Kaydon Corporation Reports Third Quarter 2012 Results

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Kaydon Corporation Reports Third Quarter 2012 Results

ANN ARBOR, Mich.--(BUSINESS WIRE)-- Kaydon Corporation (NYS: KDN) today announced its results for the third fiscal quarter ended September 29, 2012.

Consolidated Results


Sales in the third quarter of 2012 were $123.8 million, compared to sales of $121.6 million in the third quarter of 2011. On a constant currency basis, revenues increased four percent in the third quarter of 2012.

The third quarter 2012 loss per share was $.99 compared to diluted earnings per share of $.45 in the third quarter of 2011. Adjusted earnings per share, as defined below, was $.44 in the third quarter of 2012, compared to $.50 in the third quarter of 2011. Adjusted results include charges related to the comprehensive restructuring of Kaydon's wind energy bearings business, which was announced earlier this month.

Adjusted EBITDA, was $27.2 million, during the third quarter of 2012, compared to $29.8 million, during the third quarter of 2011. Adjusted gross margins were 34.9 percent during the third quarter of 2012, compared to 35.9 percent during the third quarter of 2011. Margins were impacted by inefficiencies associated with the ramp down of the two facilities affected by the restructuring.

This press release includes certain non-GAAP measures, including Adjusted net income, Adjusted earnings per share, EBITDA, Adjusted EBITDA and free cash flow. Readers should refer to the attached Reconciliation of Non-GAAP Measures exhibit for the reconciliations of the applicable GAAP measures to the non-GAAP measures presented.

Adjustments to GAAP results include certain items management considers in evaluating operating performance in each period. During the third quarter of 2012, such adjustments included the $46.0 million pre-tax charge associated with the recently announced restructuring of the company's wind energy bearings business and the related impairment charge, $4.0 million of largely non-cash costs related to the recently completed wind customer arbitration, $0.4 million of due diligence and acquisition related purchase accounting costs and $1.3 million of non-cash amortization of previously incurred net actuarial losses related to postretirement benefit plans. During the third quarter, the Company offered certain former non-retiree employees with vested pension benefits the option of receiving a lump sum payment or an immediate annuity in settlement of all future pension obligations. This offer, described below, would further de-risk the Company's pension obligations with no cash impact on operations.

Management Commentary

James O'Leary, Chairman and Chief Executive Officer commented, "The restructuring announced earlier this month proactively addressed conditions in the wind and military markets by right-sizing manufacturing capacity and lowering fixed operating costs to provide maximum operating leverage and opportunity for margin expansion going forward. While wind will continue to be an important product offering, reducing capacity was the appropriate action to take at this time. Since 2006, we have built a leadership position in a global market that recognizes both our brand and our technology. The capabilities developed to service the ever increasing demands of the wind market will also serve us well in other markets, including heavy equipment and mining.

"The rapid growth and subsequent contraction in the renewable energy market consumed considerable Company resources during the most recent supercharged wind energy cycle. With this restructuring announced and well under way, we have rebalanced and reprioritized our efforts going forward. We remain focused on achieving profitable growth, particularly in underserved international markets, and providing consistent returns to shareholders. With much of the revenue generated by our wind assets in 2012 already replaced by our last two acquisitions of Velocity Control businesses, the product focus within our Friction Control segment will center on accelerated growth of Kaydon's traditional highly engineered bearings, internationally and in our traditional distribution channels.

"While this restructuring addresses certain sector specific concerns associated with our wind and military businesses, we still see uncertainty and softness around the world. Europe continues to be impacted by its own macroeconomic issues while growth in Asia has become increasingly challenging in recent months. That said, non-wind incoming orders during the quarter were healthy as many of our traditional markets, including military, heavy equipment and medical, experienced gains. With a non-wind book to bill of 102 percent, we saw the third consecutive quarter of non-wind orders exceeding shipments. While we wait for a more balanced and sustained improvement in business conditions, a reprioritized focus on our powerful industrial brands, and the enhanced operating leverage we expect to experience, should serve us well."

