this plan will be closed to employees who will not meet its retirement eligibility requirements
2007. In addition, this plan will be closed to employees who will not meet its retirement eligibility requirements
on January 1, 2012.
on January 1, 2012.
On December 30, 2006, the Company adopted the recognition and disclosure provisions of SFAS No. 158
On December 30, 2006, the Company adopted the recognition and disclosure provisions of SFAS No. 158
(SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—An
(SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—An
Amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS 158 requires an employer to recognize the
Amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance
overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance
sheet and to recognize changes in that funded status in the year in which the changes occur through
sheet and to recognize changes in that funded status in the year in which the changes occur through
comprehensive income.
comprehensive income.
SFAS 158 required the Company to recognize the funded status (i.e., the difference between the fair value
SFAS 158 required the Company to recognize the funded status (i.e., the difference between the fair value
of the plan assets and the project benefit obligations) of its pension and other post-retirement plans in the
of the plan assets and the project benefit obligations) of its pension and other post-retirement plans in the
December 30, 2006 consolidated balance sheet, with a corresponding adjustment to accumulated other
December 30, 2006 consolidated balance sheet, with a corresponding adjustment to accumulated other
comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption
comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption
represents the net unrecognized actuarial gains (losses) and unrecognized prior service costs (income), all of
represents the net unrecognized actuarial gains (losses) and unrecognized prior service costs (income), all of
which were previously netted against the plan’s funded status on the Company’s consolidated balance sheet
which were previously netted against the plan’s funded status on the Company’s consolidated balance sheet
pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net periodic pension
pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net periodic pension
cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains
cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains
and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same
and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same
periods will be recognized as a component of other comprehensive income. These amounts will be subsequently
periods will be recognized as a component of other comprehensive income. These amounts will be subsequently
recognized as a component of net periodic pension cost on the same basis as the amount recognized in
recognized as a component of net periodic pension cost on the same basis as the amount recognized in
accumulated other comprehensive income at adoption of SFAS 158.
accumulated other comprehensive income at adoption of SFAS 158.
F-25
F-25
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
Included in accumulated other comprehensive income at December 29, 2007 are the following amounts that
Included in accumulated other comprehensive income at December 29, 2007 are the following amounts that
have not yet been recognized in net periodic pension cost: unrecognized prior service income of $1,153,000
have not yet been recognized in net periodic pension cost: unrecognized prior service income of $1,153,000
($692,000 net of tax) and unrecognized actuarial loss of $2,584,000 ($1,562,000 net of tax). The prior service
($692,000 net of tax) and unrecognized actuarial loss of $2,584,000 ($1,562,000 net of tax). The prior service
income and actuarial loss included in accumulated other comprehensive income and expected to be recognized in
income and actuarial loss included in accumulated other comprehensive income and expected to be recognized in
net periodic pension cost during year-end 2008 is $740,000 ($444,000 net of tax) and $66,000 ($40,000 net of
net periodic pension cost during year-end 2008 is $740,000 ($444,000 net of tax) and $66,000 ($40,000 net of
tax), respectively.
tax), respectively.
The following table summarizes the change in the benefit obligation; the change in plan assets; the funded
The following table summarizes the change in the benefit obligation; the change in plan assets; the funded
status; and reconciliation to the amounts recognized in the balance sheets for the pension benefits and other
status; and reconciliation to the amounts recognized in the balance sheets for the pension benefits and other
benefits plans. The measurement date for all items set forth below is the last day of the fiscal year presented.
benefits plans. The measurement date for all items set forth below is the last day of the fiscal year presented.
(In thousands)
(In thousands)
Change in Benefit Obligation:
Change in Benefit Obligation:
Pension Benefits
Pension Benefits
Other Benefits
Other Benefits
2007
2007
2006
2006
2007
2007
2006
2006
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments/plan changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments/plan changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year
Benefit obligation at end of year
$20,072
$20,072
819
819
1,119
1,119
150
150
–
–
(970)
(970)
–
–
$21,190
$21,190
$ 4,760
$18,952
$18,952 $ 4,760
104
752
104
752
236
1,048
236
1,048
(362)
(525)
(362)
(525)
–
591
–
591
(325)
(746)
(325)
(746)
188
–
–
188
$20,072 $ 4,601
$20,072
$ 4,601
$ 6,740
$ 6,740
190
190
323
323
346
346
(2,416)
(2,416)
(626)
(626)
203
203
$ 4,760
$ 4,760
Change in Plan Assets:
Change in Plan Assets:
Fair value of plan assets at beginning of year
. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Fair value of plan assets at beginning of year
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,297
$18,297
692
692
200
200
(970)
(970)
$17,038
$17,038 $
$
2,005
2,005
–
–
(746)
(746)
–
–
–
–
326
326
(326)
(326)
$
$
–
–
–
–
626
626
(626)
(626)
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,219
$18,219
$18,297 $
$18,297
$
–
–
$
$
–
–
Unfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,971) $ (1,775) $(4,601) $(4,760)
Unfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,971) $ (1,775) $(4,601) $(4,760)
Items Not Yet Recognized as a Component of Net Periodic Benefit
Items Not Yet Recognized as a Component of Net Periodic Benefit
Cost:
Cost:
Unrecognized net actuarial (loss) gain . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized net actuarial (loss) gain . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service (cost) income . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service (cost) income . . . . . . . . . . . . . . . . . . . .
(2,711)
(2,711)
(549)
(549)
(1,846)
(1,846)
(604)
(604)
127
127
1,702
1,702
(274)
(274)
2,497
2,497
Total Items Not Yet Recognized as a Component of Net Periodic
Total Items Not Yet Recognized as a Component of Net Periodic
Benefit Cost
Benefit Cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (3,260) $ (2,450) $ 1,829
$ (3,260) $ (2,450) $ 1,829
$ 2,223
$ 2,223
Amounts Recognized in the Balance Sheet Consist of:
Amounts Recognized in the Balance Sheet Consist of:
Accrued benefit cost (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued benefit cost (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,971) $ (1,775) $(4,601) $(4,760)
$ (2,971) $ (1,775) $(4,601) $(4,760)
Accumulated benefit obligation as of year-end . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation as of year-end . . . . . . . . . . . . . . . . . . . .
$17,660
$17,660
$16,704
$16,704
$ 1,506
$ 1,506
$ 1,384
$ 1,384
(a) Included in other long-term liabilities in the accompanying consolidated balance sheet.
(a) Included in other long-term liabilities in the accompanying consolidated balance sheet.
The weighted-average assumptions used to determine the benefit obligation as of year-end were as follows:
The weighted-average assumptions used to determine the benefit obligation as of year-end were as follows:
Pension Benefits
Pension Benefits
Other Benefits
Other Benefits
2006
2006
2007
2007
2007
2007
6.00% 5.75% 5.79% 4.76%
6.00% 5.75% 5.79% 4.76%
4.00% 4.00% 2.00% 2.00%
4.00% 4.00% 2.00% 2.00%
2006
2006
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-26
F-26
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
(In thousands)
(In thousands)
Components of Net Periodic Benefit Cost (Income):
Components of Net Periodic Benefit Cost (Income):
Pension Benefits
Pension Benefits
Other Benefits
Other Benefits
2007
2007
2006
2006
2005
2005
2007
2007
2006
2006
2005
2005
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . .
Recognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . .
Recognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost (income) . . . . . . . . . . . .
Amortization of prior service cost (income) . . . . . . . . . . . .
Net periodic benefit cost (income) . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost (income) . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
819
819
1,119
1,119
(1,442)
(1,442)
36
36
55
55
587
587
$
$
$
$
752
752
1,048
1,048
(1,414)
(1,414)
60
60
47
47
493
493
$
$
$
$
715
715
1,007
1,007
(1,404)
(1,404)
–
–
46
46
364
364
$ 104
$ 104
236
236
–
–
28
28
(794)
(794)
$ 190
$ 190
323
323
–
–
33
33
(334)
(334)
$(426) $ 212
$(426) $ 212
$295
$295
336
336
–
–
36
36
(58)
(58)
$609
$609
The weighted-average assumptions used to determine net periodic benefit cost (income) were as follows:
The weighted-average assumptions used to determine net periodic benefit cost (income) were as follows:
Pension Benefits
Pension Benefits
Other Benefits
Other Benefits
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
2005
2006
2006
2007
2007
5.75% 5.75% 6.00% 5.45% 4.48% 5.25%
5.75% 5.75% 6.00% 5.45% 4.48% 5.25%
8.50% 8.50% 8.50%
8.50% 8.50% 8.50%
4.00% 4.00% 4.00% 2.00% 2.00% 2.00%
4.00% 4.00% 4.00% 2.00% 2.00% 2.00%
2006
2006
2005
2005
2007
2007
–
–
–
–
–
–
In developing the overall expected long-term return on plan assets assumption, a building block approach
In developing the overall expected long-term return on plan assets assumption, a building block approach
was used in which rates of return in excess of inflation were considered separately for equity securities, debt
was used in which rates of return in excess of inflation were considered separately for equity securities, debt
securities, and other assets. The excess returns were weighted by the representative target allocation and added
securities, and other assets. The excess returns were weighted by the representative target allocation and added
along with an appropriate rate of inflation to develop the overall expected long-term return on plan assets
along with an appropriate rate of inflation to develop the overall expected long-term return on plan assets
assumption. The Company believes this determination is consistent with SFAS No. 87, “Employers’ Accounting
assumption. The Company believes this determination is consistent with SFAS No. 87, “Employers’ Accounting
for Pensions” (SFAS 87).
for Pensions” (SFAS 87).
Assumed weighted-average healthcare cost trend rates* as of year-end were as follows:
Assumed weighted-average healthcare cost trend rates* as of year-end were as follows:
Healthcare cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ultimate healthcare cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ultimate healthcare cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year that the assumed rate reaches ultimate rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year that the assumed rate reaches ultimate rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
2006
2007
2007
7.00% 7.37%
7.00% 7.37%
5.11% 3.66%
5.11% 3.66%
2011
2011
2011
2011
* See Information and Assumptions for the Post-Retirement Welfare Benefits Plan at the end of Note 3 for more
* See Information and Assumptions for the Post-Retirement Welfare Benefits Plan at the end of Note 3 for more
detail.
detail.
Assumed healthcare cost trend rates can have a significant effect on the amounts reported for healthcare
Assumed healthcare cost trend rates can have a significant effect on the amounts reported for healthcare
benefits. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:
benefits. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:
(In thousands)
(In thousands)
Effect on total of service and interest cost components - (expense) income . . . . . . . . . . .
Effect on total of service and interest cost components - (expense) income . . . . . . . . . . .
Effect on post-retirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on post-retirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 Percentage
1 Percentage
Point Increase
Point Increase
$ (15)
$ (15)
$(195)
$(195)
1 Percentage
1 Percentage
Point Decrease
Point Decrease
$ 13
$ 13
$171
$171
Plan Assets
Plan Assets
For the Kadant Web Systems noncontributory defined benefit retirement plan, the weighted-average asset
For the Kadant Web Systems noncontributory defined benefit retirement plan, the weighted-average asset
allocation at December 29, 2007 and December 30, 2006, by asset category, is as follows:
allocation at December 29, 2007 and December 30, 2006, by asset category, is as follows:
Asset Category
Asset Category
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
2006
2006
46% 46%
46% 46%
44% 44%
44% 44%
10% 10%
10% 10%
100% 100%
100% 100%
F-27
F-27
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Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
Kadant Web Systems has developed an investment policy for the noncontributory defined benefit retirement
Kadant Web Systems has developed an investment policy for the noncontributory defined benefit retirement
plan. The investment strategy is to emphasize total return, that is, the aggregate return from capital appreciation
plan. The investment strategy is to emphasize total return, that is, the aggregate return from capital appreciation
and dividend and interest income. The primary objective of the investment management for the plan’s assets is
and dividend and interest income. The primary objective of the investment management for the plan’s assets is
the emphasis on consistent growth, specifically, growth in a manner that protects the plan’s assets from excessive
the emphasis on consistent growth, specifically, growth in a manner that protects the plan’s assets from excessive
volatility in market value from year to year. The investment policy takes into consideration the benefit
volatility in market value from year to year. The investment policy takes into consideration the benefit
obligations, including timing of distributions.
obligations, including timing of distributions.
The primary objective for the plan is to provide long-term capital appreciation through investment in equity
The primary objective for the plan is to provide long-term capital appreciation through investment in equity
and debt securities. The following target asset allocation has been established for the plan:
and debt securities. The following target asset allocation has been established for the plan:
Asset Category
Asset Category
Minimum Neutral Maximum
Minimum Neutral Maximum
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40%
40%
30%
30%
5%
5%
Total
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60%
60%
50%
50%
15%
15%
50%
50%
40%
40%
10%
10%
100%
100%
All equity securities must be drawn from recognized securities exchanges. Debt securities must be weighted
All equity securities must be drawn from recognized securities exchanges. Debt securities must be weighted
to reflect a portfolio average maturity of not more than ten years, with average benchmark duration of five years.
to reflect a portfolio average maturity of not more than ten years, with average benchmark duration of five years.
The credit quality must equal or exceed high investment grade quality (“BAA” or better).
The credit quality must equal or exceed high investment grade quality (“BAA” or better).
Cash Flows
Cash Flows
Contributions
Contributions
Four quarterly cash contributions of $400,000 each are expected for the Kadant Web Systems
Four quarterly cash contributions of $400,000 each are expected for the Kadant Web Systems
noncontributory defined benefit retirement plan in 2008. For the remaining pension and post-retirement welfare
noncontributory defined benefit retirement plan in 2008. For the remaining pension and post-retirement welfare
benefits plans, no cash contributions other than funding current benefit payments are expected in 2008.
benefits plans, no cash contributions other than funding current benefit payments are expected in 2008.
