Q2 2008 performance-improvement costs, other than idle-capacity costs, totaled $14.1 million ($0.37 per share), of which $6.2 million was reported in cost of goods sold, and $7.9 million was reported in STG&R expenses. Items charged into costs of goods sold include $4.3 million for equipment relocation and $1.7 million related to the new capacity start-up in China.
Costs for equipment relocation will continue in future quarters, but are expected to be lower than Q2 2008. Start-up costs related to the greenfield PMC plant in China will continue until the anticipated production launch late in the third quarter. Due to underutilization of the facility and high depreciation costs relative to production rates during the ramp-up period, the Company expects the plant to show losses through the middle of 2009.
Performance-improvement costs reported as STG&R expenses included $5.3 million related to the implementation of SAP and the final $1.4 million of consulting fees related to the establishment of the global procurement organization.
The Company expects that quarterly SAP implementation expenses will decrease to approximately $4 million in the third and fourth quarters of 2008, approximately $2 million in the first two quarters of 2009, and $1 million in Q3 2009. Additionally, the Company expects to begin recording approximately $1 million of quarterly amortization expense related to the SAP implementation.
Q2 2007 costs for restructuring and performance-improvement initiatives amounted to $12.1 million, of which $7.1 million was reported as restructuring, $4.2 million was included in STG&R expenses, and $0.8 million was included in cost of goods sold.
The effective second-quarter income tax rate before discrete tax items was 20 percent in 2008 and 25 percent in 2007. Included in second-quarter income tax expense are discrete tax adjustments that decreased net income by $0.01 per share in 2008 and increased 2007 net income per share by $0.09.
Net cash provided by operating activities was $15.2 million in the second quarter of 2008, compared to $17.4 million for the same period of 2007. Capital spending during the second quarter of 2008 was $41.9 million, and totaled $73.6 million for the first six months of 2008.
The Company expects capital spending to be approximately $150 million in 2008 and $70 million in 2009. Depreciation and amortization were $15.2 million and $1.2 million, respectively, for the second quarter of 2008. Depreciation and amortization are estimated to be $64 million and $7 million for 2008, and $73 million and $9 million for 2009.
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Albany International Corp.
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