UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended June 30, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-11406
KADANT INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of 52-1762325
incorporation or organization) (I.R.S. Employer Identification No.)
245 Winter Street
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 370-1650
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at July 30, 2001
---------------------------- ----------------------------
Common Stock, $.01 par value 12,277,147
PART I - Financial Information
Item 1 - Financial Statements
- -----------------------------
KADANT INC.
Consolidated Balance Sheet
(Unaudited)
Assets
June 30, December 30,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $145,755 $ 62,461
Advance to affiliate 3,498 5,704
Available-for-sale investments, at quoted market value
(amortized cost of $17,434 and $86,104) 17,434 86,137
Accounts receivable, less allowances of $3,026 and $2,182 34,686 43,866
Unbilled contract costs and fees 9,436 8,029
Inventories:
Raw materials and supplies 13,896 13,218
Work in process 6,684 4,825
Finished goods (includes $1,874 and $3,765 at customer locations) 15,180 15,034
Deferred tax asset 9,517 8,879
Other current assets 4,722 3,625
-------- --------
260,808 251,778
-------- --------
Property, Plant, and Equipment, at Cost 69,413 67,646
Less: Accumulated depreciation and amortization 40,734 38,064
-------- --------
28,679 29,582
-------- --------
Other Assets (Note 5) 12,130 13,755
-------- --------
Goodwill (Note 10) 117,025 119,100
-------- --------
$418,642 $414,215
======== ========
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KADANT INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 30, December 30,
(In thousands except share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Current Liabilities:
Current maturities of long-term obligations $ 562 $ 562
Accounts payable 24,449 21,921
Accrued income taxes 7,354 4,986
Accrued payroll and employee benefits 7,005 7,727
Accrued warranty costs 4,645 5,666
Deferred revenue 2,117 3,600
Customer deposits 2,545 3,476
Other accrued expenses 13,967 12,433
Common stock of subsidiary subject to redemption (at redemption value) 17,026 17,026
Due to parent company and affiliated companies 789 1,284
-------- --------
80,459 78,681
-------- --------
Deferred Income Taxes and Other Deferred Items 7,987 8,042
-------- --------
Long-term Obligations:
Subordinated convertible debentures 153,000 153,000
Notes payable 1,141 1,650
-------- --------
154,141 154,650
-------- --------
Minority Interest (Note 5) 293 2,209
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 150,000,000 shares authorized;
12,732,455 shares issued (Note 7) 127 127
Capital in excess of par value 77,507 77,231
Retained earnings 139,098 133,522
Treasury stock at cost, 455,146 shares (Note 7) (20,758) (20,758)
Deferred compensation (20) (36)
Accumulated other comprehensive items (Notes 2 and 6) (20,192) (19,453)
-------- --------
175,762 170,633
-------- --------
$418,642 $414,215
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
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KADANT INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
--------------------------
June 30, July 1,
(In thousands except per share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Revenues $56,732 $60,565
------- -------
Costs and Operating Expenses:
Cost of revenues 36,084 37,930
Selling, general, and administrative expenses (Notes 9 and 10) 14,585 15,749
Research and development expenses 1,871 1,953
Gain on sale of property - (971)
------- -------
52,540 54,661
------- -------
Operating Income 4,192 5,904
Interest Income 1,812 2,691
Interest Expense (1,871) (1,865)
------- -------
Income Before Provision for Income Taxes and Minority Interest 4,133 6,730
Provision for Income Taxes 1,736 2,775
Minority Interest (Income) Expense (Note 5) (50) 45
------- -------
Net Income $ 2,447 $ 3,910
======= =======
Basic and Diluted Earnings per Share (Notes 3 and 7) $ .20 $ .32
======= =======
Weighted Average Shares (Notes 3 and 7):
Basic 12,277 12,257
======= =======
Diluted 12,294 12,301
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
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KADANT INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
--------------------------
June 30, July 1,
(In thousands except per share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Revenues $115,632 $118,487
-------- --------
Costs and Operating Expenses:
Cost of revenues 72,280 72,537
Selling, general, and administrative expenses (Notes 9 and 10) 30,441 31,580
Research and development expenses 3,663 3,816
Gain on sale of property - (971)
-------- --------
106,384 106,962
-------- --------
Operating Income 9,248 11,525
Interest Income 3,953 5,194
Interest Expense (3,744) (3,755)
-------- --------
Income Before Provision for Income Taxes, Minority
Interest, and Cumulative Effect of Change in Accounting
Principle 9,457 12,964
Provision for Income Taxes 3,955 5,300
Minority Interest (Income) Expense (Note 5) (74) 194
-------- --------
Income Before Cumulative Effect of Change in Accounting
Principle 5,576 7,470
Cumulative Effect of Change in Accounting Principle (net of
income taxes of $580) - (870)
-------- --------
Net Income $ 5,576 $ 6,600
======== ========
Basic and Diluted Earnings per Share Before Cumulative
Effect of Change in Accounting Principle (Notes 3 and 7) $ .45 $ .61
======== ========
Basic and Diluted Earnings per Share (Notes 3 and 7) $ .45 $ .54
======== ========
Weighted Average Shares (Notes 3 and 7):
Basic 12,277 12,253
======== ========
Diluted 12,292 12,310
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
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KADANT INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
-------------------------
June 30, July 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 5,576 $ 6,600
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of change in accounting principle - 870
Depreciation and amortization 4,720 4,842
Provision for losses on accounts receivable 635 742
Minority interest (income) expense (Note 5) (74) 194
Gain on sale of property - (971)
Other noncash items (190) (43)
Changes in current accounts, excluding the effects of
acquisitions and dispositions:
Accounts receivable 7,674 12,295
Inventories and unbilled contract costs and fees (4,808) (2,326)
Other current assets (2,705) (40)
Accounts payable 2,535 (775)
Other current liabilities (65) (10,865)
-------- --------
Net cash provided by operating activities 13,298 10,523
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (2,998)
Acquisition of capital equipment and technology - (1,200)
Proceeds from sale of property - 3,909
Advances (to) from affiliate, net 2,206 (14,039)
Purchases of available-for-sale investments - (18,500)
Proceeds from maturities of available-for-sale investments 68,671 33,549
Purchases of property, plant, and equipment (2,390) (2,689)
Payments received on note for sale of property 1,200 -
Other, net 46 2
-------- --------
Net cash provided by (used in) investing activities 69,733 (1,966)
-------- --------
Financing Activities:
Net proceeds from issuance of Company and subsidiary common stock 321 448
Repayments of long-term obligations (509) -
-------- --------
Net cash provided by (used in) financing activities (188) 448
-------- --------
Exchange Rate Effect on Cash 451 (2,486)
-------- --------
Increase in Cash and Cash Equivalents 83,294 6,519
Cash and Cash Equivalents at Beginning of Period 62,461 39,254
-------- --------
Cash and Cash Equivalents at End of Period $145,755 $ 45,773
======== ========
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KADANT INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
-------------------------
June 30, July 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ - $ 5,285
Cash paid for acquired companies - (3,411)
Note payable for acquired companies - (795)
-------- --------
Liabilities assumed of acquired companies $ - $ 1,079
======== ========
Amounts forgiven in exchange for the 49% minority interest
in NEXT Fiber Products (Note 5) $ 2,053 $ -
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
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KADANT INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Kadant Inc., (the Company, formerly Thermo Fibertek Inc.) (Note 7) without
audit and, in the opinion of management, reflect all adjustments of a normal
recurring nature necessary for a fair statement of the financial position at
June 30, 2001, the results of operations for the three- and six-month periods
ended June 30, 2001, and July 1, 2000, and the cash flows for the six-month
periods ended June 30, 2001, and July 1, 2000. Interim results are not
necessarily indicative of results for a full year.
