Sequa Reports Results for Full Year and Fourth Quarter 2002
NEW YORK--March 14, 2003--Sequa Corporation recorded lower sales but posted operating income gains for 2002.The improved operating performance was achieved despite the unfavorable effects of the decline in the commercial airline industry on Chromalloy Gas Turbine, the company's largest operating unit, and is a reflection of the balance afforded by the company's diversified operating base.
For the year ended December 31, 2002, Sequa's sales totaled $1.7 billion, slightly lower than the $1.8 billion recorded a year ago. The decline primarily reflects lower sales at the large Chromalloy Gas Turbine unit and the smaller MEGTEC Systems operation, both of which combated severe market conditions throughout the year.
Operating income for 2002 rose sharply to $61.2 million from $25.9 million in 2001. It is important to note that reported operating income for 2002 includes the benefit of reduced restructuring charges and related provisions ($4.5 million in 2002 and $22.4 million in 2001) and the absence of a large environmental charge ($13.3 million) and goodwill amortization ($13.1 million) in 2001. After adjusting to eliminate these factors, pro forma operating income amounted to $65.7 million in 2002 and $74.7 million in 2001. While Chromalloy's pro forma operating income declined sharply and MEGTEC Systems posted a loss for 2002, all other operating units generated noteworthy improvement for the year.
Income from continuing operations - before the effect of a required accounting change - rose to $9.2 million or 68 cents per share in 2002. As previously announced, net income for 2002 was lowered by two factors: a required change in accounting for goodwill, which reduced net results by $114.8 million or $11.02 per share; and a loss from a discontinued financial services operation (Sequa Capital) that reduced final results by $11.0 million or $1.05 per share. The loss from discontinued operations stems from the write-off of an aircraft lease with bankrupt United Airlines and the write-down of other aircraft leases in the Sequa Capital portfolio. As a result of these factors, final net for the year was a loss of $116.5 million or $11.39 per share. Net income for 2001 totaled $8.0 million or 58 cents per share and included the benefit of a tax settlement that added $36.0 million or $3.47 per share to final results.
Summary of Results by Segment
Aerospace: Chromalloy Gas Turbine's sales declined 10 percent last year, a reflection of the drop in airline travel and consequent pressure on commercial airlines that began in the aftermath of September 11 and persisted throughout 2002. Operating income declined 32 percent, despite cost-reduction actions to counter the effects of lower demand and pricing constraints. Chromalloy also increased provisions for slow-moving parts inventories. Chromalloy's military and industrial turbine businesses moved sharply higher in 2002, while the original equipment portion of its commercial operations declined. In light of the continuing difficulties in the airline industry, Chromalloy is not expected to return to its pre-September 11 performance level in 2003. Moreover, depending on changes in the condition of the commercial airline industry, Chromalloy may implement further restructuring actions during the current year.
Propulsion: Atlantic Research - which produces automotive airbag inflators and propulsion systems for missile and space applications - generated higher results in 2002, posting a sales increase of six percent and a turnaround in operating income. The automotive unit recorded higher domestic and foreign sales. Operating results also improved due to productivity gains derived from the company's Six Sigma program and lower operating expenses. The propulsion unit posted higher sales under tactical weapons programs and the initiation of development work on contracts for air breathing rocket systems. The advance in operating income for this unit reflects the inclusion of a technology transfer payment of $4.0 million in 2002, as well as the absence of a large environmental provision ($10.2 million) that had affected operating income for 2001.
Metal Coating: Precoat Metals - which coats coils of steel and aluminum for industrial end users - posted slightly lower sales for 2002, the result of the continued contraction in its largest market, commercial construction. Nonetheless, Precoat Metals' profits - after adjusting to exclude restructuring charges and goodwill amortization - advanced five percent in 2002. The increase reflects market share gains and the combined benefits of restructuring actions taken in 2001 and the company's ongoing Six Sigma program.
Specialty Chemicals: Results of United Kingdom-based chemicals supplier Warwick International were strong for 2002, with double-digit increases in both sales and operating income. The improvements were derived primarily from stronger sales of the detergent additive, TAED, and the enhancement of internal operating efficiencies derived from Six Sigma initiatives. Results also benefited from improved profitability at an international network of distribution companies and from the favorable effect of currency movements.
Other Products: Results of the four operations in the other products segment were mixed in 2002. MEGTEC Systems, the largest unit, recorded a 15 percent decline in sales and posted a large operating loss for the year, despite the sales and income added by a business acquired in late 2001. The declines reflect the impact of substantial weakness in graphic arts, MEGTEC's largest market, combined with softness in other industrial equipment markets of Europe and Asia. Restructuring charges of $2.3 million in 2002 added to the unfavorable results for this unit, though the actions taken will lower costs in 2003. Sequa Can Machinery - which has endured a multi-year contraction of the container industry - achieved a turnaround in 2002, with sales up six percent and profitability restored. The machinery unit began 2003 with a strengthened backlog of orders and a positive outlook for the first half of the current year. Automotive products supplier Casco Products produced higher sales and income for 2002, due to advances at European operations and to the effects of restructuring actions taken in 2001. Men's formalwear maker, After Six, posted lower sales but generated improved profitability in 2002, the latter due to restructuring actions of 2001. With an improved backlog position at the end of 2002 and further restructuring completed, results are expected to strengthen in 2003.
