Kaydon Corporation Reports Third Quarter Results

http://www.businesswire.com/news/home/20091029005313/en

ANN ARBOR, Mich.--(Business Wire)--
Kaydon Corporation (NYSE: KDN) today announced its results for the third fiscal
quarter ended October 3, 2009.

Third Quarter Results

Sales in the third fiscal quarter of 2009 were $123.6 million, compared to
$126.8 million in the third quarter of 2008. Wind energy sales in the third
quarter of 2009 were $41.0 million, an increase of $19.4 million compared to the
third quarter of 2008. The 90 percent increase in wind energy sales offset much
of the sales declines in our other end markets in the third quarter of 2009 as
compared to the prior third quarter.

Operating income was $24.6 million in the third quarter of 2009, compared to
$24.8 million in the third quarter of 2008. EBITDA, a non-GAAP measure and as
defined by the Company, was $32.1 million, or 25.9 percent of sales, during the
third quarter of 2009, compared to $31.8 million, or 25.1 percent of sales,
during the third quarter of 2008. Both operating income and EBITDA in the 2009
period include a pre-tax gain of $5.4 million associated with changes to certain
benefit plans as described below. Readers should refer to the attached
Reconciliation of Non-GAAP Measures exhibit for the calculation of EBITDA and
the reconciliation of EBITDA to the most comparable GAAP measure.

The Company recently initiated several changes to its postretirement employment
benefits which will benefit future cash flow and earnings. The curtailment of
these benefits has resulted in a pre-tax gain of $5.4 million, or $.10 per share
on a diluted basis, in the third quarter of 2009.

Comparisons are also impacted by significantly reduced interest income due to
negligible market rates available for cash balances as management continues to
prioritize preservation of capital over short term returns. Interest income in
the third quarter of 2009 was $0.2 million, compared to $1.5 million in the
third quarter of 2008, which resulted in a year-over-year reduction of
approximately $.03 per share on a diluted basis.

Net income was $16.1 million in the third quarter of 2009, or $.48 per share on
a diluted basis, compared to net income of $16.3 million in the third quarter of
2008, or $.50 per share on a diluted basis. Third quarter 2008 results have been
adjusted to reflect the required retrospective application of a new accounting
standard related to earnings per share effective January 1, 2009. This new
standard required retrospective application to prior periods and the required
adjustment reduced previously reported third quarter 2008 basic earnings per
share by $.01 and had no effect on diluted earnings per share.

Backlog was $250.1 million at October 3, 2009 compared to $242.8 million at July
4, 2009, the end of the second fiscal quarter of 2009, and $354.5 million at
September 27, 2008. Wind energy backlog was $129.6 million at October 3, 2009
compared to $124.1 million at July 4, 2009 and $181.6 million at September 27,
2008.

Management Commentary

James O` Leary, Chairman and Chief Executive Officer commented, "We are pleased
with our execution in an extremely difficult operating environment. The cost
reduction and containment measures initiated early and aggressively in this
downturn, together with a solid performance from our wind energy business,
yielded results that are relatively stronger than those experienced earlier this
year. We are especially pleased with our cash flow performance, which reflected
both these measures and our disciplined approach to managing capital
expenditures during this challenging period.

"Overall, our industrial end markets appear to have stabilized at the relatively
low levels noted in our previous quarter. Certain markets, notably wind energy
and medical, were stronger as they benefited from strategic positioning and the
capital investments made in prior periods. Also noteworthy, our military end
market, while below prior year`s level due to the timing of certain program
releases, was solid sequentially and the current quarter saw higher orders and
shipments of military vehicle products.

"While the current quarter showed sequential strength in our wind energy,
medical, and military markets, it is important to note that their longer term
outlooks will be heavily influenced by governmental policy issues including
clear, long term support for renewable energy initiatives and funding for
military spending. That said, we are pleased with our position in these markets
given the current environment.

"The aggressive, proactive cost reduction and containment measures initiated by
our leadership team, coupled with the underlying strength of our businesses,
should allow us to exit this downturn in better shape than when we entered it.
We continue to seek opportunities across the Company to improve our structural
cost base in the event that business does not improve from the current level in
the intermediate term.

"The strength of our balance sheet and the cash generating ability of our
businesses will allow us to fund important initiatives and take advantage of
opportunities that may arise over time. The recent increase in our dividend
reflects the confidence of our management team and our Board in the fundamental
strengths of our Company."

Segment Review

Friction control product sales in the third quarter of 2009 were $87.1 million,
compared to $79.3 million in the third quarter of 2008. Sales to the wind energy
and medical markets exceeded prior year`s levels offsetting declines in our
industrial markets. Our industrial end markets have presently settled at the
relatively low levels noted in our prior quarter. While certain markets, such as
medical and semiconductor, have shown some signs of strengthening, our higher
margin, industrial machinery businesses remain depressed, although no longer
worsening.