Estimated Future Benefit Payments
Estimated Future Benefit Payments
The following benefit payments, which reflect future service as appropriate, are expected to be paid. The
The following benefit payments, which reflect future service as appropriate, are expected to be paid. The
benefit payments are based on the same assumptions used to measure the Company’s benefit obligation at
benefit payments are based on the same assumptions used to measure the Company’s benefit obligation at
year-end 2007.
year-end 2007.
(In thousands)
(In thousands)
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension
Pension
Benefits
Benefits
$2,734
$2,734
1,016
1,016
1,711
1,711
950
950
1,901
1,901
8,096
8,096
Other
Other
Benefits
Benefits
$ 369
$ 369
338
338
423
423
405
405
326
326
2,336
2,336
F-28
F-28
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Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
3. Employee Benefit Plans (continued)
Information and Assumptions for the Post-Retirement Welfare Benefits Plan
Information and Assumptions for the Post-Retirement Welfare Benefits Plan
Kadant Web Systems Post-Retirement Welfare Benefits Plan
Kadant Web Systems Post-Retirement Welfare Benefits Plan
All eligible retirees are currently participating in the Kadant Web Systems post-retirement welfare benefits
All eligible retirees are currently participating in the Kadant Web Systems post-retirement welfare benefits
plan, with no future retirees eligible to participate. Effective September 1, 2003, Kadant Web Systems capped its
plan, with no future retirees eligible to participate. Effective September 1, 2003, Kadant Web Systems capped its
monthly contribution to the plan at $358 per participant. For the majority of the retirees in the plan, no healthcare
monthly contribution to the plan at $358 per participant. For the majority of the retirees in the plan, no healthcare
cost trend rate is assumed, as the Company cap applies. For the remainder, the healthcare cost trend rate is
cost trend rate is assumed, as the Company cap applies. For the remainder, the healthcare cost trend rate is
assumed to be 8% in 2007, decreasing to an ultimate rate of 0% in 2012.
assumed to be 8% in 2007, decreasing to an ultimate rate of 0% in 2012.
On December 8, 2003, Medicare reform legislation was enacted, providing a Medicare prescription drug
On December 8, 2003, Medicare reform legislation was enacted, providing a Medicare prescription drug
benefit beginning in 2006 and federal subsidies to employers who provide drug coverage to retirees. No change
benefit beginning in 2006 and federal subsidies to employers who provide drug coverage to retirees. No change
in assumptions was required as a result of this legislation.
in assumptions was required as a result of this legislation.
Kadant Johnson Post-Retirement Welfare Benefits Plan
Kadant Johnson Post-Retirement Welfare Benefits Plan
All eligible retirees are currently participating in the Kadant Johnson post-retirement welfare benefits plan.
All eligible retirees are currently participating in the Kadant Johnson post-retirement welfare benefits plan.
Kadant Johnson pays 75% of all plan costs for retirees with a retirement date prior to January 1, 2005, and 50%
Kadant Johnson pays 75% of all plan costs for retirees with a retirement date prior to January 1, 2005, and 50%
of all plan costs for retirees with a retirement date after January 1, 2005, with no limits on its contributions up to
of all plan costs for retirees with a retirement date after January 1, 2005, with no limits on its contributions up to
annual employee and plan stop loss limitations. On August 17, 2006, this post-retirement benefit plan was
annual employee and plan stop loss limitations. On August 17, 2006, this post-retirement benefit plan was
amended to reduce the annual subsidy provided under the plan effective January 1, 2007. In addition, this plan
amended to reduce the annual subsidy provided under the plan effective January 1, 2007. In addition, this plan
will be closed to employees who will not meet its retirement eligibility requirements on January 1, 2012. The
will be closed to employees who will not meet its retirement eligibility requirements on January 1, 2012. The
medical healthcare cost trend rate is assumed to be 7% in 2007, decreasing to an ultimate rate of 5% in 2011.
medical healthcare cost trend rate is assumed to be 7% in 2007, decreasing to an ultimate rate of 5% in 2011.
On December 8, 2003, Medicare reform legislation was enacted, providing a Medicare prescription drug
On December 8, 2003, Medicare reform legislation was enacted, providing a Medicare prescription drug
benefit beginning in 2006 and federal subsidies to employers who provide drug coverage to retirees. Kadant
benefit beginning in 2006 and federal subsidies to employers who provide drug coverage to retirees. Kadant
Johnson applied for the federal subsidy during 2005 and 2006. The effect of the anticipated subsidy was
Johnson applied for the federal subsidy during 2005 and 2006. The effect of the anticipated subsidy was
recognized as of December 31, 2005. Given the plan changes made during 2006, the Company anticipates that it
recognized as of December 31, 2005. Given the plan changes made during 2006, the Company anticipates that it
will not be eligible for the subsidy after 2009.
will not be eligible for the subsidy after 2009.
The following subsidy payments are expected to be received:
The following subsidy payments are expected to be received:
(In thousands)
(In thousands)
Expected
Expected
Part D
Part D
Subsidy
Subsidy
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
31
39
39
4. Preferred and Common Stock
4. Preferred and Common Stock
Preferred Stock
Preferred Stock
The Company’s Certificate of Incorporation authorizes up to 5,000,000 shares of preferred stock, $.01 par
The Company’s Certificate of Incorporation authorizes up to 5,000,000 shares of preferred stock, $.01 par
value per share, for issuance by the Company’s board of directors without further shareholder approval. The
value per share, for issuance by the Company’s board of directors without further shareholder approval. The
board of directors has also designated 15,000 shares of such preferred stock as Series A junior participating
board of directors has also designated 15,000 shares of such preferred stock as Series A junior participating
preferred stock for issuance under the Company’s Shareholder Rights Plan (see below). No such preferred stock
preferred stock for issuance under the Company’s Shareholder Rights Plan (see below). No such preferred stock
has been issued by the Company.
has been issued by the Company.
F-29
F-29
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
4. Preferred and Common Stock (continued)
4. Preferred and Common Stock (continued)
Common Stock
Common Stock
The Company has a Shareholder Rights Plan under which one right was distributed at the close of business
The Company has a Shareholder Rights Plan under which one right was distributed at the close of business
on August 6, 2001 for each share of the Company’s common stock outstanding at that time. The rights plan is
on August 6, 2001 for each share of the Company’s common stock outstanding at that time. The rights plan is
designed to provide shareholders with fair and equal treatment in the event of an unsolicited attempt to acquire
designed to provide shareholders with fair and equal treatment in the event of an unsolicited attempt to acquire
the Company. The rights were attached to the Company’s outstanding common stock at the time of distribution
the Company. The rights were attached to the Company’s outstanding common stock at the time of distribution
and are not separately transferable or exercisable. The rights will become exercisable if a person acquires 15
and are not separately transferable or exercisable. The rights will become exercisable if a person acquires 15
percent or more of the Company’s common stock, or a tender or exchange offer is commenced for 15 percent or
percent or more of the Company’s common stock, or a tender or exchange offer is commenced for 15 percent or
more of the Company’s common stock, unless, in either case, the transaction was approved by the Company’s
more of the Company’s common stock, unless, in either case, the transaction was approved by the Company’s
board of directors. If the rights become exercisable, each right will initially entitle the Company’s shareholders to
board of directors. If the rights become exercisable, each right will initially entitle the Company’s shareholders to
purchase .0001 of a share of the Company’s Series A junior participating preferred stock, $.01 par value, at an
purchase .0001 of a share of the Company’s Series A junior participating preferred stock, $.01 par value, at an
exercise price of $75. In addition, except with respect to transactions approved by the Company’s board of
exercise price of $75. In addition, except with respect to transactions approved by the Company’s board of
directors, if the Company is involved in a merger or other transaction with another company in which it is not the
directors, if the Company is involved in a merger or other transaction with another company in which it is not the
surviving corporation, or the Company sells or transfers 50 percent or more of its assets or earning power to
surviving corporation, or the Company sells or transfers 50 percent or more of its assets or earning power to
another company, each right (other than rights owned by the acquirer) will entitle its holder to purchase $75
another company, each right (other than rights owned by the acquirer) will entitle its holder to purchase $75
worth of the common stock of the acquirer at half the market value at that time. The Company is entitled to
worth of the common stock of the acquirer at half the market value at that time. The Company is entitled to
redeem the rights at $.001 per right at any time prior to the tenth business day (or later, if so determined by the
redeem the rights at $.001 per right at any time prior to the tenth business day (or later, if so determined by the
board of directors) after the acquisition of 15 percent or more of the Company’s common stock. Unless the rights
board of directors) after the acquisition of 15 percent or more of the Company’s common stock. Unless the rights
are redeemed or exchanged earlier, they will expire on July 16, 2011.
are redeemed or exchanged earlier, they will expire on July 16, 2011.
At December 29, 2007, the Company had reserved 1,689,278 unissued shares of its common stock for
At December 29, 2007, the Company had reserved 1,689,278 unissued shares of its common stock for
possible issuance under stock-based compensation plans.
possible issuance under stock-based compensation plans.
5.
5.
Income Taxes
Income Taxes
The components of income from continuing operations before provision for income taxes and minority
The components of income from continuing operations before provision for income taxes and minority
interest expense are as follows:
interest expense are as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
2005
2005
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,289
$16,289
19,233
19,233
$14,813
$14,813
12,422
12,422
$ 9,510
$ 9,510
4,464
4,464
$35,522
$35,522
$27,235 $13,974
$27,235
$13,974
The components of the provision for income taxes for continuing operations are as follows:
The components of the provision for income taxes for continuing operations are as follows:
(In thousands)
(In thousands)
Current Provision:
Current Provision:
2007
2007
2006
2006
2005
2005
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,039
$1,039
3,261
3,261
554
554
$ 146
$ 146
3,340
3,340
137
137
$
$
(5)
(5)
2,758
2,758
(339)
(339)
4,854
4,854
3,623
3,623
2,414
2,414
Deferred Provision:
Deferred Provision:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,092
5,092
81
81
(243)
(243)
5,101
5,101
(296)
(296)
260
260
2,197
2,197
(1,538)
(1,538)
852
852
4,930
4,930
5,065
5,065
1,511
1,511
$9,784
$9,784
$8,688
$8,688
$ 3,925
$ 3,925
F-30
F-30
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Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
5.
5.
Income Taxes (continued)
Income Taxes (continued)
The income tax provision included in the accompanying statement of income is as follows:
The income tax provision included in the accompanying statement of income is as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
2005
2005
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,784
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,784
(1,508)
(1,508)
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,688
$8,688
(702)
(702)
$ 3,925
$ 3,925
(1,608)
(1,608)
$ 8,276
$ 8,276
$7,986 $ 2,317
$7,986
$ 2,317
The Company generally receives a tax deduction upon the exercise of nonqualified stock options by
The Company generally receives a tax deduction upon the exercise of nonqualified stock options by
employees equal to the difference between the market price and the exercise price of the Company’s common
employees equal to the difference between the market price and the exercise price of the Company’s common
stock on the date of exercise. The current provision for income taxes does not reflect $2,893,000, $2,529,000,
stock on the date of exercise. The current provision for income taxes does not reflect $2,893,000, $2,529,000,
and $123,000 of such benefits from the exercise of stock options that have been allocated to capital in excess of
and $123,000 of such benefits from the exercise of stock options that have been allocated to capital in excess of
par value in 2007, 2006, and 2005, respectively. In addition, in 2007, there is an additional tax benefit of $53,000
par value in 2007, 2006, and 2005, respectively. In addition, in 2007, there is an additional tax benefit of $53,000
associated with restricted stock awards.
associated with restricted stock awards.
The provision for income taxes for continuing operations in the accompanying statement of income differs
The provision for income taxes for continuing operations in the accompanying statement of income differs
from the provision calculated by applying the statutory federal income tax rate of 35% to income from
from the provision calculated by applying the statutory federal income tax rate of 35% to income from
continuing operations before provision for income taxes and minority interest expense due to the following:
continuing operations before provision for income taxes and minority interest expense due to the following:
(In thousands)
(In thousands)
Provision for Income Taxes at Statutory Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes at Statutory Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases (Decreases) Resulting From:
Increases (Decreases) Resulting From:
State income taxes, net of federal tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax (benefit) cost of foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax (benefit) cost of foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax reimbursement from former parent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax reimbursement from former parent
Extraterritorial income exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraterritorial income exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
2006
2006
2005
2005
$12,433 $ 9,532
$12,433
$ 9,532
$ 4,891
$ 4,891
382
382
(467)
(467)
(2,802)
(2,802)
–
–
(33)
(33)
17
17
542
542
(288)
(288)
258
258
54
54
(1,632)
(1,632)
–
–
(23)
(23)
242
242
727
727
(470)
(470)
334
334
45
45
(1,400)
(1,400)
(882)
(882)
(25)
(25)
429
429
876
876
(343)
(343)
$ 9,784
$ 9,784
$ 8,688
$ 8,688
$ 3,925
$ 3,925
F-31
F-31
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
5.
5.
Income Taxes (continued)
Income Taxes (continued)
Net deferred tax liability in the accompanying consolidated balance sheet consists of the following:
Net deferred tax liability in the accompanying consolidated balance sheet consists of the following:
(In thousands)
(In thousands)
2007
2007
2006
2006
Deferred Tax Asset (Liability):
Deferred Tax Asset (Liability):
$ 8,082
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,082
6,923
Foreign and alternative minimum tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,923
Foreign and alternative minimum tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,072
Operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,072
Operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,330
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,330
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
772
Inventory basis difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
772
Inventory basis difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
683
Employee Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
683
Employee Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
192
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
192
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
161
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
161
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,346
$ 7,346
6,241
6,241
10,510
10,510
865
865
888
888
174
174
367
367
334
334
Deferred Tax Asset, Gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset, Gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,215
24,215
(2,696)
(2,696)
26,725
26,725
(2,831)
(2,831)
Deferred Tax Asset, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,519
21,519
23,894
23,894
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets basis difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets basis difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19,668)
(19,668)
(3,281)
(3,281)
(707)
(707)
(369)
(369)
(218)
(218)
(19,342)
(19,342)
(3,941)
(3,941)
(860)
(860)
(253)
(253)
(154)
(154)
Deferred Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(24,243)
(24,243)
(24,550)
(24,550)
Net Deferred Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,724) $
Net Deferred Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,724) $
(656)
(656)
The deferred tax asset and liability are presented in the accompanying balance sheet within other current
The deferred tax asset and liability are presented in the accompanying balance sheet within other current
assets, other assets, other current liabilities and deferred income taxes based on when the tax benefits are
assets, other assets, other current liabilities and deferred income taxes based on when the tax benefits are
expected to be realized and on a net basis by tax jurisdiction.
expected to be realized and on a net basis by tax jurisdiction.