Historical financial results have been restated to reflect the adoption of
Securities and Exchange Commission Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" effective as of January 2, 2000. The
consolidated balance sheet presented as of December 30, 2000, has been derived
from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 30,
2000, filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items"
that represent certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments, unrealized net of tax gains and losses on
available-for-sale investments, and deferred gains and losses on foreign
currency contracts (Note 6). During the second quarter of 2001 and 2000, the
Company had comprehensive income of $803,000 and comprehensive loss of $255,000,
respectively. During the first six months of 2001 and 2000, the Company had
comprehensive income of $4,838,000 and $1,389,000, respectively.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, July 1, June 30, July 1,
(In thousands except per share amounts) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------
Basic
Income Before Cumulative Effect of
Change in Accounting Principle $ 2,447 $ 3,910 $ 5,576 $ 7,470
Cumulative Effect of Change in Accounting
Principle (net of income taxes of $580) - - - (870)
------- ------- ------- -------
Net Income $ 2,447 $ 3,910 $ 5,576 $ 6,600
------- ------- ------- -------
Weighted Average Shares 12,277 12,257 12,277 12,253
------- ------- ------- -------
Basic Earnings per Share:
Income Before Cumulative Effect of Change
in Accounting Principle $ .20 $ .32 $ .45 $ .61
Change in Accounting Principle - - - (.07)
------- ------- ------- -------
$ .20 $ .32 $ .45 $ .54
======= ======= ======= =======
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KADANT INC.
3. Earnings per Share (continued)
Three Months Ended Six Months Ended
------------------------ -----------------------
June 30, July 1, June 30, July 1,
(In thousands except per share amounts) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------
Diluted
Income Before Cumulative Effect of Change
in Accounting Principle $ 2,447 $ 3,910 $ 5,576 $ 7,470
Cumulative Effect of Change in
Accounting Principle (net of income
taxes of $580) - - - (870)
------- ------- ------- -------
Net Income $ 2,447 $ 3,910 $ 5,576 $ 6,600
Effect of Majority-owned Subsidiary's
Dilutive Securities - (3) - (7)
------- ------- ------- -------
Income Available to Common Shareholders,
as Adjusted $ 2,447 $ 3,907 $ 5,576 $ 6,593
------- ------- ------- -------
Weighted Average Shares 12,277 12,257 12,277 12,253
Effect of Stock Options 17 44 15 57
------- ------- ------- -------
Weighted Average Shares, as Adjusted 12,294 12,301 12,292 12,310
------- ------- ------- -------
Diluted Earnings per Share:
Income Before Cumulative Effect of
Change in Accounting Principle $ .20 $ .32 $ .45 $ .61
Change in Accounting Principle - - - (.07)
------- ------- ------- -------
$ .20 $ .32 $ .45 $ .54
======= ======= ======= =======
Options to purchase 401,400 and 194,200 shares of common stock for the
second quarter of 2001 and 2000, respectively, and 415,900 and 186,000 shares of
common stock for the first six months of 2001 and 2000, respectively, were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price for the common stock
and their effect would be antidilutive.
In addition, the computation of diluted earnings per share for each period
excludes the effect of assuming the conversion of the Company's $153,000,000
principal amount of 4 1/2% subordinated convertible debentures, convertible at
$60.50 per share, because the effect would be antidilutive.
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KADANT INC.
4. Business Segment Information
Three Months Ended Six Months Ended
----------------------- ------------------------
June 30, July 1, June 30, July 1,
(In thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------
Revenues:
Pulp and Papermaking Equipment and
Systems $ 54,686 $ 58,821 $110,673 $114,018
Composite and Fiber-based Products (a) 2,046 1,746 4,959 4,479
Intersegment sales elimination (b) - (2) - (10)
-------- -------- -------- --------
$ 56,732 $ 60,565 $115,632 $118,487
======== ======== ======== ========
Income Before Provision for Income Taxes,
Minority Interest, and Cumulative Effect of
Change in Accounting Principle:
Pulp and Papermaking Equipment and Systems $ 6,404 $ 7,169 $ 13,383 $ 14,054
Composite and Fiber-based Products (a) (1,253) (738) (2,236) (1,041)
Corporate (c) (959) (527) (1,899) (1,488)
-------- -------- -------- --------
Total Operating Income 4,192 5,904 9,248 11,525
Interest Income (Expense), Net (59) 826 209 1,439
-------- -------- -------- --------
$ 4,133 $ 6,730 $ 9,457 $ 12,964
======== ======== ======== ========
Capital Expenditures:
Pulp and Papermaking Equipment and Systems $ 348 $ 352 $ 732 $ 720
Composite and Fiber-based Products 864 969 1,658 1,969
-------- -------- -------- --------
$ 1,212 $ 1,321 $ 2,390 $ 2,689
======== ======== ======== ========
(a) Reflects the sale of the Company's fiber-recovery and water-clarification services plant in September 2000.