Summary of Fourth Quarter Results
Sales for the fourth quarter of 2002 advanced five percent to $452.9 million from $429.7 million in the same period of 2001, with increases at four of the company's five segments. The advance in reported operating results to $19.8 million for the fourth quarter of 2002 was more pronounced, as the operating loss of $22.4 million posted for the 2001 fourth quarter included goodwill amortization of $3.4 million, restructuring and related provisions of $13.5 million and environmental charges of $13.3 million, whereas the fourth quarter of 2002 included only a restructuring charge of $1.8 million. After adjusting for these factors, pro forma operating income was $21.6 million in the fourth quarter of 2002 and $7.8 million in the fourth quarter of 2001. Income from continuing operations for the final quarter of 2002 was $6.4 million or 56 cents per share. After including the loss from discontinued operations of $11.0 million or $1.05 per share, the final result for the fourth quarter of 2002 was a loss of $4.6 million or 49 cents per share. In the fourth quarter of 2001, the company recorded a net loss of $25.6 million or $2.51 per share.
Note: This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global economic, business, political, currency, and regulatory, competitive and technological factors. For additional information, see the comments included in Sequa's filings with the Securities and Exchange Commission.
Sequa Corporation and Subsidiaries
Consolidated Statement of Operations
Report for the Fourth Quarter and Year Ended December 31
(Amounts in thousands, except per share)
Fourth Quarter Full Year
2002 2001 2002 2001
-------- -------- ---------- ----------
Sales $452,876 $429,674 $1,688,498 $1,755,775
Costs and expenses 433,045 452,092 1,627,270 1,729,837
-------- -------- ---------- ----------
Operating income (loss) 19,831 (22,418) 61,228 25,938
Other income (expense)
Interest expense (15,806) (15,972) (63,651) (63,274)
Interest income 958 1,088 3,510 5,198
Other, net 2,691 4,403 3,995 (3,513)
-------- -------- ---------- ----------
Income (loss) from continuing
operations before income
taxes and the effect of a
change in accounting
principle 7,674 (32,899) 5,082 (35,651)
Income tax (provision) benefit (1,300) 7,300 4,100 7,700
Tax settlement -- -- -- 36,000
-------- -------- ---------- ----------
Income (loss) from continuing
operations before the effect
of a change in accounting
principle 6,374 (25,599) 9,182 8,049
Effect of a change in
accounting principle, net of
income taxes -- -- (114,764) --
-------- -------- ---------- ----------
Income (loss) from continuing
operations 6,374 (25,599) (105,582) 8,049
Loss from discontinued
operations, net of income
taxes (10,960) -- (10,960) --
-------- -------- ---------- ----------
Net (loss) income $(4,586)$(25,599) $(116,542) $8,049
======== ======== ========== ==========
Per share, basic and diluted:
Income (loss) from continuing
operations before the effect
of a change in accounting
principle $0.56 $(2.51) $0.68 $0.58
Effect of a change in
accounting principle -- -- (11.02) --
Loss from discontinued
operations (1.05) -- (1.05) --
-------- -------- ---------- ----------
Net (loss) income $(0.49) $(2.51) $(11.39) $0.58
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Results by Business Segment
---------------------------
(Amounts in thousands)
Fourth Quarter Full Year
2002 2001 2002 2001
-------- -------- ---------- ----------
Sales
-----
Aerospace $176,404 $175,272 $675,156 $752,329
Propulsion 86,719 73,439 306,135 287,794
Metal Coating 57,877 65,033 234,830 240,979
Specialty Chemicals 44,550 37,102 160,785 143,684
Other Products 87,326 78,828 311,592 330,989
-------- -------- ---------- ----------
Total $452,876 $429,674 $1,688,498 $1,755,775
======== ======== ========== ==========
Operating Income (Loss)
-----------------------
Aerospace $15,994 $19,199 $45,259 $66,431
Propulsion 3,443 (17,696) 7,786 (21,031)
Metal Coating 4,711 1,181 20,792 13,727
Specialty Chemicals 5,976 4,016 18,224 13,887
Other Products 2,157 (18,611) 1,872 (19,670)
Corporate (12,450) (10,507) (32,705) (27,406)
-------- -------- ---------- ----------
Total $19,831 $(22,418) $61,228 $25,938
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