The Company has established valuation allowances related to certain foreign deferred tax assets and tax
The Company has established valuation allowances related to certain foreign deferred tax assets and tax
credits. The valuation allowance at year-end 2007 was $2,696,000. The decrease in the valuation allowance of
credits. The valuation allowance at year-end 2007 was $2,696,000. The decrease in the valuation allowance of
$135,000 related primarily to changes associated with Kadant Johnson purchase price accounting adjustments.
$135,000 related primarily to changes associated with Kadant Johnson purchase price accounting adjustments.
Included in the valuation allowance is approximately $1,270,000 relating to the Kadant Johnson acquisition. In
Included in the valuation allowance is approximately $1,270,000 relating to the Kadant Johnson acquisition. In
the event the tax assets from the Kadant Johnson acquisition are realized and the corresponding valuation
the event the tax assets from the Kadant Johnson acquisition are realized and the corresponding valuation
allowance is no longer required, goodwill of the acquired business will be reduced accordingly. However, if the
allowance is no longer required, goodwill of the acquired business will be reduced accordingly. However, if the
valuation allowances are determined to be no longer required after the adoption of SFAS 141(R), then the
valuation allowances are determined to be no longer required after the adoption of SFAS 141(R), then the
reversal of the allowances would be through the annual effective tax rate.
reversal of the allowances would be through the annual effective tax rate.
At year-end 2007, the Company had domestic federal, state, and foreign net operating loss carryforwards of
At year-end 2007, the Company had domestic federal, state, and foreign net operating loss carryforwards of
$9,220,000, $7,457,000 and $5,083,000, respectively, and foreign tax credits of $5,658,000. The domestic federal
$9,220,000, $7,457,000 and $5,083,000, respectively, and foreign tax credits of $5,658,000. The domestic federal
net operating loss carryforwards will expire in the years 2024 through 2026 and the domestic state loss
net operating loss carryforwards will expire in the years 2024 through 2026 and the domestic state loss
carryforwards will expire in the years 2008 through 2027. Their use is limited to future taxable earnings from the
carryforwards will expire in the years 2008 through 2027. Their use is limited to future taxable earnings from the
Company’s domestic subsidiaries. Of the foreign net operating loss carryforwards, $1,946,000 expires in the
Company’s domestic subsidiaries. Of the foreign net operating loss carryforwards, $1,946,000 expires in the
years 2008 through 2027, and the remainder does not expire. The foreign tax credits expire beginning in 2012.
years 2008 through 2027, and the remainder does not expire. The foreign tax credits expire beginning in 2012.
The Company has not recognized a deferred tax liability for the difference between the book basis and the
The Company has not recognized a deferred tax liability for the difference between the book basis and the
tax basis of its investment in the stock of its domestic subsidiaries, related primarily to unremitted earnings of
tax basis of its investment in the stock of its domestic subsidiaries, related primarily to unremitted earnings of
subsidiaries, because it does not expect this basis difference to become subject to tax at the parent level. The
subsidiaries, because it does not expect this basis difference to become subject to tax at the parent level. The
Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries
Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries
tax-free.
tax-free.
F-32
F-32
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Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
5.
5.
Income Taxes (continued)
Income Taxes (continued)
It is the Company’s practice to reinvest indefinitely the earnings of its international subsidiaries, except in
It is the Company’s practice to reinvest indefinitely the earnings of its international subsidiaries, except in
instances in which the Company can remit such earnings without a significant associated tax cost. Through
instances in which the Company can remit such earnings without a significant associated tax cost. Through
year-end 2007, the Company has not provided U.S. income taxes on approximately $81,000,000 of unremitted
year-end 2007, the Company has not provided U.S. income taxes on approximately $81,000,000 of unremitted
foreign earnings. The U.S. tax cost has not been determined due to the fact that it is not practicable to estimate at
foreign earnings. The U.S. tax cost has not been determined due to the fact that it is not practicable to estimate at
this time. The related foreign tax withholding, which would be required if the Company remitted the foreign
this time. The related foreign tax withholding, which would be required if the Company remitted the foreign
earnings to the U.S., would be approximately $3,100,000.
earnings to the U.S., would be approximately $3,100,000.
One of the Company’s Chinese subsidiaries that was part of the Kadant Johnson acquisition had a tax
One of the Company’s Chinese subsidiaries that was part of the Kadant Johnson acquisition had a tax
holiday in China, which reduces the income tax in that country. This holiday expired at the end of 2007. Two
holiday in China, which reduces the income tax in that country. This holiday expired at the end of 2007. Two
other Chinese subsidiaries began their tax holiday during 2007 which will expire in 2011. Based on the currently
other Chinese subsidiaries began their tax holiday during 2007 which will expire in 2011. Based on the currently
enacted regular corporate income tax rate in China, the benefit to the Company of the tax holiday for year-end
enacted regular corporate income tax rate in China, the benefit to the Company of the tax holiday for year-end
2007 was approximately $564,000, or $.04 per diluted share.
2007 was approximately $564,000, or $.04 per diluted share.
The Company operates within multiple tax jurisdictions and could be subject to audit in these jurisdictions.
The Company operates within multiple tax jurisdictions and could be subject to audit in these jurisdictions.
These audits can involve complex issues, which may require an extended period of time to resolve and may cover
These audits can involve complex issues, which may require an extended period of time to resolve and may cover
multiple years. In management’s opinion, adequate provisions for income taxes have been made for all years
multiple years. In management’s opinion, adequate provisions for income taxes have been made for all years
subject to audit.
subject to audit.
The Company adopted FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes
The Company adopted FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes
—An Interpretation of FASB Statement No. 109,” on December 31, 2006. In accordance with FIN 48, the
—An Interpretation of FASB Statement No. 109,” on December 31, 2006. In accordance with FIN 48, the
Company recognized a cumulative-effect adjustment of $709,000, increasing its liability for unrecognized tax
Company recognized a cumulative-effect adjustment of $709,000, increasing its liability for unrecognized tax
benefits and reducing the December 31, 2006 balance of retained earnings.
benefits and reducing the December 31, 2006 balance of retained earnings.
A tabular reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
A tabular reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In thousands)
(In thousands)
Unrecognized tax benefits, December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefits, December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases—tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases—tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decreases—tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decreases—tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases—current-period tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases—current-period tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statutes of limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statutes of limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
$4,069
$4,069
–
–
(1)
(1)
601
601
(32)
(32)
(597)
(597)
Unrecognized tax benefits, December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefits, December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,040
$4,040
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax
expense.
expense.
The Company has accrued $1,309,000 and $1,219,000 for the potential payment of interest and penalties at
The Company has accrued $1,309,000 and $1,219,000 for the potential payment of interest and penalties at
year-end 2007 and 2006, respectively. The interest and penalties reflected in the income statement in 2007 was
year-end 2007 and 2006, respectively. The interest and penalties reflected in the income statement in 2007 was
approximately $13,000.
approximately $13,000.
The total liabilities associated with unrecognized tax benefits that, if recognized, would impact the annual
The total liabilities associated with unrecognized tax benefits that, if recognized, would impact the annual
effective tax rate were $1,285,000 and $1,267,000 for year-end 2007 and 2006, respectively. The Company had
effective tax rate were $1,285,000 and $1,267,000 for year-end 2007 and 2006, respectively. The Company had
additional unrecognized tax benefits of $517,000 and $878,000 for year-end 2007 and 2006, respectively, and
additional unrecognized tax benefits of $517,000 and $878,000 for year-end 2007 and 2006, respectively, and
$843,000 and $920,000 of interest and penalties for year-end 2007 and 2006, respectively, which if recognized
$843,000 and $920,000 of interest and penalties for year-end 2007 and 2006, respectively, which if recognized
would affect goodwill. However, if those tax benefits are recognized after the adoption of SFAS No. 141(R), the
would affect goodwill. However, if those tax benefits are recognized after the adoption of SFAS No. 141(R), the
amounts would have an impact on the annual effective tax rate.
amounts would have an impact on the annual effective tax rate.
The Company does not anticipate that the total amount of unrecognized tax benefit related to any particular
The Company does not anticipate that the total amount of unrecognized tax benefit related to any particular
tax position will change significantly within the next 12 months.
tax position will change significantly within the next 12 months.
F-33
F-33
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
5.
5.
Income Taxes (continued)
Income Taxes (continued)
As of year-end 2007, the Company was subject to U.S. Federal income tax examinations for the stub period
As of year-end 2007, the Company was subject to U.S. Federal income tax examinations for the stub period
from January to August 2001 when the Company was part of its former parent company’s tax return and for the
from January to August 2001 when the Company was part of its former parent company’s tax return and for the
tax years 2004 through 2007, and to non-U.S. income tax examinations for the tax years 2001 through 2007. In
tax years 2004 through 2007, and to non-U.S. income tax examinations for the tax years 2001 through 2007. In
addition, the Company was subject to state and local income tax examinations for the tax years 2003 through
addition, the Company was subject to state and local income tax examinations for the tax years 2003 through
2007.
2007.
6. Long-Term Obligations and Other Financing Arrangements
6. Long-Term Obligations and Other Financing Arrangements
Long-term obligations at year-end 2007 and 2006 are as follows:
Long-term obligations at year-end 2007 and 2006 are as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
Variable Rate Term Loan, due from 2008 to 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,974 $39,108
$39,108
Variable Rate Term Loan, due from 2008 to 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,750
Variable Rate Term Loan, due from 2008 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,750
Variable Rate Term Loan, due from 2008 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,124
Variable Rate Term Loan, due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,124
Variable Rate Term Loan, due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25,974
9,250
9,250
5,476
5,476
Total Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Current Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Current Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,700
40,700
(10,240)
(10,240)
53,982
53,982
(9,330)
(9,330)
Long-Term Obligations, less Current Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Obligations, less Current Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,460
$ 30,460
$44,652
$44,652
The annual payment requirements for long-term obligations are as follows:
The annual payment requirements for long-term obligations are as follows:
(In thousands)
(In thousands)
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,240
$10,240
11,323
11,323
11,387
11,387
500
500
500
500
6,750
6,750
The weighted average interest rate for long-term obligations was 5.57% and 5.51% at year-end 2007 and
The weighted average interest rate for long-term obligations was 5.57% and 5.51% at year-end 2007 and
2006, respectively.
2006, respectively.
2005 Credit Agreement and Term Loan
2005 Credit Agreement and Term Loan
To fund a portion of the purchase price for the acquisition of Kadant Johnson, the Company entered into a
To fund a portion of the purchase price for the acquisition of Kadant Johnson, the Company entered into a
term loan and revolving credit facility (2005 Credit Agreement) effective May 9, 2005 in the aggregate principal
term loan and revolving credit facility (2005 Credit Agreement) effective May 9, 2005 in the aggregate principal
amount of up to $95,000,000, including a $35,000,000 revolver. On May 11, 2005, the Company borrowed
amount of up to $95,000,000, including a $35,000,000 revolver. On May 11, 2005, the Company borrowed
$60,000,000 (2005 Term Loan) under the 2005 Credit Agreement, which was repayable in quarterly installments
$60,000,000 (2005 Term Loan) under the 2005 Credit Agreement, which was repayable in quarterly installments
over a five-year period.
over a five-year period.
Interest on the 2005 Credit Agreement and 2005 Term Loan accrued and was payable quarterly in arrears at
Interest on the 2005 Credit Agreement and 2005 Term Loan accrued and was payable quarterly in arrears at
one of the following rates selected by the Company: (a) the prime rate plus an applicable margin up to 0.25%, or
one of the following rates selected by the Company: (a) the prime rate plus an applicable margin up to 0.25%, or
(b) a eurocurrency rate plus an applicable margin between 0.625% and 1.25%. The applicable margin was
(b) a eurocurrency rate plus an applicable margin between 0.625% and 1.25%. The applicable margin was
determined based upon the Company’s total debt to EBITDA ratio.
determined based upon the Company’s total debt to EBITDA ratio.
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
6. Long-Term Obligations and Other Financing Arrangements (continued)
6. Long-Term Obligations and Other Financing Arrangements (continued)
In connection with the 2005 Credit Agreement, the Company agreed to pay a commitment fee, payable
In connection with the 2005 Credit Agreement, the Company agreed to pay a commitment fee, payable
quarterly, at an initial rate of 0.25% per annum of the unused amount of revolving credit commitments, subject to
quarterly, at an initial rate of 0.25% per annum of the unused amount of revolving credit commitments, subject to
adjustment based upon the Company’s total debt to EBITDA ratio (resulting in a per annum rate of between
adjustment based upon the Company’s total debt to EBITDA ratio (resulting in a per annum rate of between
0.175% and 0.275%). The unused portion of the revolving credit facility totaled $14,504,000 as of December 29,
0.175% and 0.275%). The unused portion of the revolving credit facility totaled $14,504,000 as of December 29,
2007.
2007.
The obligations of the Company under the 2005 Credit Agreement may have been accelerated upon the
The obligations of the Company under the 2005 Credit Agreement may have been accelerated upon the
occurrence of an event of default under the 2005 Credit Agreement, which included customary events of default
occurrence of an event of default under the 2005 Credit Agreement, which included customary events of default
including, without limitation, payment defaults, defaults in the performance of affirmative and negative
including, without limitation, payment defaults, defaults in the performance of affirmative and negative
covenants, the inaccuracy of representations or warranties, bankruptcy- and insolvency-related defaults, defaults
covenants, the inaccuracy of representations or warranties, bankruptcy- and insolvency-related defaults, defaults
relating to such matters as ERISA, uninsured judgments and the failure to pay certain indebtedness, and a
relating to such matters as ERISA, uninsured judgments and the failure to pay certain indebtedness, and a
change-of-control default.
change-of-control default.