(b) Intersegment sales are accounted for at prices that are representative of transactions with unaffiliated
parties.
(c) Primarily general and administrative expenses. Includes gain on sale of property of $1.0 million in the
2000 periods.
5. Acquisition of Composites Venture Minority Interest
In January 2001, the Company's Thermo Fibergen subsidiary acquired the
outstanding 49% equity interest in NEXT Fiber Products, Inc. from the minority
investors (the Seller). Next Fiber Products was a joint venture formed in 1999
to develop, produce, and market fiber-based composite products primarily for the
building industry. In exchange for the 49% minority interest, Thermo Fibergen
agreed to forgive $2,053,000 due from the Seller, which related to the Seller's
investment in NEXT Fiber Products. The excess of assigned fair value of net
assets acquired from the buyout over the acquisition costs resulted in a
reduction in the intangible asset recorded at the time of Thermo Fibergen's
initial investment in NEXT Fiber Products.
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KADANT INC.
6. Recent Accounting Pronouncement
Effective in the first quarter of 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended, requires that all
derivatives, including forward currency exchange contracts, be recognized on the
balance sheet at fair value. Derivatives that are not hedges must be recorded at
fair value through earnings. If a derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of the derivative are either offset
against the change in fair value of the hedged item through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The Company records in earnings immediately the extent to which a
hedge is not effective in achieving offsetting changes in fair value. Adoption
of SFAS No. 133 in the first quarter of 2001 did not have a material effect on
the Company's financial position and results of operations.
Forward currency exchange contracts are used primarily by the Company to
hedge certain operational ("cash-flow" hedges) and balance sheet ("fair value"
hedges) exposures resulting from changes in currency exchange rates. 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. The Company enters
into these 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. The Company does not hold
or transact in financial instruments for purposes other than risk management.
The Company records its currency exchange contracts at fair value in its
consolidated balance sheet as other current assets or other accrued expenses
and, for cash flow hedges, the related gains or losses on these contracts are
deferred as a component of other comprehensive items. These deferred gains and
losses are recognized in income in the period in which the underlying
anticipated transaction occurs. Unrealized gains and losses resulting from the
impact of currency exchange rate movements on fair value hedges are recognized
in earnings in the period in which the exchange rates change and offset the
currency gains and losses on the underlying exposure being hedged.
7. Name Change and Reverse Stock Split
The Company changed its name to Kadant Inc., traded under the ticker
symbol "KAI" on the American Stock Exchange, and effected a one-for-five reverse
split of its common stock on July 12, 2001. The name change and reverse stock
split were approved by the Company's shareholders at the annual meeting of the
shareholders on May 15, 2001. All share and per share information, including the
conversion price of the Company's subordinated debt, has been restated to
reflect the reverse stock split.
8. Spin Off
On January 31, 2000, Thermo Electron announced that, as part of a major
reorganization plan, it planned to spin off its equity interest in the Company
as a dividend to Thermo Electron shareholders. In February 2001, Thermo Electron
received a favorable ruling from the Internal Revenue Service regarding the spin
off. The IRS required that the Company raise additional equity capital in a
public offering within one year of the spin off in the range of 10 to 20 percent
of its outstanding shares. The offering will also support the Company's current
business plan, which includes the repayment of debt, acquisitions, strategic
partnerships, and investment in additional capacity for its composites business.
On July 9, 2001, the Thermo Electron board of directors declared a dividend of
all of its equity interest in the Company. The dividend was distributed on
August 8, 2001 (Spinoff Date) to Thermo Electron shareholders of record on July
30, 2001. The distribution was on the basis of 0.0612 share of Company common
stock for each share of Thermo Electron common stock outstanding.
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KADANT INC.
9. Corporate Services Agreement
Prior to the spin off, the Company and Thermo Electron were parties to a
corporate services agreement under which Thermo Electron's corporate staff
provided certain administrative services for which the Company was assessed an
annual fee equal to 0.8% of the Company's consolidated revenues. Effective April
2001, the fee under this agreement was reduced to 0.6% for the fiscal quarter
ending June 30, 2001, and effective July 1, 2001, the fee was reduced to 0.4% of
the Company's consolidated revenues for the fiscal quarter ending September 29,
2001. The corporate services agreement terminated as of the Spinoff Date and was
replaced by a transition services agreement (Note 10).
10. Subsequent Events
Plan and Agreement of Distribution
In connection with the spin off, the Company and Thermo Electron have
entered into a plan and agreement of distribution. The agreement provides, among
other things, for restrictions relating to the Company's ability to use cash or
incur debt during the time that Thermo Electron continues to guarantee the
Company's $153.0 million, 4 1/2% subordinated convertible debentures due 2004,
and Thermo Fibergen's obligations to redeem the outstanding shares of Thermo
Fibergen that are not held by the Company. These restrictions include financial
covenants requiring (1) the ratio of the Company's net indebtedness to net
capitalization not to exceed 40% and (2) the sum of the Company's (a) operating
income (excluding restructuring and other unusual items (such as gains on sales
of assets) included in operating income), (b) amortization of goodwill and other
intangible assets, and (c) interest income, to be at least four times greater
than interest expense. In the event that the Company fails to comply with the
financial covenants and has not cured its noncompliance within the applicable
cure period, the Company will be obligated to relieve Thermo Electron of its
obligations under all of its outstanding guarantees of the Company's performance
and payment in connection with the Company's debentures and Thermo Fibergen's
obligations to redeem outstanding shares of Thermo Fibergen common stock. If
required to satisfy this obligation to Thermo Electron, the Company could, among
other things, refinance the Company's debentures, conduct an exchange offer for
the Company's debentures or all of Thermo Fibergen's common stock subject to
outstanding Thermo Fibergen redemption rights, or repay in full the underlying
obligation. In addition, in the event that the Company undergoes a change in
control, the Company has agreed to fully cash collateralize or back with one or
more letters of credit all of the Company's obligations under the debentures and
in connection with the redemption of outstanding shares of Thermo Fibergen
common stock. The Company is in compliance with all covenants of the agreement.
