Discontinued Operation

12 Months Ended

Dec. 29, 2012

Discontinued Operation [Abstract]

Discontinued Operation

9. Discontinued Operation

In 2005, the Company's Kadant Composites LLC subsidiary (Composites LLC) sold substantially all of its assets to a third party. Through the sale date of October 21, 2005, Composites LLC offered a standard limited warranty to the owner of its decking and roofing products, limited to repair or replacement of the defective product or a refund of the original purchase price. Under the terms of the asset purchase agreement, Composites LLC retained certain liabilities associated with the operation of the business prior to the sale, including the warranty obligations associated with products manufactured prior to the sale date. Composites LLC retained all of the cash proceeds received from the asset sale and continued to administer and pay warranty claims from the sale proceeds into the third quarter of 2007. On September 30, 2007, Composites LLC announced that it no longer had sufficient funds to honor warranty claims, was unable to pay or process warranty claims, and ceased doing business. All activity related to this business is classified in the results of the discontinued operation in the accompanying consolidated financial statements.

On October 24, 2011, the Company, 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, which was filed and approved in Connecticut state court. As of December 31, 2011, the Company had accrued $2,577,000 for the estimated payment of claims, which was reduced by $1,574,000 in 2012. In 2012, the Company paid $647,000 with respect to approved claims under the class action settlement. As of December 29, 2012, the Company has accrued $40,000 for the payment of remaining claims under the class action settlement and $339,000 in related costs.

The discontinued operation had pre-tax operating income of $1,194,000 in 2012 and a pre-tax operating loss of $1,520,000 and $66,000 in 2011 and 2010, respectively.