Ann Arbor, MI-February 25, 2011
Kaydon Corporation (NYSE:KDN) today announced its results for the fourth fiscal quarter and full year ended December 31, 2010.
Consolidated Results
Sales in the fourth fiscal quarter of 2010 were $105.0 million, compared to sales of $108.9 million in the fourth quarter of 2009.
Operating income was $17.1 million in the fourth quarter of 2010, compared to $18.0 million in the fourth quarter of 2009. The fourth quarter of 2010 included $1.4 million of net costs associated with due diligence efforts for acquisitions and a previously announced manufacturing consolidation program, partially offset by a small gain associated with the curtailment of certain postretirement benefits, while the fourth quarter of 2009 included gains of $1.3 million associated with the curtailment of postretirement benefits.
Adjusting for these items, operating income was $18.5 million in the fourth quarter of 2010, compared to $16.7 million in the fourth quarter of 2009.
Net income for the fourth quarter of 2010 was $11.3 million, compared to net income of $11.4 million in the fourth quarter of 2009. Diluted earnings per share equaled $.34 in the fourth quarter of 2010 and 2009.
Adjusting for the items noted above, net income was $12.2 million, or $.31 per share on a diluted basis, in the fourth quarter of 2009.
EBITDA equaled $24.6 million, or 23.5 percent of sales, during the fourth quarter of 2010, compared to $25.6 million, also 23.5 percent of sales, during the fourth quarter of 2009. EBITDA comparisons are also affected by the items note above. Adjusting for these items, EBITDA was $25.7 million, or 24.5 percent of sales, in the fourth quarter of 2010, compared to $24.3 million, or 22.3 percent of sales, in the fourth quarter of 2009.
The fourth quarter 2010 effective tax rate was 34.1 percent compared to 36.7 percent in the 2009 fourth quarter, due to the full availability of the Domestic Manufacturing Deduction and thhe planned permanent reinvestment of earnings of certain international operations.
Full year 2010 sales totaled $464.0 million compared to $441.1 million for full year 2009. Sales growth in our core industrial businesses more than offset lower sales to our wind energy and military end markets. Full year 2010 diluted earnings per share totaled $1.67 per share compared to $1.37 per share in full year 2009. Adjusting for the items noted above, full year 2010 diluted earnings per share totaled $1.76 per share compared to $1.22 per share in full year 2009.
This press release includes certain non-GAAP measures, including EBITDA, free cash flow, and as adjusted operating income, EBITDA, net income, and earnings per share diluted. 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,"We are pleased with 2010 as we delivered solid results for both the full year and the most recent quarter. We were well positioned to benefit from a still strengthening industrial environment while effectively managing the long anticipated, policy-driven moderation in both our renewable energy and military businesses. Through the fourth quarter, and continuing thus far into 2011, we see continued evidence, both tangible and anecdotal, of further improvement in most of our industrial businesses, notably in the heavy equipment, industrial machinery, medical and semiconductor markets.
This strength will help offset moderation in wind energy, as the renewable energy business awaits the substantive energy policy required for sustained growth, and the expected decline of certain military programs, which had been in a "ramp up" mode in the prior year.
"Both sales and orders from our industrial end markets increased over 20 percent in the fourth quarter of 2010. With increased order and quotation activity in traditionally later cycle sectonrs, such as heavy equipment and industrial machinery, we should continue to see strengthening in shipments as the year progresses.
"Our performance in fiscal 2010 demonstrated the benefits of market leadership in well diversified end markets. During 2010, we generated the highest annual operating cash flow in Kaydon's long history. Structural cost reductions made during the Great Recession, together with strong positioning in attractive industrial end markets, have produced consistent, solid results during both the worst recession in over a generation and a recovery that has thus far been below standard by many measures. Our ability to maximize free cash flow during this period has allowed us to return cash to our shareholders in the form of enhanced dividends and increased share repurchases while reinvesting in our business, both organically and through acquisition as illustrated by today's announced agreement to acquire HAHN-Gasfedern GmbH."
Segments Results and Review
Friction Control Products sales in the fourth quarter of 2010 were $61.5 million. compared to $72.9 million in the 2009 fourth quarter. The decline, which we anticipated, was attributable to lower wind energy and military sales. Wind energy sales were $12.5 million in the fourth quarter of 2010 compared to $21.3 million in the fourth quarter of 2009.
Fourth quarter 2010 sales to non-wind markets totaled $49.1 million compared to $51.6 million in the fourth quarter of 2009, as growth in sales to our industrial markets were offset by the anticipated wind down of a major military program.
Fourth quarter 2010 Friction Control Products operating income totaled $11.8 million, compared to $12.7 million in the prior fourth quarter.
Fourth quarter 2010 included $0.7 million in costs associated with a previously discussed manufacturing consolidation program. An improved mix, weighted more heavily towards industrial end markets, offset the margin decline from lower volume from wind energy and militay sales.
Velocity Control Products sales in the fourth quarter of 2010 were $14.9 million, compared to $11.8 million in the fourth quarter of 2009. Operating income for this segment totaled $2.8 million in the fourth quarter of 2010, compared to $1.3 million earned in the fourth quarter of 2009, due to improved sales.
Other Industrial Products sales equaled $28.5 million in the fourth quarter of 2010, compared to $24.2 million in the prior year fourth quarter. Operating income equaled $3.5 million in the fourth quarter of 2010, compared to operating income of $3.1 million in the fourth quarter of 2009, due to improved sales.
Order Activity
Orders were $100.8 million in the fourth quarter of 2010, compared to $77.2 million in the fourth quarter of 2009. Wind energy orders were $8.6 million in the fourth quarter of 2010, compared to $0.9 million in the fourth quarter of 2009. Full year 2010 non-wind orders were have exceeded sales with a book-to-bill ratio of 1.02. Full year 2010 wind energy orders were $71.9 milion, compared to $49.3 million in the full year of 2009. Backlog at December 31, 2010 was $200.9 million, compard to $205.0 million at October 2, 2010, and $218.5 million at December 31, 2009.
Financial Position and Free Cash Flow
Free cash flow, a non-GAAP measure defined by the Company, was $23.4 million in the fourth quarter of 2010, compared to $19.7 million in the fourth quarter of 2009. For the full year of 2010, net cash generated from operating activities was a record $93.9 million, compared to $66.2 million in the full year of 2009, while full year 2010 free cash flow totaled a record $78.6 million compared to $55.4 million in the full year of 2009.
On October 4, 2010, the Company paid common stock dividends of $.19 per share or an aggregate of $6.4 million. For the full year of 2010, the Company paid common stock dividends of $24.5 million.
During the fourth quarter of 2010 the Company repurchased 500,500 shares of common stock for $18.3 million. For the full year of 2010, the Company repurchased 741,754 shares for $27.0 million. In aggregate, the Company returned $51.5 million to its shareholders in 2010 while investing almost $20 million in capital expenditures and growth programs to further enhance the long term value of our businesses.
As of December 31, 2010, the Company had unrestricted cash totaling $286.6 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 working capital and other general corporate purposes, including acquisitions. The Company had no borrowing against this facility and no other debt outstanding as of December 31, 2010.
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