Transition Services Agreement
In connection with the spin off, the Company and Thermo Electron have
entered into a transition services agreement. The agreement provides that Thermo
Electron will continue to provide the Company with certain administrative
services until December 29, 2001. The Company will pay a fee under this
agreement equal to 0.4% and 0.2% of the Company's consolidated revenues for the
fiscal quarters ending September 29, 2001 and December 29, 2001, respectively,
plus out-of-pocket and third party expenses. The Company believes the charges
under the transition services agreement are reasonable and the terms of the
agreement are fair to the Company.
Tax Matters Agreement
Prior to the spin off, the Company and Thermo Electron were parties to a
tax allocation agreement under which the Company and its subsidiaries were
included in the consolidated federal and 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 taxes the Company would have paid if the Company had
filed separate tax returns. In years in which these entities included a loss,
Thermo Electron would reimburse the Company the amount that the Company would
have received if the Company had filed separate tax returns. The tax allocation
agreement terminated as of the Spinoff Date and the Company and Thermo Electron
entered into a tax matters agreement.
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KADANT INC.
10. Subsequent Events (continued)
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 Company
indemnify Thermo Electron, but not the stockholders 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 distribution to Thermo
Electron stockholders of shares of the Company's common stock or of the Viasys
Healthcare Inc. common stock to continue to qualify as a tax-free spin-off under
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 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 the Thermo
Electron stockholders to continue to qualify as a tax-free spin off 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 causes the distribution to become taxable, the
Company could incur liability to Thermo Electron and/or various taxing
authorities, which could adversely affect the Company's results of operations,
financial position and cash flows.
Stock Option Exchange
In connection with the spin off, options to purchase shares of Thermo
Electron common stock held by the Company's employees were exchanged for options
to purchase 566,900 shares of the Company's common stock. The resulting options
in the Company's common stock maintained their intrinsic value, and their
original option periods and vesting provisions in accordance with the
methodology set forth in the Financial Accounting Standards Board (FASB)
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation."
Preferred Stock
On May 15, 2001, at the annual meeting of the Company's shareholders, the
shareholders voted to approve an amendment, previously adopted by the Company's
Board of Directors, to the Company's Certificate of Incorporation to authorize
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.
Subsequently, the Board of Directors 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). The charter amendment effecting
these actions was incorporated into the Company's restated Certificate of
Incorporation filed on August 7, 2001.
Shareholder Rights Plan
In connection with the spin off, the Company's Board of Directors adopted
a shareholder rights plan. Under the plan, one right was distributed as of 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 designed to provide
shareholders with fair and equal treatment in the event of an unsolicited
attempt to acquire the Company. At the time of distribution, the rights were
attached to the Company's outstanding common stock 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 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 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 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 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
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 are redeemed
or exchanged earlier, they will expire on July 16, 2011.
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KADANT INC.
10. Subsequent Events (continued)
Recent Accounting Pronouncement
In July 2001, the Financial Accounting Standards Board released for
issuance Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting
for goodwill from an amortization method to an impairment-only approach. Under
SFAS No. 142, effective for the fiscal year beginning December 30, 2001,
amortization of goodwill to earnings will cease and instead, the carrying value
of goodwill will be evaluated for impairment on at least an annual basis.
Amortization of goodwill, on an after-tax basis, for the three-month and
six-month periods ended June 30, 2001, was $588,000 and $1,172,000,
respectively. The Company is evaluating the impact of these standards and has
not yet determined the effect, if any, of adoption of the impairment requirement
on its financial statements.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause our results
to differ materially from those indicated by such forward-looking statements,
including those detailed under the heading "Risk Factors" in the Information
Statement filed with the Securities and Exchange Commission as Exhibit 99.1 to
our Current Report on Form 8-K on August 6, 2001.
Overview
We operate in two segments: the Pulp and Papermaking Equipment and Systems
(Papermaking Equipment) segment and the Composite and Fiber-based Products
segment. We are a leading designer and manufacturer of stock-preparation systems
and equipment, papermaking machine accessories and water-management systems for
the pulp and paper industry. We have been in operation for more than 100 years
and have a large, stable customer base that includes most paper manufacturers in
the world. We also have one of the largest installed bases of equipment in the
pulp and paper industry, which provides us with a relatively stable, higher
margin, spare parts and consumables business. In addition, we manufacture and
market composite and fiber-based products, including composite building
products.
Prior to our incorporation, we operated as a division of Thermo Electron
Corporation. We were incorporated in Delaware in November 1991 as a wholly owned
subsidiary of Thermo Electron. We conducted an initial public offering of our
common stock in November 1992 and became a majority-owned subsidiary of Thermo
Electron. On July 12, 2001, we changed our name from Thermo Fibertek Inc. to
Kadant Inc., and on August 8, 2001, we were spunoff from Thermo Electron and
became a fully independent public company (Note 9).
Pulp and Papermaking Equipment and Systems Segment
Our Papermaking Equipment segment designs and manufactures
stock-preparation equipment, paper machine accessories and water-management
systems for the paper and paper recycling industries. Principal products
manufactured by this segment include:
- custom-engineered systems and equipment for the preparation of
wastepaper for conversion into recycled paper;
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KADANT INC.
Overview (continued)
- accessory equipment and related consumables important to the efficient
operation of papermaking machines; and
- water-management systems essential for the continuous cleaning of
papermaking machine fabrics and the draining, purifying and recycling
of process water for paper sheet and web formation.
