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 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 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 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.

Our continuing operations are comprised of two reportable operating segments, Papermaking Systems and Wood Processing Systems, and a separate product line, Fiber-based Products. Through our Papermaking Systems segment, we develop, manufacture, and market a range of equipment and products for the global papermaking, paper recycling, and other process industries. Through our Wood Processing Systems segment, we design, manufacture, and market stranders and related equipment used in the production of OSB an engineered wood panel product used primarily in home construction, and sell debarking and wood chipping equipment used in the forest products and the pulp and paper industries. Through our Fiber-based Products business, 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 as for oil and grease absorption.

In 2013*2014*, our Papermaking Systems segment acquired certain assets of the screen cylinder business of a U.S.-based company for approximately $9.2 million in cash. This technology-based acquisition enhances our stock-preparation equipment product offerings to pulp and paper mills worldwide. In 2013, our Papermaking Systems segment acquired a long-time Brazilian licensee of our doctoring, cleaning, filtration, and stock preparation products for approximately $8.1 million in cash and $0.5 million in assumed liabilities owed to us. In addition, in 2013, our Papermaking Systems segment acquired certain assets of a Sweden-based developer and supplier of high-efficiency cleaners and approach flow systems for approximately $7.1$7.2 million in cash. This acquisition expanded our product offerings in our Stock-Preparation product line, particularly for virgin pulp and approach flow applications.

Our Papermaking Systems segment consists of the following product lines: Stock-Preparation; Doctoring, Cleaning, & Filtration; and Fluid-Handling.

On October 24, 2011, we, Composites LLC, and other co-defendants entered into an agreement to settle a nationwide class action lawsuit related to allegedly defective composites decking building products manufactured by Composites LLC between April 2002 and October 2003. In 2012, we paid $0.6 million with respect to approved claims under the class action settlement.

Our research and development expenses were $6.2 million, $6.7 million, and $6.0 million in 2014, 2013, and $5.7 million in 2013, 2012, and 2011, respectively.

The primary raw materials used in our Wood Processing Systems segment are steel and stainless steel, which have generally been available through a number of suppliers.

The raw material used in the manufacture of our fiber-based granules is obtaineda by-product from the production of paper, which we obtain from two paper mills. Although we believe that our relationships with the mills are good, the mills may not continue to supply sufficient raw material. From time to time, 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 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 supply us sufficient fiber, we would be forced to find one or more alternative suppliers for this raw material.

The following table sets forth the high and low sales prices of our common stock for 20132014 and 2012,2013, as reported in the consolidated transaction reporting system.

On March 5, 2014,9, 2015, our board of directors raised our quarterly cash dividend to $0.15$0.17 per share and we expect to pay comparable cash dividends in the future. Nonetheless, the payment of dividends in the future will be at the discretion of the board of directors and will depend upon, among other factors, our earnings, capital requirements, and financial condition. The payment of cash dividends is subject to our compliance with the consolidated leverage ratio contained in our 2012 Credit Agreement.

WeIn November 2013, we acquired all the outstanding shares of Carmanah for $51.6$52.3 million, subject toincluding $0.7 million paid as a post-closing adjustment.adjustment in 2014. Carmanah, located in Surrey, British Columbia, Canada is a global leader in the design and manufacture of stranders and related equipment used in the production of oriented strand board. Carmanah also supplies debarking and wood chipping equipment used in the forest products and the pulp and paper industries. The results for Carmanah are included in our Wood Processing Systems segment.

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 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 these and other accounting policies, see Note 1 to the consolidated financial statements.

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 aging categories. In determining this allowance, we look at historical writeoffs 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 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 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 will continue to experience the same rate of bad debts that we have had in the past. 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 operating results and cash flows in that period.

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 periods in which such returns or additional costs occur.

