Kaydon Corporation outlined a “comprehensive restructuring” of its wind-energy bearings business, including shutting down a South Carolina plant that produces bearings for wind turbines and components for military products. It called the restructuring a response to “current and expected conditions in the wind and military markets.”
Kaydon designs and manufactures customized bearings for alternative-energy, military, industrial, aerospace, medical, and electronic equipment. The plant in Sumter, S.C., produces specialty ball bearings for wind turbines and military ground vehicles. The company is consolidating it with two other plants.
The Ann Arbor, Mich.-based company is facing two public policy problems: 1) the expiration of a federal wind-energy tax credit; and 2) the looming likelihood of “sequestration” cuts to the U.S. Dept. of Defense budget for 2013, as a consequence of the U.S. Congress failing to reach an agreement on federal appropriations for the coming year.
In the matter of wind energy, Kaydon acknowledged that elimination of the federal Production Tax Credit is guiding its decision. And it’s not alone: last month Siemens AG announced it would cut more than a third of its employment total in wind-energy businesses, including 746 jobs at U.S. wind-turbine-manufacturing plants Fort Madison, Iowa, and Hutchinson, Kan. Other wind turbine manufacturers are understood to be downsizing, too.
The Production Tax Credit subsidizes wind-power producers at 2.2 cents per kilowatt-hour. The credit expires December 31, though there are Congressional efforts to keep it in effect so that wind-energy may remain competitive with other sources of electricity.
Kaydon said the restructuring plant will “right-size” its manufacturing capacity and employment totals in order to reduce operating cost, increase profit margins, and prepare for future reinvestment. Also, the company will absorb pre-tax charges estimated at $47 to $52 million.
“While we believe that wind energy will be a viable market in the long term, it will be challenged by continued regulatory uncertainty in the United States, including the impending expiration of the Production Tax Credit, and a weak global economy in the immediate future,” noted James O’Leary, Kaydon chairman and CEO. “Accordingly, while we will maintain sufficient capacity to serve existing and prospective customers, we believe it is appropriate to reduce wind capacity at this time.”
Kaydon began building up its wind energy operations six year ago, and claims it has achieved a leadership position in the global market that recognizes both its brand and its technical capabilities. “However, the global financial crisis, worldwide fiscal austerity, and the emergence of new shale gas extraction techniques have combined to reduce both the current prospects and expectations for the long-term growth of this market, principally in North America,” according to O’Leary.
“This restructuring resizes this product line to continue to be a profitable, but smaller, contributor going forward. After extensive analysis and consideration, we believe this plan will enhance our prospects for both growth and value creation,” he said.
O’Leary said that Kaydon’s wind-energy capabilities will serve it well in other markets, including heavy equipment and mining.