Kaydon Corporation Reports Second Quarter 2013 Results

Kaydon Corporation (NYSE:KDN) today announced its results for the second fiscal quarter ended June 29, 2013.

Consolidated Results

Sales in the second quarter of 2013 were $117.3 million, compared to sales of $124.4 million in the second quarter of 2012.

Diluted earnings per share on a GAAP basis in the second quarter of each of 2013 and 2012 equaled $0.36. Adjusted earnings per share, as defined below, was $0.42 in both the second quarter of 2013 and the second quarter of 2012.

Adjusted EBITDA, as defined below, was $25.6 million during the second quarter of 2013, compared to $27.3 million, during the second quarter of 2012. Free cash flow, as defined below, for the second quarter of 2013 was $18.7 million compared to $13.3 million in the second quarter of 2012.

Adjusted gross margin was 38.6 percent in the second quarter of 2013, compared to 33.7 percent in the second quarter of 2012, as the Company continues to benefit from the increased operating leverage that has resulted from the restructuring activities undertaken in late 2012 and from ongoing operational improvements.

This press release includes certain non-GAAP measures, including 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 presented.

Adjustments to GAAP results include certain items management considers in evaluating operating performance in each period. During the second quarter of 2013, Kaydon incurred $1.2 million of costs associated with due diligence and restructuring activities, and $1.2 million of non-cash amortization of previously incurred net actuarial losses related to postretirement benefit plans. During the current quarter the Company reviewed, and continues to review, several potential acquisitions. During the second quarter of 2012, adjustments included $1.6 million of acquisition-related costs primarily related to the Fabreeka acquisition and $1.1 million of non-cash amortization of previously incurred net actuarial losses related to postretirement benefit plans.

Orders and Backlog

Orders were $123.2 million in the second quarter of 2013, compared to $112.8 million in the second quarter of 2012 and $119.4 million in the first quarter of 2013. Backlog at June 29, 2013 was $158.1 million, compared to $169.5 million at June 30, 2012.

Financial Position and Free Cash Flow

Free cash flow was $18.7 million in the second quarter of 2013, compared to $13.3 million in the second quarter of 2012. During the quarter, the Company repaid $7.8 million of debt while paying dividends of $6.4 million.

As of June 29, 2013, the Company had cash and cash equivalents totaling $69.9 million and total borrowings outstanding of $164.7 million, resulting in net debt of $94.8 million.

Management Commentary

James O’Leary, Chairman and Chief Executive Officer commented, “The second quarter of 2013 was solid as we continue to successfully manage the variables within our control. Relative to the comparable quarter of 2012, we saw improved margins, free cash flow and orders despite a still challenging economic environment. In aggregate, bookings for our industrial businesses were solid with trends consistent with this year’s first quarter. As expected, military bookings were lower due to anticipated reductions in military activity and timing. However, this was more than offset by strong wind energy bookings in the quarter, supporting our view that the wind energy business has bottomed and will continue to show signs of improvement as we look a few quarters forward.

“Like most in the industrial space, we anticipate gradual improvement in the latter half of the year. While we wait for clearer signs of this pickup in economic activity, our principal focus remains managing the things within our control while we explore growth opportunities on the acquisition front. Our operational focus will translate in continued strength in both free cash flow and margins, as demonstrated so far this year, and further improvement when economic growth picks up in a more pronounced and sustained fashion.”

About Kaydon

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 second quarter 2013 earnings conference call. The conference call can be accessed telephonically in a listen-only mode by dialing 1-888-471-3843 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://w.on24.com/r.htm?e=654132&s=1&k=047D773357A6F973268DACF57BCDC690

or by logging on to the Kaydon Corporation website at: http://www.kaydon.com and accessing the conference call at the “Second Quarter 2013 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, July 31, 2013 at 2:00 p.m. Eastern time. The replay is accessible by dialing 1-888-203-1112 and providing the following passcode number: 3897290.

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.
 
 
KAYDON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
           
 
Three Months Ended Six Months Ended
 
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
Net sales $ 117,343 $ 124,373 $ 228,016 $ 240,839
 
Cost of sales   73,751     83,371     143,053     158,238  
 
Gross profit 43,592 41,002 84,963 82,601
 
Selling, general and administrative expenses   26,379     23,532     52,012     47,796  
 
Operating income 17,213 17,470 32,951 34,805
 
Interest expense (896 ) (795 ) (1,792 ) (1,183 )
 
Interest income   74     54     140     179  
 
Income before taxes 16,391 16,729 31,299 33,801
 
Provision for income taxes   4,704     5,035     8,938     9,986  
 
Net income $ 11,687   $ 11,694   $ 22,361   $ 23,815  
 
 
 
Earnings per share:
Basic $ 0.36   $ 0.37   $ 0.70   $ 0.74  
Diluted $ 0.36   $ 0.36   $ 0.70   $ 0.74  
 
