Sequa Reports Strong Third Quarter and Nine Months Results

NEW YORK--Paced largely by continued strong gains in operations serving the commercial airline market and industrial machinery sector, Sequa Corporation (NYSE; SQAA) posted higher sales, operating income, and after-tax income from continuing operations for the third quarter and nine months of 2006.

Sales for the third quarter ended September 30, 2006 increased ten percent to $558.4 million from $508.0 million in the same period of 2005, and operating income advanced to $32.4 million from $24.7 million a year ago. Income from continuing operations after tax rose more sharply, increasing to $14.7 million or $1.31 per basic share from $5.3 million or 45 cents per basic share. It should be noted that net results for the 2005 third quarter were after the establishment of a $2.8 million tax provision on the repatriation of available cash from foreign operations, which was accomplished in the fourth quarter last year. Results of discontinued operations had no effect on net income for the third quarter of 2006. A year ago, a $9.7 million loss from discontinued operations, equal to 91 cents per basic share, led to a net loss of $4.8 million or 46 cents per basic share for the 2005 third quarter.

Summary of Results by Business Segment

Aerospace: Chromalloy Gas Turbine Corporation, Sequa’s largest business unit and the sole component of the aerospace segment, serves the commercial airline industry with new and repaired parts for jet engines. For the third quarter of 2006, Chromalloy posted a 69 percent increase in operating income on 18 percent higher sales. The increase in operating income is after a $3.6 million provision, taken as a reduction of sales, to reserve for unbilled receivables not contractually recoverable in the third quarter. The improved results for this unit primarily reflect the combined effect of new product introductions and sales added through long-term contracts with airline customers to provide repairs, replacement parts, or inventory and engine management services on specific engines in each airline’s fleet. The comparison with the same quarter of 2005 benefited from the absence of two charges taken last year: a $5.6 million provision to reserve for receivables due from two airline customers that filed for bankruptcy protection in September 2005; and a $1.5 million pension curtailment charge stemming from changes to Sequa’s defined benefit retirement plan.

Automotive: ARC Automotive and Casco Products, the two operating units serving the domestic and international automotive market, continued to encounter industry-wide pressures in the third quarter, and the segment recorded modestly lower sales and a 61 percent decline in profits. Casco Products continued to manage through the market difficulties, posting level sales and higher profits, the latter a reflection of benefits derived from low cost region sourcing and operational excellence initiatives. For airbag inflator producer ARC, the effects of industry conditions were exacerbated by the impact of $4.5 million in start-up costs at new plants in Mexico and China and by higher steel surcharges. With start-up largely completed – and barring any further deterioration in the automotive market – the transfer of ARC’s production to lower cost regions is expected to translate to improved performance over the near term.

Metal Coating: Sales of Precoat Metals declined four percent in the third quarter, as increased sales to customers in the building products market were more than offset by a planned decrease in sales under metal management programs and by lower sales to the container market. Despite the sales decline and in the face of higher energy and raw materials costs, profits for this unit advanced 10 percent. The increase reflects a combination of improved absorption of fixed costs and the absence of two charges totaling $0.9 million in the third quarter of 2005.

Specialty Chemicals: With continued softness in demand for TAED, shipments of the detergent chemical additive declined for the third quarter. Nonetheless, reported sales for this segment were unchanged from the prior year due to the benefit of translating local currency sales to US dollars. Profits at Warwick International declined for the quarter, the result of reduced TAED volume and increased energy costs.

Industrial Machinery: The year’s upward performance trend at MEGTEC Systems continued during the third quarter, with sales ahead 27 percent and profits more than doubling from the same period of 2005. The strong results for the period reflect higher sales, particularly in North America and Europe, combined with ongoing productivity improvements stemming from Six Sigma programs and low-cost sourcing activities.

Other Products: The businesses that make up the other products segment include After Six, a supplier of men’s formalwear, and Centor, a real estate holding company. Sales and profits of the segment moved higher for the third quarter, the result of improvement at After Six, which experienced stronger marketplace demand for men’s formal attire.

