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Q4 2012 Earnings Conference CallQuarter ended
December 31, 2012
AUTOMOTIVE
FILTRATION & ENGINEERED MATERIALS
LIFE SCIENCES
Thermal/Acoustical Metals Thermal/Acoustical Fibers
Performance Materials
Vital Fluids
SPECIALTY ENGINEERED PRODUCTS & MATERIALS
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Forward-looking Statements
This presentation contains “forward-looking statements” within
the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended. Any statements contained in this presentation that are
not statements of historical fact may be deemed to be
forward-looking statements. All such forward-looking statements are
intended to provide management’s current expectations for the
future operating and financial performance of the Company based on
current expectations and assumptions relating to the Company’s
business, the economy and other future conditions. Forward-looking
statements generally can be identified through the use of the words
“believes,” “anticipates,” “may,” “plans,” “projects,” “expects,”
“estimates,” “forecasts,” “predicts,” “targets,” and other similar
expressions in connection with the discussion of future operating
or financial performance. Because forward-looking statements relate
to the future, they are subject to inherent risks, uncertainties
and changes in circumstances that are difficult to predict. Such
risks and uncertainties include, among others, worldwide economic
cycles that affect the markets which the businesses serve could
affect demand for the Company’s products and impact the Company’s
profitability, disruptions in the global credit and financial
markets, including diminished liquidity and credit availability,
swings in consumer confidence and spending, unstable economic
growth, fluctuations in unemployment rates, and increases in fuel
prices, which could cause economic instability and could have a
negative impact on the Company’s results of operations and
financial condition. Accordingly, the Company’s actual results may
differ materially from those contemplated by these forward-looking
statements. Therefore, investors are cautioned against relying on
any of these forward-looking statements. They are neither
statements of historical fact nor guarantees or assurances of
future performance. Additional information regarding the factors
that may cause actual results to differ materially from these
forward-looking statements is available in our filings with the
Securities and Exchange Commission, including the risks and
uncertainties identified in Part I, Item 1A - Risk Factors of
Lydall’s Annual Report on Form 10-K for the year ended December 31,
2012.
These forward-looking statements speak only as of the date of
this presentation, and Lydall does not assume any obligation to
update or revise any forward-looking statement made in this
presentation or that may from time to time be made by or on behalf
of the Company.
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S Net sales of $90.5 million compared to $89.3 million in Q4
2011, including unfavorable foreign currency translation of $1.3
million, or 1.4%
S Operating income was $2.0 million, or 2.2% of net sales,
compared to operating income of $4.4 million, or 4.9% of net sales,
in Q4 2011
� Q4 2012 operating income included an asset impairment charge
of $1.8 million
� Q4 2011 operating income included income of $0.8 million from
a completed pricing negotiation and $0.4 million of income from a
license agreement
S Net income was $2.4 million, or $0.14 per share, compared to
$2.7 million, or $0.16 per share in Q4 2011
� Income tax benefit of $0.5 million included a reversal of
valuation allowance on a foreign tax credit carryover of $1.3
million, or $0.08 per share
S Cash provided by operations of $15.2 million in Q4 2012 and
$34.4 million for the year compared to $12.6 million in Q4 2011 and
$14.7 million for the full year 2011
2
Q4 2012 Financial Highlights
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Q4 2012 vs. Q4 2011 Summary Statements of Operations
S Net sales increased 1.3%, excluding unfavorable foreign
currency translation of $1.3 million, net sales increased 2.7%
S Gross margin essentially flat
� Improvement in the Thermal/Acoustical Fibers segment was
offset by lower contribution from the Performance Materials
segment
S Increase in selling, product development and administrative
expenses primarily attributed to asset impairment charge of $1.8
million
S Income tax benefit of $0.5 million included reversal of
valuation allowance on foreign tax credit carryover of $1.3
million, or $0.08 per share
Comments
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FY 2012 vs. FY 2011 Summary Statements of Operations
S Net sales decreased by 1.2%, excluding unfavorable foreign
currency translation of $10.6 million, net sales increased by
1.6%
S Gross margin improvement of 290 basis points primarily
attributable to improvements in the Thermal/Acoustical Fibers
segment
S Increase in selling, product development and administrative
expenses primarily attributed to asset impairment charge of $1.8
million and higher professional services and severance expenses
S Effective tax rate for 2012 of 19.9%, primarily a result of
the reversal of valuation allowances on a foreign tax credit
carryover of $3.9 million, or $0.23 per share
Comments
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Summary Balance Sheets
($ in 000) Dec. 31, 2012 Dec. 31, 2011 Var $
Cash 63,623 30,905 32,718
Short-term investments - 12,015 (12,015)
Accounts receivable, net 47,486 47,258 228
Inventories, net 31,292 33,846 (2,554)
Other current assets 9,400 6,796 2,604
Total current assets 151,801 130,820 20,981
Property, plant and equipment, net 76,254 78,939 (2,685)
Goodwill and other intangible assets 22,107 22,596 (489)
Other assets, net 1,754 2,830 (1,076)
Total assets 251,916 235,185 16,731
Accounts payable 29,441 28,163 1,278
Accrued payroll and other compensation 10,273 9,031 1,242
Current accrued liabilities 6,636 7,605 (969)
Total current liabilities 46,350 44,799 1,551
Long-term debt 1,646 2,261 (615)
Benefit plan and other long-term liabilities 29,424 27,273
2,151
Total liabilities 77,420 74,333 3,087
Total stockholders' equity 174,496 160,852 13,644
Total liabilities and stockholders' equity 251,916 235,185
16,731
Inventory & Receivable Days
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Summary Statements of Cash Flows
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Performance Materials
S Sales decline in Q4 2012 and full year 2012 was primarily due
to a reduction in Industrial Thermal Insulation product sales and
reduced demand for products in Asia
� Sales of electrical papers discontinued in second half due to
prior sale of product line
S Operating income decreased in Q4 2012 and full year 2012 due
to reduced revenues, a change in sales mix and higher fixed
manufacturing cost per unit due to reduced production levels
Cylindrical and Conical Air Filter Pleated filter media
Q4 2012 Q4 2011 Var $ Var % FY 2012 FY 2011 Var $ Var %
($ in 000)
Net sales
Industrial Filtration 15,059 15,450 (391) -2.5% 68,379 72,888
(4,509) -6.2%
Industrial Thermal Insulation 7,952 9,349 (1,397) -14.9% 38,449
47,299 (8,850) -18.7%
Life Sciences Filtration 2,603 2,900 (297) -10.2% 11,207 13,872
(2,665) -19.2%
Performance Materials Segment 25,614 27,699 (2,085) -7.5%
118,035 134,059 (16,024) -12.0%
Operating (loss) income (27) 2,961 (2,988) 10,400 18,194 (7,794)
% of net sales -0.1% 10.7% 8.8% 13.6%
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Thermal/Acoustical Metals
S Decrease in part sales in Q4 2012 and full year 2012 was
primarily attributable to reduced demand in Europe and impact of
unfavorable foreign currency translation. Weaker demand in Europe
was offset by strong demand in North America where the business
outpaced the market with 18.9% part sales growth for the full
year.