 
Dividends declared per share $ 0.20   $ 0.20   $ 0.40   $ 10.90  
 
 
Weighted average common shares outstanding:
Basic   31,818     31,755     31,815     31,744  
Diluted   31,847     31,776     31,843     31,769  
 
 
KAYDON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
             
 
June 29, December 31,
2013 2012
Assets:
Cash and cash equivalents $ 69,937 $ 53,556
Accounts receivable, net 74,580 71,410
Inventories, net 97,345 97,933
Other current assets   17,189   20,354
 
Total current assets 259,051 243,253
 
Property, plant and equipment, net 115,595 121,233
 
Assets held for sale 7,850 6,530
Goodwill, net 189,196 190,323
Other intangible assets, net 47,201 49,177
Other assets   4,558   4,646
 
Total assets $ 623,451 $ 615,162
 
 
Liabilities and Shareholders' Equity:
 
Accounts payable $ 23,713 $ 15,555
Accrued expenses 24,569 21,539
Current portion long-term debt   8,438   10,313
Total current liabilities 56,720 47,407
 
Long-term debt 156,250 166,062
Other long-term liabilities   71,738   70,917
Total long-term liabilities 227,988 236,979
 
Shareholders' equity   338,743   330,776
 
Total liabilities and shareholders' equity $ 623,451 $ 615,162
 
 
KAYDON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
             
Three Months Ended Six Months Ended
 
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
Cash Flows from Operating Activities:
Net income $ 11,687 $ 11,694 $ 22,361 $ 23,815
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 3,886 5,165 7,736 10,175
Amortization of intangible assets 966 839 1,924 1,578
Amortization of stock awards 963 904 1,607 1,795
Stock option compensation expense 219 219 379 1,335
Excess tax benefits from stock-based compensation - 29 156 (673 )
Deferred financing fees 123 124 246 470
Contributions to qualified pension plans (386 ) (1,535 ) (566 ) (2,169 )
Net change in receivables, inventories and trade payables 1,507 1,896 4,692 (16,320 )
Net change in other assets and liabilities   2,049     (1,346 )   8,781     3,940  
 
Net cash from operating activities 21,014 17,989 47,316 23,946
 
Cash Flows from Investing Activities:
Capital expenditures (3,011 ) (4,815 ) (5,023 ) (8,122 )
Dispositions of property, plant and equipment 659 168 711 1,961
Acquisition of business, net of cash acquired   -     (51,567 )   -     (51,567 )
 
Net cash used in investing activities (2,352 ) (56,214 ) (4,312 ) (57,728 )
 
Cash Flows from Financing Activities:
Proceeds from long-term borrowings - 50,000 - 200,000
Repayments of long-term borrowings (7,812 ) (1,874 ) (11,687 ) (1,874 )
Debt issuance costs - - - (1,357 )
Cash dividends paid (6,423 ) (6,402 ) (12,843 ) (348,892 )
Purchase of treasury stock - - (678 ) (1,199 )
Excess tax benefits from stock-based compensation - (29 ) (156 ) 673
Proceeds from exercise of stock options   -       97     -       112  
 
Net cash from (used in) financing activities (14,235 ) 41,792 (25,364 ) (152,537 )
 
 
Effect of exchange rate changes on cash and
cash equivalents   (65 )   (1,119 )   (1,259 )   (156 )
 
Net increase (decrease) in cash and cash equivalents 4,362 2,448 16,381 (186,475 )
 
Cash and cash equivalents - Beginning of period   65,575     36,291     53,556     225,214  
 
Cash and cash equivalents - End of period $ 69,937   $ 38,739   $ 69,937   $ 38,739  
 
 
KAYDON CORPORATION
REPORTABLE SEGMENT INFORMATION
(In thousands)
           
Three Months Ended Six Months Ended
 
June 29, June 30, June 29, June 30,
Net sales 2013 2012 2013 2012
 
Friction Control Products $ 57,074 $ 71,525 $ 108,748 $ 137,328
Velocity Control Products 30,796 24,488 63,383 48,787
Other Industrial Products   29,473     28,360     55,885     54,724  
 
Total consolidated net sales $ 117,343   $ 124,373   $ 228,016   $ 240,839  
 
 
Three Months Ended Six Months Ended
 
June 29, June 30, June 29, June 30,
Operating income 2013 2012 2013 2012
 
Friction Control Products $ 9,278 $ 10,174 $ 16,571 $ 21,993
Velocity Control Products 5,844 5,708 13,352 11,550
Other Industrial Products   3,430     3,020     5,502     4,929  
Total segment operating income 18,552 18,902 35,425 38,472
Items not allocated to segment operating income (1,339 ) (1,432 ) (2,474 ) (3,667 )
Interest expense (896 ) (795 ) (1,792 ) (1,183 )
Interest income   74     54     140     179  
 
Income before taxes $ 16,391   $ 16,729   $ 31,299   $ 33,801  
 
The Company has two reporting segments: Friction Control Products and Velocity Control Products. The Company’s remaining operating segments are combined and disclosed as "Other Industrial Products."
 
