Kaydon Corporation Reports Third Quarter Results
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ANN ARBOR, Mich.--(BUSINESS WIRE)-- Kaydon Corporation (NYSE: KDN) today announced its results for the third fiscal quarter ended October 3, 2009.
Third Quarter Results
Sales in the third fiscal quarter of 2009 were $123.6 million, compared to $126.8 million in the third quarter of 2008. Wind energy sales in the third quarter of 2009 were $41.0 million, an increase of $19.4 million compared to the third quarter of 2008. The 90 percent increase in wind energy sales offset much of the sales declines in our other end markets in the third quarter of 2009 as compared to the prior third quarter.
Operating income was $24.6 million in the third quarter of 2009, compared to $24.8 million in the third quarter of 2008. EBITDA, a non-GAAP measure and as defined by the Company, was $32.1 million, or 25.9 percent of sales, during the third quarter of 2009, compared to $31.8 million, or 25.1 percent of sales, during the third quarter of 2008. Both operating income and EBITDA in the 2009 period include a pre-tax gain of $5.4 million associated with changes to certain benefit plans as described below. Readers should refer to the attached Reconciliation of Non-GAAP Measures exhibit for the calculation of EBITDA and the reconciliation of EBITDA to the most comparable GAAP measure.
The Company recently initiated several changes to its postretirement employment benefits which will benefit future cash flow and earnings. The curtailment of these benefits has resulted in a pre-tax gain of $5.4 million, or $.10 per share on a diluted basis, in the third quarter of 2009.
Comparisons are also impacted by significantly reduced interest income due to negligible market rates available for cash balances as management continues to prioritize preservation of capital over short term returns. Interest income in the third quarter of 2009 was $0.2 million, compared to $1.5 million in the third quarter of 2008, which resulted in a year-over-year reduction of approximately $.03 per share on a diluted basis.
Net income was $16.1 million in the third quarter of 2009, or $.48 per share on a diluted basis, compared to net income of $16.3 million in the third quarter of 2008, or $.50 per share on a diluted basis. Third quarter 2008 results have been adjusted to reflect the required retrospective application of a new accounting standard related to earnings per share effective January 1, 2009. This new standard required retrospective application to prior periods and the required adjustment reduced previously reported third quarter 2008 basic earnings per share by $.01 and had no effect on diluted earnings per share.
Backlog was $250.1 million at October 3, 2009 compared to $242.8 million at July 4, 2009, the end of the second fiscal quarter of 2009, and $354.5 million at September 27, 2008. Wind energy backlog was $129.6 million at October 3, 2009 compared to $124.1 million at July 4, 2009 and $181.6 million at September 27, 2008.
Management Commentary
James O' Leary, Chairman and Chief Executive Officer commented, "We are pleased with our execution in an extremely difficult operating environment. The cost reduction and containment measures initiated early and aggressively in this downturn, together with a solid performance from our wind energy business, yielded results that are relatively stronger than those experienced earlier this year. We are especially pleased with our cash flow performance, which reflected both these measures and our disciplined approach to managing capital expenditures during this challenging period.
"Overall, our industrial end markets appear to have stabilized at the relatively low levels noted in our previous quarter. Certain markets, notably wind energy and medical, were stronger as they benefited from strategic positioning and the capital investments made in prior periods. Also noteworthy, our military end market, while below prior year's level due to the timing of certain program releases, was solid sequentially and the current quarter saw higher orders and shipments of military vehicle products.
"While the current quarter showed sequential strength in our wind energy, medical, and military markets, it is important to note that their longer term outlooks will be heavily influenced by governmental policy issues including clear, long term support for renewable energy initiatives and funding for military spending. That said, we are pleased with our position in these markets given the current environment.
"The aggressive, proactive cost reduction and containment measures initiated by our leadership team, coupled with the underlying strength of our businesses, should allow us to exit this downturn in better shape than when we entered it. We continue to seek opportunities across the Company to improve our structural cost base in the event that business does not improve from the current level in the intermediate term.
