Kaydon Corporation (NYSE:KDN) today announced its results for the fourth
fiscal quarter and full year ended December 31, 2012.
Fourth quarter sales increased 2.2 percent to $110.5 million, compared
to sales of $108.1 million in the fourth quarter of 2011.
Diluted earnings per share in the fourth quarter of 2012 equaled $0.25,
compared to diluted earnings per share of $0.27 in the fourth quarter of
2011. Adjusted earnings per share, as defined below, was $0.36 in the
fourth quarter of 2012, compared to $0.41 in the fourth quarter of 2011.
Adjusted EBITDA, as defined below, was $22.4 million during the fourth
quarter of 2012, compared to $25.5 million, during the fourth quarter of
2011. Free cash flow, as defined below, for the fourth quarter of 2012
was $33.4 million compared to $16.6 million in the fourth quarter of
2011, as a $26 million net reduction in receivables, inventory and
payables resulted in the strongest quarterly free cash flow achieved in
over three years.
Adjusted gross margin increased to 36.8 percent in the fourth quarter of
2012, compared to 34.9 percent in the third quarter of 2012, as reduced
shipments of wind energy bearings benefited product mix. Adjusted gross
margin decreased to 36.8 percent from 37.1 percent in the fourth quarter
of 2011 as successful efforts to reduce inventories resulted in lower
manufacturing activity, negatively impacting gross margins relative to
the prior year. As general economic activity improves later in the year,
which would result in increased manufacturing activity, and the Company
benefits from the actions it took to reduce manufacturing capacity in
2012, gross margins would be expected to continue to improve.
Full year 2012 sales totaled $475.2 million compared to $460.1 million
for full year 2011. Full year 2012 diluted earnings per share, prior to
adjustment for the largely non-cash items noted below and in prior
quarters, including certain impairment charges and costs associated with
a recently concluded arbitration, equaled $0.02 per share compared to
$1.52 per share in full year 2011. Adjusting for the full year effect of
the items noted below and in prior quarters, full year 2012 adjusted
diluted earnings per share totaled $1.67 per share and full year 2012
adjusted EBITDA totaled $103.7 million.
This press release includes certain non-GAAP measures, including
adjusted net income, adjusted gross margin, 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
Adjustments to GAAP results include certain items management considers
in evaluating operating performance in each period. During the fourth
quarter of 2012, Kaydon incurred $0.6 million of costs associated with
restructuring, recapitalization and due diligence activities, 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
de-risking of our pension obligations reduced future pension liabilities
by $9.2 million. As a result, the Company incurred a fourth quarter 2012
non-cash settlement charge of $2.9 million resulting from the
acceleration of associated unrecognized actuarial losses previously
being amortized. This discrete, nonrecurring item is included in the
fourth quarter of 2012 selling, general and administrative expense.
There was no impact on the Company's cash position as the distributions
totaling $7.3 million were funded using the assets of the pension plan.
Orders were $102.6 million in the fourth quarter of 2012, compared to
$84.6 million in the fourth quarter of 2011, reflecting improved
conditions in industrial and military markets and the contribution of
Fabreeka's operations. New orders through mid-February are in excess of
20 percent above prior year's levels.
Backlog at December 31, 2012 was $143.5 million, compared to $151.3
million at September 29, 2012, and $181.6 million at December 31, 2011.
Excluding wind orders, backlog increased $11 million in fiscal 2012,
reflecting a book-to-bill ratio of 101 percent in core non-wind
operations over the last twelve months.
James O'Leary, Chairman and Chief Executive Officer commented, "Fiscal
2012 was an important transition year for Kaydon during which we
proactively and aggressively managed our business in response to
evolving business conditions in many of our key end markets, generating
significant free cash flow in the process. After a period of exceptional
growth in our military and wind energy businesses that spanned much of
the decade preceding the global recession and financial crisis of 2009,
recent years saw declines in both of these markets as the aftershocks
have created new market realities, notably fiscal austerity in most
developed nations. In September, we initiated a comprehensive
restructuring of our bearings business to align capacity with current
market needs while maintaining our leadership positions in these
markets. By rightsizing to reflect current market realities, we have
adjusted manufacturing capacity and lowered fixed operating costs to
provide enhanced operating leverage and position us for margin expansion
when business conditions return to more consistently robust levels.
"With much of the revenue decline related to wind energy markets already
replaced by acquisitions made over the past two years in our Velocity
Controls segment, we look forward to accelerating profitable growth
across our product portfolio now that the restructuring process is close
to complete. Within our Friction Controls segment, we remain focused on
developing profitable expansion opportunities in underserved
international markets and in our traditional distribution channels,
particularly within our historically critical industrial end markets.
With improved operating leverage, investments already made in
operational initiatives and sales and marketing resources throughout the
Company will make a more pronounced impact as we also benefit from the
eventual improvement in the global economy.