In addition, the 2005 Credit Agreement contained negative covenants applicable to the Company and its
In addition, the 2005 Credit Agreement contained negative covenants applicable to the Company and its
subsidiaries, including financial covenants requiring the Company to comply with a maximum consolidated
subsidiaries, including financial covenants requiring the Company to comply with a maximum consolidated
leverage ratio of 3.0, which was to be lowered to 2.5 in certain circumstances, including when the Company
leverage ratio of 3.0, which was to be lowered to 2.5 in certain circumstances, including when the Company
made a material acquisition or repurchased its stock. Pursuant to an amendment to the 2005 Credit Agreement
made a material acquisition or repurchased its stock. Pursuant to an amendment to the 2005 Credit Agreement
effective December 28, 2005, this maximum consolidated leverage ratio was increased from 2.5 to 2.75 in the
effective December 28, 2005, this maximum consolidated leverage ratio was increased from 2.5 to 2.75 in the
second and third quarters of 2006 due to the acquisition of Kadant Jining. The Company was also required to
second and third quarters of 2006 due to the acquisition of Kadant Jining. The Company was also required to
comply with a minimum consolidated fixed charge coverage ratio of 1.5. In addition to the financial covenants,
comply with a minimum consolidated fixed charge coverage ratio of 1.5. In addition to the financial covenants,
the Company was also required to comply with covenants related to restrictions on liens, indebtedness,
the Company was also required to comply with covenants related to restrictions on liens, indebtedness,
fundamental changes, dispositions of property, making certain restricted payments (including dividends and
fundamental changes, dispositions of property, making certain restricted payments (including dividends and
stock repurchases), investments, transactions with affiliates, sale and leaseback transactions, swap agreements,
stock repurchases), investments, transactions with affiliates, sale and leaseback transactions, swap agreements,
changing the Company’s fiscal year, negative pledges, arrangements affecting subsidiary distributions, and
changing the Company’s fiscal year, negative pledges, arrangements affecting subsidiary distributions, and
entering into new lines of business. As of December 29, 2007, the Company was in compliance with these
entering into new lines of business. As of December 29, 2007, the Company was in compliance with these
covenants.
covenants.
The loans under the 2005 Credit Agreement were guaranteed by certain domestic subsidiaries of the
The loans under the 2005 Credit Agreement were guaranteed by certain domestic subsidiaries of the
Company and secured by a pledge of 65% of the stock of the Company’s first-tier foreign subsidiaries and the
Company and secured by a pledge of 65% of the stock of the Company’s first-tier foreign subsidiaries and the
Company’s subsidiary guarantors pursuant to a guarantee and pledge agreement effective May 9, 2005 in favor
Company’s subsidiary guarantors pursuant to a guarantee and pledge agreement effective May 9, 2005 in favor
of JPMorgan Chase Bank, N.A., as agent on behalf of the lenders.
of JPMorgan Chase Bank, N.A., as agent on behalf of the lenders.
On May 9, 2007, the Company entered into a fourth amendment to the 2005 Credit Agreement to eliminate
On May 9, 2007, the Company entered into a fourth amendment to the 2005 Credit Agreement to eliminate
one of the restrictions on the payment of dividends and repurchases of the Company’s common stock, which was
one of the restrictions on the payment of dividends and repurchases of the Company’s common stock, which was
limited to $15 million plus 50% of net income earned after May 9, 2005. The Company was still required to
limited to $15 million plus 50% of net income earned after May 9, 2005. The Company was still required to
comply with a maximum consolidated leverage ratio of total debt to earnings before interest, taxes, depreciation
comply with a maximum consolidated leverage ratio of total debt to earnings before interest, taxes, depreciation
and amortization (EBITDA) (as defined in the 2005 Credit Agreement) of 2.5 to 1 prior to the payment of any
and amortization (EBITDA) (as defined in the 2005 Credit Agreement) of 2.5 to 1 prior to the payment of any
dividend or the making of any stock repurchases.
dividend or the making of any stock repurchases.
See Note 15 for information related to the repayment of the outstanding debt and the termination of the 2005
See Note 15 for information related to the repayment of the outstanding debt and the termination of the 2005
Credit Agreement in January 2008.
Credit Agreement in January 2008.
2006 Commercial Real Estate Loan
2006 Commercial Real Estate Loan
On May 4, 2006, the Company borrowed $10,000,000 under a promissory note (2006 Commercial Real
On May 4, 2006, the Company borrowed $10,000,000 under a promissory note (2006 Commercial Real
Estate Loan). The 2006 Commercial Real Estate Loan is repayable in quarterly installments of $125,000 over a
Estate Loan). The 2006 Commercial Real Estate Loan is repayable in quarterly installments of $125,000 over a
ten-year period with the remaining principal balance of $5,000,000 due upon maturity. Interest on the 2006
ten-year period with the remaining principal balance of $5,000,000 due upon maturity. Interest on the 2006
Commercial Real Estate Loan accrues and is payable quarterly in arrears at one of the following rates selected by
Commercial Real Estate Loan accrues and is payable quarterly in arrears at one of the following rates selected by
the Company (a) the prime rate or (b) the three-month London Inter-Bank Offered Rate (LIBOR) plus a 1%
the Company (a) the prime rate or (b) the three-month London Inter-Bank Offered Rate (LIBOR) plus a 1%
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Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
6. Long-Term Obligations and Other Financing Arrangements (continued)
6. Long-Term Obligations and Other Financing Arrangements (continued)
margin. The 2006 Commercial Real Estate Loan is guaranteed and secured by real estate and related personal
margin. The 2006 Commercial Real Estate Loan is guaranteed and secured by real estate and related personal
property of the Company and certain of its domestic subsidiaries located in Theodore, Alabama; Auburn,
property of the Company and certain of its domestic subsidiaries located in Theodore, Alabama; Auburn,
Massachusetts; Three Rivers, Michigan; and Queensbury, New York, pursuant to mortgage and security
Massachusetts; Three Rivers, Michigan; and Queensbury, New York, pursuant to mortgage and security
agreements dated May 4, 2006 (Mortgage and Security Agreements).
agreements dated May 4, 2006 (Mortgage and Security Agreements).
The obligations of the Company under the 2006 Commercial Real Estate Loan may be accelerated upon the
The obligations of the Company under the 2006 Commercial Real Estate Loan may be accelerated upon the
occurrence of an event of default under the 2006 Commercial Real Estate Loan and the Mortgage and Security
occurrence of an event of default under the 2006 Commercial Real Estate Loan and the Mortgage and Security
Agreements, which includes customary events of default including without limitation payment defaults, defaults
Agreements, which includes customary events of default including without limitation payment defaults, defaults
in the performance of covenants and obligations, the inaccuracy of representations or warranties, bankruptcy- and
in the performance of covenants and obligations, the inaccuracy of representations or warranties, bankruptcy- and
insolvency-related defaults, liens on the properties or collateral, and uninsured judgments. In addition, the
insolvency-related defaults, liens on the properties or collateral, and uninsured judgments. In addition, the
occurrence of an event of default under the 2005 Credit Agreement or any successor credit facility would be an
occurrence of an event of default under the 2005 Credit Agreement or any successor credit facility would be an
event of default under the Loan.
event of default under the Loan.
2006 Kadant Jining Loan and 2007 Credit Facilities
2006 Kadant Jining Loan and 2007 Credit Facilities
On June 6, 2006, Kadant Jining borrowed 40 million Chinese renminbi, or approximately $5,476,000 at
On June 6, 2006, Kadant Jining borrowed 40 million Chinese renminbi, or approximately $5,476,000 at
December 29, 2007, under a 47-month interest-only loan (2006 Kadant Jining Loan). Interest on the 2006 Kadant
December 29, 2007, under a 47-month interest-only loan (2006 Kadant Jining Loan). Interest on the 2006 Kadant
Jining Loan accrued and was payable quarterly in arrears based on the interest rate published by The People’s
Jining Loan accrued and was payable quarterly in arrears based on the interest rate published by The People’s
Bank of China for a loan of the same term less 10%. See Note 15 for information related to the repayment of this
Bank of China for a loan of the same term less 10%. See Note 15 for information related to the repayment of this
debt obligation in January 2008.
debt obligation in January 2008.
On July 30, 2007, Kadant Jining and Kadant Pulp and Paper Equipment Light Machinery (Jining) Co., Ltd.
On July 30, 2007, Kadant Jining and Kadant Pulp and Paper Equipment Light Machinery (Jining) Co., Ltd.
(Kadant Yanzhou) each entered into a short-term advised credit line facility agreement (Facilities). The Facilities
(Kadant Yanzhou) each entered into a short-term advised credit line facility agreement (Facilities). The Facilities
permit Kadant Jining to borrow up to an aggregate principal amount of 45 million Chinese renminbi, or
permit Kadant Jining to borrow up to an aggregate principal amount of 45 million Chinese renminbi, or
approximately $6.2 million at December 29, 2007, and Kadant Yanzhou to borrow up to an aggregate principal
approximately $6.2 million at December 29, 2007, and Kadant Yanzhou to borrow up to an aggregate principal
amount of 15 million Chinese renminbi, or approximately $2.1 million at December 29, 2007, for up to 364 days.
amount of 15 million Chinese renminbi, or approximately $2.1 million at December 29, 2007, for up to 364 days.
Borrowings made under the Facilities will bear interest at 90% of the applicable short-term interest rate for a
Borrowings made under the Facilities will bear interest at 90% of the applicable short-term interest rate for a
Chinese renminbi loan of comparable term as published by The People’s Bank of China. The Facilities will be
Chinese renminbi loan of comparable term as published by The People’s Bank of China. The Facilities will be
used for general working capital purposes and may include the cash collateralization of certain bank payment
used for general working capital purposes and may include the cash collateralization of certain bank payment
guarantees provided in connection with the Kadant Jining acquisition. The Company provided a guaranty dated
guarantees provided in connection with the Kadant Jining acquisition. The Company provided a guaranty dated
July 30, 2007, to secure the payment of all obligations under the Facilities and provides a cross-default to the
July 30, 2007, to secure the payment of all obligations under the Facilities and provides a cross-default to the
Company’s other senior indebtedness, including the 2005 Credit Agreement. See Note 15 for information related
Company’s other senior indebtedness, including the 2005 Credit Agreement. See Note 15 for information related
to borrowings made under the Facilities in January 2008.
to borrowings made under the Facilities in January 2008.
Debt Issuance Costs
Debt Issuance Costs
Debt issuance costs are being amortized to interest expense over the corresponding debt term based on the
Debt issuance costs are being amortized to interest expense over the corresponding debt term based on the
effective-interest method. As of December 29, 2007, unamortized debt issuance costs were approximately
effective-interest method. As of December 29, 2007, unamortized debt issuance costs were approximately
$317,000.
$317,000.
Financial Instruments
Financial Instruments
The Company entered into a swap agreement (2005 Swap Agreement), which was effective May 17, 2005,
The Company entered into a swap agreement (2005 Swap Agreement), which was effective May 17, 2005,
to convert $36,000,000 of the principal balance of the 2005 Term Loan from a floating rate to a fixed rate of
to convert $36,000,000 of the principal balance of the 2005 Term Loan from a floating rate to a fixed rate of
interest. The 2005 Swap Agreement had a five-year term, the same quarterly payment dates as the hedged portion
interest. The 2005 Swap Agreement had a five-year term, the same quarterly payment dates as the hedged portion
of the term loan, and reduced proportionately in line with the amortization of the 2005 Term Loan. The 2005
of the term loan, and reduced proportionately in line with the amortization of the 2005 Term Loan. The 2005
Swap Agreement was designated as a cash flow hedge and carried at fair value with unrealized gains or losses
Swap Agreement was designated as a cash flow hedge and carried at fair value with unrealized gains or losses
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Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
6. Long-Term Obligations and Other Financing Arrangements (continued)
6. Long-Term Obligations and Other Financing Arrangements (continued)
reflected within other comprehensive items. As of year-end 2007 and 2006, the unrealized gain associated with
reflected within other comprehensive items. As of year-end 2007 and 2006, the unrealized gain associated with
the 2005 Swap Agreement was $7,000 and $493,000, respectively, which is included in other assets and
the 2005 Swap Agreement was $7,000 and $493,000, respectively, which is included in other assets and
accumulated other comprehensive items (net of tax) in the accompanying consolidated balance sheet. See Note
accumulated other comprehensive items (net of tax) in the accompanying consolidated balance sheet. See Note
15 for information related to the termination of the 2005 Swap Agreement in February 2008.
15 for information related to the termination of the 2005 Swap Agreement in February 2008.
