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Kaydon Corporation Announces Restructuring And Non-Cash Impairment Charges

Stocks in this article: KDN

Kaydon Corporation (NYSE: KDN) today announced a comprehensive restructuring of its wind energy bearings business to align capacity with current market needs. The Company will record a pre-tax charge of approximately $47 to $52 million in its third quarter, of which all but $0.9 million will be non-cash. This restructuring responds to current and expected conditions in the wind and military markets and will right-size manufacturing capacity and staffing levels to lower costs, grow margins and provide resources for future reinvestment.

James O’Leary, Chairman and Chief Executive Officer, commented, “While we believe that wind energy will be a viable market in the long term, it will be challenged by continued regulatory uncertainty in the United States, including the impending expiration of the Production Tax Credit, and a weak global economy in the immediate future. Accordingly, while we will maintain sufficient capacity to serve existing and prospective customers, we believe it is appropriate to reduce wind capacity at this time.

“Since Kaydon announced its wind capacity expansion in 2006, it has achieved a leadership position in a global market that recognizes both its brand and its technical capabilities. However, the global financial crisis, worldwide fiscal austerity, and the emergence of new shale gas extraction techniques have combined to reduce both the current prospects and expectations for the long term growth of this market, principally in North America. This restructuring resizes this product line to continue to be a profitable, but smaller, contributor going forward. After extensive analysis and consideration, we believe this plan will enhance our prospects for both growth and value creation.

“While we are resizing this product offering to reflect the current market realities, many of the capabilities developed since the initial investment in wind will serve us well in other served markets, including heavy equipment and mining. With this restructuring underway, we remain clearly focused on profitable growth, particularly in underserved international markets, and consistent returns to shareholders, as evidenced by our recent special dividend. Our healthy balance sheet and cash flow, which has remained consistently strong throughout both the worst recession in a generation and the most recent exacerbated wind energy cycle, will allow us to accelerate these longstanding goals while exceeding our customers’ high expectations of our brands and technical capabilities. With much of the revenue generated by our wind assets already replaced by our last two Velocity Control acquisitions, the product focus within our Friction Control segment will center on accelerated growth in Kaydon’s historical highly engineered bearings, both internationally and in our traditional distribution channels.”

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