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| KDN > SEC Filings for KDN > Form 10-Q on 6-May-2009 | All Recent SEC Filings |
6-May-2009
Quarterly Report
During the first quarter of 2009, the Company's Velocity Control Products
reporting segment sales were $12.2 million compared to $18.8 million in the
first quarter of 2008, due to reduced demand in all regions and the adverse
effects of exchange rate changes.
Sales of the Company's Sealing Products reporting segment in the first quarter
of 2009 were $10.6 million compared to $11.5 million in the first quarter of
2008, as lower volume was only partially offset by higher pricing.
Sales of the Company's remaining businesses equaled $15.4 million during the
first quarter of 2009 compared to $18.9 million in the 2008 first quarter,
primarily due to lower demand for liquid filtration, air filtration, and metal
alloy products.
Gross and operating margins in the first quarter of 2009 were 32.4 percent and
14.1 percent, respectively, and were negatively affected by increased
depreciation, increased pension costs, and adverse changes in product mix,
largely due to sales declines in higher margin industrial segments. Also, gross
profit and operating earnings during the first quarter of 2009 were impacted by
lower sales volumes and negative currency translation effects resulting from a
stronger dollar.
Selling, general, and administrative expenses were $20.3 million or 18.4 percent
of sales during the first quarter of 2009, compared to $21.2 million in the
first quarter of 2008. Selling, general, and administrative expenses declined in
the first quarter of 2009 compared to the prior first quarter primarily because
of the preemptive steps taken by the Company last year to reduce costs as the
global economy weakened.
The Company's operating income was $15.5 million in the first quarter of 2009
compared to $26.2 million in the first quarter of 2008, as the lower gross
profit more than offset the lower selling, general, and administrative expenses.
On a reporting segment basis, operating income from the Friction Control
Products reporting segment during the first quarter of 2009 totaled
$12.5 million compared to $17.6 million in the 2008 first quarter. Operating
margins of this segment were affected by adverse changes in product mix,
increased depreciation and pension costs and the unfavorable effects of exchange
rate changes.
The Velocity Control Products reporting segment contributed $2.2 million to the
Company's operating income during the first quarter of 2009 as compared to
$5.6 million during the comparable period last year. This decrease in operating
income is due to the effects of a decline in sales and unfavorable trends in
exchange rates.
The Sealing Products reporting segment contributed $0.6 million to the Company's
operating income during the first quarter of 2009 as compared to $1.5 million
during the comparable period last year because of a decline in gross profit due
to a decline in sales, adverse changes in product mix and higher pension costs.
The Company's other businesses contributed $0.8 million to the Company's
operating income during the first quarter of 2009 as compared to $2.1 million
during the comparable period last year. This decrease in operating income is due
to lower sales, less favorable product mix, and higher pension costs.
During the first quarter of 2009, interest income totaled $0.1 million on
average investment balances of $219.3 million. This compares to $1.9 million of
interest income in last year's first quarter when the Company earned
approximately 3.4 percent on average investment balances of $288.8 million, and
recorded a $0.5 million charge to recognize the loss in value of a previously
disclosed restricted investment. The lower average investment balances resulted
from the Company's capital expenditure program, increased working capital, the
continuation of the Company's stock repurchase program and an increase in our
dividend rate.
The reduction of $1.8 million in first quarter interest income compared to the
prior first quarter was equivalent to $0.03 per share on a diluted basis. The
Company's investment balances continue to provide significant liquidity when
liquidity is at a premium. The significantly lower interest earned by the
Company in the first quarter reflects prevailing historically low interest rates
on short term treasury securities.
The effective tax rate for the first quarter of 2009 was 35.1 percent which is
expected to be the rate for all of 2009. The first quarter tax rate was
favorably impacted by lower state taxes. The effective tax rate for the first
quarter of 2008 was 35.3 percent.
Net income for the first quarter was $10.1 million, or $0.30 per share on a
diluted basis as compared to adjusted first quarter 2008 net income of
$15.3 million, or $0.52 per share on a diluted basis. First quarter 2008 results
have been adjusted to reflect the required retrospective application of two
Financial Accounting Standards Board Staff Positions which were effective
January 1, 2009 and resulted in the recording of additional non-cash interest
expense of $2.0 million, $1.3 million net of tax in the first quarter of 2008.
These required adjustments reduced previously reported first quarter 2008 basic
earnings per share by $0.06 and diluted earnings per share by $0.01.
Liquidity and Capital Resources
At April 4, 2009, the Company's current ratio was 8.0 to 1 and working capital
totaled $364.8 million, including $220.3 million of cash and cash equivalents.
At December 31, 2008, the current ratio was 6.8 to 1 and working capital totaled
$365.3 million, including cash and cash equivalents of $233.0 million.
Net cash from operating activities during the first quarter of 2009 equaled
$6.6 million, compared to first quarter 2008 net cash from operating activities
of $12.7 million. During the first quarter of 2009, the Company paid common
stock dividends of $5.8 million, repurchased a total of 314,047 shares of
Company common stock for $8.9 million and invested $5.4 million in net capital
expenditures.
The Company has recorded in other assets a $3.6 million investment representing
the Company's position in an investment fund. This fund has been closed by the
fund issuer. The fund issuer, owned by a major bank, has restricted the
redemption of the fund to permit its orderly liquidation as the underlying fund
assets mature or are sold. During the first quarter of 2009 the Company received
distributions of $1.4 million from the fund at approximately book value.
Management expects that the Company's planned capital requirements, which
consist of capital expenditures, dividend payments and its stock repurchase
program, will be financed by operations and existing cash balances. In addition,
the Company's revolving credit facility provides additional financial strength
to support the Company's objectives, including strategic acquisitions.
Outlook
The near term outlook for the domestic and international economies is uncertain.
The deterioration in general business conditions has softened demand for the
Company's higher margin immediately shippable orders, or "book and ship" orders,
to the Company's general industrial distribution channels in North America and
overseas. Backlog equaled $273.3 million at the end of the first quarter of 2009
compared to backlog of $319.9 million at the end of the first quarter of 2008.
Expected operating cash flows, coupled with the Company's current cash reserves
and available credit under the Company's $300.0 million revolving credit
facility, will provide substantial resources to fund the Company's ongoing
business development efforts, which include internal and external growth
initiatives, and selected stock repurchases.
Interest income continues to trend lower as market interest rates remain well
below market interest rates of the prior year. The Company expects interest
income to be negligible during 2009 compared to $4.9 million earned for the full
year of 2008.
Critical Accounting Policies and Estimates
The Company's consolidated financial statements are prepared in conformity with
U.S. generally accepted accounting principles. The preparation of these
financial statements requires the use of estimates, judgments, and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented.
The Company continually evaluates the estimates, judgments, and assumptions used
to prepare the consolidated financial statements. In general, these estimates
are based on historical experience, on information from third party
professionals and on various other judgments and assumptions that are believed
to be reasonable under the current facts and circumstances. Actual results could
differ from the current estimates made by the Company. The Company's critical
accounting policies and estimates are discussed in "Item 7. Management's
Discussion and
Analysis of Financial Condition and Results of Operations" of the Company's
Annual Report on Form 10-K for the year ended December 31, 2008. There have been
no material changes to the critical accounting policies previously disclosed in
that report.
Forward-Looking Statements
This Form 10-Q 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.
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