To hedge the exposure to movements in the variable interest rate on the 2006 Commercial Real Estate Loan,
To hedge the exposure to movements in the variable interest rate on the 2006 Commercial Real Estate Loan,
on May 3, 2006, the Company entered into a swap agreement (2006 Swap Agreement) with the Lender effective
on May 3, 2006, the Company entered into a swap agreement (2006 Swap Agreement) with the Lender effective
May 5, 2006, which converts the 2006 Commercial Real Estate Loan from a floating rate to a fixed rate of
May 5, 2006, which converts the 2006 Commercial Real Estate Loan from a floating rate to a fixed rate of
interest. This 2006 Swap Agreement has a ten-year term, the same quarterly payment dates as the 2006
interest. This 2006 Swap Agreement has a ten-year term, the same quarterly payment dates as the 2006
Commercial Real Estate Loan, and reduces in line with the amortization of the 2006 Commercial Real Estate
Commercial Real Estate Loan, and reduces in line with the amortization of the 2006 Commercial Real Estate
Loan. This 2006 Swap Agreement automatically terminates in the event there are no outstanding borrowings
Loan. This 2006 Swap Agreement automatically terminates in the event there are no outstanding borrowings
under the 2005 Credit Agreement (or successor credit facility), the 2006 Commercial Real Estate Loan, or any
under the 2005 Credit Agreement (or successor credit facility), the 2006 Commercial Real Estate Loan, or any
other borrowing in which Citizens Bank of Massachusetts is a lender. Under the 2006 Swap Agreement, the
other borrowing in which Citizens Bank of Massachusetts is a lender. Under the 2006 Swap Agreement, the
Company will receive a three-month LIBOR rate and pay a fixed rate of interest of 5.63%. The net effect on
Company will receive a three-month LIBOR rate and pay a fixed rate of interest of 5.63%. The net effect on
interest expense for the 2006 Commercial Real Estate Loan is that the Company will pay a fixed interest rate of
interest expense for the 2006 Commercial Real Estate Loan is that the Company will pay a fixed interest rate of
6.63% (the sum of the 5.63% fixed rate under this swap agreement and the applicable margin of 1% on the 2006
6.63% (the sum of the 5.63% fixed rate under this swap agreement and the applicable margin of 1% on the 2006
Commercial Real Estate Loan). The guarantee and default provisions of the 2005 Credit Agreement (and any
Commercial Real Estate Loan). The guarantee and default provisions of the 2005 Credit Agreement (and any
successor credit facility) and the 2006 Commercial Real Estate Loan, including those contained in the Mortgage
successor credit facility) and the 2006 Commercial Real Estate Loan, including those contained in the Mortgage
and Security Agreements, also apply to the 2006 Swap Agreement. The 2006 Swap Agreement has been
and Security Agreements, also apply to the 2006 Swap Agreement. The 2006 Swap Agreement has been
designated as a cash flow hedge and is carried at fair value with unrealized gains or losses reflected within other
designated as a cash flow hedge and is carried at fair value with unrealized gains or losses reflected within other
comprehensive items. As of year-end 2007 and 2006, the unrealized loss associated with the 2006 Swap
comprehensive items. As of year-end 2007 and 2006, the unrealized loss associated with the 2006 Swap
Agreement was $626,000 and $331,000, respectively, which is included in other liabilities and within
Agreement was $626,000 and $331,000, respectively, which is included in other liabilities and within
accumulated other comprehensive items (net of tax) in the accompanying consolidated balance sheet.
accumulated other comprehensive items (net of tax) in the accompanying consolidated balance sheet.
Management believes that any credit risk associated with the 2006 Swap Agreement is remote based on the
Management believes that any credit risk associated with the 2006 Swap Agreement is remote based on the
creditworthiness of the financial institution issuing it.
creditworthiness of the financial institution issuing it.
7. Commitments and Contingencies
7. Commitments and Contingencies
Operating Leases
Operating Leases
The Company occupies office and operating facilities under various operating leases. The accompanying
The Company occupies office and operating facilities under various operating leases. The accompanying
consolidated statement of income includes expenses from operating leases of $2,911,000, $2,760,000, and
consolidated statement of income includes expenses from operating leases of $2,911,000, $2,760,000, and
$2,960,000 in 2007, 2006, and 2005, respectively. The future minimum payments due under noncancelable
$2,960,000 in 2007, 2006, and 2005, respectively. The future minimum payments due under noncancelable
operating leases as of December 29, 2007, are $2,040,000 in 2008; $1,325,000 in 2009; $978,000 in 2010; $707,000
operating leases as of December 29, 2007, are $2,040,000 in 2008; $1,325,000 in 2009; $978,000 in 2010; $707,000
in 2011; $668,000 in 2012 and $240,000 thereafter. Total future minimum lease payments are $5,958,000.
in 2011; $668,000 in 2012 and $240,000 thereafter. Total future minimum lease payments are $5,958,000.
Letters of Credit
Letters of Credit
Outstanding letters of credit, principally relating to performance obligations and customer deposit
Outstanding letters of credit, principally relating to performance obligations and customer deposit
guarantees, totaled $23,579,000 at December 29, 2007. In addition, the Company had outstanding letters of credit
guarantees, totaled $23,579,000 at December 29, 2007. In addition, the Company had outstanding letters of credit
of $11,715,000 at December 29, 2007 associated with acquisition contingencies as outlined below.
of $11,715,000 at December 29, 2007 associated with acquisition contingencies as outlined below.
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Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
7. Commitments and Contingencies (continued)
7. Commitments and Contingencies (continued)
Acquisition Contingencies
Acquisition Contingencies
In connection with the Kadant Jining acquisition, the Company issued a letter of credit to Bank of China
In connection with the Kadant Jining acquisition, the Company issued a letter of credit to Bank of China
Limited for $7,412,000 to guarantee the outstanding debt and remaining bank guarantees.
Limited for $7,412,000 to guarantee the outstanding debt and remaining bank guarantees.
In connection with the Kadant Johnson acquisition, the Company issued a letter of credit to the sellers for
In connection with the Kadant Johnson acquisition, the Company issued a letter of credit to the sellers for
$4,303,000 related to additional cash consideration the Company expects to pay through 2010.
$4,303,000 related to additional cash consideration the Company expects to pay through 2010.
Contingencies
Contingencies
In the ordinary course of business, the Company is at times required to issue limited performance
In the ordinary course of business, the Company is at times required to issue limited performance
guarantees, some of which do not require the issuance of letters of credit to customers in support of these
guarantees, some of which do not require the issuance of letters of credit to customers in support of these
guarantees, relating to its equipment and systems. The Company typically limits its liability under these
guarantees, relating to its equipment and systems. The Company typically limits its liability under these
guarantees to amounts that would not exceed the value of the contract. The Company believes that it has
guarantees to amounts that would not exceed the value of the contract. The Company believes that it has
adequate reserves for any potential liability in connection with such guarantees.
adequate reserves for any potential liability in connection with such guarantees.
Litigation
Litigation
See Note 15 for information related to pending litigation associated with the composites business.
See Note 15 for information related to pending litigation associated with the composites business.
Indemnification
Indemnification
The Company is required to indemnify Thermo Electron, but not its shareholders, against liability for taxes
The Company is required to indemnify Thermo Electron, but not its shareholders, against liability for taxes
arising from the Company’s conduct of business after the spin-off, or the failure of certain distributions to
arising from the Company’s conduct of business after the spin-off, or the failure of certain distributions to
continue to qualify as a tax free spin-off, as described in Note 1 “Income Taxes.”
continue to qualify as a tax free spin-off, as described in Note 1 “Income Taxes.”
8. Restructuring and Other Costs (Income), Net
8. Restructuring and Other Costs (Income), Net
2004 Restructuring Plan
2004 Restructuring Plan
In an effort to improve operating performance at the Papermaking Systems segment’s Kadant Lamort
In an effort to improve operating performance at the Papermaking Systems segment’s Kadant Lamort
subsidiary in France, the Company approved a restructuring of that subsidiary on November 18, 2004. This
subsidiary in France, the Company approved a restructuring of that subsidiary on November 18, 2004. This
restructuring was initiated to strengthen Kadant Lamort’s competitive position in the European paper industry.
restructuring was initiated to strengthen Kadant Lamort’s competitive position in the European paper industry.
The restructuring primarily included the reduction of 97 full-time positions across all functions in France and was
The restructuring primarily included the reduction of 97 full-time positions across all functions in France and was
implemented in 2005. The Company accrued a restructuring charge, in accordance with SFAS No. 112,
implemented in 2005. The Company accrued a restructuring charge, in accordance with SFAS No. 112,
“Employers’ Accounting for Postemployment Benefits,” for severance and other termination costs in connection
“Employers’ Accounting for Postemployment Benefits,” for severance and other termination costs in connection
with the workforce reduction of $9,235,000 in 2004 and reduced the estimate by $71,000 in 2005. In addition,
with the workforce reduction of $9,235,000 in 2004 and reduced the estimate by $71,000 in 2005. In addition,
during 2004, the Company recorded restructuring costs of $280,000, related to severance costs of 11 employees
during 2004, the Company recorded restructuring costs of $280,000, related to severance costs of 11 employees
at one of the Papermaking Systems segment’s U.S. subsidiaries. The Company realized a curtailment gain of
at one of the Papermaking Systems segment’s U.S. subsidiaries. The Company realized a curtailment gain of
$364,000 in 2005 resulting in a reduction in the accrued liability associated with Kadant Lamort’s pension plan.
$364,000 in 2005 resulting in a reduction in the accrued liability associated with Kadant Lamort’s pension plan.
In 2007, the Company reduced the restructuring reserve for the 2004 Restructuring Plan by $195,000 as the
In 2007, the Company reduced the restructuring reserve for the 2004 Restructuring Plan by $195,000 as the
remaining reserve was no longer required.
remaining reserve was no longer required.
2005 Restructuring Plan
2005 Restructuring Plan
The Company recorded restructuring costs of $317,000 in 2005 associated with its 2005 Restructuring Plan.
The Company recorded restructuring costs of $317,000 in 2005 associated with its 2005 Restructuring Plan.
These restructuring costs included $221,000 of severance and associated costs related to the reduction of 14 full-
These restructuring costs included $221,000 of severance and associated costs related to the reduction of 14 full-
time positions in the U.S. and $96,000 for equipment relocation costs, both in its Papermaking Systems segment.
time positions in the U.S. and $96,000 for equipment relocation costs, both in its Papermaking Systems segment.
In 2006, the Company recorded restructuring costs of $138,000 related to additional equipment relocation costs
In 2006, the Company recorded restructuring costs of $138,000 related to additional equipment relocation costs
associated with the 2005 Restructuring Plan.
associated with the 2005 Restructuring Plan.
F-38
F-38
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
8. Restructuring and Other Costs (Income), Net (continued)
8. Restructuring and Other Costs (Income), Net (continued)
2006 Restructuring Plan
2006 Restructuring Plan
The Company recorded restructuring costs of $677,000 in 2006 associated with its 2006 Restructuring Plan.
The Company recorded restructuring costs of $677,000 in 2006 associated with its 2006 Restructuring Plan.
These restructuring costs comprised severance and associated costs related to the reduction of 15 full-time
These restructuring costs comprised severance and associated costs related to the reduction of 15 full-time
positions in Canada and France, all in its Papermaking Systems segment. The Company recorded restructuring
positions in Canada and France, all in its Papermaking Systems segment. The Company recorded restructuring
costs of $252,000 in 2007 associated with exit costs related to vacating a facility in Canada. In addition, in 2007,
costs of $252,000 in 2007 associated with exit costs related to vacating a facility in Canada. In addition, in 2007,
the Company reduced the restructuring reserve for the 2006 Restructuring Plan by $276,000 as the reserve was
the Company reduced the restructuring reserve for the 2006 Restructuring Plan by $276,000 as the reserve was
no longer required.
no longer required.
A summary of the changes in accrued restructuring costs included in other current liabilities in the
A summary of the changes in accrued restructuring costs included in other current liabilities in the
accompanying consolidated balance sheet are as follows:
accompanying consolidated balance sheet are as follows:
(In thousands)
(In thousands)
2004 Restructuring Plan
2004 Restructuring Plan
Balance at January 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 Restructuring Plan
2005 Restructuring Plan
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Restructuring Plan
2006 Restructuring Plan
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance
Severance
and Other
and Other
$10,026
$10,026
(71)
(71)
(4,158)
(4,158)
(1,139)
(1,139)
4,658
4,658
(4,847)
(4,847)
554
554
$
$
$
$
$
$
$
$
$
$
$
$
365
365
(195)
(195)
(208)
(208)
38
38
–
–
317
317
(194)
(194)
123
123
138
138
(261)
(261)
–
–
677
677
(65)
(65)
(6)
(6)
606
606
252
252
(276)
(276)
(372)
(372)
98
98
Balance at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
308
308
The Company expects to pay the remaining accrued restructuring costs in 2008.
The Company expects to pay the remaining accrued restructuring costs in 2008.
F-39
F-39
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
9. Discontinued Operation
9. Discontinued Operation
On October 21, 2005, Composites LLC sold substantially all of its assets to LDI Composites Co. (Buyer) for
On October 21, 2005, Composites LLC sold substantially all of its assets to LDI Composites Co. (Buyer) for
approximately $11,913,000 in cash and the assumption of $658,000 of liabilities, resulting in a cumulative loss
approximately $11,913,000 in cash and the assumption of $658,000 of liabilities, resulting in a cumulative loss
on sale of $84,000. Under the terms of the asset purchase agreement, Composites LLC retained certain liabilities
on sale of $84,000. Under the terms of the asset purchase agreement, Composites LLC retained certain liabilities
associated with the operation of the business prior to the sale, including the warranty obligations associated with
associated with the operation of the business prior to the sale, including the warranty obligations associated with
products manufactured prior to the sale date. Composites LLC retained all of the cash proceeds received from the
products manufactured prior to the sale date. Composites LLC retained all of the cash proceeds received from the
asset sale and continued to administer and pay warranty claims from the sale proceeds into the third quarter of
asset sale and continued to administer and pay warranty claims from the sale proceeds into the third quarter of
2007. On September 30, 2007, Composites LLC announced that it no longer had sufficient funds to honor
2007. On September 30, 2007, Composites LLC announced that it no longer had sufficient funds to honor
warranty claims, was unable to pay or process warranty claims, and ceased doing business. All activity related to
warranty claims, was unable to pay or process warranty claims, and ceased doing business. All activity related to
this business is classified in the results of the discontinued operation in the accompanying consolidated financial
this business is classified in the results of the discontinued operation in the accompanying consolidated financial
statements.
statements.