We estimate the degree to which our deferred tax assets on deductible temporary differences and tax loss or credit carryforwards will result in an income tax benefit based on the expected profitability by tax jurisdiction, and provide a valuation allowance for these deferred tax assets if it is more likely than not that they will not be realized in the future. If it were to become more likely than not that these deferred tax assets would be realized, we would reverse the related valuation allowance. Our tax valuation allowance was $13.9$13.0 million at year-end 2013.2014. Should our actual future taxable income by tax jurisdiction vary from our estimates, additional allowances or reversals thereof may be necessary. When assessing the need for a valuation allowance in a tax jurisdiction, we evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. As part of this evaluation, we consider our cumulative three-year history of earnings before income taxes, taxable income in prior carryback years, future reversals of existing taxable temporary differences, prudent and feasible tax planning strategies, and expected future results of operations. As of year-end 2013,2014, we continued to maintain a valuation allowance in the U.S. against certain of our state operating loss carryforwards due to the uncertainty of future profitability in state jurisdictions in the U.S. As of year-end 2013,2014, we maintained a full valuation allowanceallowances in certain foreign jurisdictions because of the uncertainty of future profitability. In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. It is our policy to provide for uncertain tax positions and the related interest and penalties based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. At year-end 2013,2014, we believe that we have appropriately accounted for any liability for unrecognized tax 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 may be affected.

We reinvest certain earnings of our international subsidiaries indefinitely, and accordingly, we do not provide for U.S. income taxes that could result from the remittance of such foreign earnings. Through year-end 2013,2014, we have not provided for U.S. income taxes on approximately $145.9$169.2 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 foreign tax withholding, which would be required if we were to remit these foreign earnings to the U.S., would be approximately $2.0$3.0 million.

At December 28, 2013 and December 29, 2012,January 3, 2015, we performed a qualitativequantitative goodwill impairment analysis. These impairment analyses included an assessment of certain qualitative factors including, but not limited to, the results of prior fair value calculations, the movementfor all of our share price and market capitalization, the reporting unit and overall financial performance, and macroeconomic and industry conditions. We considered the qualitative factors and weighed the evidence obtained, and we determined that it is not more likely than notunits, which indicated that the fair value of any of theeach reporting units is less thanunit exceeded its carrying amount. Although we believevalue and, as a result, the factors considered in the impairment analysis are reasonable, significant changes in any one of the assumptions used could produce a different result.

At December 28, 2013 and December 29, 2012,January 3, 2015, we performed a quantitative impairment analysis on our indefinite-lived intangible asset and determined that the asset was not impaired.

Intangible assets subject to amortization are evaluated for impairment if events or changes in circumstances indicate that the carrying value of an asset might be impaired. No indicators of impairment were identified in 2013 or 2012.2014.

Our judgments and 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. A prolonged economic downturn, weakness in demand for our products, especially capital equipment products, or contraction in capital spending by paper companies or OSB manufacturers in our key markets could negatively affect the revenue and profitability assumptions used in our assessment of goodwill and intangible assets, which could result in additional impairment charges. Any future impairment loss could have a material adverse effect on our long-term assets and operating expenses in the period in which an impairment is determined to exist.

The cost and obligations of these arrangements are calculated using many assumptions to estimate the benefits that the employee earns while working, the amount of which cannot be completely determined until the benefit payments cease. Major assumptions used in accounting for these employee benefit plans include the discount rate, expected return on plan assets and rate of increase in employee compensation levels. Assumptions are determined based on Company data and appropriate market indicators in consultation with third-party actuaries, and are evaluated each year as of the plans' measurement dates. The fair value of plan assets is determined based on quoted market prices and observable market inputs. The unrecognized actuarial loss associated with these plans totaled $6.9$9.1 million at year-end 2013, $0.42014, $0.5 million of which we expect to recognize in 2014.2015. Should any of these assumptions change, they would have an effect on net periodic pension costs and the unfunded benefit obligation. The projected benefit obligation and expense associated with these plans are sensitive to changes in the discount rate. For the noncontributory benefit retirement plan at our Kadant Solutions division, a 50 basis point decrease in the 20132014 discount rate would have resulted in an increase in pension expense of $0.2 million and an increase in the projected benefit obligation of $2.1$2.6 million.