Segment Results and Review

Friction Control Products sales in the third quarter of 2012 were $66.7 million, compared to $69.9 million in the 2011 third quarter. Excluding the restructuring and arbitration adjustments previously detailed, third quarter 2012 Friction Control Products operating income totaled $9.5 million compared to $12.3 million in the prior third quarter. Results were impacted by lower wind revenues of $16.0 million, as compared to $19.2 million in the third quarter of 2011. Excluding wind, Friction Control Products' sales were flat compared to the prior year. Operating income was negatively affected by inefficiencies and lower cost absorption associated with the ramp down of wind operations and the reduction of inventory.

Velocity Control Products sales in the third quarter of 2012 were $29.9 million, compared to $24.4 million in the third quarter of 2011. Operating income for this segment totaled $6.6 million, compared to $6.1 million in the prior third quarter. This segment benefited from both the Fabreeka acquisition and improved sales in Asia, which offset weakness in Europe.

Other Industrial Products sales in the third quarter of 2012 were $27.3 million, compared to $27.4 million in the 2011 third quarter. Operating income equaled $2.7 million in the third quarter of 2012, compared to operating income of $2.9 million in the third quarter of 2011.

Order Activity

Orders were $105.7 million in the third quarter of 2012, compared to $130.4 million in the third quarter of 2011. Non-wind orders were $109.7 million in the third quarter of 2012 compared to $92.2 million in the prior third quarter, reflecting strength in military and the contribution of Fabreeka's operations.

Backlog at September 29, 2012 was $151.3 million compared to $169.5 million at June 30, 2012, and $205.1 million at October 1, 2011. Excluding wind orders, backlog at September 29, 2012 was $141.3 million compared to $139.5 million at June 30, 2012, and $135.6 million at October 1, 2011.

Financial Position and Free Cash Flow

Free cash flow was $20.4 million in the third quarter of 2012, compared to $10.5 million in the third quarter of 2011, primarily driven by a $14 million current quarter reduction in working capital.

As of September 29, 2012, the Company had cash and cash equivalents totaling $52.0 million, up $13 million from the second quarter. Kaydon had borrowings outstanding in the principal amount of $50.0 million under the revolving credit facility and $146.3 million under the term loan facility as of September 29, 2012.

During the third quarter, the Company offered certain former non-retiree employees with vested pension benefits the option of receiving a lump sum payment or an immediate annuity in settlement of all future pension obligations. This de-risking of our pension obligations will reduce future pension liabilities proportionately. Depending on the level of acceptance, the Company may incur a fourth quarter 2012 non-cash settlement after-tax charge of between $0.0 and $4.1 million resulting from the acceleration of associated unrecognized actuarial losses currently being amortized. There will be no current impact on the Company's cash flow as the distributions will be funded using the assets of the pension plan.

About Kaydon

Kaydon Corporation is a leading designer and manufacturer of custom engineered, performance-critical products, supplying a broad and diverse group of industrial, military, alternative energy, aerospace, medical and semiconductor equipment, and aftermarket customers.

Conference call information: At 11:00 a.m. Eastern time today, Kaydon will host a third quarter 2012 earnings conference call. The conference call can be accessed telephonically in a listen-only mode by dialing 1-888-417-8516 and providing the following passcode number: 800500. Participants are asked to dial in 10 minutes prior to the scheduled start time of the call.

Alternatively, interested parties are invited to listen to the conference call on the internet at:

http://w.on24.com/r.htm?e=526480&s=1&k=601DDE8317B1817CE4593E2000E0CBC3

or by logging on to the Kaydon Corporation website at: http://www.kaydon.com and accessing the conference call at the "Third Quarter 2012 Conference Call" icon.

To accommodate those that are unable to listen at the scheduled start time, a replay of the conference call will be available telephonically beginning at 2:00 p.m. Eastern time today through Thursday, November 1, 2012 at 2:00 p.m. Eastern time. The replay is accessible by dialing 1-888-203-1112 and providing the following passcode number: 3033430.

Additionally, interested parties can access an archive of the conference call on the Kaydon Corporation website at http://www.kaydon.com.