Operating results for the composites business included in the results of the discontinued operation in the
Operating results for the composites business included in the results of the discontinued operation in the
accompanying consolidated statement of income are as follows:
accompanying consolidated statement of income are as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
2005
2005
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Operating Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
(4,332)
(4,332)
74
74
$
$
–
–
(2,204)
(2,204)
318
318
$15,960
$15,960
(4,649)
(4,649)
53
53
Loss Before Income Tax Benefit (including $130 loss on disposal in 2006 and $46
Loss Before Income Tax Benefit (including $130 loss on disposal in 2006 and $46
gain on disposal in 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
gain on disposal in 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,258)
(4,258)
1,508
1,508
(1,886)
(1,886)
702
702
(4,596)
(4,596)
1,608
1,608
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(2,750) $(1,184) $ (2,988)
$(2,750) $(1,184) $ (2,988)
The major classes of assets and liabilities of the composites business included in the discontinued operation
The major classes of assets and liabilities of the composites business included in the discontinued operation
in the accompanying consolidated balance sheet are as follows:
in the accompanying consolidated balance sheet are as follows:
(In thousands)
(In thousands)
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Restricted Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Warranty Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Warranty Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
2006
2006
3
3
–
–
322
322
769
769
199
199
1,293
1,293
255
255
2,142
2,142
31
31
2,428
2,428
$2,597
$2,597
660
660
340
340
454
454
410
410
4,461
4,461
73
73
1,135
1,135
251
251
1,459
1,459
Net (Liabilities) Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (Liabilities) Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,135) $3,002
$(1,135) $3,002
The restricted cash of $660,000 at year-end 2006 represents the portion of the sale proceeds placed in
The restricted cash of $660,000 at year-end 2006 represents the portion of the sale proceeds placed in
escrow to satisfy certain indemnification obligations and associated interest.
escrow to satisfy certain indemnification obligations and associated interest.
As part of the sale transaction, Composites LLC retained the warranty obligations associated with products
As part of the sale transaction, Composites LLC retained the warranty obligations associated with products
manufactured prior to the sale date. Through the sale date of October 21, 2005, Composites LLC offered a
manufactured prior to the sale date. Through the sale date of October 21, 2005, Composites LLC offered a
standard limited warranty to the owner of its decking and roofing products, limited to repair or replacement of
standard limited warranty to the owner of its decking and roofing products, limited to repair or replacement of
the defective product or a refund of the original purchase price.
the defective product or a refund of the original purchase price.
F-40
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
9. Discontinued Operation (continued)
9. Discontinued Operation (continued)
Through the second quarter of 2006, Composites LLC recorded an estimate for warranty-related costs at the
Through the second quarter of 2006, Composites LLC recorded an estimate for warranty-related costs at the
time of sale based on its actual historical return rates and repair costs, as well as other analytical tools for
time of sale based on its actual historical return rates and repair costs, as well as other analytical tools for
estimating future warranty claims. These estimates were revised for variances between actual and expected
estimating future warranty claims. These estimates were revised for variances between actual and expected
claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed assumptions
claims rates. Composites LLC’s analysis of expected warranty claims rates included detailed assumptions
associated with potential product returns, including the type of product sold, temperatures at the location of
associated with potential product returns, including the type of product sold, temperatures at the location of
installation, density of boards, and other factors. Certain assumptions, such as the effect of weather conditions
installation, density of boards, and other factors. Certain assumptions, such as the effect of weather conditions
and high temperatures on the product installed, included inherent uncertainties that contributed to variances
and high temperatures on the product installed, included inherent uncertainties that contributed to variances
between actual and expected claims rates.
between actual and expected claims rates.
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
During the third quarter of 2006, Composites LLC concluded that the assumptions noted above were not
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
accurately predicting the actual level of warranty claims, making it no longer possible to calculate a reasonable
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
estimate of the future level of potential warranty claims. Accordingly, as no amount within the total range of loss
represents a best estimate of the ultimate loss to be recorded, Composites LLC is required under SFAS 5 to
represents a best estimate of the ultimate loss to be recorded, Composites LLC is required under SFAS 5 to
record the minimum amount of the potential range of loss for products under warranty. As of December 29,
record the minimum amount of the potential range of loss for products under warranty. As of December 29,
2007, the accrued warranty costs associated with the composites business were $2,142,000, which represents the
2007, the accrued warranty costs associated with the composites business were $2,142,000, which represents the
low end of the estimated range of warranty reserve required based on the level of claims received through the end
low end of the estimated range of warranty reserve required based on the level of claims received through the end
of 2007. Composites LLC has calculated that the total potential warranty cost ranges from $2,142,000 to
of 2007. Composites LLC has calculated that the total potential warranty cost ranges from $2,142,000 to
approximately $13,100,000. The high end of the range represents the estimated maximum level of warranty
approximately $13,100,000. The high end of the range represents the estimated maximum level of warranty
claims remaining based on the total sales of the products under warranty. Composites LLC will continue to
claims remaining based on the total sales of the products under warranty. Composites LLC will continue to
record adjustments to the accrued warranty costs to reflect the minimum amount of the potential range of loss for
record adjustments to the accrued warranty costs to reflect the minimum amount of the potential range of loss for
products under warranty based on judgments entered against it in litigation.
products under warranty based on judgments entered against it in litigation.
The changes in the carrying amount of accrued warranty costs are as follows:
The changes in the carrying amount of accrued warranty costs are as follows:
(In thousands)
(In thousands)
2007
2007
2006
2006
$ 1,135
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,135
3,914
Provision charged to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,914
Provision charged to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,907)
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,907)
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,276
$ 5,276
1,248
1,248
407
407
(5,796)
(5,796)
Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,142
Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,142
$ 1,135
$ 1,135
The reimbursement of $407,000 represents reimbursements from the Buyer to Composites LLC for a
The reimbursement of $407,000 represents reimbursements from the Buyer to Composites LLC for a
portion of the claims paid as provided in the sales agreement.
portion of the claims paid as provided in the sales agreement.
See Note 15 for information related to pending litigation associated with the composites business.
See Note 15 for information related to pending litigation associated with the composites business.
F-41
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
10. Fair Value of Financial Instruments
10. Fair Value of Financial Instruments
The Company’s financial instruments consist mainly of cash and cash equivalents, accounts receivable,
The Company’s financial instruments consist mainly of cash and cash equivalents, accounts receivable,
current maturities of long-term obligations, accounts payable, long-term obligations, forward foreign exchange
current maturities of long-term obligations, accounts payable, long-term obligations, forward foreign exchange
contracts and swap agreements. The carrying amounts of accounts receivable, current maturities of long-term
contracts and swap agreements. The carrying amounts of accounts receivable, current maturities of long-term
obligations, and accounts payable approximate fair value due to their short-term nature. The carrying amounts of
obligations, and accounts payable approximate fair value due to their short-term nature. The carrying amounts of
long-term obligations approximate fair value as the obligations bear a variable rate of interest, which adjusts
long-term obligations approximate fair value as the obligations bear a variable rate of interest, which adjusts
quarterly based on prevailing market rates.
quarterly based on prevailing market rates.
The carrying amount and fair value of the Company’s financial instruments are as follows:
The carrying amount and fair value of the Company’s financial instruments are as follows:
(In thousands)
(In thousands)
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrecognized (loss) gain on swap agreements . . . . . . . . . . . . . .
Net unrecognized (loss) gain on swap agreements . . . . . . . . . . . . . .
Forward foreign exchange contracts receivable . . . . . . . . . . . . . . . .
Forward foreign exchange contracts receivable . . . . . . . . . . . . . . . .
2007
2007
2006
2006
Carrying
Carrying
Amount
Amount
Fair
Fair
Value
Value
Carrying
Carrying
Amount
Amount
Fair
Fair
Value
Value
$(30,460) $(30,460) $(44,652) $(44,652)
$(30,460) $(30,460) $(44,652) $(44,652)
162
$
162
$
94
94
$
$
(619) $
(619) $
$
$
688
688
(619) $
(619) $
$
$
688
688
162
162
94
94
$
$
$
$
The notional amounts of forward foreign exchange contracts outstanding totaled $11,409,000 and
The notional amounts of forward foreign exchange contracts outstanding totaled $11,409,000 and
$4,093,000 at year-end 2007 and 2006, respectively. The fair value of such contracts is the estimated amount that
$4,093,000 at year-end 2007 and 2006, respectively. The fair value of such contracts is the estimated amount that
the Company would receive upon termination of the contracts, taking into account the change in foreign currency
the Company would receive upon termination of the contracts, taking into account the change in foreign currency
exchange rates, which is recorded in the accompanying consolidated balance sheet in accordance with SFAS 133
exchange rates, which is recorded in the accompanying consolidated balance sheet in accordance with SFAS 133
(see Note 1).
(see Note 1).
The notional amount of the swap agreements was $30,850,000 and $37,865,000 at year-end 2007 and 2006,
The notional amount of the swap agreements was $30,850,000 and $37,865,000 at year-end 2007 and 2006,
respectively. The fair values of the agreements are the estimated amounts for which contracts could be settled in
respectively. The fair values of the agreements are the estimated amounts for which contracts could be settled in
the open market based on prevailing market interest rates at year-end 2007 and 2006.
the open market based on prevailing market interest rates at year-end 2007 and 2006.
F-42
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
11. Business Segment and Geographical Information
11. Business Segment and Geographical Information
The Company has combined its operating entities into one reportable operating segment, Papermaking
The Company has combined its operating entities into one reportable operating segment, Papermaking
Systems, and two separate product lines, which are reported in Other, Fiber-based Products and Casting Products,
Systems, and two separate product lines, which are reported in Other, Fiber-based Products and Casting Products,
the latter of which was sold on April 30, 2007. In classifying operational entities into a particular segment, the
the latter of which was sold on April 30, 2007. In classifying operational entities into a particular segment, the
Company aggregated businesses with similar economic characteristics, products and services, production
Company aggregated businesses with similar economic characteristics, products and services, production
processes, customers, and methods of distribution.
processes, customers, and methods of distribution.
The Company’s Papermaking Systems segment develops, manufactures, and markets stock-preparation
The Company’s Papermaking Systems segment develops, manufactures, and markets stock-preparation
systems and equipment, paper machine accessory equipment, water-management systems, and fluid-handling
systems and equipment, paper machine accessory equipment, water-management systems, and fluid-handling
systems and equipment for the pulp and paper industry worldwide. Principal products manufactured by this
systems and equipment for the pulp and paper industry worldwide. Principal products manufactured by this
segment include: custom-engineered systems and equipment for the preparation of wastepaper for conversion
segment include: custom-engineered systems and equipment for the preparation of wastepaper for conversion
into recycled paper; paper machine accessory equipment and related consumables important to the efficient
into recycled paper; paper machine accessory equipment and related consumables important to the efficient
operation of paper machines; water-management systems essential for draining, purifying, and recycling process
operation of paper machines; water-management systems essential for draining, purifying, and recycling process
water; and fluid-handling systems used primarily in the dryer section of the papermaking process and during the
water; and fluid-handling systems used primarily in the dryer section of the papermaking process and during the
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. The Fiber-based Products line
production of corrugated boxboard, metals, plastics, rubber, textiles, and food. The Fiber-based Products line
produces biodegradable absorbent granules from papermaking byproducts. These granules are primarily used as
produces biodegradable absorbent granules from papermaking byproducts. These granules are primarily used as
carriers for agricultural, home lawn and garden, and professional lawn, turf and ornamental applications, as well
carriers for agricultural, home lawn and garden, and professional lawn, turf and ornamental applications, as well
as for oil and grease absorption. The Casting Products line produced grey and ductile iron castings through its
as for oil and grease absorption. The Casting Products line produced grey and ductile iron castings through its
sale on April 30, 2007.
sale on April 30, 2007.
(In thousands)
(In thousands)
Business Segment Information
Business Segment Information
Revenues:
Revenues:
2007
2007
2006
2006
2005
2005
Papermaking Systems (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$356,334
$356,334
10,162
10,162
$232,615
$327,501
$327,501 $232,615
11,098
14,112
11,098
14,112
$366,496
$366,496
$341,613
$341,613
$243,713
$243,713
Revenues by Product Line:
Revenues by Product Line:
Papermaking Systems:
Papermaking Systems:
Stock-Preparation Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-Preparation Equipment
Fluid-Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fluid-Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Water-Management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Water-Management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$165,820
$165,820
93,970
93,970
63,128
63,128
31,083
31,083
2,333
2,333
$146,275
$146,275
84,388
84,388
60,588
60,588
33,787
33,787
2,463
2,463
$ 98,226
$ 98,226
45,450
45,450
58,794
58,794
28,325
28,325
1,820
1,820
$356,334
$356,334
$327,501
$327,501
$232,615
$232,615
Other:
Other:
Fiber-based Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiber-based Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Casting Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casting Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,689
8,689
1,473
1,473
$ 10,124
$ 10,124
3,988
3,988
$
$
8,599
8,599
2,499
2,499
$ 10,162
$ 10,162
$ 14,112
$ 14,112
$ 11,098
$ 11,098
Income from Continuing Operations Before Provision for Income Taxes and
Income from Continuing Operations Before Provision for Income Taxes and
Minority Interest Expense:
Minority Interest Expense:
Papermaking Systems (c,d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,128 $ 38,604 $ 19,584
Papermaking Systems (c,d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,584
(5,001)
(5,001)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other (b,d)
Corporate and Other (b,d)
$ 38,604
(9,162)
(9,162)
$ 49,128
(12,090)
(12,090)
Total operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,038
37,038
(1,516)
(1,516)
29,442
29,442
(2,207)
(2,207)
14,583
14,583
(609)
(609)
$ 35,522
$ 35,522
$ 27,235
$ 27,235
$ 13,974
$ 13,974
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Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
11. Business Segment and Geographical Information (continued)
11. Business Segment and Geographical Information (continued)
(In thousands)
(In thousands)
Business Segment Information (continued)
Business Segment Information (continued)
Total Assets:
Total Assets:
2007
2007
2006
2006
2005
2005
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other (b,e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other (b,e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$427,996
$427,996
7,780
7,780
$385,842
$385,842
2,782
2,782
$331,347
$331,347
10,434
10,434
Total Assets from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . .
