Kadant Inc (KAI) 2002 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Fourth Quarter 2002 Kadant's Earnings Conference Call.

At this time, all participants have been placed in a listen only mode and the floor will be open for your questions and comments following the presentation. If you do have a question, you may press "1" followed by "4" on your touchtone phone. If you require operator assistance, you may press "*" "0". Your questions will be taken when the speakers had finished their presentation.

It is now my pleasure to turn the floor over to your host, Mr. Thomas O’Brien. Sir, you may begin.

Thank you, Dan. And good morning everyone and welcome to Kadant's Fourth Quarter 2002 Earnings Conference Call.

With us in the call today are Bill Rainville, Chairman and Chief Executive Officer of Kadant; and John Painter, Executive Vice President of Kadant and the Head of our Composites and Fiber-based product segment.

Before we begin, let me remind you that we may make forward-looking statements during this call. The Company's actual results may differ materially from those that may be discussed today. We refer you to our quarterly report on Form 10-Q for the fiscal quarter ended September 28, 2002, which is readily available to the public for a detailed description of the factors that may cause a material difference in our actual results. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

With that, I will turn the conference over to Bill Rainville, who will give you an update on Kadant's business and future prospects. Following Bill's remarks, I will give an overview of our financial results for the quarter and we'll then have a Q&A session. Bill. .

Hi. Thank you Tom and good morning everyone and welcome to our meeting. As you all know, uncertainties in the global markets continue to hamper growth in many industries, including pulp and paper. While we don't feel that industry conditions have gotten worse, they also haven't gotten better. And this is reflected in our financial results. We did meet our revenue and earnings guidance for the fourth quarter and the year. And we continue to position Kadant for the long term with positive results.

We've reduced our operating expenses by $10.4m through a number of restructuring and cost management actions, primarily, in the paper making equipment segment of our business. This includes a $3.4m reduction from the elimination of goodwill amortization.

We effectively managed our working capital to maintain a strong balance sheet and have excellent cash flow performance throughout 2002. We generated $8.7m in free cash flow during the fourth quarter and for the year generated $23.7m in free cash flow, nearly triple the $8.2m we reported in 2001. Furthermore, virtually all of this cash was generated by our papermaking equipment segment, in spite of industry conditions.

We achieved record fourth quarter bookings and record annual revenues in the composite business, a direct result of our efforts in 2002 to establish distribution channels for a composite building materials. By the fourth quarter we reduced the operating loss in this business to $386,000 from $1.1m a year ago.

We are on our way to achieving our goal of break-even performance in the first quarter of 2003. Our total bookings for Kadent (ph) increased by approximately 20% in the fourth quarter, year-to-year and sequentially over the third quarter of 2002, to $49.1m. Total backlog at year end was up 6% to $33m from $31.2m a year ago, and increased 12% from $29.5m in the third quarter of 2002. These gains are primarily due to increased orders for composite building products.

Looking ahead to 2003, if we assume continue growth in composites and little or no improvement in our papermaking segment, we expect to increase our earnings to between 80-90 cents per diluted share on revenues of $185-195m. For the first quarter of 2003, we expect to increase earnings between 18-20 cents, and revenues of $48-50m. We began 2003 with more than $44m in cash, even after spending $119m during the 2002 to repurchase all of our outstanding bonds. This gives us a major advantage -- the ability to reinvest in our business for long-term growth. We have a number of initiatives currently underway that will allow us to put our cash to work to create shareholder value.

We are seeking opportunities for external growth towards strategic acquisitions. Although we did not complete an acquisition in 2002, we continue to evaluate potential candidates who would complement our existing business either in papermaking equipment, or composites. At this point we are targeting a paper industry supplier that would broaden our served markets by adding complimentary technologies or products, or a supplier to the building industry that could accelerate growth in our composites business by adding production capacities or expanding our product lines.

We have been very selective and we'll not compromise the valuable global franchise, we've put in place over the years. In fact we are strengthening our worldwide presence, which has been a key asset for Kadant. This is evident in recent activity we have seen in China, where the economy is growing steadily at a rate of 8% per year. The IMF estimates that by 2010; China will represent 20% of the world economy.

I traveled to Asia last November for 2 weeks and spent most of my time in China, visiting with some of our customers, who are building new mills or upgrading equipments to expand mill capacities. We continue to receive significant orders for our stock preparation products, as we've announced recently. Our systems are critical to recovering brown or white fiber from waste paper used to recycle products ranging from liner board for packaging (ph) to tissue to fine printing and writing paper.