"The strength of our balance sheet and the cash generating ability of our businesses will allow us to fund important initiatives and take advantage of opportunities that may arise over time. The recent increase in our dividend reflects the confidence of our management team and our Board in the fundamental strengths of our Company."
Segment Review
Friction control product sales in the third quarter of 2009 were $87.1 million, compared to $79.3 million in the third quarter of 2008. Sales to the wind energy and medical markets exceeded prior year's levels offsetting declines in our industrial markets. Our industrial end markets have presently settled at the relatively low levels noted in our prior quarter. While certain markets, such as medical and semiconductor, have shown some signs of strengthening, our higher margin, industrial machinery businesses remain depressed, although no longer worsening.
Wind energy sales in the third quarter of 2009 were $41.0 million, an increase of $19.4 million compared to the third quarter of 2008. Wind energy sales for the first three quarters of 2009 were $81.7 million, an increase of 45 percent compared to the first three quarters of 2008. During the recent quarter, there was a discernable improvement in trade credit conditions which benefitted shipments during the period as availability of letters of credit improved significantly.
Third quarter 2009 friction control products operating income was $15.4 million, compared to $16.4 million in the third quarter of 2008. The decline in operating income was primarily attributable to unfavorable mix, higher depreciation, and higher pension costs.
Velocity control product sales in the third quarter of 2009 were $12.2 million, compared to $17.1 million in the third quarter of 2008, due principally to reduced demand related to the general economic decline in both Europe and North America. Third quarter 2009 velocity control products operating income was $2.1 million, compared to $4.5 million in the third quarter of 2008 due principally to lower volume.
Sealing product sales in the third quarter of 2009 were $8.8 million, compared to $10.8 million in the third quarter of 2008, due to lower demand stemming from the general economic decline. Third quarter 2009 sealing products operating income was $0.8 million, compared to $1.0 million in the third quarter of 2008 due principally to lower volume.
Sales from the Company's remaining businesses in the third quarter of 2009 were $15.5 million, compared to $19.7 million in the third quarter of 2008 resulting from lower demand related to the general economic decline. Third quarter 2009 other business operating income was $1.4 million, compared to $1.8 million in the third quarter of 2008, due principally to lower volume.
Financial Position and Free Cash Flow
Free cash flow, a non-GAAP measure defined by the Company as net cash from operating activities less capital expenditures, net of dispositions, was $40.5 million in the third quarter of 2009 compared to $7.8 million during the third quarter of 2008. Readers should refer to the attached Reconciliation of Non-GAAP Measures exhibit for the calculation of free cash flow and the reconciliation of free cash flow to the most comparable GAAP measure.
During the third quarter of 2009, the Company reduced inventory levels relative to the prior quarter by approximately $19.7 million. In addition, capital expenditures, net of dispositions declined significantly from the prior year's level as the Company completed its expansion plan in wind energy and responded to current business conditions.
On July 6, 2009, the Company paid common stock dividends of $.17 per share or $5.7 million. The Company's third quarter dividend, paid on October 5, 2009, was at a rate of $.18 per share, an increase of 5.9 percent from the previous $.17 per share.
The Company had unrestricted cash totaling $247.8 million, $295.1 million in committed available credit and no debt outstanding as of October 3, 2009.
About Kaydon
Kaydon Corporation is a leading designer and manufacturer of custom-engineered, performance-critical products, supplying a broad and diverse group of alternative-energy, industrial, aerospace, medical and electronic equipment, and aftermarket customers.
Conference call information: At 8:30 a.m. Eastern time today, Kaydon will host a third quarter 2009 earnings conference call. The conference call can be accessed telephonically in a listen-only mode by dialing 1-888-218-8176 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://webcast.premiereglobal.com/view/wl/r.htm?e=168605&s=1&k=D580923F67D44E8A915C3888BE9A756E
or by logging on to the Kaydon Corporation website at: http://www.kaydon.com and accessing the conference call at the "Third Quarter 2009 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 11:30 a.m. Eastern time today through November 5, 2009 at 11:59 p.m. Eastern time. The replay is accessible by dialing 1-888-203-1112 and providing the following passcode number: 4558850.