435,776
435,776
1,293
1,293
388,624
388,624
4,461
4,461
341,781
341,781
14,030
14,030
$437,069
$437,069
$393,085
$393,085
$355,811
$355,811
Depreciation and Amortization:
Depreciation and Amortization:
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
6,845
6,845
518
518
7,363
7,363
Capital Expenditures:
Capital Expenditures:
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Papermaking Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Corporate and Other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,436
4,436
472
472
$
$
$
$
$
$
7,171
7,171
587
587
7,758
7,758
3,579
3,579
518
518
$
$
4,908
4,908
$ 4,097
$
4,097
$
$
$
$
$
$
$
$
6,227
6,227
704
704
6,931
6,931
2,683
2,683
562
562
3,245
3,245
Geographical Information
Geographical Information
Revenues (f):
Revenues (f):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers among geographic areas (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers among geographic areas (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$221,573
$221,573
61,006
61,006
118,724
118,724
(34,807)
(34,807)
$210,499
$210,499
61,261
61,261
95,487
95,487
(25,634)
(25,634)
$147,714
$147,714
49,601
49,601
59,450
59,450
(13,052)
(13,052)
$366,496
$366,496
$341,613
$341,613
$243,713
$243,713
Long-lived Assets (h):
Long-lived Assets (h):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,073 $ 18,358 $ 22,454
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,454
2,813
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,813
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,714
8,714
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,073
12,984
12,984
11,847
11,847
$ 18,358
11,716
11,716
11,581
11,581
Export Revenues Included in United States Revenues Above (i) . . . . . . . . . . .
Export Revenues Included in United States Revenues Above (i) . . . . . . . . . . .
$ 69,570 $ 69,449
$ 69,570
$ 69,449
$ 44,958
$ 44,958
$ 41,904
$ 41,904
$ 41,655
$ 41,655
$ 33,981
$ 33,981
(a) Revenues from China were $76.6 million, $71.3 million, and $29.2 million in 2007, 2006, and 2005,
(a) Revenues from China were $76.6 million, $71.3 million, and $29.2 million in 2007, 2006, and 2005,
respectively.
respectively.
(b) Other includes the results from the Fiber-based Products business and the Casting Products business.
(b) Other includes the results from the Fiber-based Products business and the Casting Products business.
(c)
(c)
Includes net restructuring and other costs (income) of ($0.2) million, $0.8 million, and ($0.1) million in
Includes net restructuring and other costs (income) of ($0.2) million, $0.8 million, and ($0.1) million in
2007, 2006, and 2005, respectively (see Note 8).
2007, 2006, and 2005, respectively (see Note 8).
Information in the 2005 period has been reclassified to conform to the 2007 and 2006 presentation.
Information in the 2005 period has been reclassified to conform to the 2007 and 2006 presentation.
(d)
(d)
(e) Primarily cash and cash equivalents and property, plant, and equipment.
(e) Primarily cash and cash equivalents and property, plant, and equipment.
(f) Revenues are attributed to countries based on selling location.
(f) Revenues are attributed to countries based on selling location.
(g) Transfers among geographic areas are accounted for at prices that are representative of transactions with
(g) Transfers among geographic areas are accounted for at prices that are representative of transactions with
unaffiliated parties.
unaffiliated parties.
(h) Primarily includes property, plant, and equipment, net.
(h) Primarily includes property, plant, and equipment, net.
(i)
(i)
In general, export revenues are denominated in U.S. dollars.
In general, export revenues are denominated in U.S. dollars.
F-44
F-44
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
12. Earnings per Share
12. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Basic and diluted earnings per share were calculated as follows:
(In thousands, except per share amounts)
(In thousands, except per share amounts)
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
$25,418
$25,418
(2,750)
(2,750)
2006
2006
$18,281
$18,281
(1,184)
(1,184)
2005
2005
$ 9,865
$ 9,865
(2,988)
(2,988)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,668
$22,668
$17,097
$17,097
$ 6,877
$ 6,877
Basic Weighted Average Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Weighted Average Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Stock Options, Restricted Stock Awards and
Effect of Stock Options, Restricted Stock Awards and
14,116
14,116
13,816
13,816
13,829
13,829
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174
174
281
281
275
275
Diluted Weighted Average Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Weighted Average Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,290
14,290
14,097
14,097
14,104
14,104
Basic Earnings per Share:
Basic Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.80
1.80
(.19)
(.19)
Net Income per Basic Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income per Basic Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.61
1.61
Diluted Earnings per Share:
Diluted Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.78
1.78
(.19)
(.19)
Net Income per Diluted Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income per Diluted Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.59
1.59
$
$
$
$
$
$
$
$
1.32
1.32 $
$
(.08)
(.08)
.71
.71
(.21)
(.21)
1.24 $
1.24
$
.50
.50
1.30
1.30 $
$
(.09)
(.09)
.70
.70
(.21)
(.21)
1.21 $
1.21
$
.49
.49
Options to purchase 57,200 shares, 116,000 shares, and 235,800 shares of common stock were not included
Options to purchase 57,200 shares, 116,000 shares, and 235,800 shares of common stock were not included
in the computation of diluted earnings per share for 2007, 2006, and 2005, respectively, because the options’
in the computation of diluted earnings per share for 2007, 2006, and 2005, respectively, because the options’
exercise prices were greater than the average market price for the common stock, and the effect would have been
exercise prices were greater than the average market price for the common stock, and the effect would have been
antidilutive.
antidilutive.
13. Accumulated Other Comprehensive Items
13. Accumulated Other Comprehensive Items
Comprehensive income combines net income and other comprehensive items, which represent certain
Comprehensive income combines net income and other comprehensive items, which represent certain
amounts that are reported as components of shareholders’ investment in the accompanying consolidated balance
amounts that are reported as components of shareholders’ investment in the accompanying consolidated balance
sheet, including foreign currency translation adjustments, deferred gains and losses, unrecognized transition
sheet, including foreign currency translation adjustments, deferred gains and losses, unrecognized transition
obligation and unrecognized prior service income associated with pension and other post-retirement plans, and
obligation and unrecognized prior service income associated with pension and other post-retirement plans, and
deferred gains and losses on hedging instruments.
deferred gains and losses on hedging instruments.
Accumulated other comprehensive items in the accompanying consolidated balance sheet consist of the
Accumulated other comprehensive items in the accompanying consolidated balance sheet consist of the
following:
following:
(In thousands)
(In thousands)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative Translation Adjustment
Cumulative Translation Adjustment
Unrecognized Prior Service Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized Prior Service Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Loss on Pension and Other Post-Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Loss on Pension and Other Post-Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Gain on Hedging Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Gain on Hedging Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized Transition Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized Transition Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2007
$16,967
$16,967
682
682
(1,812)
(1,812)
66
66
(5)
(5)
2006
2006
$ 6,108
$ 6,108
1,136
1,136
(1,272)
(1,272)
99
99
–
–
$15,898
$15,898
$ 6,071
$ 6,071
The amounts of unrecognized prior service income and deferred loss on pension and other post-retirement
The amounts of unrecognized prior service income and deferred loss on pension and other post-retirement
plans reclassified out of other comprehensive income to net income were $444,000 and $38,000, respectively, for
plans reclassified out of other comprehensive income to net income were $444,000 and $38,000, respectively, for
year-end 2007, both net of tax.
year-end 2007, both net of tax.
F-45
F-45
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
14. Unaudited Quarterly Information
14. Unaudited Quarterly Information
2007 (In thousands, except per share amounts)
2007 (In thousands, except per share amounts)
First
First
Second
Second
Third
Third
Fourth
Fourth
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$88,241
$88,241
$89,107
$89,107
$92,695
$92,695
$96,453
$96,453
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,547
32,547
34,143
34,143
35,338
35,338
36,752
36,752
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,691
4,691
(392)
(392)
5,936
5,936
(1,022)
(1,022)
7,013
7,013
(1,232)
(1,232)
7,778
7,778
(104)
(104)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,299
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,299
$ 4,914
$ 4,914
$ 5,781
$ 5,781
$ 7,674
$ 7,674
Basic Earnings per Share:
Basic Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income per Basic Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income per Basic Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
.33
.33
(.02)
(.02)
.31
.31
Diluted Earnings per Share:
Diluted Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.33
.33
(.03)
(.03)
Net Income per Diluted Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income per Diluted Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
.30
.30
$
$
$
$
$
$
$
$
.42
.42
(.07)
(.07)
.35
.35
.42
.42
(.07)
(.07)
.35
.35
$
$
$
$
$
$
$
$
.49
.49
(.08)
(.08)
.41
.41
.49
.49
(.09)
(.09)
.40
.40
$
$
$
$
$
$
$
$
.54
.54
–
–
.54
.54
.54
.54
(.01)
(.01)
.53
.53
2006 (In thousands, except per share amounts)
2006 (In thousands, except per share amounts)
First
First
Second
Second
Third
Third
Fourth
Fourth
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$75,591
$75,591
$89,567
$89,567
$90,586
$90,586
$85,869
$85,869
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,617
28,617
32,720
32,720
32,220
32,220
33,137
33,137
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,765
2,765
(114)
(114)
5,597
5,597
(627)
(627)
5,824
5,824
(183)
(183)
4,095
4,095
(260)
(260)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,651
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,651
$ 4,970
$ 4,970
$ 5,641
$ 5,641
$ 3,835
$ 3,835
Basic Earnings per Share:
Basic Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income per Basic Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income per Basic Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
.20
.20
–
–
.20
.20
Diluted Earnings per Share:
Diluted Earnings per Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.20
.20
(.01)
(.01)
Net Income per Diluted Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income per Diluted Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
.19
.19
$
$
$
$
$
$
$
$
.41
.41
(.05)
(.05)
.36
.36
.40
.40
(.05)
(.05)
.35
.35
$
$
$
$
$
$
$
$
.42
.42
(.02)
(.02)
.40
.40
.41
.41
(.01)
(.01)
.40
.40
$
$
$
$
$
$
$
$
.29
.29
(.02)
(.02)
.27
.27
.29
.29
(.02)
(.02)
.27
.27
15. Subsequent Events
15. Subsequent Events
Pending Litigation
Pending Litigation
The Company has been named as a co-defendant, together with Composites LLC and another defendant, in
The Company has been named as a co-defendant, together with Composites LLC and another defendant, in
a consumer class action lawsuit filed in the United States District Court for the District of Massachusetts on
a consumer class action lawsuit filed in the United States District Court for the District of Massachusetts on
behalf of a putative class of individuals who own GeoDeck™ decking or railing products manufactured by
behalf of a putative class of individuals who own GeoDeck™ decking or railing products manufactured by
Composites LLC between April 2002 and October 2003. The complaint in this matter purports to assert, among
Composites LLC between April 2002 and October 2003. The complaint in this matter purports to assert, among
other things, causes of action for unfair and deceptive trade practices, fraud, negligence, breach of warranty and
other things, causes of action for unfair and deceptive trade practices, fraud, negligence, breach of warranty and
unjust enrichment, and it seeks compensatory damages and punitive damages under various state consumer
unjust enrichment, and it seeks compensatory damages and punitive damages under various state consumer
F-46
F-46
Enfocus Software - Customer Support
Enfocus Software - Customer Support
Kadant Inc.
Kadant Inc.
2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
15. Subsequent Events (continued)
15. Subsequent Events (continued)
protection statutes, which plaintiffs claim exceed $50 million. The Company intends to defend against this action
protection statutes, which plaintiffs claim exceed $50 million. The Company intends to defend against this action
vigorously, but there is no assurance it will prevail in such defense. A judgment or a settlement of the claims
vigorously, but there is no assurance it will prevail in such defense. A judgment or a settlement of the claims
against the defendants could have a material adverse impact on the Company’s consolidated financial results.
against the defendants could have a material adverse impact on the Company’s consolidated financial results.
The Company has not made an accrual related to this litigation as it believes that an adverse outcome is not
The Company has not made an accrual related to this litigation as it believes that an adverse outcome is not
probable or estimable at this time.
probable or estimable at this time.
2008 Kadant Jining Loan
2008 Kadant Jining Loan
On January 28, 2008, Kadant Jining borrowed 40 million Chinese renminbi, or approximately $5,476,000 at
On January 28, 2008, Kadant Jining borrowed 40 million Chinese renminbi, or approximately $5,476,000 at
the December 29, 2007 exchange rate (2008 Kadant Jining Loan). Principal on the 2008 Kadant Jining Loan is
the December 29, 2007 exchange rate (2008 Kadant Jining Loan). Principal on the 2008 Kadant Jining Loan is
due as follows: 24 million Chinese renminbi, or approximately $3,286,000, on January 28, 2010 and 16 million
due as follows: 24 million Chinese renminbi, or approximately $3,286,000, on January 28, 2010 and 16 million
Chinese renminbi, or approximately $2,190,000, on January 28, 2011. Interest on the 2008 Kadant Jining Loan
Chinese renminbi, or approximately $2,190,000, on January 28, 2011. Interest on the 2008 Kadant Jining Loan
accrues and is payable quarterly in arrears based on the interest rate published by The People’s Bank of China for
accrues and is payable quarterly in arrears based on the interest rate published by The People’s Bank of China for
a loan of the same term less 5%. The proceeds from the 2008 Kadant Jining Loan were used to repay the 2006
a loan of the same term less 5%. The proceeds from the 2008 Kadant Jining Loan were used to repay the 2006
Kadant Jining Loan totaling $5,476,000 at December 29, 2007.
Kadant Jining Loan totaling $5,476,000 at December 29, 2007.