I visited several liner board mills (ph) in China, where the demand for packaging and materials is high. These facilities are as impressive as the people running I have toured mills throughout the world. And the mills I've seen in China have the latest technology the fastest running machines and we are pride to have our latest Kadant technology and stock operation furnishing the supplier to those paper machines.

The Chinese are determinant to be a driving economic force, and they are making the necessary capital investments to achieve that. We plan to establish an assembly facility in China that will allow us to outsource system components more cost effectively, as well as provide important after market support, initially for our stock preparation products and eventually for water management and accessory product lines as well. We are placing increasing emphasis on aftermarket sales throughout our product lines, including spare parts, upgrade packages and services. These sales not only generate higher margins and a long term annularity resulting from a large installed base, but help to counteract weak capital spending in North America and Europe.

In our papermaking accessories business, which consists primarily of after-market products and consumables, we continue to focus on technology development. This product range consists mainly of lathes (ph) that are essential to keeping paper machines running smoothly. They perform various functions along the length of paper making rolls, allowing producers to improve the qualitative products without a major capital investment.

In the tissue (ph) industry, for example, the quality of consumer products is vital to protecting brand equity. I recently patented propate (ph) bimetal blade continues to be well received by the world leading fishing producers because it imparts tissue softness and bulk (ph), while increasing productivity, offering a good return on investment.

Sales of [proprate] are steadily increasing, as the product is evaluated and is installed mill by mill. Tissue is the fastest growing segment of the paper industry and is least cyclical, with demand expected to grow at an average rate exceeding 3% per year worldwide through 2010.

As real debt capacity, we are improving existing operation [inaudible], this product, and others being developed for the tissue market create a growth opportunity derived solely from our internal programs.

Perhaps, the best example in 2002 of a successful internal initiatives is our composite building products business. A fourth (ph) of our decking and roofing materials reached a record high at $6.5m. Revenues for the year increased more than 4 folds or record $8.6m from $1.9m a year ago.

Our priority in 2002 was to build a distributor network to get our products into the hands of builders and consumers, and we succeeded. We now have wholesalers in most regions of the country supplying hundreds of dealers who are marketing and selling our GeoDeck products. We also promote our materials from trade, advertising, and home and building shows where we attract a lot of attention.

I reasonably attended a home building show in Las Vegas with John Painter. This show was bursting with activity. There were probably close to 100,000 people attending the show. And the housing and remodeling market looks like it's headed for another strong year after record 2002.

Most rewarding in attending that show is the tremendous reception for decking and roofing products from builders and dealers. They were very impressed with the quality of our products. For this business, we project income in 2003 of $1-1.5m on revenues of $14-16m.

For the first quarter, we expect to record income between break-even and $100,000 and revenues of $4-5m. While the winter discounting program will adversely affect income in the first quarter, we anticipate improved margins as the year progresses. As revenues from composites continue to grow, we will [surely] reach capacity [inaudible] at our plant Green Bay. We are exploring the possibility of increasing production either by expanding in Green Bay or establishing a new facility in another part of the country.

Composite decking products currently serve less than 10% of the $3.5b decking market. And that share is expected to increase significantly during the next two years – creating an exciting opportunity for growth.

With that, I am going to turn the meeting over to Tom who is going to review our financial performance and then we'll respond to questions. Tom.

Thank you, Bill. Okay. I am going to start with a review of our fourth quarter 2002 P&L results, then briefly give you an overview of our P&L performance for the year, including the goodwill adjustments we reported, and finish with some comments on our cash flows.

First, revenues for the year. Consolidated revenues for the year were 45.9m in the fourth quarter of 2002, down 7% from a year-ago. Excluding the favorable effect of foreign currencies translation gains of 1.1m, revenues were 10% lower then the fourth quarter of 2001. This revenue performance was within and at the high-end of the guidance we had given for the fourth quarter during our third quarter earnings conference call in October of 2002. Sequentially, consolidated revenues were 8% lower than the third quarter of 2002, consisting of a 9% decline in the paper making equipment segments, and a 5% decline in the composite and fiber-based products segments.

Let’s turn now to revenues in those 2 reporting segments in some more detail. Revenues in our paper making equipment segment were 42.3m or 11% below last year. Excluding the favorable foreign exchange effect of 1.1m, all of which occurred in this segment, revenues would have been 14% lower than in the fourth quarter of 2001.

