Sales for the fourth quarter of 2008 were $347.1 million, an increase of $1.8 million, or 0.5%, compared to the fourth quarter of 2007. Net income for the fourth quarter of 2008 was $13.7 million, or $0.37 per share, compared to net income of $21.5 million, or $0.55 per share, for the fourth quarter of 2007. Income from continuing operations for the fourth quarter of 2008 decreased by $7.8 million, or 36%, to $13.9 million, or $0.38 per share, compared to income from continuing operations for the fourth quarter of 2007 of $21.7 million, or $0.56 per share.
Results for the fourth quarters of 2008 and 2007 include net after-tax charges of $1.7 million, or $0.05 per share, in each quarter. The net charges in 2008 were primarily part of a previously announced 2008 reduction-in-force. The 2007 charges were part of our global restructuring program and product line discontinuances. The 2008 results do not include any potential goodwill impairment as discussed below.
Income from continuing operations for the year ended December 31, 2008 decreased by $13.0 million, or 17%, to $64.6 million, or $1.75 per share, compared to income from continuing operations for the year ended December 31, 2007 of $77.6 million, or $1.99 per share. The 2008 results do not include any potential goodwill impairment as discussed below.
For the year ended December 31, 2008, the company recorded a net after-tax charge of $3.9 million, or $0.10 per share, for costs related to its reduction-in-force program and its global restructuring program. For the year ended December 31, 2007, the Company recorded an after-tax charge of $5.1 million, or $0.13 per share, for product line discontinuances and restructuring charges.
The company is announcing a plan approved by the board of directors to expand its program to consolidate the it’s manufacturing footprint in North America and China. The plan provides for the closure of three plants, with those operations being moved to existing facilities in either North America or China or relocation to a new central facility in the US.
The footprint consolidation pre-tax charge will be around $11.7 million, including severance charges of around $3.2 million, relocation costs of around $3.3 million and asset write-downs of around $5.2 million. The company also expects to record a net gain on property sales of $2.4 million. One-time tax charges of around $9.3 million are also expected to be incurred as part of the building relocations. Positions being eliminated by this consolidation will total around 400. The net after tax charge for this manufacturing consolidation program is expected to be around $17.2 million ($4.4 million non cash), with costs being incurred through December 2009. The company expects to spend around $4.8 million in capital expenditures to consolidate operations. The company expects this entire project will be self-funded through net proceeds from the sale of buildings and other assets being disposed of as part of the plan.
Annual cash savings, net of tax, are estimated to be around $4.8 million, which is expected to be fully realized in 2010.
Patrick S. O’Keefe, chief executive officer, commented, “ Market conditions require that we right size operations to realize efficiencies and cost savings. We expect this manufacturing footprint consolidation program will streamline our costs beyond 2009. We plan to continue to review our operational footprint and we may consider further actions in the future, if necessary.”
Commenting on fourth quarter sales, O’ Keefe noted, “The small increase in fourth quarter sales was achieved through contributions from acquisitions of $19.9 million, or 6%, offset by unfavorable changes in foreign exchange rates of $13.2 million, or 4%, a decrease of $3.2 million, or 1%, from the disposal of a business in China in October 2008, and by a decrease in organic sales of $1.7 million, or 0.5%.
“Sales in our North American segment decreased for the fourth quarter of 2008 by $10.7 million, or 5%, to $201.7 million compared to $212.4 million for fourth quarter of 2007. This decrease was the result of a reduction in organic sales of $8.3 million, or 4%, unfavorable foreign exchange movements of $3.3 million, or 2%, associated with the weakening of the Canadian dollar versus the U.S. dollar, offset by contributions from an acquisition of $0.9 million, or 1%.”
“Organic sales in our North American wholesale market for the fourth quarter of 2008 decreased 5% as compared to the fourth quarter of 2007. Our North American home improvement retail market organic sales increased 1% for the fourth quarter of 2008 compared to the fourth quarter of 2007. The decrease in the wholesale market was primarily volume related as our customers reduced purchasing as a consequence of the U.S. recession.”
“We derived 39% of our total sales for the fourth quarter of 2008 from our European segment. European sales increased $17.8 million, or 15%, to $136.1 million compared to $118.3 million for the fourth quarter of 2007. This increase was achieved through contributions from the acquisition of Blücher Metals A/S of $19.0 million, or 16%, organic sales growth of $9.5 million, or 8%, partially offset by unfavorable foreign exchange movements associated with the weakening of the euro versus the U.S. dollar of $10.7 million, or 9%. The organic sales increase was primarily attributable to our German operations, where we continued to experience strong demand for our product packages sold into the solar and alternative energy marketplace.”
“Sales in our China segment in the fourth quarter of 2008 decreased $5.3 million, or 36%, to $9.3 million, compared to $14.6 million for the fourth quarter of 2007. This included a decrease of $3.2 million, or 21%, from the disposal of a business in October 2008 and a reduction in organic sales of $2.9 million, or 20%, partially offset by favorable foreign exchange movements associated with the strengthening of the Chinese yuan against the U.S. dollar of $0.8 million, or 5%.”
O’Keefe concluded, “Our operating income for the fourth quarter of 2008 decreased by $4.5 million, or 13%, to $30.4 million as compared to $34.9 million in the fourth quarter of 2007. The decrease resulted from organic operating earnings decreasing $3.3 million, or 10%, unfavorable foreign exchange movements of $2.0 million, or 6%, and restructuring costs increasing by $1.9 million, or 5%. These decreases were partially offset by contributions from acquisitions and reduced operating losses due to the disposal of the business in China totaling $2.7 million, or 8%. Operating margins in the fourth quarter of 2008 decreased by around 130 basis points to 8.8% as compared to 10.1% in the fourth quarter of 2007. Restructuring costs decreased operating margins in the fourth quarter of 2008 and the fourth quarter of 2007 by around 80 basis points and 25 basis points, respectively. Compared to last year, our operating margins were negatively impacted by product mix in the US and lower factory absorption in both the U.S. and China, offset partially by increased manufacturing efficiencies in Europe driven by higher sales.”
In November 2007, the company’s board of directors authorized the repurchase of up to 3.0 million shares of the company’s Class A common stock. As of February 9, 2009, the company had repurchased around 2.45 million shares at a total cost of $68.1 million. As previously announced, the company suspended the share repurchase program during the fourth quarter of 2008.