Composite and Fiber-based Products Segment
Our Composite and Fiber-based Products segment, represented by our Thermo
Fibergen subsidiary, consists of our composite building and fiber-based product
lines. We develop, produce and market fiber-based composite building products,
primarily for the building industry, used for such applications as soundwalls,
privacy fencing, decking and roof tiles. We also employ patented technology to
produce biodegradable absorbing granules from papermaking byproducts. These
granules are primarily used as agricultural carriers.
In January 2001, we acquired the remaining 49% equity interest that we did
not already own in NEXT Fiber Products, which is responsible for our composite
building products line. We established a composite building products
manufacturing facility in Green Bay, Wisconsin, and began limited production at
the facility in 2000.
Prior to September 2000, this segment owned and operated a plant that
provided water-clarification and fiber-recovery services to a host mill on a
long-term contract basis. The plant, which we began operating in July 1998,
cleaned and recycled water and long fiber for reuse in the papermaking process.
We sold this plant to the host mill in September 2000, although we intend to
continue operating in this line of business and are pursuing other
fiber-recovery projects.
Dryers and Pollution-control Equipment Segment
Prior to February 1999, we also operated in the Dryers and
Pollution-control Equipment segment, which consisted of our Thermo Wisconsin
Inc. subsidiary. This segment manufactured and marketed dryers and
pollution-control equipment for the printing, papermaking and converting
industries. In February 1999, we sold our Thermo Wisconsin subsidiary for $13.6
million in cash.
International Sales
During 2000, approximately 49% of our sales were to customers outside the
United States, principally in Europe. We generally seek to charge our customers
in the same currency as our operating costs. 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
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 other than our
subsidiaries' functional currencies. These contracts principally hedge
transactions denominated in U.S. dollars, French francs and Canadian dollars.
Industry Outlook
Our products are primarily sold to the pulp and paper industry. The paper
industry is currently in a relatively severe down cycle, with falling pulp and
paper prices and decreased capital spending. As a consequence, the industry has
gone through a major consolidation. As paper companies continue to consolidate,
they frequently reduce capacity. This trend, along with paper companies' actions
to quickly reduce operating rates and restrict capital spending programs when
they perceive weakness in their markets, has adversely affected our business. We
expect that there
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KADANT INC.
Overview (continued)
will continue to be a significant amount of downtime in the pulp and paper
industry in 2001. This, coupled with the strong U.S. dollar and high energy
costs, will continue to produce a weak market environment that will soften
demand for our products in the foreseeable future. Our results for 2001 and
possibly 2002 will be affected by the ongoing weak market conditions in the pulp
and paper industry. In the longer term, we expect the consolidation in the paper
industry and improved capacity management will be favorable both to paper
companies and to their suppliers. In light of these factors, we expect earnings
in the third quarter of 2001 for the company overall to be in the range of $.15
to $.20 per share, on revenues of $55 to $60 million. For the year 2001, we
expect earnings per share of $.80 to $.90, on revenues of $225 to $230 million.
Looking ahead to 2002, we estimate earnings for the year to increase to $.90 to
$1.05 per share by focusing on a more favorable product mix that includes
higher-margin aftermarket sales and reducing operating expenses in our
businesses that serve the pulp and paper industry, as well as lowering operating
losses in the composites business. Revenues in 2002 are expected to be between
$225 and $230 million. In the Composite and Fiber-based Products segment, we
expect our growth will primarily come from our recently introduced composite
building products line, which consists of soundwall systems, decking, privacy
fencing and roofing tiles. Although startups are difficult to forecast, our
estimate of revenues from this business for each of the remaining quarters in
2001 is $300,000 to $500,000, and for the year 2001 just below $2 million.
Revenues in 2002 are expected to be $4 to $6 million from sales of composites.
These results represent our lower expectations as we work to expand our
distribution network for these fiber-based building materials. We believe that
the market for composite building products will grow as consumer awareness of
the advantages of these products increases their acceptance as an alternative to
traditional wood products.
Results of Operations
Second Quarter 2001 Compared With Second Quarter 2000
- -----------------------------------------------------
Revenues
Revenues decreased to $56.7 million in the second quarter of 2001 from
$60.6 million in the second quarter of 2000. The unfavorable effects of currency
translation due to the strengthening in value of the U.S. dollar relative to
other currencies in countries in which we operate decreased revenues at the
Papermaking Equipment segment by $1.0 million in the second quarter of 2001.
Pulp and Papermaking Equipment and Systems Segment. Excluding the results
of acquisitions and the effect of currency translation, revenues in our
Papermaking Equipment segment decreased $3.4 million, or 6%. Revenues from that
segment's accessories and water management product lines decreased $1.7 million
and $1.3 million, respectively, primarily as a result of a decrease in demand in
North America due to adverse market conditions. Revenues from the Papermaking
Equipment segment's stock-preparation equipment product line decreased $0.3
million as a result of a decrease in sales in North America, which was largely
offset by an increase in sales in Europe. We expect relatively little growth in
2001 in North America due to weak demand, while Europe is expected to be
slightly stronger. We expect to see stronger demand for our products and systems
in developing markets, such as China.
Composite and Fiber-based Products Segment. The Composite and Fiber-based
Products segment revenues increased $0.3 million, primarily due to $0.4 million
of sales from its recently introduced composite building products and $0.3
million increase in sales from the fiber-based products business. These
increases were offset in part by a $0.4 million decrease in revenues as a result
of the sale of the fiber-recovery and water-clarification services plant in
September 2000.
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KADANT INC.
Second Quarter 2001 Compared With Second Quarter 2000 (continued)
- -----------------------------------------------------
Gross Profit Margin
The gross profit margin decreased to 36% in the second quarter of 2001
from 37% in the second quarter of 2000. The gross profit margin decreased at the
Composite and Fiber-based Products segment, primarily due to the absence in 2001
of higher-margin revenues from the fiber-recovery and water-clarification
services plant, as well as negative gross profit margins as a result of startup
efforts at its new composite building products business. The gross profit margin
was unchanged at 37% at the Papermaking Equipment segment in the second quarters
of 2001 and 2000.