On a sequential basis, revenues were down 9% from the third quarter of 2002. Now, the declines in revenues from last year and the third quarter of 2002 were primarily caused by lower revenues in our Stock Prep product line, which were down 17% compared to both periods, and from our water-management product line, which was down 16% from the fourth quarter of 2001. As you know, these businesses are more heavily dependent on capital spending by our customers, who have continued to restrict their spending due to weak conditions in the paper industry.

Turning to our second reporting segment, the composite and fiber-based segment, here revenues were 3.6m in the fourth quarter of 2002, up 95% over the last year and slightly lower then the third quarter of 2002. However, we have 2 product lines in this segment, our fiber-based granular products business, and our composite building products business. The increase in revenues over the last year in this segment is entirely due to our composite building products line, where revenues increased from 0.4m in the fourth quarter of '01 to 2.6m in the fourth quarter of '02. Our fourth quarter 2002 revenues were slightly over the middle of the range we had given for guidance during our third quarter earnings call.

Turning to gross margins for a moment. Our consolidated product gross margins were 38.8% in the fourth quarter of 2002, up 90 basis points over the fourth quarter of '01, and a 180 basis points higher than third quarter '02. The strong sequential improvement was a result of higher product gross margins in our papermaking equipment segment where margins were at 40% in the fourth quarter of 2002, up 220 basis points over the third quarter of 2002. Most of this improvement was due to a favorable product mix that is towards higher margins after market products.

We are pleased with the product gross margin performance in the fourth quarter, and we expect to see a favorable impact on our gross margins in 2003 as we gained [skill] and efficiencies in the composite building products business.

On turning to operating income, you can see in the press release that as in the past, we have reported two sets of operating income results. These are shown in the chart, entitled "business segment information". The first set shows our GAAP operating income performance, while the second set excludes restructuring and unusual costs in all periods and goodwill amortization in the 2001 period. We believe that this second representation of the adjusted operating income provides a better understanding of our performance from period to period. You will note that excluding goodwill amortization from the 2001 period, it has the effective increasing operating income from the reported GAAP results.

On a GAAP basis, our operating income of $4.1m was up 19% over the last year. Looking at the adjusted results, however, operating income was $4m in the fourth quarter of 2002, down 10% from last year. As a percentage of sales, adjusted operating income was essentially the same in both periods, 8.7% in fourth quarter '02 and 8.9% in fourth quarter '01.

Looking at the reporting segments, fourth quarter 2002, adjusted operating income was lower in papermaking equipment segment. But this reduction was largely offset by better results in our composite and fiber-based products segment. Adjusted operating income in the papermaking equipment segment was 5.4m, down 1.4m from last year, while adjusted operating income in the composite and fiber-based products segment improved by 1m over the last year. I should add that the adjusted operating income results in this segment include a loss from our composite building products business of 386,000 in the fourth quarter of 2002, down from a loss of 1.1m a year ago. The composite building products results were in the middle of the range we had given for guidance in our last earnings call.

Now let's turn to the fourth quarter EPS results, and again, for this, it may be helpful for those of you who have the press release to refer to the attached chart entitled “Consolidated Statements of Operations”. You'll see that we reported 2 sets of GAAP EPS numbers as well as a reconciliation between the first set of GAAP numbers and our adjusted diluted earnings per share.

Looking at about the middle of page, at the second set of GAAP EPS results, you'll see that our fourth quarter this year we recorded EPS of 15 cents per diluted share compared to 19 cents last year. These results, however, include an extraordinary loss of 2 cents per share in 2002 associated with the early extinguishment of our debt and extraordinary gain of 5 cents per share from our debt repurchases at less than par in 2001.

Excluding these items, EPS was 17 cents in the fourth quarter of 2002 versus 14 cents in the fourth quarter of 2001. You will see these as a first set of GAAP EPS results we recorded on the chart. Now to better compare the 2002 and 2001 performance, we need to adjust for the restructuring income, and expense in both periods. In addition, we need to increase the EPS in 2001 by 5 cents for goodwill amortization, which was expense (ph) P&L in 2001, but which is been eliminated in 2002 according to a new accounting rules.

Making these adjustments to obtain a consistent apple-to-apple comparison between the two periods, EPS was 16 cents in 2002 and 19 cents in 2001. You will see these amounts at the very bottom of the chart. Two cents of this 3 cents variance is due to higher shares outstanding from period-to-period resulting from our June 2002 public stock offering. Also these adjusted EPS results are within the range we had given 15-18 cents for the fourth quarter of 2002.