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 pending litigation, 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 expectation 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 CONDENSED STATEMENTS OF OPERATIONS
Third Quarter Ended First Three Quarters Ended
As adjusted As adjusted (1)
(1)
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Net sales $ $ $ 332,290,000 $ 389,992,000
123,637,000 126,803,000
Cost of sales 85,590,000 82,270,000 226,113,000 243,969,000
Gross profit 38,047,000 44,533,000 106,177,000 146,023,000
Selling,
general, and 13,418,000 19,754,000 52,800,000 62,942,000
administrative
expenses
Operating 24,629,000 24,779,000 53,377,000 83,081,000
income
Interest (62,000 ) (1,393,000 ) (185,000 ) (9,302,000 )
expense
Interest 190,000 1,520,000 429,000 5,198,000
income
Income before 24,757,000 24,906,000 53,621,000 78,977,000
income taxes
Provision for 8,690,000 8,571,000 19,071,000 27,691,000
income taxes
Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000
Earnings per
share:
Basic $0.48 $0.54 $1.03 $1.80
Diluted $0.48 $0.50 $1.03 $1.65
Dividends
declared per $0.18 $0.17 $0.52 $0.47
share
(1) Results for the Third Quarter and First Three Quarters Ended September 27,
2008 have been adjusted, as required, for the retrospective application of new
Financial Accounting Standards Board guidance on debt and earnings per share.
KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
October 3, December 31,
2009 2008
Assets:
Cash and cash equivalents $ 247,841,000 $ 232,998,000
Accounts receivable, net 75,907,000 78,918,000
Inventories, net 95,070,000 97,748,000
Other current assets 15,256,000 18,395,000
Total current assets 434,074,000 428,059,000
Property, plant and equipment, net 178,101,000 185,642,000
Goodwill, net 143,868,000 142,424,000
Other intangible assets, net 22,584,000 25,746,000
Other assets 1,602,000 7,911,000
Total assets $ 780,229,000 $ 789,782,000
Liabilities and Shareholders' Equity:
Accounts payable $ 21,380,000 $ 35,080,000
Accrued expenses 30,512,000 27,682,000
Total current liabilities 51,892,000 62,762,000
Long-term liabilities 39,864,000 54,390,000
Shareholders' equity 688,473,000 672,630,000
Total liabilities and shareholders' equity $ 780,229,000 $ 789,782,000
KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Third Quarter Ended First Three Quarters Ended
As adjusted (1)
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Cash flows
from operating
activities:
Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000
Adjustments
to reconcile
net income to
net cash from
operating
activities:
Depreciation 5,060,000 4,240,000 14,635,000 11,844,000
Amortization
of intangible 1,071,000 1,366,000 3,211,000 4,097,000
assets
Amortization
of stock 1,034,000 1,126,000 3,104,000 3,353,000
awards
Stock option
compensation 289,000 311,000 981,000 901,000
expense
Excess tax
benefits from 18,000 (262,000 ) 61,000 (179,000 )
stock-based
compensation
Deferred
financing 62,000 62,000 186,000 728,000
fees
Net change in
receivables,
inventories
and trade 11,025,000 869,000 (6,744,000 ) (30,261,000 )
payables
Contributions
to qualified - - (14,846,000 ) -
pension plans
Net change in
other assets 6,721,000 (281,000 ) 8,989,000 7,929,000
and
liabilities
