Lydall, Inc. (Lydall), a US-based manufacturer of specialty engineered products for thermal/acoustical and filtration/separation markets, has reported net sales of $54.3 million for the first quarter of 2009, compared with the net sales of $89.9 million in the year-ago quarter. It has also reported a net loss of $4.5 million, or $0.27 loss per share, for the first quarter of 2009, compared with the net income of $3.2 million, or $0.19 per share, in the year-ago quarter.

Excluding the impact of foreign currency translation, net sales decreased by $32.4 million in the first quarter of 2009 compared with the first quarter of 2008.

Gross margin as a percent of net sales for the first quarter of 2009 was 11.0% compared with 23.2% for the same quarter of 2008. Gross margin percentage in the first quarter of 2009 was significantly impacted by the reduction in consolidated net sales causing fixed costs to be a greater percentage of net sales. This reduction in gross margin percentage was primarily attributable to the company’s Thermal/Acoustical segment, and to a lesser extent, the company’s Performance Materials segment and Other Products and Services. Restructuring related charges associated with the consolidation of the North American automotive operation impacted the company’s gross margin percentage by about 380 basis points in the first quarter of 2009. The company’s gross margin percentage in the first quarter of 2008 was positively impacted by a short-term replacement part opportunity at the company’s European automotive operation.

Selling, product development and administrative expenses were $13.1 million for the first quarter ended March 31, 2009 compared with $15.8 million for the same quarter of 2008. Selling, product development and administrative expenses decreased by $2.7 million primarily due to decreases in salaries and wages expense, incentive compensation expense and sales commission expense, as well as reductions in other discretionary spending. The lower salaries and wages expense was due to reductions in workforce that occurred during the last half of 2008 and into the first quarter of 2009. The total number of selling, product development and administrative employees for the company has decreased by about 15% since March 31, 2008.

Net cash used for operating activities was $3.7 million in the first quarter of 2009 compared with net cash provided by operating activities of $8.2 million in the first quarter of 2008. As of March 31, 2009, the company had $7.5 million of cash and no borrowings under its credit facilities. Other than capital lease obligations, the company had no significant debt outstanding at March 31, 2009.

Dale Barnhart, president and chief executive officer, commented, “Unprecedented global economic conditions impacted all of the markets that Lydall serves, negatively affecting our financial results for the first quarter. The Thermal/Acoustical segment continued to be severely impacted by reductions in automobile production in the US and Europe, while our Performance Materials segment and Other Products and Services were also impacted by lower demand.”

“We remain focused on aggressively reducing costs and managing cash and working capital. Our Lean Six Sigma program continues to generate productivity gains and remove costs from the organization. We expect Lean Six Sigma will also assist the company in reducing its working capital, particularly our inventory levels, resulting in improved cash generation as we move forward in 2009.”

“We continued cost reductions in the first quarter of 2009, including a further reduction in our global workforce by about 7.5%, primarily from headcount reductions at the company’s Thermal/Acoustical global automotive operations. We also made the difficult decision to reduce the annual base salaries by 3% of all executive officers and most domestic salaried employees of the company and its subsidiaries, effective as of March 16, 2009. In addition, the company’s matching contributions to its sponsored 401(k) plan will be suspended, beginning with the first payroll of May 2009, for all non-union, domestic employees.”

“In our North American automotive business, we were invited by Chrysler and General Motors to participate in the U.S. Department of Treasury Auto Supplier Support Program. The intent of the Program is to provide suppliers of the U.S. automotive industry with access to government supported protection for qualified accounts receivable from domestic automakers participating in the Program. We have completed the necessary documentation to request participation in the Program with both Chrysler and General Motors and are waiting to be accepted into the Program.”

“Also in our North American automotive business, we continue to accelerate the North American automotive consolidation, and now expect it to be substantially complete during the second quarter of 2009, which will allow the company to begin to realize savings from the consolidation earlier than previously anticipated. We expect annualized savings of about $3.5 million to $4.0 million from the consolidation. In addition, we now expect restructuring expenses over the consolidation period to be about $7.0 million, a reduction of $0.4 million from our previous estimate. We are also aggressively working with our customers to quote on platforms that are being transferred from competitors due to this challenging economic environment and have started to be awarded some platforms.”

“While we cannot predict when global economic conditions will improve, we believe that the company is positioning itself well to be stronger operationally when conditions improve in the markets that we serve.”

Segment Information:

Performance Materials:

Performance Materials segment net sales were $22.4 million in the current quarter compared with $29.8 million in the same period last year. Excluding the impact of foreign currency translation, segment net sales decreased by $6.4 million in the current quarter. Net sales of filtration products decreased by $3.2 million primarily due to reductions in air filtration product net sales. Net sales of industrial thermal insulation products decreased by $3.2 million in the first quarter of 2009 as compared to the same period of 2008. This decrease was caused by a reduction in energy and industrial products net sales of $1.6 million, due to lower demand in the electrical and cryogenic markets, and a reduction in net sales of building and appliance insulation products of $1.6 million as the company continues to be impacted by lower construction of new homes and commercial buildings in the US.

For the current quarter, operating income for the segment was $1.3 million, compared to operating income of $4.6 million for the first quarter 2008. Lower net sales and the resulting lower gross margin, and to a lesser extent start-up costs at the company’s Solutech operation acquired in December 2008, caused the reduction in operating income during the first quarter of 2009.

Thermal/Acoustical:

Segment net sales decreased to $26.9 million for the quarter ended March 31, 2009 compared with $51.3 million for the same period of 2008. Excluding the impact of foreign currency translation, net sales decreased in the current quarter by $22.3 million when compared to the same period a year ago. Automotive parts net sales decreased by $17.8 million and tooling net sales declined by $4.5 million, as the company’s automotive operations were significantly impacted by lower automobile production in the US and Europe. According to CSM Worldwide, an automotive market forecasting service provided to suppliers, in the first quarter of 2009 production of cars and light trucks in North America and Europe was estimated to be lower by about 45%, as compared to the same period of 2008. Automotive parts net sales in the first quarter of 2008 included a short-term replacement part opportunity at the company’s European automotive operation. Excluding this short-term replacement part opportunity, the company’s automotive parts net sales for the first quarter of 2009 were lower by about 38% compared to the first quarter of 2008.