And finally included in the EPS results are losses from our composite building products business of 2 cents and 4 cents in the fourth quarters' of 2002 and 2001 respectively.

I do hope that explanation was clear, but if not I will be happy to answer any question you may have during the Q&A session.

Now, let me turn to a few general comments on the full year's P&L results. Consolidated revenues for the full year 2002 were 185.7m down 16% from last year, excluding the favorable effect [ph] of foreign exchange of 2.1m, revenues decrease 17% in 2001. This decline in revenues was entirely attributable to our papermaking equipment segment where full year 2002 revenues of a 171.1m or 20% lower than 2001. Revenues were down in all three pipelines in this segment, particularly, in the stock prep and automation product lines, which decreased 26% and 24% respectively from last year.

The accessories product line, which are less dependent on capital spending in the paper industry is down 7% from last year. The picture for the year is quite different and you can compare that in fiber-based product segments, the revenues are 14.6m in 2002, were up 89% over last year's 7.7m. Almost all of this increase was in a composite building products business. The year 2002 revenues were 8.6m, a fourfold increase over the last year's 1.9m. Virtually all of this increase was due to higher sales of our composite decking systems in 2002.

A brief note on gross margins; on a consolidated basis, 2002, product gross margins were 37.9%, up 50 basis points over 2001's 27.4%. Paper making equipment segment product gross margins were also up slightly from year-to-year from 38.6% in 2001 to 39% in 2002, again, due to a favorable product mix and the initiatives we undertook during the year to improve our product gross margins.

The 2002 operating expenses were 55.1m, down 10.4m or 16% from last year. Now of this 10.4m reduction, 3.4m resulted from the elimination of the goodwill amortization 2002, so the total operational reduction [we don't think we'll the] 7m or 11%. The vast majority of this decrease incurred in our papermaking equipment segment, and reflects the restructuring efforts we undertook in the second half of 2001, and the first quarter of 2002.

Operating income, adjusted to exclude restructuring and unusual cost in 2002 and 2001, as well as goodwill amortization in 2001 was 15.3m in 2002, down 26% from last year.

Looking at the segments, adjusted operating income was down 32% in the papermaking equipment segment to 20.3m in 2002 from last year. We made significant progress, however, in our composite and fiber-based products segment, reducing 2001's loss of 5.6m to a loss of 1.4m in 2002, a improvement of 4.2m. Included in these results, the losses from our composite building products business, where losses were reduced from 4.1m in 2001 to 2.5m in 2002. As Bill mentioned earlier, we expect our composite building products business would generate a profit in 2003.

Finally for the year, let me analyze our EPS results compared with 2001. Once again it may be helpful to follow this along by referring to the financial highlights chart attached in the press release.

As we made an analysis on the quarterly EPS (ph), let us start with the diluted EPS including the cumulative accounting change, which was a loss of $2.04 in 2002 compared to income of 81 cents last year, even after shown as the second set of EPS numbers in about the middle of the chart.

If we adjust for the accounting change, which I will discuss in a minute, and which was $2.49 for the full year 2002, as well as the restructuring cost and extraordinary items in both periods, adjusted EPS was 62 cents in 2002 compared to 98 cents in 2001. These numbers are shown in the reconciliation at the bottom of the page. The 62 cents was within the guidance we had given during our third quarter earnings call.

Now the difference between the 62 cents in 2002 and the 98 cents in 2001 is 36 cents. And I will give you a brief summary of what that includes; 7 cents is due to lower interest income in 2002, primarily due to decrease in the interest rates; 4 cents is due to higher shares outstanding, due to our June 2002 public stock offering, and the remaining 25 cents is due to lower operating expense -- operating results rather-- in 2002 compared to 2001. Let me also add that included in these EPS results are losses from our composite building products business of 12 cents and 19 cents respectively in 2002 and 2001.

Now let me add a few comments from our adoption to FAS 142, and its impact on our 2002 results, as I mentioned earlier. We disclosed in our second quarter 2002 10-Q that we expected a goodwill impairment charge in both of our reporting segments. As required in the statement, we completed our impairment valuation in the fourth quarter, and in accordance with the FAS 142 transition procedures we recorded the impairment charge as accumulative change in accounting principal affected in the first quarter of 2002.

If you refer to the financial highlight charts attached to the press release, you will see that the impairment charge was 32.8m after taxes. Looking at the impairment by segment, 29.9m related to the papermaking equipment segment entirely from its stock product line, and 2.9m was incurred in the composite and fiber-based product segment entirely from its fiber-based granular products business.