S Decrease in operating margin was primarily attributable to
unfavorable mix in sales between parts and tooling, as parts sales
typically result in higher gross margin
S Q4 2011 included $0.8 million of operating income associated
with a completed pricing negotiation with a customer that was
related to shipments in the first nine months of 2011
Q4 2012 Q4 2011 Var $ Var % FY 2012 FY 2011 Var $ Var %
($ in 000)
Net sales
Metal parts 31,383 35,323 (3,940) -11.2% 136,276 142,646 (6,370)
-4.5%
Tooling 6,144 2,884 3,260 113.0% 17,645 13,290 4,355 32.8%
Thermal/Acoustical Metals Segment 37,527 38,207 (680) -1.8%
153,921 155,936 (2,015) -1.3%
Operating income 2,979 4,671 (1,692) 14,708 15,915 (1,207) % of
net sales 7.9% 12.2% 9.6% 10.2%
flux™ heat shield Dual Wall Heat Shield with fiber from
Performance Materials
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Thermal/Acoustical Fibers
S Significant increase in sales in Q4 2012 and full year 2012
was driven by higher consumer demand in North America for existing
platforms and from sales of parts on new platform awards
S Exceptional increase in operating income in Q4 2012 and full
year 2012 was driven by higher net sales and improved gross margin
realized from manufacturing efficiency improvements� Significant
reductions in scrap, material usage and labor costs were
achieved
Q4 2012 Q4 2011 Var $ Var % FY 2012 FY 2011 Var $ Var %
($ in 000)
Net sales
Fiber parts 23,698 20,343 3,355 16.5% 93,519 79,631 13,888
17.4%
Tooling 26 63 (37) -58.7% 917 2,116 (1,199) -56.7%
Thermal/Acoustical Fibers Segment 23,724 20,406 3,318 16.3%
94,436 81,747 12,689 15.5%
Operating income (loss) 3,795 673 3,122 12,851 (3,055) 15,906 %
of net sales 16.0% 3.3% 13.6% -3.7%
Aerodynamic Belly PanFlexShield®Wheel well
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Other Products and Services
S Sales increase in Q4 2012 and full year 2012 related to higher
demand in all the markets served. Sales of bioprocessing products
increased by 15% for the year as we remain focused in growing share
in this market.
S The business had four consecutive quarters of profitability in
2012 compared to four quarters of loss in 2011
S Charter Medical is now the exclusive distributor for CELLution
Biotech products in North America and Europe as well as exclusive
provider of single-use bags
Bio-Pak® Bag
Q4 2012 Q4 2011 Var $ Var % FY 2012 FY 2011 Var $ Var %
($ in 000)
Net sales
Life Sciences Vital Fluids 4,547 3,711 836 22.5% 16,853 14,670
2,183 14.9%
Other Products and Services 4,547 3,711 836 22.5% 16,853 14,670
2,183 14.9%
Operating income (loss)
Life Sciences Vital Fluids 316 (287) 603 1,190 (1,040) 2,230
Other Products and Services 316 (287) 603 1,190 (1,040) 2,230 %
of net sales 6.9% -7.7% 7.1% -7.1%
Cell-Freeze® Bags
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Conclusions
S Mixed results for Q4 2012
� Thermal/Acoustical Fibers and Thermal/Acoustical Metals
segments continued to benefit from strong consumer demand for
vehicles in the U.S. and sustainable improvements in operating
efficiency while the Thermal/Acoustical Metals segment was
negatively impacted by lower demand in Europe and sales mix of
products
� Performance Materials segment was primarily negatively
impacted by lower demand for Industrial Thermal Insulation
products
S Positive results for the full year – All businesses generated
positive operating income for 2012 in a volatile global economic
environment
S Cautiously optimistic for 2013 despite the continued
uncertainty in the macro-economic environment
S We remain focused on increasing margins in all businesses
through our Lydall Lean Six Sigma continuous improvement
program
S We remain committed to funding organic growth programs,
capital investments and pursuing strategic growth opportunities