Net cash from
operating 41,347,000 23,766,000 44,127,000 49,698,000
activities
Cash flows
from investing
activities:
Capital (1,886,000 ) (16,033,000 ) (9,585,000 ) (45,949,000 )
expenditures
Dispositions
of property, 1,076,000 91,000 1,186,000 99,000
plant and
equipment
Proceeds from
sales of 2,170,000 3,392,000 4,063,000 63,408,000
investments
Acquisition
of business, - - - 489,000
net of cash
received
Net cash from
(used in) 1,360,000 (12,550,000 ) (4,336,000 ) 18,047,000
investing
activities
Cash flows
from financing
activities:
Cash
dividends (5,707,000 ) (4,148,000 ) (17,164,000 ) (12,485,000 )
paid
Purchase of
treasury - (9,755,000 ) (8,871,000 ) (21,837,000 )
stock
Excess tax
benefits from (18,000 ) 262,000 (61,000 ) 179,000
stock-based
compensation
Proceeds from
exercise of 24,000 79,000 24,000 242,000
stock options
Net cash used
in financing (5,701,000 ) (13,562,000 ) (26,072,000 ) (33,901,000 )
activities
Effect of
exchange rate
changes on
cash and
cash 168,000 (3,426,000 ) 1,124,000 (1,106,000 )
equivalents
Net increase
(decrease) in 37,174,000 (5,772,000 ) 14,843,000 32,738,000
cash and cash
equivalents
Cash and cash
equivalents - 210,667,000 268,503,000 232,998,000 229,993,000
Beginning of
period
Cash and cash $ $
equivalents - 247,841,000 262,731,000 $ 247,841,000 $ 262,731,000
End of period
(1) Results for the First Three Quarters Ended September 27, 2008 have been
adjusted, as required, for the retrospective application of new Financial
Accounting Standards Board guidance on debt.
KAYDON CORPORATION
EARNINGS PER SHARE
Third Quarter Ended First Three Quarters Ended
As adjusted (1) As adjusted (1)
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Earnings per
share - Basic
Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000
Less: Net
earnings
allocated to (174,000 ) (218,000 ) (395,000 ) (767,000 )
participating
securities -
Basic
Income
available to
common $ 15,893,000 $ 16,117,000 $ 34,155,000 $ 50,519,000
shareholders -
Basic
Weighted
average common
shares 33,226,000 29,679,000 33,258,000 28,118,000
outstanding -
Basic
Earnings per $ 0.48 $ 0.54 $ 1.03 $ 1.80
share - Basic
Earnings per
share -
Diluted
Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000
Less: Net
earnings
allocated to (174,000 ) (210,000 ) (395,000 ) (742,000 )
participating
securities -
Diluted
Plus:
Interest and
debt issuance
costs
amortization - 852,000 - 5,833,000
related to
Contingent
Convertible
Notes, net of
tax
Income
available to
common $ 15,893,000 $ 16,977,000 $ 34,155,000 $ 56,377,000
shareholders -
Diluted
Weighted
average common
shares
outstanding -
Diluted
Weighted
average
common shares 33,226,000 29,679,000 33,258,000 28,118,000
outstanding -
Basic
Potential
dilutive
shares 19,000 57,000 15,000 46,000
resulting
from stock
options
Dilutive
shares
resulting
from - 4,255,000 - 5,979,000
Contingent
Convertible
Notes
Weighted
average
common shares 33,245,000 33,991,000 33,273,000 34,143,000
outstanding -
Diluted
Earnings per
share - $ 0.48 $ 0.50 $ 1.03 $ 1.65
Diluted
(1) Results for the Third Quarter and First Three Quarters Ended September 27,
2008 have been adjusted, as required, for the retrospective application of new
Financial Accounting Standards Board guidance on earnings per share.
