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Sparton CEO Discusses F4Q2010 Results - Earnings Call Question And Answer Session Transcript

Sparton CEO Discusses F4Q2010 Results - Earnings Call Question and Answer Session Transcript

Sparton Corporation (SPA)

F4Q2010 Earnings Call Transcript

September 10, 2010 10:00 am ET

Executives

Mike Osborne – SVP, Business Development

Cary Wood – President and CEO

Greg Slome – CFO

Analysts

Andrew Shapiro – Lawndale Capital Management

John Rolfe – Argand Capital

Bruce Baughman – Franklin Templeton

Jack Gulati – Safety Care

Jonathan Haines [ph]

Question-and-Answer Session

Operator

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Compare to:
Previous Statements by SPA
» Sparton Corporation F3Q10 (Qtr End 03/31/10) Earnings Call Transcript (Prepared Comments)
» Sparton Corporation F3Q10 (Qtr End 03/31/10) Earnings Call Transcript
» Sparton Corporation F2Q10 (Qtr End 12/31/09) Earnings Call Presentation Session Transcript

Thank you.

(Operator instructions) And our first question comes from the line of Andrew Shapiro from Lawndale Capital Management. Please proceed with your question.

Andrew Shapiro

Lawndale Capital Management

Hi, good morning, Lawndale Capital Management. Cary, I don't think in the script you guys discussed the remaining net operating loss tax carry-forward, and also, when does that valuation allowance on the deferred tax asset get reassessed for possible readjustment?

Greg Slome

Yes, it’s Greg. So, the NOL that we have at the end of the year that’s still remaining is $15.7 million and now has expiration dates that range from 2027 to 2029, and in regards to valuation allowance, we have at this point with one year of income under our belt, we have not made any changes to reinstate the valuation allowance, but we will continue to leave it there and we will make another assessment probably when we get to the end of fiscal year 2011.

Andrew Shapiro

Lawndale Capital Management

Okay.

And as a follow-up with this, is – so with over $30 million of net cash, you have an additional $3 million in the CPA trust on your balance sheet, and you only have a $50 million market value right now; I know you are doing your best to have that improved. Sparton's $20 million net enterprise value versus your sustainable cash flow levels now, and no interest obligations and no taxes arguably to be paid, raises the question of instituting a stock buyback. Has this issue yet been brought to the board and discussed with your bank credit lines, since you are not going to be using it for the near future? And what are your thoughts, Cary, as CEO, regarding the cushion, the comfortableness of I guess small, but steady stock retirements?

Cary Wood

I think we obviously want to keep one eye on maintaining the outstanding, so as not to further dilute and it’s certainly not lost on the management team in the Class B that we want to maintain that. The idea of a stock buyback program wouldn’t be new today. It’s been something we have had regular discussions around and when it would be prudent to institute something like that. I don’t believe that it’s off the table and it’s certainly something that we will consider. I think our circumstances with cash, our competence in our go-forward sustainability of profit probably gives us a little bit more comfort to probably institute something like that perhaps. But I think short of making a commitment about what we might do and when we would do it, I think the best answer is that it has been discussed, it has been considered, and I think we are at a time now where we might be able to consider that even more so now with our cash and sustained profitability. So, we will take a closer look at that and have some discussions around that in future quarters.

Andrew Shapiro

Lawndale Capital Management

Related to that, and I will back out in the queue, but I do have more questions. In light of what you are talking about in terms of your R&D investment and some of these other projects could come and go, and it's happened on the medical, etcetera, I was assuming, but I would like to get your feedback as you think about stock buybacks your views regarding, I guess, instituting a small but obviously something that ends up requiring a more steady dividend policy.

Cary Wood

Yes, I think no difference than the discussion around a stock buyback. It is something that will be on our list of Investor Relation concerns with our Board. I think again with sustained profitability, you know, we have grown more confident in our ability to discuss those a little more directly. I think it’s something that we can discuss in future quarters, but for now, we want to remind ourselves that we have only come through four quarters on the heels of three straight years of losses. We just made an acquisition that we feel very, very confident, will be accretive very quickly, but again, we want to be very prudent about how we might entertain some of these other options that might have cash implications sooner than we might be otherwise ready. So, again, a very good point. I just think (inaudible).

Andrew Shapiro

Lawndale Capital Management

Okay. I have more questions, so please come back to me.

Cary Wood

Okay.

Operator

And our next question comes from the line of John Rolfe from Argand Capital. Please proceed with your question.

John Rolfe

Argand Capital

Hi, good morning guys. A couple of questions for you, not related so much specifically to the quarter, but you guys have recently provided a bit of kind of broad longer-term guidance. I think you mentioned that you would like ultimately to sort of target a $500 million revenue level for the company. Can you talk a little bit about sort of what timeframe you are talking about in regard to that, and then secondarily, how you would sort of see getting there with respect to organic growth versus acquisitions?

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