2008 Credit Agreement
2008 Credit Agreement
On February 13, 2008, the Company entered into a five-year unsecured revolving credit facility (2008
On February 13, 2008, the Company entered into a five-year unsecured revolving credit facility (2008
Credit Agreement) in the aggregate principal amount of up to $75,000,000, which includes an uncommitted
Credit Agreement) in the aggregate principal amount of up to $75,000,000, which includes an uncommitted
unsecured incremental borrowing facility of up to an additional $75,000,000. The Company can borrow up to
unsecured incremental borrowing facility of up to an additional $75,000,000. The Company can borrow up to
$75,000,000 under the 2008 Credit Agreement with a sublimit of $60,000,000 within the 2008 Credit Agreement
$75,000,000 under the 2008 Credit Agreement with a sublimit of $60,000,000 within the 2008 Credit Agreement
available for the issuances of letters of credit and bank guarantees. The principal on any borrowings made under
available for the issuances of letters of credit and bank guarantees. The principal on any borrowings made under
the 2008 Credit Agreement is due on February 13, 2013. Interest on any loans outstanding under the 2008 Credit
the 2008 Credit Agreement is due on February 13, 2013. Interest on any loans outstanding under the 2008 Credit
Agreement accrues and is payable quarterly in arrears at one of the following rates selected by the Company
Agreement accrues and is payable quarterly in arrears at one of the following rates selected by the Company
(a) the prime rate plus an applicable margin (up to .20%) or (b) a Eurocurrency rate plus an applicable margin
(a) the prime rate plus an applicable margin (up to .20%) or (b) a Eurocurrency rate plus an applicable margin
(up to 1.20%). The applicable margin is determined based upon the Company’s total debt to EBITDA ratio.
(up to 1.20%). The applicable margin is determined based upon the Company’s total debt to EBITDA ratio.
The obligations of the Company under the 2008 Credit Agreement may be accelerated upon the occurrence
The obligations of the Company under the 2008 Credit Agreement may be accelerated upon the occurrence
of an event of default under the 2008 Credit Agreement, which includes customary events of default including
of an event of default under the 2008 Credit Agreement, which includes customary events of default including
without limitation payment defaults, defaults in the performance of affirmative and negative covenants, the
without limitation payment defaults, defaults in the performance of affirmative and negative covenants, the
inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to such
inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to such
matters as Employment Retirement Income Security Act (ERISA), uninsured judgments and the failure to pay
matters as Employment Retirement Income Security Act (ERISA), uninsured judgments and the failure to pay
certain indebtedness, and a change of control default.
certain indebtedness, and a change of control default.
The loans under the 2008 Credit Agreement are guaranteed by certain domestic subsidiaries of the Company
The loans under the 2008 Credit Agreement are guaranteed by certain domestic subsidiaries of the Company
pursuant to the Guarantee Agreement effective as of February 13, 2008. In addition, the 2008 Credit Agreement
pursuant to the Guarantee Agreement effective as of February 13, 2008. In addition, the 2008 Credit Agreement
contains negative covenants applicable to the Company and its subsidiaries, including financial covenants
contains negative covenants applicable to the Company and its subsidiaries, including financial covenants
requiring the Company to comply with a maximum consolidated leverage ratio of 3.5 and a minimum
requiring the Company to comply with a maximum consolidated leverage ratio of 3.5 and a minimum
consolidated fixed charge coverage ratio of 1.2, and restrictions on liens, indebtedness, fundamental changes,
consolidated fixed charge coverage ratio of 1.2, and restrictions on liens, indebtedness, fundamental changes,
dispositions of property, making certain restricted payments (including dividends and stock repurchases),
dispositions of property, making certain restricted payments (including dividends and stock repurchases),
investments, transactions with affiliates, sale and leaseback transactions, swap agreements, changing its fiscal
investments, transactions with affiliates, sale and leaseback transactions, swap agreements, changing its fiscal
year, arrangements affecting subsidiary distributions, entering into new lines of business, and certain actions
year, arrangements affecting subsidiary distributions, entering into new lines of business, and certain actions
related to the discontinued operation.
related to the discontinued operation.
The Company borrowed $20,000,000 under the 2008 Credit Agreement and applied the proceeds to repay a
The Company borrowed $20,000,000 under the 2008 Credit Agreement and applied the proceeds to repay a
portion of its existing outstanding debt under the 2005 Credit Agreement. The Company used available cash of
portion of its existing outstanding debt under the 2005 Credit Agreement. The Company used available cash of
$6,000,000 to repay the balance of its outstanding debt under the 2005 Credit Agreement, which was then
$6,000,000 to repay the balance of its outstanding debt under the 2005 Credit Agreement, which was then
terminated. Upon the termination of the 2005 Credit Agreement, all ancillary documents related to the 2005
terminated. Upon the termination of the 2005 Credit Agreement, all ancillary documents related to the 2005
Credit Agreement also terminated, including the joinder and guarantee agreements entered into by foreign
Credit Agreement also terminated, including the joinder and guarantee agreements entered into by foreign
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2007 Financial Statements
2007 Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
15. Subsequent Events (continued)
15. Subsequent Events (continued)
subsidiary borrowers and certain domestic subsidiaries of the Company. On February 13, 2008, the Company
subsidiary borrowers and certain domestic subsidiaries of the Company. On February 13, 2008, the Company
terminated the 2005 Swap Agreement with a resulting loss of $359,000, which will be amortized to interest
terminated the 2005 Swap Agreement with a resulting loss of $359,000, which will be amortized to interest
expense through the original maturity date of the 2005 Term Loan.
expense through the original maturity date of the 2005 Term Loan.
The amount the Company is able to borrow under the 2008 Credit Agreement is the total borrowing capacity
The amount the Company is able to borrow under the 2008 Credit Agreement is the total borrowing capacity
less any outstanding borrowings, letters of credit and multi-currency borrowings issued under the 2008 Credit
less any outstanding borrowings, letters of credit and multi-currency borrowings issued under the 2008 Credit
Agreement. As of February 13, 2008, the Company had $50,563,000 of borrowing capacity available under the
Agreement. As of February 13, 2008, the Company had $50,563,000 of borrowing capacity available under the
committed portion of the 2008 Credit Agreement.
committed portion of the 2008 Credit Agreement.
2008 Swap Agreement
2008 Swap Agreement
To hedge the exposure to movements in the 3-month LIBOR rate on future outstanding debt, on
To hedge the exposure to movements in the 3-month LIBOR rate on future outstanding debt, on
February 13, 2008, the Company entered into a swap agreement (2008 Swap Agreement). The 2008 Swap
February 13, 2008, the Company entered into a swap agreement (2008 Swap Agreement). The 2008 Swap
Agreement has a five-year term and a $15,000,000 notional value, which decreases to $10,000,000 on
Agreement has a five-year term and a $15,000,000 notional value, which decreases to $10,000,000 on
December 31, 2010, and $5,000,000 on December 30, 2011. Under the 2008 Swap Agreement, on a quarterly
December 31, 2010, and $5,000,000 on December 30, 2011. Under the 2008 Swap Agreement, on a quarterly
basis the Company will receive a 3-month LIBOR rate and pay a fixed rate of interest of 3.265%. Management
basis the Company will receive a 3-month LIBOR rate and pay a fixed rate of interest of 3.265%. Management
believes that any credit risk associated with the 2008 Swap Agreement is remote based on the creditworthiness of
believes that any credit risk associated with the 2008 Swap Agreement is remote based on the creditworthiness of
the financial institution issuing it.
the financial institution issuing it.
Amendment to 2006 Commercial Real Estate Loan
Amendment to 2006 Commercial Real Estate Loan
On February 14, 2008, the Company entered into a first amendment to the 2006 Commercial Real Estate
On February 14, 2008, the Company entered into a first amendment to the 2006 Commercial Real Estate
Loan to lower the margin paid for interest expense from 1% to .75%.
Loan to lower the margin paid for interest expense from 1% to .75%.
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Kadant Inc.
Schedule II
Schedule II
Valuation and Qualifying Accounts
Valuation and Qualifying Accounts
(In thousands)
(In thousands)
Description
Description
Allowance for Doubtful Accounts
Allowance for Doubtful Accounts
Year Ended December 29, 2007 . . . . . . . . . . . . .
Year Ended December 29, 2007 . . . . . . . . . . . . .
Year Ended December 30, 2006 . . . . . . . . . . . . .
Year Ended December 30, 2006 . . . . . . . . . . . . .
Year Ended December 31, 2005 . . . . . . . . . . . . .
Year Ended December 31, 2005 . . . . . . . . . . . . .
Balance at
Balance at
Beginning
Beginning
of Year
of Year
Provision
Provision
Charged to
Charged to
Expense
Expense
Accounts
Accounts
Recovered
Recovered
Accounts
Accounts
Written
Written
Off
Off
Other (a)
Other (a)
$2,623
$2,623
$2,221
$2,221
$1,678
$1,678
$216
$216
$725
$725
$185
$185
$25
$25
$ –
$ –
$29
$29
$(432)
$(432)
$(486)
$(486)
$(479)
$(479)
$207
$207
$163
$163
$808
$808
Description
Description
Accrued Restructuring Costs (b)
Accrued Restructuring Costs (b)
Year Ended December 29, 2007 . . . . . . . . . . . . . . . . . . .
Year Ended December 29, 2007 . . . . . . . . . . . . . . . . . . .
Year Ended December 30, 2006 . . . . . . . . . . . . . . . . . . .
Year Ended December 30, 2006 . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2005 . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2005 . . . . . . . . . . . . . . . . . . .
Balance at
Balance at
Beginning
Beginning
of Year
of Year
Provision
Provision
(Income)
(Income)
Charged to
Charged to
Expense
Expense
Activity
Activity
Charged to
Charged to
Reserve
Reserve
Currency
Currency
Translation
Translation
971
971
$
$
$ 4,781
$ 4,781
$10,026
$10,026
$(219)
$(219)
$ 815
$ 815
$ 246
$ 246
$ (580)
$ (580)
$(5,173)
$(5,173)
$(4,352)
$(4,352)
136
136
$
$
548
$
548
$
$(1,139)
$(1,139)
$ 308
$ 308
$ 971
$ 971
$4,781
$4,781
Balance
Balance
at End
at End
of Year
of Year
$2,639
$2,639
$2,623
$2,623
$2,221
$2,221
Balance
Balance
at End
at End
of Year
of Year
(a)
(a)
Includes $912 of allowance for doubtful accounts acquired in 2005 from Kadant Johnson and the effect of
Includes $912 of allowance for doubtful accounts acquired in 2005 from Kadant Johnson and the effect of
foreign currency translation.
foreign currency translation.
(b) The nature of the activity in this account is described in Note 8 to the consolidated financial statements.
(b) The nature of the activity in this account is described in Note 8 to the consolidated financial statements.
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Kadant Inc. is a leading global supplier of innovative products and technologies such as stock
preparation systems, paper machine accessories, and equipment for fl uid handling and water
management. Our technologies improve productivity and quality for pulp and paper production
and optimize production in a range of other industries.
Kadant Inc. 2007 Product Lines
Stock Preparation
Pulping, cleaning, de-inking, and screening systems that recover usable fiber from
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recycled materials or prepare virgin fiber for entry into the paper machine.
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Accessories
Doctor blades, holders, systems, and consumables that clean roll surfaces to enhance
paper qualities and minimize sheet breaks.
Fluid Handling
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air between rotating cylinders and fi xed piping in a range of industries.
Water Management
Shower, fabric-conditioning, formation, and fi ltration systems that clean papermaking
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fabrics, form the sheet, and conserve water.
Other
Fiber-based granules made from papermaking byproducts for agricultural and
home lawn and garden applications.
Revennues
$366 Million
Ba
cklog
$110 Million
$110 Million
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Shareholder Information Requests
Shareholders who desire information about Kadant Inc. may contact us at One Technology
Park Drive, Westford, Massachusetts 01886, (978) 776-2000. Information of interest to share-
holders and investors, such as our quarterly reports, annual reports, press releases and other
information, is available on our Web site at www.kadant.com, under “Investors.”
Stock Transfer Agent
American Stock Transfer & Trust Company is our stock transfer agent and maintains share-
holder activity records. The agent will respond to questions on issuance of stock certificates,
change of ownership, lost stock certifi cates, and change of address. For these and similar
matters, please direct inquiries to: American Stock Transfer & Trust Company, Shareholder
Services Department, 59 Maiden Lane, New York, NY 10038, (718) 921-8200,
(800) 937-5449, www.amstock.com.
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Annual Meeting
The annual meeting of shareholders will be held on Thursday, May 22, 2008, at 2:30 p.m., at
the Boston Marriott Burlington, One Mall Road, Burlington, Massachusetts.
Annual Report on Form 10-K
The accompanying Annual Report on Form 10-K for the fi scal year ended December 29,
2007, does not contain exhibits. Exhibits have been fi led with the Securities and Exchange
Commission (SEC). To obtain a copy of these exhibits, as well as periodic reports filed with
the SEC, please contact Thomas M. O’Brien, Executive Vice President and Chief Financial
Officer, Kadant Inc., One Technology Park Drive, Westford, Massachusetts 01886,
(978) 776-2000.
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Certifications
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The company’s Annual Report on Form 10-K for the fi scal year ended December 29, 2007,
contains the certifications of the chief executive offi
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nancial offi
cer provided to
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cer and chief fi
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the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley
Act of 2002. These certifi cations are included as exhibits 31.1 and 31.2 to the Form 10-K.
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The company’s chief executive officer submitted an annual certifi
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cation to the New York
Stock Exchange (NYSE) on June 15, 2007, stating that he was not aware of any violation
by the company of NYSE corporate governance listing standards. Kadant’s common stock
trades on the NYSE under the ticker symbol “KAI.”
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Forward-Looking Statements
This annual report contains “forward-looking statements” within the meaning of Section 21E
of the Securities Exchange Act of 1934. Any statements contained herein that are not state-
ments of historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,”
“would,” and similar expressions are intended to identify forward-looking statements. While
the company may elect to update forward-looking statements in the future, it specifi cally
disclaims its obligation to do so, even if the company’s estimates change. A number of fac-
tors could cause the results of the company to differ materially from those indicated by such
forward-looking statements, including those detailed under the heading “Risk Factors”in
Part 1, Item 1A in the accompanying Annual Report on Form 10-K for the fi scal year ended
December 29, 2007.
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Cert no. BV-COC-070805
The editorial section of this annual report is printed on 100% recycled FSC®CC certifi ed paper. The paper in the fi
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section contains 30% post-consumer waste and is FSC certified.fi
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nancial
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Kadant Inc Annual Report
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Kadant Inc. One Technology Park Drive Westford, MA 01886 Tel 978 776 2000 Fax 978 635 1593 www.kadant.com