Lydall, Inc. (Lydall) has reported net sales of $305.7 million for the year-end 2008, compared with the net sales of $320.9 million in the previous year-end. It has also reported a net loss of $5 million, or $0.31 loss per diluted share, for the year-end 2008, compared with the net income of $9.1 million, or $0.55 per diluted share, in the previous year-end.
Net sales for the fourth quarter ended December 31, 2008 were $60.8 million compared with $81.5 million for the same period in 2007. Excluding the impact of foreign currency translation, net sales decreased by $18.8 million in the fourth quarter of 2008 compared with the fourth quarter of 2007. Net loss for Lydall during the current quarter of ($13.8) million, or ($.84) per diluted share, included non-cash pre-tax impairment charges of $17.4 million, or $.66 per diluted share, and pre-tax restructuring expenses of $1.6 million, or $.06 per diluted share. Excluding the impact of these fourth quarter charges, net loss was ($2.1) million, or ($.12) per diluted share for the fourth quarter ended December 31, 2008. Net income was $2.4 million, or $.15 per diluted share, in the fourth quarter of 2007.
Excluding the impact of foreign currency translation, net sales decreased by $24.5 million in 2008 compared with 2007. Loss from continuing operations in 2008 was ($6.1) million, or ($.37) per diluted share, compared with income from continuing operations of $8.6 million, or $.52 per diluted share, for 2007.
Excluding the impact of the fourth quarter charges described above, net income was $6.7 million, or $0.41 per diluted share for the year ended December 31, 2008.
Dale Barnhart, president and chief executive officer, said, We had a difficult fourth quarter due to deteriorating global economic conditions impacting most of the markets that Lydall serves. The Thermal/Acoustical segment was impacted by dramatic reductions in automobile production in the US and Europe, while our Performance Materials segment saw many of our customers adjust their order rates with the company to reduce their inventory levels going into 2009.
We have been proactive in taking appropriate actions to adjust our cost structure in advance of, as well as in response to, declining revenues and profitability. We expect that continued aggressive cost reductions and opportunistic market share gains will help the company weather the current recession. We further expect that the combination of reducing our cost structure and supporting our growth initiatives will result in a much stronger company when the markets we serve begin to recover from the current recession.
While global economic conditions made for a difficult 2008, Lydall had many significant accomplishments during the year, including:
The initiation of the consolidation of two North American Thermal/Acoustical automotive facilities into one facility in advance of the significant downturn in production of automobiles in North America in the fourth quarter 2008. We have accelerated the timing of the consolidation by one quarter and now expect the consolidation to be substantially complete during the third quarter of 2009. We expect annualized savings of about $3.5 million to $4.0 million from the consolidation and expect to begin to benefit from these savings in the latter half of 2009.
The realignment of management at our North American and European Thermal/Acoustical businesses by appointing one global president replacing two regional presidents. This reorganization has a dual benefit of providing cost efficiencies, and just as importantly, enabling the business to maximize the synergies between the regions.
Company-wide discretionary cost and workforce reductions. Our global workforce was reduced by about 15% in 2008 and we will continue to adjust our workforce as necessary. The completion of the North American Thermal/Acoustical automotive consolidation will result in further workforce reductions in 2009.
Obtaining tier one supplier approval from three Asian automotive manufacturers in North America and beginning to receive orders and make shipments to certain Asian manufacturers.
Acquiring DSM Solutech B.V. which provides Lydall with a proprietary membrane technology that is expected to expand our product offering to our existing customers and enable us to enter new specialty filtration markets.
Commencing the execution of our strategy to gain market share in the rapidly growing bioprocessing life sciences market, which is served by our vital fluids business, with both new product development and capital investment.
The divestment of our non-core transport business resulting in $4.2 million in cash and an after-tax gain on sale of $0.9 million.
Ending 2008 with $13.7 million in cash and no significant outstanding debt other than capital lease obligations. In addition, the company is negotiating terms of a new domestic asset-based credit facility with certain financial institutions which are expected to be completed in March 2009. The company’s prior credit facility expired on February 1, 2009.
I can’t emphasize enough the importance of Lean Six Sigma to Lydall in light of the current economic conditions. In 2008, the company realized significant savings from lean initiatives. Going forward, we will continue to focus on Lean Six Sigma to drive operational excellence, improve our performance to customers enabling increased market penetration, reduce working capital, and improve our competitive cost position.
During the fourth quarter of 2008, Lydall recorded non-cash pre-tax impairment charges of $17.4 million, or $.66 per diluted share. The company recorded goodwill impairment charges of $16.4 million to write off all of the goodwill associated with the company’s Thermal/Acoustical segment and the company’s Affinity temperature control equipment business (included in Other Products and Services) of $12.2 million and $4.2 million, respectively. In addition, the company concluded that Affinity’s long-lived assets were impaired and recorded an impairment charge of $1.0 million during the fourth quarter of 2008. Also during the fourth quarter of 2008, the company recorded pre-tax restructuring expenses of $1.6 million, or $.06 per diluted share, related to the previously announced consolidation of the company’s North American automotive operations (NA Auto).
Gross margin percentage was 13.1% for the fourth quarter of 2008 compared with 24.0% for the same quarter of 2007. Gross margin percentage in the fourth quarter of 2008 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. Restructuring related charges associated with the consolidation of NA Auto impacted the company’s gross margin percentage by about 250 basis points in the fourth quarter of 2008. The fourth quarter of 2007 gross margin percentage was higher by about 110 basis points from the retroactive reimbursement of incremental raw material costs incurred by the company in the first nine months of 2007.
Selling, product development, and administrative expenses were $12.7 million, or 20.8% of net sales, for the fourth quarter ended December 31, 2008 compared with $15.6 million, or 19.2% of net sales, for the same quarter of 2007. This decrease of $2.9 million was due to lower incentive compensation expense of $1.1 million, reduced litigation expense of $0.8 million, primarily associated with a former employee and recorded in Corporate Office Expenses, and lower salaries and benefits and sales commission expenses of $0.4 million and $0.3 million, respectively.
Net cash provided by operating activities was $1.4 million in the fourth quarter of 2008 compared with $11.9 million in the fourth quarter of 2007.
Lydall, Inc. is a US-based manufacturer of specialty engineered automotive thermal and acoustical barriers, passive and active industrial thermal and insulating solutions, air and liquid filtration media, medical filtration media and devices and biopharmaceutical processing components.