Our primary market is the papermaking and paper recycling industries, which have been negatively affected by the development and increasing use of digital media. While we expect the decline in the use of newsprint and writing paper grades to continue, we expect global containerboard and tissue production to be stable or increase. Our revenue and income tends to be variable as producer demand for our capital equipment products is highly dependent on regional economic conditions and industry perceptions. This compares to demand for our parts and consumables products, which tends to be more predictable. In 2014, approximately 38% of our revenue was from the sale of capital equipment and 62% was from the sale of parts and consumables products.

In 2014, the North American papermaking and paper recycling market continued to be our most significant market. Based on information provided by Resource Information Systems Inc., paper and board production in North America has remained relatively stableexperienced a slight decline in 2013 with good performance in some grades, such as containerboard, while demand for2014 attributed entirely to printing, writing, and newsprint grades continueswhich decreased 5.4% in 2014 compared to decline.2013. Board production, on the other hand, was up 1.5% in 2014 compared to 2013 led by containerboard production. Operating rates in the relatively strong containerboard sector were 96%95% for 2014 while paper mills ran at an average operating rate of 89% in 2014 and 2013. U.S. OSB production increased 4.1% in 2014 compared to 2013, while printing and writing grades in North America were 86%Canadian OSB production increased 9.7%. The outlook for U.S. lumber and structural wood panels, which includes OSB, is expected to see continued growth in 2015 due in large part to new housing market in North America continuesstarts and home sales expected to show signs of recovery.be the highest since 2007, according to Freddie Mac's U.S. Economic and Housing Market Outlook for March 2015. Our bookings in North America were $162$231 million in 2013,2014, up 10%43% compared to 2012. 2013, including 14% from acquisitions.

The paper industryoverall market in Europe continuescontinued to be weak but investmentsstable in upgrades to papermaking equipment are continuing, albeit at a moderate pace.2014. Our bookings in Europe were $84 million in 2013, up 12% compared to 2012.both 2014 and 2013. Our bookings in China were $50$70 million in 2013,2014, up 27%40% compared to 2012;2013; however, the overall economy in China has been slowingcontinues to soften with 2013news agencies reporting 2014 economic growth at 7.7%7.4% and over-capacity in the paper industry negatively impacting investments.investments for capital equipment such as ours. In South America, the Brazilian economy advanced slightly in 2013 and industrial production grew only 1.2%. Despite this current slowdown, tissue and containerboard demand is expected to grow in Brazil at a rateremains sluggish with 2014 growth of five to seven percent per year over the next five years based on forecasts by Resource Information Systems Inc. analysts.less than 1%. Our bookings in South America benefited from our acquisition of our Brazilian licenseereflected the general economic slowdown and were down 20% to $22 million in 2013 increasing 53%2014 compared to $28 million in 2013 compared to $18 million in 2012.2013.

We expect to achieve GAAP (generally accepted accounting principles) diluted earnings per share (EPS) from continuing operations of $0.38$3.05 to $0.40$3.15 in 2015 on revenue of $413 to $423 million. The 2015 guidance includes an unfavorable foreign currency translation effect of $17 million on revenue and $0.12 on diluted EPS compared to 2014. Due to the variability of order flow and shipments of capital projects, we expect the first quarter of 2014 on revenues2015 to be weaker with stronger successive quarterly operating results for the remainder of $94 to $96 million. Ourthe year. For the first quarter guidance includes estimated restructuring costs of $0.02 per share and estimated expense of $0.15 per share associated with acquired profit in inventory and backlog from our acquisitions in 2013. For the full year,2015, we expect to achieve GAAP diluted EPS from continuing operations of $2.60 and $2.70 on revenues$0.57 to $0.59, including $0.01 of $405 to $415 million. The full year guidance includes estimated restructuring costs and $0.01 of $0.02 per share and estimated expense of $0.19 per share associated withrelated to acquired profit in inventory and backlog, from our acquisitions in 2013. We expect the first quarteron revenue of 2014$94 to be our weakest quarter of the year due to relatively lower revenues and the impact of expenses associated with acquired profit in inventory and backlog. We are projecting improved bookings in the first half of 2014 and expect an increase in revenues and earnings in the second quarter of 2014 and for the remaining quarters of the year.$96 million.