Other Operating Expenses
Selling, general, and administrative expenses as a percentage of revenues
remained unchanged at 26% in the second quarters of 2001 and 2000. Selling,
general, and administrative expenses decreased to $14.6 million in 2001 from
$15.7 million in 2000 due to decreased general and administrative expenses in
the Papermaking Equipment segment and the absence in the 2001 period of a $0.6
million charge for a customer dispute expensed in 2000. Prior to the spin off,
the Company and Thermo Electron were parties to a corporate services agreement
under which Thermo Electron's corporate staff provided certain administrative
services, for which the Company was assessed an annual fee equal to 0.8% of the
Company's consolidated revenues. Effective April 2001, the fee under this
agreement was reduced to 0.6%, 0.4%, and 0.2% for the fiscal quarters ending
June 30, 2001, September 29, 2001, and December 29, 2001, respectively, plus
out-of-pocket and third party expenses. The corporate services agreement
terminated as of the Spinoff Date and was replaced by a transition services
agreement with the same fee structure (Notes 9 and 10).
Research and development expenses decreased slightly to $1.9 million in
the second quarter of 2001, compared with $2.0 million in the second quarter of
2000, or 3% of revenues in both periods. We expect research and development
expenses to increase as we develop new products at our composite building
products business.
Gain on Sale of Property
In June 2000, the Company sold its interest in a tissue mill for $3.9
million in cash, resulting in a pretax gain of $1.0 million.
Interest Income and Expense
Interest income decreased to $1.8 million in the second quarter of 2001
from $2.7 million in the second quarter of 2000, due to lower average invested
balances and lower prevailing interest rates. We expect interest income to
decrease in 2001 as a result of lower cash balances due to the September 2000
redemption and the expected September 2001 redemption of Thermo Fibergen's
common stock, as well as lower prevailing interest rates. Interest expense was
unchanged at $1.9 million in the second quarters of 2001 and 2000.
Income Taxes
The effective tax rate was 42% in the second quarter of 2001, compared
with 41% in the second quarter of 2000. The effective tax rates exceeded the
statutory federal income tax rate primarily due to the impact of state income
taxes and nondeductible expenses.
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KADANT INC.
Second Quarter 2001 Compared With Second Quarter 2000 (continued)
- -----------------------------------------------------
Minority Interest
Minority interest income in the second quarter of 2001 primarily
represents the minority investors' share of losses in our majority-owned
subsidiaries. Minority interest expense in the second quarter of 2000 primarily
represents accretion of Thermo Fibergen's common stock subject to redemption,
offset in part by the minority investors' share of losses in Thermo Fibergen's
NEXT Fiber Products subsidiary.
Contingency
Sequa Corporation has made a claim in arbitration against us for $3.5
million for alleged breach of the contract pursuant to which Sequa purchased the
stock of our subsidiary, Thermo Wisconsin Inc., in February 1999. We have denied
the charges and are defending the matter vigorously. In the opinion of
management, the ultimate resolution of this matter will not materially affect
our financial statements.
First Six Months 2001 Compared With First Six Months 2000
- ---------------------------------------------------------
Revenues
Revenues decreased to $115.6 million in the first six months of 2001 from
$118.5 million in the first six months of 2000. The unfavorable effects of
currency translation due to the strengthening in value of the U.S. dollar
relative to other currencies in countries in which we operate decreased revenues
at the Papermaking Equipment segment by $3.0 million in the first six months of
2001.
Pulp and Papermaking Equipment and Systems Segment. Excluding the results
of acquisitions and the effect of currency translation, revenues in our
Papermaking Equipment segment decreased $1.1 million, or 1%. Revenues from that
segment's stock-preparation equipment product line increased $3.2 million
primarily as a result of an increase in sales in Europe, offset in part by a
decrease in sales in North America. Revenues from the Papermaking Equipment
segment's accessories and water management product lines decreased $3.2 million
and $0.9 million, respectively, primarily as a result of a decrease in demand in
North America due to adverse market conditions.
Composite and Fiber-based Products Segment. The Composite and Fiber-based
Products segment revenues increased $0.5 million, primarily due to $1.3 million
of sales from its recently introduced composite building products. This increase
was offset in part by a $0.7 million decrease in revenues as a result of the
sale of the fiber-recovery and water-clarification services plant in September
2000.
Gross Profit Margin
The gross profit margin decreased to 37% in the first six months of 2001
from 39% in the first six months of 2000. The gross profit margin decreased at
the Composite and Fiber-based Products segment, due to an increase of
approximately $0.4 million in the cost of natural gas at the fiber-based
products business in the first six months of 2001, the absence in 2001 of
higher-margin revenues from the fiber-recovery and water-clarification services
plant and negative gross profit margins as a result of startup efforts at its
new composite building products business. The gross profit margin was unchanged
at 39% at the Papermaking Equipment segment in the first six months of 2001 and
2000.
Other Operating Expenses
Selling, general, and administrative expenses as a percentage of revenues
remained relatively unchanged at 26% in the first six months of 2001 compared
with 27% in 2000. Selling, general, and administrative expenses decreased to
$30.4 million in 2001 from $31.6 million in 2000 due to the reasons discussed in
the results of operations for the second quarter.
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KADANT INC.
First Six Months 2001 Compared With First Six Months 2000 (continued)
- ---------------------------------------------------------
Research and development expenses decreased slightly to $3.7 million in
the first six months of 2001, compared with $3.8 million in the first six months
of 2000, or 3% of revenues in both periods.
Gain on Sale of Property
In June 2000, the Company sold its interest in a tissue mill for $3.9
million in cash, resulting in a pretax gain of $1.0 million.
Interest Income and Expense
Interest income decreased to $4.0 million in the first six months of 2001
from $5.2 million in the first six months of 2000, due to lower average invested
balances and lower prevailing interest rates. Interest expense was relatively
unchanged at $3.7 million in the first six months of 2001 compared with $3.8
million in the first six months of 2000.
Income Taxes
The effective tax rate was 42% in the first six months of 2001 and 41% in
the first six months of 2000. The effective tax rates exceeded the statutory
federal income tax rate primarily due to the impact of state income taxes and
nondeductible expenses.