 
Kaydon Corporation
Reconciliation of Non-GAAP Measures
(In thousands)
             
 
Three Months Ended Six Months Ended LTM
 
June 29, June 30, June 29, June 30, June 29, June 30,

Free cash flow, as defined (non-GAAP)
2013 2012 2013 2012 2013 2012
Net cash from operating activities (GAAP) $ 21,014 $ 17,989 $ 47,316 $ 23,946 $ 110,252 $ 58,019
Capital expenditures, net of dispositions   (2,352 )   (4,647 )   (4,312 )   (6,161 )   (13,407 )   (13,215 )
Free cash flow, as defined (non-GAAP) $ 18,662   $ 13,342   $ 43,004   $ 17,785   $ 96,845   $ 44,804  
 
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.
 
Three Months Ended Six Months Ended LTM
 
June 29, June 30, June 29, June 30, June 29, June 30,
2013 2012 2013 2012 2013 2012

Adjusted EBITDA, as defined (non-GAAP)
Net income (GAAP) $ 11,687 $ 11,694 $ 22,361 $ 23,815 $ (904 ) $ 46,999
Net interest (income)/expense 822 741 1,652 1,004 3,456 995
Provision for income taxes 4,704 5,035 8,938 9,986 10,706 19,101
Depreciation and amortization of intangible assets 4,852 6,004 9,660 11,753 20,653 23,623
Stock-based compensation expense (1)   1,182     1,123     1,986     3,130     3,672     5,945  
EBITDA, as defined (non-GAAP) 23,247 24,597 44,597 49,688 37,583 96,663
 
Arbitration costs - - - 143 3,989 5,825
Impairment and restructuring related costs (2) 852 55 1,403 218 47,773 1,255
Due diligence and purchase accounting costs 328 1,551 358 1,551 847 1,922
Recapitalization costs - - - 267 266 267
Curtailment gains - - - - - (133 )
Amortization of net actuarial loss 1,172 1,127 2,344 2,253 4,869 3,658
Pension Settlement   -       -     -     -     2,914     -  
Adjusted EBITDA, as defined (non-GAAP) $ 25,599     $ 27,330   $ 48,702   $ 54,120   $ 98,241   $ 109,457  
 
(1) Includes non-cash stock amortization expense and non-cash stock option expense.
(2) Includes wind restructuring related impairments and other costs including fixed asset impairments of $43.0 million, inventory impairment of $1.1 million, accounts receivable reserves of $1.3 million, severance costs of $0.5 million and other program costs of $1.8 million for the twelve months ended June 29, 2013.
 
Kaydon's management believes EBITDA, as defined above and Adjusted EBITDA, as defined, both non-GAAP measures, are determinants 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 a metric used to determine payments under the Company's annual incentive compensation program for senior managers. However, EBITDA, as defined, and Adjusted EBITDA, as defined should be viewed as supplemental data, rather than as substitutes or alternatives to the comparable GAAP measure.
 
Kaydon Corporation
Reconciliation of Non-GAAP Measures (continued)
(In thousands, except per share data)
                 
Three months ended June 29, 2013
 
Non-operating items, as defined by the Company
Wind Due Diligence/
restructuring Restructuring/ Purchase Settlement /

Amortization
and impairment Arbitration Severance Accounting Recapitalization Curtailment

of Actuarial
Adjusted
GAAP charge Costs Costs Costs Costs Gains/Losses

Loss
(Non-GAAP)
Net Sales $ 117,343 $ - $ - $ - $ - $ - $ - $ - $ 117,343
 
Gross profit 43,592 939 - - - - - 759 45,290
 
Gross margin 37.1 % 0.8 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.6 % 38.6 %
 
S, G & A expenses   26,379     (87 )   -     -     328     -     -     413     25,725  
 
Operating income 17,213 852 - - 328 - - 1,172 19,565
 
Interest, net   (822 )   -     -     -     -     -     -     -     (822 )
 
Income before taxes 16,391 852 - - 328 - - 1,172 18,743
 
Tax provision *   4,704     245     -     -     94     -     -     336     5,379  
 
Net income   11,687   $ 607   $ -   $ -   $ 234   $ -   $ -   $ 836   $ 13,364  
 
Diluted EPS $ 0.36 $ 0.02 $ - $ - $ 0.01 $ - $ - $ 0.03 $ 0.42
 
Three months ended June 30, 2012
 
Non-operating items, as defined by the Company
Wind Due Diligence/
restructuring Restructuring/ Purchase Settlement /