KAYDON CORPORATION
REPORTABLE SEGMENT INFORMATION
(Amounts in thousands)
Third Quarter Ended First Three Quarters Ended
October 3, September 27, October 3, September 27,
Net sales 2009 2008 2009 2008
Friction Control $ 87,076 $ 79,255 $ 223,491 $ 240,159
Products
Velocity Control 12,202 17,114 34,602 55,832
Products
Sealing Products 8,835 10,782 28,998 34,007
Other 15,524 19,652 45,199 59,994
Total consolidated net $ 123,637 $ 126,803 $ 332,290 $ 389,992
sales
Third Quarter Ended First Three Quarters Ended
As adjusted (1)
October 3, September 27, October 3, September 27,
Operating income 2009 2008 2009 2008
Friction Control $ 15,392 $ 16,431 $ 37,633 $ 56,130
Products
Velocity Control 2,124 4,516 5,191 16,197
Products
Sealing Products 845 990 2,209 4,031
Other 1,383 1,849 3,258 7,309
Total segment 19,744 23,786 48,291 83,667
operating income
Items not allocated to
segment operating 4,885 993 5,086 (586 )
income
Interest expense (62 ) (1,393 ) (185 ) (9,302 )
Interest income 190 1,520 429 5,198
Income before income $ 24,757 $ 24,906 $ 53,621 $ 78,977
taxes
(1) Results for the First Three Quarters Ended September 27, 2008 have been
adjusted, as required, for the retrospective application of new Financial
Accounting Standards Board guidance on debt. The state income tax provision is
no longer included in segment operating income and amounts in the third quarter
and first three quarters of 2008 have been reclassified to conform to this
presentation.
KAYDON CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
(Amounts in thousands)
Third Quarter Ended First Three LTM
Quarters Ended
October September October September October September
3, 27, 3, 27, 3, 27,
Free cash flow,
as defined 2009 2008 2009 2008 2009 2008
(non-GAAP)
Net cash from
operating $ $ $ $ $ $
activities 41,347 23,766 44,127 49,698 52,329 76,595
(GAAP)
Capital
expenditures, (810 ) (15,942 ) (8,399 ) (45,850 ) (22,059 ) (62,922 )
net of
dispositions
Free cash flow, $ $ $ $
as defined 40,537 $ 7,824 35,728 $ 3,848 30,270 13,673
(non-GAAP)
Kaydon's management believes free cash flow, as defined above and a non-GAAP
measure, is an important indicator of the Company's ability to generate excess
cash above levels required for capital investment to support future growth.
However, it should be viewed as supplemental data, rather than as a substitute
or alternative to the comparable GAAP measure.
Third Quarter Ended First Three LTM
Quarters Ended
As As
adjusted adjusted
(1) (1)
October September October September October September
3, 27, 3, 27, 3, 27,
EBITDA, as
defined 2009 2008 2009 2008 2009 2008
(non-GAAP)
Net income $ $ $ $ $ $
(GAAP) 16,067 16,335 34,550 51,286 48,327 72,707
Net interest (128 ) (127 ) (244 ) 4,104 155 4,591
(income)/expense
Provision for 8,690 8,571 19,071 27,691 27,325 37,950
income taxes
Depreciation and
amortization of 6,131 5,606 17,846 15,941 23,550 20,118
intangible
assets
Stock-based
compensation 1,323 1,437 4,085 4,254 5,558 5,778
expense (2)
EBITDA, as $ $ $ $ $ $
defined 32,083 31,822 75,308 103,276 104,915 141,144
(non-GAAP)
(1) Results have been adjusted, as required, for the retrospective application
of new Financial Accounting Standards Board guidance on debt.
(2) Includes non-cash stock amortization expense and non-cash stock option
expense.
Kaydon's management believes EBITDA, as defined above and a non-GAAP measure, is
a determinant of the Company's capacity to incur additional senior capital to
enhance future profit growth and cash flow growth. In addition, EBITDA is widely
used by financial analysts and investors, and is utilized in measuring
compliance with financial covenants in the Company's credit agreement. Also,
EBITDA is the metric used to determine payments under the Company's annual
incentive compensation program for senior managers. However, EBITDA, as defined,
should be viewed as supplemental data, rather than as a substitute or
alternative to the comparable GAAP measure.
Source: Kaydon Corporation
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