Wind energy sales in the third quarter of 2009 were $41.0 million, an increase
of $19.4 million compared to the third quarter of 2008. Wind energy sales for
the first three quarters of 2009 were $81.7 million, an increase of 45 percent
compared to the first three quarters of 2008. During the recent quarter, there
was a discernable improvement in trade credit conditions which benefitted
shipments during the period as availability of letters of credit improved
significantly.

Third quarter 2009 friction control products operating income was $15.4 million,
compared to $16.4 million in the third quarter of 2008. The decline in operating
income was primarily attributable to unfavorable mix, higher depreciation, and
higher pension costs.

Velocity control product sales in the third quarter of 2009 were $12.2 million,
compared to $17.1 million in the third quarter of 2008, due principally to
reduced demand related to the general economic decline in both Europe and North
America. Third quarter 2009 velocity control products operating income was $2.1
million, compared to $4.5 million in the third quarter of 2008 due principally
to lower volume.

Sealing product sales in the third quarter of 2009 were $8.8 million, compared
to $10.8 million in the third quarter of 2008, due to lower demand stemming from
the general economic decline. Third quarter 2009 sealing products operating
income was $0.8 million, compared to $1.0 million in the third quarter of 2008
due principally to lower volume.

Sales from the Company`s remaining businesses in the third quarter of 2009 were
$15.5 million, compared to $19.7 million in the third quarter of 2008 resulting
from lower demand related to the general economic decline. Third quarter 2009
other business operating income was $1.4 million, compared to $1.8 million in
the third quarter of 2008, due principally to lower volume.

Financial Position and Free Cash Flow

Free cash flow, a non-GAAP measure defined by the Company as net cash from
operating activities less capital expenditures, net of dispositions, was $40.5
million in the third quarter of 2009 compared to $7.8 million during the third
quarter of 2008. Readers should refer to the attached Reconciliation of Non-GAAP
Measures exhibit for the calculation of free cash flow and the reconciliation of
free cash flow to the most comparable GAAP measure.

During the third quarter of 2009, the Company reduced inventory levels relative
to the prior quarter by approximately $19.7 million. In addition, capital
expenditures, net of dispositions declined significantly from the prior year's
level as the Company completed its expansion plan in wind energy and responded
to current business conditions.

On July 6, 2009, the Company paid common stock dividends of $.17 per share or
$5.7 million. The Company`s third quarter dividend, paid on October 5, 2009, was
at a rate of $.18 per share, an increase of 5.9 percent from the previous $.17
per share.

The Company had unrestricted cash totaling $247.8 million, $295.1 million in
committed available credit and no debt outstanding as of October 3, 2009.

About Kaydon

Kaydon Corporation is a leading designer and manufacturer of custom-engineered,
performance-critical products, supplying a broad and diverse group of
alternative-energy, industrial, aerospace, medical and electronic equipment, and
aftermarket customers.

Conference call information: At 8:30 a.m. Eastern time today, Kaydon will host a
third quarter 2009 earnings conference call. The conference call can be accessed
telephonically in a listen-only mode by dialing 1-888-218-8176 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://webcast.premiereglobal.com/view/wl/r.htm?e=168605&s=1&k=D580923F67D44E8A915C3888BE9A756E

or by logging on to the Kaydon Corporation website at: http://www.kaydon.com and
accessing the conference call at the "Third Quarter 2009 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
11:30 a.m. Eastern time today through November 5, 2009 at 11:59 p.m. Eastern
time. The replay is accessible by dialing 1-888-203-1112 and providing the
following passcode number: 4558850.

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 pending litigation,
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 expectation 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 CONDENSED STATEMENTS OF OPERATIONS

Third Quarter Ended First Three Quarters Ended
As adjusted (1) As adjusted (1)
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Net sales $ 123,637,000 $ 126,803,000 $ 332,290,000 $ 389,992,000

Cost of sales 85,590,000 82,270,000 226,113,000 243,969,000

Gross profit 38,047,000 44,533,000 106,177,000 146,023,000

Selling, general, and administrative expenses 13,418,000 19,754,000 52,800,000 62,942,000

Operating income 24,629,000 24,779,000 53,377,000 83,081,000

Interest expense (62,000 ) (1,393,000 ) (185,000 ) (9,302,000 )

Interest income 190,000 1,520,000 429,000 5,198,000

Income before income taxes 24,757,000 24,906,000 53,621,000 78,977,000

Provision for income taxes 8,690,000 8,571,000 19,071,000 27,691,000

Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000

Earnings per share:
Basic $0.48 $0.54 $1.03 $1.80
Diluted $0.48 $0.50 $1.03 $1.65

Dividends declared per share $0.18 $0.17 $0.52 $0.47

(1) Results for the Third Quarter and First Three Quarters Ended September 27, 2008 have been adjusted, as required, for the retrospective application of new Financial Accounting Standards Board guidance on debt and earnings per share.

KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

October 3, December 31,
2009 2008
Assets:
Cash and cash equivalents $ 247,841,000 $ 232,998,000
Accounts receivable, net 75,907,000 78,918,000
Inventories, net 95,070,000 97,748,000
Other current assets 15,256,000 18,395,000

Total current assets 434,074,000 428,059,000

Property, plant and equipment, net 178,101,000 185,642,000

Goodwill, net 143,868,000 142,424,000
Other intangible assets, net 22,584,000 25,746,000
Other assets 1,602,000 7,911,000

Total assets $ 780,229,000 $ 789,782,000

Liabilities and Shareholders' Equity:

Accounts payable $ 21,380,000 $ 35,080,000
Accrued expenses 30,512,000 27,682,000
Total current liabilities 51,892,000 62,762,000

Long-term liabilities 39,864,000 54,390,000

Shareholders' equity 688,473,000 672,630,000

Total liabilities and shareholders' equity $ 780,229,000 $ 789,782,000

KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Third Quarter Ended First Three Quarters Ended
As adjusted (1)
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Cash flows from operating activities:
Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 5,060,000 4,240,000 14,635,000 11,844,000
Amortization of intangible assets 1,071,000 1,366,000 3,211,000 4,097,000
Amortization of stock awards 1,034,000 1,126,000 3,104,000 3,353,000
Stock option compensation expense 289,000 311,000 981,000 901,000
Excess tax benefits from stock-based compensation 18,000 (262,000 ) 61,000 (179,000 )
Deferred financing fees 62,000 62,000 186,000 728,000
Net change in receivables, inventories
and trade payables 11,025,000 869,000 (6,744,000 ) (30,261,000 )
Contributions to qualified pension plans - - (14,846,000 ) -
Net change in other assets and liabilities 6,721,000 (281,000 ) 8,989,000 7,929,000

Net cash from operating activities 41,347,000 23,766,000 44,127,000 49,698,000

Cash flows from investing activities:
Capital expenditures (1,886,000 ) (16,033,000 ) (9,585,000 ) (45,949,000 )
Dispositions of property, plant and equipment 1,076,000 91,000 1,186,000 99,000
Proceeds from sales of investments 2,170,000 3,392,000 4,063,000 63,408,000
Acquisition of business, net of cash received - - - 489,000

Net cash from (used in) investing activities 1,360,000 (12,550,000 ) (4,336,000 ) 18,047,000

Cash flows from financing activities:
Cash dividends paid (5,707,000 ) (4,148,000 ) (17,164,000 ) (12,485,000 )
Purchase of treasury stock - (9,755,000 ) (8,871,000 ) (21,837,000 )
Excess tax benefits from stock-based compensation (18,000 ) 262,000 (61,000 ) 179,000
Proceeds from exercise of stock options 24,000 79,000 24,000 242,000

Net cash used in financing activities (5,701,000 ) (13,562,000 ) (26,072,000 ) (33,901,000 )

Effect of exchange rate changes on cash and
cash equivalents 168,000 (3,426,000 ) 1,124,000 (1,106,000 )

Net increase (decrease) in cash and cash equivalents 37,174,000 (5,772,000 ) 14,843,000 32,738,000

Cash and cash equivalents - Beginning of period 210,667,000 268,503,000 232,998,000 229,993,000

Cash and cash equivalents - End of period $ 247,841,000 $ 262,731,000 $ 247,841,000 $ 262,731,000

(1) Results for the First Three Quarters Ended September 27, 2008 have been adjusted, as required, for the retrospective application of new Financial Accounting Standards Board guidance on debt.

KAYDON CORPORATION
EARNINGS PER SHARE

Third Quarter Ended First Three Quarters Ended
As adjusted (1) As adjusted (1)
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Earnings per share - Basic

Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000

Less: Net earnings allocated to participating securities - Basic (174,000 ) (218,000 ) (395,000 ) (767,000 )

Income available to common shareholders - Basic $ 15,893,000 $ 16,117,000 $ 34,155,000 $ 50,519,000

Weighted average common shares outstanding - Basic 33,226,000 29,679,000 33,258,000 28,118,000

Earnings per share - Basic $ 0.48 $ 0.54 $ 1.03 $ 1.80

Earnings per share - Diluted

Net income $ 16,067,000 $ 16,335,000 $ 34,550,000 $ 51,286,000

Less: Net earnings allocated to participating securities - Diluted (174,000 ) (210,000 ) (395,000 ) (742,000 )
Plus: Interest and debt issuance costs amortization related to Contingent Convertible Notes, net of tax - 852,000 - 5,833,000