Amortization
and impairment Arbitration Severance Accounting Recapitalization Curtailment

of Actuarial
Adjusted
GAAP charge Costs Costs Costs Costs Gains/Losses

Loss

(Non-GAAP)
Net Sales $ 124,373 $ - $ - $ - $ - $ - $ - $ - $ 124,373
 
Gross profit 41,002 - - - 118 - - 832 41,952
 
Gross margin 33.0 % 0.0 % 0.0 % 0.0 % 0.1 % 0.0 % 0.0 % 0.7 % 33.7 %
 
S, G & A   23,532     -     -     55     1,433     -     -     295     21,749  
 
Operating income 17,470 - - 55 1,551 - - 1,127 20,203
 
Interest, net   (741 )   -     -     -     -     -     -     -     (741 )
 
Income before taxes 16,729 - - 55 1,551 - - 1,127 19,462
 
Tax provision *   5,035     -     -     17     467     -     -     339     5,858  
 
Net income $ 11,694   $ -   $ -   $ 38   $ 1,084   $ -   $ -   $ 788   $ 13,604  
 
Diluted EPS $ 0.36 $ - $ - $ 0.00 $ 0.03 $ - $ - $ 0.02 $ 0.42
 
Kaydon's management believes that certain non-GAAP measures of Adjusted operating income, Adjusted interest, net, Adjusted net income, and Adjusted earnings per share - diluted, provide investors with additional information to assess the Company's financial performance. However, these measures should be viewed as supplemental data, rather than substitutes or alternatives to the comparable GAAP measures.
 
* Taxed at effective tax rate for each quarter.
 
 
Kaydon Corporation
Reconciliation of Non-GAAP Measures (continued)
(In thousands, except per share data)
                 
Six months ended June 29, 2013
 
Non-operating items, as defined by the Company
Wind Due Diligence/
restructuring Restructuring/ Purchase Settlement / Amortization
and impairment Arbitration Severance Accounting Recapitalization Curtailment of Actuarial Adjusted
GAAP charge Costs Costs Costs Costs Gains/Losses Loss (Non-GAAP)
Net Sales $ 228,016 $ - $ - $ - $ - $ - $ - $ - $ 228,016
 
Gross profit 84,963 1,513 - - - - - 1,518 87,994
 
Gross margin 37.3 % 0.7 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.7 % 38.6 %
 
S, G & A expenses   52,012     (110 )   -     -     358     -     -     826     50,938  
 
Operating income 32,951 1,403 - - 358 - - 2,344 37,056
 
Interest, net   (1,652 )   -     -     -     -     -     -     -     (1,652 )
 
Income before taxes 31,299 1,403 - - 358 - - 2,344 35,404
 
Tax provision *   8,938     401     -     -     102     -     -     669     10,110  
 
Net income   22,361   $ 1,002   $ -   $ -   $ 256   $ -   $ -   $ 1,675   $ 25,294  
 
Diluted EPS $ 0.70 $ 0.03 $ - $ - $ 0.01 $ - $ - $ 0.05 $ 0.79
 
Six months ended June 30, 2012
 
Non-operating items, as defined by the Company
Wind Due Diligence/
restructuring Restructuring/ Purchase Settlement / Amortization
and impairment Arbitration Severance Accounting Recapitalization Curtailment of Actuarial Adjusted
GAAP charge Costs Costs Costs Costs Gains/Losses Loss (Non-GAAP)

 
Net Sales $ 240,839 $ - $ - $ - $ - $ - $ - $ - $ 240,839
 
Gross profit 82,601 - - - 118 - - 1,663 84,382
 
Gross margin 34.3 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.7 % 35.0 %
 
S, G & A   47,796     -     143     218     1,433     1,058     -     590     44,354  
 
Operating income 34,805 - 143 218 1,551 1,058 - 2,253 40,028
 
Interest, net   (1,004 )   -     -     -     -     247     -     -     (757 )
 
Income before taxes 33,801 - 143 218 1,551 1,305 - 2,253 39,271
 
Tax provision *   9,986     -     41     64     467     378     -     666     11,602  
 
Net income $ 23,815   $ -   $ 102   $ 154   $ 1,084   $ 927   $ -   $ 1,587   $ 27,669  
 
Diluted EPS $ 0.74 $ - $ 0.00 $ 0.00 $ 0.03 $ 0.03 $ - $ 0.05 $ 0.86
 
Kaydon's management believes that certain non-GAAP measures of Adjusted operating income, Adjusted interest, net, Adjusted net income, and Adjusted earnings per share - diluted, provide investors with additional information to assess the Company's financial performance. However, these measures should be viewed as supplemental data, rather than substitutes or alternatives to the comparable GAAP measures.
 
* Taxed at effective tax rate for each quarter.

Copyright Business Wire 2010

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