This press release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 regarding the Company's plans, expectations, estimates and beliefs. Forward-looking statements are typically identified by words such as "believes," "anticipates," "estimates," "expects," "intends," "will," "may," "should," "could," "potential," "projects," "approximately," and other similar expressions, including statements regarding general economic conditions, competitive dynamics and the adequacy of capital resources. These forward-looking statements may include, among other things, projections of the Company's financial performance, anticipated growth, characterization of and the Company's ability to control contingent liabilities, and anticipated trends in the Company's businesses. These statements are only predictions, based on the Company's current expectations about future events. Although the Company believes the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, performance or achievements or that predictions or current expectations will be accurate. These forward-looking statements involve risks and uncertainties that could cause the Company's actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements.

In addition, the Company or persons acting on its behalf may from time to time publish or communicate other items that could also be construed to be forward-looking statements. Statements of this sort are or will be based on the Company's estimates, assumptions, and projections and are subject to risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Kaydon does not undertake any responsibility to update its forward-looking statements or risk factors to reflect future events or circumstances except to the extent required by applicable law.

Certain non-GAAP measures are presented in this press release. These measures should be viewed as supplemental data, rather than as substitutes or alternatives to the most comparable GAAP measures.

KAYDON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
     
 
Three Months EndedNine Months Ended
 
September 29,October 1,September 29,October 1,
 2012  2011  2012  2011 
Net sales$123,849$121,637$364,688$352,007
 
Cost of sales 87,361  78,795  245,599  226,359 
 
Gross profit36,48842,842119,089125,648
 
Selling, general and administrative expenses25,02622,49872,82267,358
 
Impairment charge 42,953  0  42,953  0 
 
Operating income (loss)(31,491)20,3443,31458,290
 
Interest expense(955)(98)(2,138)(293)
 
Interest income 59  88  238  377 
 
Income (loss) before taxes(32,387)20,3341,41458,374
 
Provision for income taxes (1,084) 5,830  8,902  17,722 
 
Net income (loss)$(31,303)$14,504 $(7,488)$40,652 
 
 
Earnings per share:
Basic ($0.99)$0.45  ($0.24)$1.25 
Diluted ($0.99)$0.45  ($0.24)$1.25 
 
 
Dividends declared per share$0.20 $0.20 $11.10 $0.58 
 
 
Weighted average common shares outstanding:
Basic 31,756  31,931  31,748  32,229 
Diluted 31,756  31,950  31,748  32,254 
   
KAYDON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
September 29,December 31,
 2012 2011
Assets:
Cash and cash equivalents$52,009$225,214
Accounts receivable, net93,39178,441
Inventories, net108,096110,206
Other current assets 17,040 16,701
 
Total current assets270,536430,562
 
Property, plant and equipment, net120,408168,946
 
Assets held for sale6,531-
Goodwill, net190,143157,087
Other intangible assets, net49,79431,140
Other assets 2,736 3,962
 
Total assets$640,148$791,697
 
 
Liabilities and Shareholders' Equity:
 
Accounts payable$21,945$19,699
Accrued expenses21,94229,766
Current portion long-term debt 9,375 -
Total current liabilities53,26249,465
 
Long-term debt186,875-
Other long-term liabilities 69,881 57,594
Total long-term liabilities256,75657,594
 
Shareholders' equity 330,130 684,638
 
Total liabilities and shareholders' equity$640,148$791,697
 
KAYDON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
     
Three Months EndedNine Months Ended
 
September 29,October 1,September 29,October 1,
 2012  2011  2012  2011 
Cash Flows from Operating Activities:
Net income (loss)$(31,303)$14,504$(7,488)$40,652
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation5,1545,12815,32915,095
Amortization of intangible assets1,0078162,5852,274
Amortization of stock awards5721,1022,3673,125
Stock option compensation expense1903171,525995
Excess tax benefits from stock-based compensation19(37)(654)(95)
Non-cash postretirement benefits curtailment gain---(142)
Non-cash impairment charge42,953-42,953-
Deferred financing fees12397593291
Contributions to qualified pension plans(5,790)(840)(7,959)(1,952)
Net change in receivables, inventories and trade payables13,698(8,824)(2,622)(25,466)
Net change in other assets and liabilities (1,416) 2,198  2,524  497 
 
Net cash from operating activities25,20714,461 Read Full Story

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