Young Innovations, Inc. (Young) has reported sales of $99.1 million for the full year of 2008, up 1.8%, compared with the sales of $97.4 million in the previous year-end. It has also reported a net income of $12.2 million, or $1.51 per diluted share, for the full year of 2008, compared with the net income of $12.9 million, or $1.44 per diluted share, in the previous year-end.
Sales for the fourth quarter of 2008 were $23.9 million, a decrease of $1.1 million, or 4.5%, from the $25.0 million reported in the fourth quarter of 2007. Income from operations decreased 5.0% from $5.1 million in the fourth quarter of 2007 to $4.8 million in the fourth quarter of 2008. Net income declined 13.0% to $3.1 million, compared with $3.6 million in the fourth quarter of 2007. Diluted earnings per share decreased 7.0% in the fourth quarter of 2008 to $0.40 from $0.43 in the prior year quarter. The effective tax rate for the fourth quarter of 2008 was 33.2%, lower than expected primarily as a result of an adjustment to true-up the full year effective rate. This tax adjustment resulted in a $0.01 increase in diluted earnings per share for the quarter. Diluted earnings per share in the fourth quarter of 2007 included a $0.06 benefit related to a lower income tax rate on income earned at our operations in Ireland. Diluted earnings per share were also affected by equity compensation expense of $0.03 for the quarters ended December 31, 2008 and 2007.
2007 diluted earnings per share were increased by $0.06 as a result of the tax adjustment discussed above. Diluted earnings per share were also affected by equity compensation expense of $0.11 and $0.08 for 2008 and 2007, respectively.
For the fourth quarter of 2007, the company believe this product line continues to be negatively affected by on-going economic uncertainty, as we witnessed a significant increase in purchase deferrals. A stronger US dollar negatively impacted sales by approximately $160,000 in the quarter. For the year, a weaker US dollar provided a benefit to sales of approximately $474,000.
The gross margin for the quarter was negatively impacted by product mix and by an adjustment implemented in the quarter which reallocated approximately $130,000 in expense from selling, general and administrative into cost of goods sold. Because this adjustment was a reallocation of a full year of expense in the fourth quarter, it impacted the comparability of the fourth quarter gross margin to prior periods and made the fourth quarter gross margin lower than it would have been had we made the adjustment over the course of the year; the adjustment had no effect on the quarter’s operating margin. We were generally pleased with the operating margin for the quarter, as we carefully managed expenses given the uncertain economic environment, adjusted staffing levels in certain areas of the business and began to realize the benefits of the facility consolidations we have implemented over the past two years.
The company believe continued to make progress in implementing our strategy in the fourth quarter. We added new products to several of our product lines, including a fully integrated digital panoramic X-ray unit that complements the existing film-based units in the diagnostic line. The homecare product line expanded its offering of flavored examination gloves and pre-pasted toothbrushes and the endodontic product line launched an improved obturation device. The company expect to launch a number of new products in 2009. We also continued to improve operating efficiencies by completing four facility consolidations over the course of the year in addition to the six consolidations completed during 2007.
Overall, the company pleased with the results posted by our consumable product lines. We believe that our diagnostic product line will continue to be challenged during the ongoing period of economic uncertainty. Accordingly, we have taken aggressive steps to appropriately reduce the cost structure used to support the product line. Despite the challenges in the diagnostic product line we are cautiously optimistic about the prospects for our consumable product lines. We are continually evaluating the appropriate actions to manage our business through a challenging economic time and remain confident in our ability to do so. The company currently believes that the operating efficiencies we have implemented, including the recent facility consolidations, have the company well positioned to adapt to the current environment. The companies currently expect these operating efficiencies to strengthen our 2009 gross and operating margins compared to full-year 2008 results. The company expect the 2009 effective tax rate to be in the 35% to 36% range.