I want to remind you that this charge is all non-cash, and conforms to the more rigorous fair value methodology for evaluating goodwill described under the new accounting standard. Our remaining goodwill balance after this cumulative change in accounting principle was approximately $72m, all of which pertains to the papermaking equipment segment.

And let me close that with some comments on our cash positions and our cash flows. Before doing that, however, I need to remind you a significant transaction that occurred in the fourth quarter of 2002, and which affected our capital structure. On December 27th of 2002, we completed the reduction of all $86m of our outstanding 4.5% convertible debentures due in July 2004. The debentures were originally issued in the amount of $153m. And till the end of September 2002, we had purchased approximately $67m at principal of repurchases prices aggregating slightly less than $65m.

The purchase of the $86m in debentures will have a positive effect on our P&L with approximately 10 cents per diluted share in 2003. [inaudible] cash amount at the end of the quarter, we are once again pleased to report another strong cash performance, this one in the fourth quarter of 2002. We generated $8.7m of free cash flows in the fourth quarter. Free cash by the way is defined a cash from operations less capital expenditures. Free cash flow for the year 2002 was $23.7m, almost triple of last year's $8.2m, and representing our best free cash performance since 1998 and the second best in the last 10 years.

Our free cash flow performance in 2002 was due to strong working capital management in both our papermaking equipment and our composite fiber-based products segments; as well as lower capital spending, especially, on our composite and fiber-based products segment. Free cash flows were particularly impressive in our core papermaking equipment segment, up from $16m in 2001 to almost $25m in 2002.

I want to add here, let me give you our depreciation amortization amounts for the quarter and for the year. D&A was $1.3m in the fourth quarter of '02 and $5.2m for the year. As a the result of these strong cash flows -- we ended the year with slightly over $44m in cash, despite having used almost $88m in cash to redeem the debentures, along with their accumulated interest at the end of the quarter.

With only $1m remaining in miscellaneous debt, we are now net cash positive by $43m at the end of fourth quarter of 2002, an improvement of $10m over the third quarter '02 and $44m since the end of 2001. Since our spin-off in Thermo Electron in August 2001, we have increased our net cash position by almost $49m, $17m of which was derived from our public offering in June 2002. We've certainly significant progress in improving our already strong balance sheet and we are well equipped to fuel growth in our business, either internally or externally. That concludes our review of the financials and I will now turn the conference back to Dan for our Q&A section. Dan.

Thank you. The floor is now open for questions. If you do have a question, you may press "1" followed by "4" on your touchtone phone at this time. If you do require operator assistance, you may press "*" "0". The questions will be taken in the order they are received. We do request while posing your question that you please pickup your handset to provide optimum sound quality. Once again ladies and gentleman, that's "1" followed by "4" to ask a question at this time.

Our first question is coming from Louis Sikes (ph) of Tenet (ph) Capital Management.

Hi. Good morning, very good quarter. I had a question related to the operating cash flow. As you mentioned that was very strong at $9.8m. Could you just break up the bigger items that reconcile net income with operating cash flow? You also mentioned DNA (ph) of 1.3, what were the other big items that contributed to the strong cash flow?

Thank you for your question, Louis. I am going to pass this off to Tom to respond to it.

Okay, that's a good question. You have DNA of $5m. You can add that back to the net income for the year of about 10. And then these, a major factor in there is that we have, as I mentioned very, very good working capital management. In fact working capital was the source of cash for the year of all of almost $12m, much of that coming from reductions in receivables and inventory balances. So we had a very strong year for our working capital management.

What were the receivables and inventory balances at the end of the year?

Okay let me get you those. The receivables balance at the end of the year was a little under $31m.

Is that net consumables, right?

That's net, and the inventory was $29.5m.

Okay, good. Thank you.

Okay, thank you.

Our next question is coming from Claudia Shank from J.P. Morgan.

Hi guys. How are you?

Fine.

I just wanted to ask, first I guess about your bookings in the papermaking equipments for that segment and how they are looking for the first quarter? I think on the third quarter conference call you mentioned that bookings for some of the early part of 2003, we're looking poised to sort of strengthen. I guess what are you seeing that as a change, given the economic uncertainty or are you still looking a little bit better, may be?

Well, Claudia, so far we are somewhat encouraged on the bookings from the paper group. As we had some nice orders from China as we announced, and also from within North America from accessory side of business and water management, we're encouraged at this point. Whether it's going to sustain throughout the year or not, we don't know. But certainly we're seeing some improvement in the first quarter.

Okay.

