Technitrol, Inc. announced preliminary (unaudited) results for continuing operations in its fourth quarter and fiscal year ended December 26, 2008. Fourth-quarter highlights include: an approximately $13 million reduction in long-term debt; and the elimination of approximately $26 million in annual expenses and costs, well above targets announced earlier for the fourth-quarter business right-sizing activities (due to year-end holidays and required termination notice periods, however, the reduction in force had no impact on costs in the first half of the period, and limited impact in the final weeks).
The company estimates that 90% of the effect of these cost reductions will be recognized in the first quarter of 2009, increasing to 100% in the second quarter. In keeping with the goal of adjusting the cost structure ahead of changes in market conditions, the company is anticipating taking further cost-reduction actions in 2009.
The company announced revenues of $212.8 million, compared with $293.2 million in the previous quarter and $256.5 million in the fourth quarter of 2007, reflecting: a sharp decline in end-product demand and a de-stocking of customer inventories since the end of the third quarter (most pronounced in the wireless communication components business); sharply lower commodity prices in the fourth quarter of 2008, particularly for silver, which are passed on to customers in the Electrical Contact Products Group; a weaker U.S. dollar, on average, against local functional currencies over most of the fourth quarter than in the prior quarter and year-ago period; and very strong sequential-quarter revenue and profit growth in the Medtech products group (formerly Sonion); adjusted operating profit and EBITDA of $7.9 million and $19.6 million, respectively (see non-GAAP tables); capital spending of only $6.5 million, in line with the company’s conservation objective during the fourth quarter, but significantly higher than the company’s quarterly budget for 2009; and the launch of volume production of automotive ignition coils in China.
Fourth-quarter GAAP operating profit included pre-tax severance and asset-impairment expenses amounting to approximately $5.5 million, mainly severance expenses related to previously announced work force reductions and right-sizing of operations. This amount does not include a non-cash charge for the impairment of goodwill and other long-life assets also to be recorded in the fourth quarter.
The decline of Technitrol’s market capitalization indicated that an analysis be undertaken to determine the impact of the reduced valuation on the company’s goodwill and other long-life assets. Because this analysis was performed when the equity price of Technitrol was depressed, and the company is required to use this price, the impairment charge to be recorded in the fourth quarter of 2008 is estimated to be in the range of $320 million to $370 million. The analysis is nearing completion, and final asset-impairment charges, along with its effects on the company’s provision for income taxes, if any, will be included in results of operations filed in late February with the company’s annual report on Form 10-K.