Summary of Nine Months Results

For the nine months of 2006, sales rose 11 percent to $1.6 billion from $1.5 billion, and operating income increased nine percent to $98.5 million from $90.0 million in the same period of 2005. After-tax income from continuing operations – after including the $4.4 million pre-tax cost to redeem $100.4 million of Sequa’s 8 7/8 Senior Notes – amounted to $38.7 million or $3.47 per basic share in the nine months of 2006, compared with $29.2 million or $2.56 per basic share a year ago. Net income for the current year’s nine months was $42.1 million or $3.78 per basic share, up from $19.5 million or $1.64 per basic share. Income from discontinued operations increased net income by $3.4 million or 31 cents per basic share in the 2006 period; a year ago, net income was lowered by a loss from discontinued operations of $9.7 million or 92 cents per basic share.

Note: This press release may include forward-looking statements that are subject to risks and uncertainties. A number of factors, including political, currency, regulatory and competitive and technological developments, could result in material differences between actual results and those outlined in any forward-looking statements. 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 Three Months and Nine Months Ended September 30,
(Amounts in thousands, except per share)
		(Unaudited)
		Three Months						Nine Months
		2006			2005			2006			2005
Sales	$	558,407		$	507,990		$	1,649,556		$	1,481,451
Costs and expenses		526,016			483,287			1,551,089			1,391,452
Operating income		32,391			24,703			98,467			89,999
Other income (expense):
Interest expense		(17,167)			(17,985)			(55,884)			(54,129)
Interest income		1,404			1,287			6,668			3,647
Equity in income of unconsolidated joint ventures		5,913			5,404			15,923			11,465
Premium on redemption of Senior Notes		(715)			-			(4,447)			-
Other, net		(867)			(3,920)			(3,780)			(6,872)
Income from continuing operations before income taxes		20,959			9,489			56,947			44,110
Income tax provision		(6,264)			(1,400)			(18,237)			(12,100)
Income tax provision on repatriation of foreign earnings		-			(2,800)			-			(2,800)
Income from continuing operations		14,695			5,289			38,710			29,210
(Loss) income from discontinued operations, net of income taxes		-			(9,697)			3,439			(9,697)
Net income (loss)		14,695			(4,408)			42,149			19,513
Preferred dividends		-			(439)			(164)			(1,394)
Premium on partial redemption of preferred stock		-			-			-			(655)
Net income (loss) available to common stock	$	14,695		$	(4,847)		$	41,985			17,464
Basic earnings per share:
Income from continuing operations	$	1.31		$	0.45		$	3.47		$	2.56
(Loss) income from discontinued operations		-			(0.91)			0.31			(0.92)
Net income (loss)	$	1.31		$	(0.46)		$	3.78		$	1.64
Diluted earnings per share
Income from continuing operations	$	1.30		$	0.45		$	3.41		$	2.55
(Loss) income from discontinued operations		-			(0.90)			0.30			(0.91)
Net income (loss)	$	1.30		$	(0.45)		$	3.71		$	1.64
Results by Business Segment
(Amounts in thousands)
		Three Months						Nine Months
		2006			2005			2006			2005
Sales
Aerospace	$	275,800		$	234,239		$	793,127		$	659,059
Automotive		87,907			89,426			276,858			271,760
Metal Coating		74,616			77,714			215,860			211,482
Specialty Chemicals		53,550			53,594			157,025			167,275
Industrial Machinery		63,987			50,573			194,794			160,739
Other Products		2,547			2,444			11,892			11,136
Total	$	558,407		$	507,990		$	1,649,556		$	1,481,451
Operating Income
Aerospace	$	18,531		$	10,944		$	56,885		$	43,334
Automotive		1,639			4,229			11,089			21,220
Metal Coating		10,516			9,580			28,565			24,275
Specialty Chemicals		8,568			9,212			19,379			24,575
Industrial Machinery		3,231			1,391			11,454			7,634
Other Products		3			(573)			640			203
Corporate Expense		(10,097)			(10,080)			(29,545)			(31,242)
Total	$	32,391		$	24,703		$	98,467		$	89,999