Income available to common shareholders - Diluted $ 15,893,000 $ 16,977,000 $ 34,155,000 $ 56,377,000

Weighted average common shares outstanding - Diluted

Weighted average common shares outstanding - Basic 33,226,000 29,679,000 33,258,000 28,118,000
Potential dilutive shares resulting from stock options 19,000 57,000 15,000 46,000
Dilutive shares resulting from Contingent Convertible Notes - 4,255,000 - 5,979,000
Weighted average common shares outstanding - Diluted 33,245,000 33,991,000 33,273,000 34,143,000

Earnings per share - Diluted $ 0.48 $ 0.50 $ 1.03 $ 1.65

(1) Results for the Third Quarter and First Three Quarters Ended September 27, 2008 have been adjusted, as required, for the retrospective application of new Financial Accounting Standards Board guidance on earnings per share.

KAYDON CORPORATION
REPORTABLE SEGMENT INFORMATION
(Amounts in thousands)

Third Quarter Ended First Three Quarters Ended

October 3, September 27, October 3, September 27,
Net sales 2009 2008 2009 2008

Friction Control Products $ 87,076 $ 79,255 $ 223,491 $ 240,159
Velocity Control Products 12,202 17,114 34,602 55,832
Sealing Products 8,835 10,782 28,998 34,007
Other 15,524 19,652 45,199 59,994

Total consolidated net sales $ 123,637 $ 126,803 $ 332,290 $ 389,992

Third Quarter Ended First Three Quarters Ended
As adjusted (1)
October 3, September 27, October 3, September 27,
Operating income 2009 2008 2009 2008

Friction Control Products $ 15,392 $ 16,431 $ 37,633 $ 56,130
Velocity Control Products 2,124 4,516 5,191 16,197
Sealing Products 845 990 2,209 4,031
Other 1,383 1,849 3,258 7,309
Total segment operating income 19,744 23,786 48,291 83,667
Items not allocated to segment operating income 4,885 993 5,086 (586 )
Interest expense (62 ) (1,393 ) (185 ) (9,302 )
Interest income 190 1,520 429 5,198

Income before income taxes $ 24,757 $ 24,906 $ 53,621 $ 78,977

(1) Results for the First Three Quarters Ended September 27, 2008 have been adjusted, as required, for the retrospective application of new Financial Accounting Standards Board guidance on debt. The state income tax provision is no longer included in segment operating income and amounts in the third quarter and first three quarters of 2008 have been reclassified to conform to this presentation.

KAYDON CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
(Amounts in thousands)

Third Quarter Ended First Three Quarters Ended LTM

October 3, September 27, October 3, September 27, October 3, September 27,
Free cash flow, as defined (non-GAAP) 2009 2008 2009 2008 2009 2008

Net cash from operating activities (GAAP) $ 41,347 $ 23,766 $ 44,127 $ 49,698 $ 52,329 $ 76,595
Capital expenditures, net of dispositions (810 ) (15,942 ) (8,399 ) (45,850 ) (22,059 ) (62,922 )

Free cash flow, as defined (non-GAAP) $ 40,537 $ 7,824 $ 35,728 $ 3,848 $ 30,270 $ 13,673

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.

Third Quarter Ended First Three Quarters Ended LTM
As adjusted (1) As adjusted (1)
October 3, September 27, October 3, September 27, October 3, September 27,
EBITDA, as defined (non-GAAP) 2009 2008 2009 2008 2009 2008

Net income (GAAP) $ 16,067 $ 16,335 $ 34,550 $ 51,286 $ 48,327 $ 72,707
Net interest (income)/expense (128 ) (127 ) (244 ) 4,104 155 4,591
Provision for income taxes 8,690 8,571 19,071 27,691 27,325 37,950
Depreciation and amortization of intangible assets 6,131 5,606 17,846 15,941 23,550 20,118
Stock-based compensation expense (2) 1,323 1,437 4,085 4,254 5,558 5,778

EBITDA, as defined (non-GAAP) $ 32,083 $ 31,822 $ 75,308 $ 103,276 $ 104,915 $ 141,144

(1) Results have been adjusted, as required, for the retrospective application of new Financial Accounting Standards Board guidance on debt.
(2) Includes non-cash stock amortization expense and non-cash stock option expense.

Kaydon's management believes EBITDA, as defined above and a non-GAAP measure, is a determinant 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 the metric used to determine payments under the Company's annual incentive compensation program for senior
managers. However, EBITDA, as defined, should be viewed as supplemental data, rather than as a substitute or alternative to the comparable GAAP measure.

Kaydon Corporation
James O`Leary
Chairman and Chief Executive Officer
(734) 747-7025 ext. 2025
or
Peter C. DeChants
Senior Vice President and Chief Financial Officer
(734) 680-2009
READ IT ON THE WEB
http://www.kaydon.com

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