Minority Interest
Minority interest income in the first six months of 2001 primarily
represents the minority investors' share of losses in our majority-owned
subsidiaries. Minority interest expense in the first six months of 2000
primarily represents accretion of Thermo Fibergen's common stock subject to
redemption, offset in part by the minority investors' share of losses in Thermo
Fibergen's NEXT Fiber Products subsidiary.
Cumulative Effect of Change in Accounting Principle
In accordance with the requirements of Securities and Exchange Commission
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements,"
we adopted the pronouncement as of January 2, 2000, and recorded a charge in the
first quarter of 2000 representing the cumulative effect of the change in
accounting principle of $0.9 million, net of an income tax benefit of $0.6
million.
Liquidity and Capital Resources
Consolidated working capital was $180.3 million at June 30, 2001, compared
with $173.1 million at December 30, 2000. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $163.2 million at June
30, 2001, compared with $148.6 million at December 30, 2000. In addition, we had
$3.5 million and $5.7 million invested in an advance to affiliate as of June 30,
2001 and December 30, 2000, respectively. Of the total cash, cash equivalents,
and available-for-sale investments at June 30, 2001, $12.0 million and $7.3
million was held by our majority-owned Thermo Fibergen and Fiberprep Inc.
subsidiaries, respectively, and the remainder was held by us and our wholly
owned subsidiaries. At June 30, 2001, $45.6 million of our cash, cash
equivalents, and available-for-sale investments was held by our foreign
subsidiaries.
During the first six months of 2001, $13.3 million of cash was provided by
operating activities compared with $10.5 million in the first six months of
2000. A decrease in accounts receivable provided cash of $7.7 million, primarily
in the Papermaking Equipment segment's accessories and stock-preparation product
lines due to improved collection efforts and the timing of payments, and to a
lesser extent, the Company's overall decrease in revenues.
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KADANT INC.
Liquidity and Capital Resources (continued)
Inventories and unbilled contract costs and fees used cash of $4.8 million,
primarily in the accessories and stock-preparation product lines, including $3.4
million related to an increase in inventories, and $1.4 million related to an
increase in unbilled contract costs and fees, due to the timing of billings.
Cash of $2.7 million was used for an increase in other current assets, primarily
in the accessories and stock-preparation product lines and, to a lesser extent,
an increase in deferred tax asset at the Composite and Fiber-based Products
segment. An increase in accounts payable provided $2.5 million of cash primarily
in the accessories and stock-preparation product lines due to the timing of
payments.
Our investing activities, excluding available-for-sale investments and
advance to affiliate activity, used $1.1 million of cash in the first six months
of 2001, compared with $3.0 million in the first six months of 2000. During the
first six months of 2001, we purchased property, plant, and equipment for $2.4
million, including $1.7 million at Thermo Fibergen, offset in part by collection
of $1.2 million from a note receivable related to Thermo Fibergen's September
2000 sale of its fiber-recovery and water-clarification systems plant.
Our financing activities used $0.2 million of cash in the first six months
of 2001, compared with $0.4 million of cash provided by financing activities in
2000. During the first six months of 2001, we used $0.5 million to fund the
repayment of a long-term obligation, offset in part by $0.3 million of cash
provided by the issuance of Company and subsidiary common stock.
During the month of September 2000, the initial redemption period, holders
of Thermo Fibergen's common stock and common stock redemption rights surrendered
2,713,951 shares of Thermo Fibergen's common stock at a redemption price of
$12.75 per share, for a total $34.6 million. Thermo Fibergen used available
working capital to fund the payment and retired these shares immediately
following the redemption. Holders of a redemption right have the option to
require Thermo Fibergen to redeem one share of Thermo Fibergen's common stock at
a redemption price of $12.75 per share in September 2001, the next and final
redemption period. A redemption right may only be exercised if the holder owns a
share of Thermo Fibergen's common stock at the same time. As of June 30, 2001,
there were 2,001,049 redemption rights outstanding and 1,119,499 shares of
Thermo Fibergen's common stock held by persons other than us. To the extent the
number of rights exceeds the number of shares of Thermo Fibergen's common stock
held by persons other than us, the maximum redemption value that Thermo Fibergen
would be required to pay is an amount equal to the redemption price of $12.75
per share times the total number of shares of Thermo Fibergen's common stock
outstanding held by persons other than us at the time of the redemption. At June
30, 2001, we expect this amount will not exceed $17.0 million. The redemption
rights are guaranteed, on a subordinated basis, by Thermo Electron, subject to
certain conditions included in a plan and agreement of distribution (Note 10),
but we are required to reimburse Thermo Electron if they make any payment under
the guarantee. In addition, we have agreed to lend Thermo Fibergen up to $15
million on commercially reasonable terms for the September 2001 redemption
obligation and for working capital needs.
At June 30, 2001, we had $76.6 million of undistributed foreign earnings
that could be subject to tax if remitted to the U.S. We do not currently intend
to repatriate undistributed foreign earnings into the U.S., and do not expect
that this will have a material adverse effect on our current liquidity.
During the remainder of 2001, we plan to make expenditures for property,
plant, and equipment of approximately $3.0 million. Included in this amount is
$1.4 million for Thermo Fibergen, which intends to make capital expenditures to
develop and expand its fiber-based composites business. This business will
continue to require a significant amount of capital investment as the business
grows. Our ability to use our cash and to incur additional debt will be limited
by financial covenants in our post-distribution agreements with Thermo Electron
(Note 10). We believe that our existing resources are sufficient to meet the
capital requirements of our existing operations for the foreseeable future.
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KADANT INC.
Liquidity and Capital Resources (continued)
In compliance with the IRS ruling on the spin off, we intend to issue
equity in the range of 10 to 20 percent of our outstanding common stock within
one year of the distribution to support our current business plan, which
includes the repayment of debt, acquisitions, strategic partnerships and
investment in additional capacity for our composite building products business
(Note 8).
