Ann Arbor, Michigan -November 2, 2010
Kaydon Corporation (NYSE:KDN) today annouced its results for the third fiscal quarter ended October 2, 2010.
Consolidated Results:
Sales in the third fiscal quarter of 2010 were $118.3 million, compared to sales of $123.6 million in the third quarter of 2009. Comparisons were affected by the third quarter of 2009 inclusion of significant wind energy sales that were deferred from the previous quarter due to customer difficulties in obtaining letters of credit during last year's economic crisis.
Operating income was $18.6 million in the third quarter of 2010, compared to $24.6 million in the third quarter of 2009. Items affecting the quarter-over-quarter comparision include $2.6 million of costs in the third quarter of 2010 primarily associated with our previously announced manufacturing consolidation program and the absence of a $5.4 million per-tax gain recorded in the third quarter of 2009 resulting from changes in certain benefit plans. Excluding these items, operating income, as adjusted, was $21.2 million in the third quarter of 2010, compared to $19.3 million in the third quarter of 2009.
EBITDA equaled $26.2 million, or 22.2 percent of sales, during the third quarter of 2010, compared to $32.1 million, or 25.9 percent of sales, during the third quarter of 2009. EBITDA comparisons are also affected by the items noted above. Adjusting for these items, EBITDA, as adjusted, was $28.0 million, or 23.7 percent of sales, in the third quarter of 2010, compared to $26.8 million, or 21.7 percent of sales, in the third quarter of 2009.
Net income for the third quarter of 2010 was $13.1 million, compared to net income of $16.1 million in the third quarter of 2009. Diluted earnings per share in the third quarter of 2010 equaled $.39, compared to diluted earnings per share of $48 in the third quarter of 2009. Adjusting for items noted above, net income was $14.9 million, or $.44 per share on a diluted basis, in the third quarter of 2010 compared to $12.6 million, or $.38 per share on a diluted basis, in the third quarter of 2009. The effect of these items noted reduced diluted earnings per share by $.05 per share in the third quarter of 2010, and increased diluted earnings per share by $.10 per share in the third quarter of 2009.
Third quarter 2010 results benefited from a lower effective tax rate of 30.2 percent compared to 35.1 percent in the 2009 third quarter due primarily to the full availability of the Domestic Manufacturing Deduction and the planned permanent reinvestment of earnings of certain international operations.
T
his press release includes certain non-GAAP measures, including EBITDA, free cash flow, and the as adjusted operating income, EBITDA, net income, and earnings per share-diluted provided herein. 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.
Management Commentary:
James O'Leary, Chairman and Chief Executive Officer commented, "Our results this quarter reflect a still strong industrial environment offset by the long expected and previously discussed moderation in our wind energy and military business. Our performance during the balance of 2010 and into 2011 remains dependent on the continued strengthening of general economic and industrial conditions. Further broad based improvement in our industrial business will be required to achieve favorable comparisons against prior periods due to the anticipated continued moderation in our wind energy and military business.
"Our results thus far in 2010 reflect the benefits of market leadership in sound end markets together with procative management of costs and spending. Together with our robust free cash flow and strong balance sheet, we are positioned well going forward."
Segment Results and Review:
Friction Control Products sales in the third quarter of 2010 were $78.0 million, compared to $87.1 million in the 2009 third quarter. Wind energy sales were $29.1 million in the third quarter of 2010 compared to $41.0 million in the third quarter of 2009. Higher wind engery sales in the 2009 period resulted from the fact that significant wind energy sales were deferred from the second quarter of 2009 to the third quarter of 2009 due to the adverse financial and economic conditions in early 2009. Year-to-date wind energy sales were $83.4 million, compared to $81.7 million in the first three quarters of 2009. The Company expects wind energy shipments for the full year of 2010 to be approximately $95 million, compared to the $103.0 million of wind energy shipments in the full year of 2009.
Third quarter 2010 sales to non-wind industrial markets increased to $48.9 million as growth in sales to the machinery, semiconductor, medical and other industrial markets more than offset lower militaty sales, as a major military program wound down.
Third quarter 2010 Friction Control Products operating income totaled $12.7 million, compared to $15.4 million in the prior third quarter. The reduction in operating income compared to the prior third quarter was due primarily to the $2.3 million in costs associated with a manufacturing consolidation program recorded in the third quarter of 2010 and the difference in wind energy sales.
Velocity Control Products sales in the third quarter of 2010 were $15.9 million, compared to $12.2 million in the third quarter of 2009. Operating income for this segment in the third quarter of 2010 totaled $4.1 million, compared to $2.1 million earned in the third quarter of 2009, due primarily to improved volume and operating leverage.
Other Industrial Products sales in the third quarter of 2010 equaled $24.3 million, compared to $24.4 million in the prior year third quarter. Operating income equaled $1.4 million in the third quarter of 2010, compared to operating income of $2.2 million in the third quarter of 2009, due primarily to adverse product mix.-
Order Activity:
Orders were $136.8 million in the third quarter of 2010, compared to $131.0 million in the third quarter of 2009. Wind energy orders were $50.1 million in the third quarter of 2010, compared to $46.5 million in the third quarter of 2009. Year-to-date non-wind orders have exceeded sales with a book-to-bill ratio of 1.02. Year-to-date 2010 wind energy orders were $63.3 million, compared to $48.4 million in the first three quarters of 2009. Backlog at October 2, 2010 was $205.0 million, compared to $186.5 million at July 3, 2010, and $250.1 million at October 3, 2009.
Financial Position and Free Cash Flow:
Free cash flow, a non-GAAP measure defined by the Company, was $10.3 million in the thire quarter of 2010, compared to $40.5 million in the third quarter of 2009. Free cash flow was higher in the third quarter of 2009 due primarily to a $19.7 million reduction in inventory levels and lower tax payments. In addtion, capital expenditures were higher in the third quarter of 2010 compared to the third quarter of 2009.
On July 6, 2010, the Company paid common stock dividends of $.18 per share or $6.0 million. The Company's third quarter 2010 dividend, paid on October 4, 2010, was at a rate of $.19 per share, an increase of 5.6 percent from the previous rate.
As of October 2, 2010, the Company had unrestricted cash totaling $288.8 million. During the third quarter of 2010 the Company entered into a $250 million senior revolving credit facility with a syndicate of banks which provides for borrowings by the Company for working capital and other general corporate purposes, including acquisitions. The Company had no borrowing against this facility and no other debt outstanding as of October 2, 2010.
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