"As well publicized in recent months, the fourth quarter saw relatively
high levels of uncertainty both in the United States, with election and
fiscal cliff concerns prevalent, and in Europe, where relative economic
stability has yet to translate into meaningfully improved industrial
activity. While there continues to be notable uncertainty in many of our
markets, incoming orders during the quarter, and thus far in 2013, were
healthy as many of our traditional markets served, notably general
industrial, experienced gains relative to the prior year. While the
first half of 2013 will be impacted by still challenging comparisons of
wind performance against fiscal 2012 and some inventory reduction across
our industrial customer base, we expect favorable results in comparison
to prior periods in the second half as the economy continues to improve,
tougher wind comparisons dissipate, and actions taken in late 2012 to
restore operating leverage to our critical, core industrial businesses
take full effect.
"While we wait for a more balanced and sustained improvement in business
conditions, a reprioritized focus on our powerful industrial brands and
the critical industries they serve, coupled with the enhanced operating
leverage expected post-restructuring, should serve us well. With
manufacturing capacity and working capital levels better reflective of
the current environment, we are well positioned for the gradual economic
improvements expected as the year progresses.
"Although we remain patient while the economic improvements widely
anticipated in 2013 take hold, patience should not be confused with
complacence. In 2012, in addition to initiating the necessary
restructuring already discussed and completing one acquisition in
Velocity Controls while integrating another, we provided ample evidence
of our ability to generate strong levels of free cash flow, particularly
in our fourth quarter, while providing meaningful returns to our
shareholders in a yield starved environment, as demonstrated by our
special dividend earlier in March and our commitment to our current
regular dividend. Our ability to consistently generate strong levels of
free cash flow while providing meaningful cash returns to our
shareholders in a still volatile investing environment remains a
hallmark of Kaydon as we have managed both cyclical and secular
challenges within our businesses since 2009. This solid cash flow
performance and ability to provide cash returns to our shareholders
regardless of the economic environment will stand us well while we
anticipate a resumption in more consistently strong and stable economic
Segment Results and Review
Friction Control Products sales in the fourth quarter of 2012 were $53.9
million, compared to $58.5 million in the 2011 fourth quarter. Operating
income totaled $7.1 million, compared to $4.9 million in the prior
fourth quarter. Wind revenues were $1.9 million, compared to $9.6
million in the fourth quarter of 2011, reflecting the long expected
decline in this market. Excluding wind, Friction Control Products sales
were 6.5 percent higher compared to the prior year. The increase in
operating income was attributable to the absence of $5.2 million of
arbitration related costs that impacted the fourth quarter of 2011
offset in part by the effect of the decline in wind energy sales and
inefficiencies and lower cost absorption associated with the continued
ramp down of wind bearing production and reduction of inventory.
Velocity Control Products sales in the fourth quarter of 2012 were $27.9
million, compared to $20.4 million in the fourth quarter of 2011.
Operating income for this segment totaled $4.5 million, compared to $3.4
million in the prior fourth quarter. This segment benefited from the
results of Fabreeka, which was acquired in the second quarter of 2012.
Other Industrial Products sales in the fourth quarter of 2012 were $28.7
million, compared to $29.2 million in the 2011 fourth quarter. Operating
income equaled $4.1 million in the fourth quarter of 2012, compared to
operating income of $3.8 million in the fourth quarter of 2011.
Financial Position and Free Cash Flow
Free cash flow was $33.4 million in the fourth quarter of 2012, compared
to $16.6 million in the fourth quarter of 2011, primarily driven by a
$26 million current quarter reduction in net receivables, inventory and
trade payables. During the quarter, the Company repaid $19.9 million of
debt while paying dividends of $12.6 million, including the payment in
2012 of dividends declared in both the third and fourth quarter.
As of December 31, 2012, the Company had cash and cash equivalents
totaling $53.6 million. Kaydon had borrowings outstanding in the
principal amount of $32.0 million under the revolving credit facility
and $144.4 million under the term loan facility as of December 31, 2012.
Kaydon Corporation is a leading designer and manufacturer of custom
engineered, performance-critical products, supplying a broad and diverse
group of industrial, military, aerospace, medical, semiconductor and
alternative energy equipment, and aftermarket customers.
Conference call information: At 11:00 a.m. Eastern time today, Kaydon
will host a fourth quarter and full year 2012 earnings conference call.
The conference call can be accessed telephonically in a listen-only mode
by dialing 1-888-455-2296 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:
or by logging on to the Kaydon Corporation website at: http://www.kaydon.com
and accessing the conference call at the "Fourth Quarter and Full Year
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 Wednesday, February
27, 2013 at 2:00 p.m. Eastern time. The replay is accessible by dialing
1-888-203-1112 and providing the following passcode number: 4328596.
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.
Adjustments to reconcile net income to net cash from operating
Effect of exchange rate changes on cash and cash equivalents
Free cash flow, as defined (non-GAAP)
Adjusted EBITDA, as defined (non-GAAP)
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