Which we are delighted to see. And also I might add that even some of the customers, as you know, are starting to reflect some better earnings on what they had previously. The only uncertainty we look at, is the uncertainty in the economy in general, and how that may impact, you know, our customers. But we are off to a decent start.

Okay. I also was curious about pricing on the composite side of the business. I think, maybe Louisiana-Pacific mentioned on its call that it was starting the see some upward movement on its composite product business, and I just wondered what it was...?

Okay, I am going to let John response to that Claudia.

Okay.

We actually have put in a price increase, which takes effect that we announced in January, takes effect at the beginning of the next week. So and I think, you know, Trex also did -- I think, most people in the industry have for the last several years put in, you know, 3-5% price increases.

Does that answer your question?

Yeah, I just have one more to ask, if I could?

Sure.

I guess this one more has to do with strategy and just -- you know, in case -- in the case that, you know, you are thinking about obviously acquisitions, but if a vital acquisition doesn't really materialize, sort of, in the near term, what other options might you consider for the business, I mean for all those cash that you start building up now?

It's a good question Claudia. First up, I think that, you know, we certainly were trying to looking at acquisitions in 2002. And I think, that's, you know -- I think again as I commented before, I think our patience is paying off.

We do see some potential opportunities for acquisitions and we are encouraged by that. And also on my comment that even in attending the building and home show in Las Vegas, just looking at the population of companies here, that may assist us into the composite market, it was quite interesting.

So that's really our objective. Also internal growth, I mean, we're looking at -- certainly in the future, looking at the capacity requirements on the composite side of the business. And outside of that, you know, we are not discounting anything at this point. But we really -- our whole plan is to put that cash to work.

Okay. Thanks so much.

Thank you Claudia.

As a reminder, if you do have a question, you may press "1" followed by "4" on your touchtone phone and if you require operator assistance, you may press "*0". Our next question is coming from Michael Hutchinson of Barrington Research.

Hi guys.

Hi Mike how are you doing?

Good. Congratulations on the quarter.

Thank you.

I was wondering with the guidance you have given for the year and the first quarter, it looks like you expect revenues to be flat to down sequentially through the year. Could you walk us through the quarterly revenue progression in 2003 for the core business and composites?

At this time I think I may pass this of to Tom. It's a good question.

Okay.

Well Mike, you'll astutely picked that up in our guidance that we just gave. If you just take the first quarter revenues that we gave, the 48-60 (inaudible) they are going to be over the top end of the range for the year.

Now the reason for that, actually, two reasons. One is that we expect a little bit higher capital sales in the first quarter then we'd normally expect. Part of that is due to China. We will be taking a little bit more revenues in the first quarter than we expect, on representative percentage basis in the year because of China in the first quarter. And we also got a little bit heavier contribution from composites in the first quarter then we'll through the year. Okay. So the first quarter revenues weighted a little bit heavy because of those two factors. And so it's hard to actually predict what the quarterly break will be going forward. We have given the kind of the best estimate we have for the total year, but we know the first quarter would be more heavily weighted towards some capital projects and towards composites.

Okay.

And again Mike, I just want to reiterate. We are not really counting on any real pick up within the core business in the paper industry. I mean, we have been in this slope for so long and I am sure we will hit the bottom of it, but we are just very hesitant to call an upswing in the industry. And so, we are much more comfortable with the numbers that we have given at this point.

Okay. What's your annual run rate for the China business right now?

Right now we're probably at about somewhere between $20-25m.

We really are having a good -- we think we'll have a -- we expect to have, let me put it that way, a good first quarter in bookings for China. And we -- as you saw in our press release that we issued a few weeks ago, we had a couple of large orders.

Now one of those is booked in the fourth quarter and the other one is booked in the first quarter, but we really have some nice projects lying up there and if everything falls right, we expect to have a very good first quarter for bookings in China. So, I think we can safely say that we'll exceed the revenues in 2003 from our China revenues in 2002, which were in $15m range, something like that.

Okay. Well, thanks. I appreciate it.

All right. Thank you, Mike.

We show no further questions. At this time, I would like to turn the floor back over to our speakers for any closing comments.

All right. Thank you then.

Again, I would like to thank everybody for their interest in Kadant. I believe that we dealt with the current business environment effectively by balancing our actions. Cutting costs were necessary in some parts of the company and reinvesting in others that show promise for growth. Throughout this we have been able to maintain our strong cash position and that really gives us the solid footing for the future. So, again, thank you for joining us today and thanks for your continued support.

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