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Our exposure to market risk from changes in interest rates, equity prices,
and foreign currency exchange rates has not changed materially from our exposure
at year-end 2000.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On May 15, 2001, at the Annual Meeting of Stockholders, the stockholders
elected four incumbent directors to a one-year term expiring in 2002. The
Directors elected at the meeting were: Francis L. McKone, Donald E. Noble,
William A. Rainville, and Richard F. Syron. Mr. McKone and Mr. Noble each
received 58,022,645 shares voted in favor of his election and 9,509 shares voted
against. Mr. Rainville received 58,022,149 shares voted in favor of his
election and 10,005 shares voted against. Dr. Syron received 58,022,600 shares
voted in favor of his election and 9,554 shares voted against. No abstentions
or broker "non-votes" were recorded in the election of directors. The voting
results reported in this item have not been restated to reflect the Company's
one-for-five reverse stock split.
At the Annual Meeting, the stockholders also approved proposals 2 through
11, amendments to our certificate of incorporation (the "Charter Proposals"), as
follows:
- Proposal 2, to authorize the issuance of "blank check" preferred stock;
55,979,725 shares in favor, 207,884 shares against, 3,356 shares
abstained, and 1,841,189 broker non-votes;
- Proposal 3, to require the affirmative vote of either (A) a majority of
the directors present at a meeting of our Board of Directors (the
"Board") at which a quorum is present or (B) the holders of at least
75% of the votes which all the stockholders would be entitled to cast,
to adopt, amend, alter, or repeal the By-laws of the Company;
56,019,131 shares in favor, 169,154 shares against, 2,680 shares
abstained, and 1,841,189 broker non-votes;
- Proposal 4, to fix the minimum size of the Board at three directors and
establish a classified Board having three classes with staggered
three-year terms; 56,008,432 shares in favor, 180,123 shares against,
2,410 shares abstained, and 1,841,189 broker non-votes;
- Proposal 5, to allow the removal of directors only for cause and only
upon the affirmative vote of the holders of at least 75% of the votes
cast in any annual election of the directors or class of directors and
provide that any vacancy on the Board be filled only be a vote of the
majority of directors then in office; 56,009,673 shares in favor,
179,162 shares against, 2,130 shares abstained, and 1,841,189 broker
non-votes;
- Proposal 6, to require advance notice of stockholder nominations for
election of directors and other business to be brought by stockholders
before a meeting of stockholders in the manner provided by our By-laws;
57,835,387 shares in favor, 193,918 shares against, 2,849 shares
abstained, and no broker non-votes;
- Proposal 7, to eliminate the ability of stockholders to take action by
written consent without a meeting; 56,061,661 shares in favor, 125,982
shares against, 3,322 shares abstained, and 1,841,189 broker non-votes;
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KADANT INC.
Item 4 - Submission of Matters to a Vote of Security Holders (continued)
- ------------------------------------------------------------
- Proposal 8, to limit the ability to call special meetings of the
stockholders to the Board, the chairman of the board and the chief
executive officer or, if none, the president of the Company and to
limit business transacted at any special meeting of stockholders to
matters relating to the purposes stated in the notice calling that
meeting; 57,898,404 shares in favor, 130,202 shares against, 3,548
shares abstained, and no broker non-votes;
- Proposal 9, to effect a reverse split of our Common Stock, $.01 par
value per share, pursuant to which each five shares of Common Stock
then outstanding would be converted into one share of Common Stock;
57,864,547 shares in favor, 165,155 shares against, 2,452 shares
abstained, and no broker non-votes;
- Proposal 10, to change the name of the Company to "Kadant Inc.";
57,944,338 shares in favor, 85,321 shares against, 2,495 shares
abstained, and no broker non-votes; and
- Proposal 11, to consolidate the foregoing amendments and to update the
language of the certificate of incorporation to eliminate certain
ambiguities and to more closely follow the Delaware General Corporate
Law and current corporate practice; 56,017,706 shares in favor, 168,420
shares against, 4,839 shares abstained, and 1,841,189 broker non-votes.
In addition, the stockholders approved the amendment of our equity
incentive plan to increase the number of shares of Common Stock available under
the plan by 8,000,000 shares, as follows: 55,930,032 shares were voted in favor,
259,045 shares were voted against, 1,888 shares abstained, and 1,841,189 broker
non-votes were recorded. The stockholders also approved the amendment of our
employee stock purchase plan to increase the number of shares of Common Stock
available under the plan by 750,000 shares and to extend the term of the plan to
November 1, 2010, as follows: 56,072,468 shares were voted in favor of the
proposal, 116,243 shares were voted against, 2,254 shares abstained, and
1,841,189 broker non-votes were recorded.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On June 19, 2001, the Company filed a Current Report on Form 8-K with
respect to certain corporate transactions affecting the Company.
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KADANT INC.
SIGNATURES
Pursuant to the requirements 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 as of the 14th day of August 2001.
KADANT INC.
/s/ Thomas M. O'Brien
--------------------------------------
Thomas M. O'Brien
Chief Financial and Accounting Officer
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KADANT INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the Company,
as filed with the Secretary of State of the State of Delaware on
August 7, 2001.
3.2 By-Laws of the Company, as amended and restated.
4.1 Rights Agreement, dated as of July 16, 2001, between the Company
and American Stock Transfer & 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 (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K [File No. 1-11406], filed
with the Commission on July 17, 2001), and incorporated herein by
reference.
10.1 Form of Indemnification Agreement between the Company and its
directors and officers.
10.2 Form of Executive Retention Agreement between the Company and its
executive officers (Each executive officer has a two-year
agreement, except Mr. William A. Rainville, who has a three-year
agreement).
10.3 Plan and Agreement of Distribution, dated as of August 3, 2001,
between the Company and Thermo Electron Corporation (filed as
Exhibit 99.3 to the Company'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.
10.4 Transition Services Agreement, dated as of August 3, 2001,
between the Company and Thermo Electron Corporation (filed as
Exhibit 99.5 to the Company's Current Report on Form 8-K [File
No. 1-11406] filed with the Commission on August 6, 2001), and
incorporated herein by reference.
10.5 Tax Matters Agreement, dated as of August 8, 2001, between the
Company and Thermo Electron Corporation (filed as Exhibit 99.4 to
the Company's Current Report on Form 8-K [File No. 1-11406] filed
with the Commission on August 6, 2001), and incorporated herein
by reference.