Sparton Corporation (SPA)
F4Q2010 Earnings Call Transcript
September 10, 2010 10:00 am ET
Mike Osborne – SVP, Business Development
Cary Wood – President and CEO
Greg Slome – CFO
Andrew Shapiro – Lawndale Capital Management
John Rolfe – Argand Capital
Bruce Baughman – Franklin Templeton
Jack Gulati – Safety Care
Jonathan Haines [ph]
Thank you, operator. Good morning and thank you for participating in Sparton’s fiscal 2010 fourth quarter financial results conference call.
Previous Statements by SPA
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Before we begin the discussion, I will take a few minutes to read the forward-looking statement. Certain statements in this conference call constitute forward-looking statements within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. When used in this conference call, words such as “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “will” or “intend” and similar words or expressions as they relate to the Company or its management constitute forward-looking statements. These forward- looking statements reflect our current views with respect to future events and are based on currently available financial, economic and competitive data and our current business plans. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, prices and other factors. Important factors that could cause actual results to differ materially from those forward-looking statements include those contained under the heading of risk factors and in the management’s discussion and analysis contained from time-to-time in the Company’s filings with the Securities and Exchange Commission.
Today, Cary Wood, our President and CEO, and Greg Slome, our CFO, will report our fiscal year 2010 year-to-date financial results and 4th quarter segmented operating results, provide an update on the status of our liquidity and capital resources, review the Company’s mission, fiscal year 2011 key imperatives, growth initiatives, and, finally, summarize certain strategic implications of the Delphi Medical acquisition. At the end of the narrative, we will allow our investors and other interested parties to ask questions related to the Company’s financial performance and operations. In fairness to all participants, we will ask that one question be asked at a time with the call ending at approximately 12:00pm ET. I would now like to turn the call over to Cary.
Thanks Mike. Good morning and welcome to our fiscal 2010 year end conference call. Today, we will review our fiscal year 2010 results.
We are pleased to report a fiscal year 2010 operating income of $5.7 million and net income of $7.4 million, or $0.75 per share, versus an operating loss of $11.3 million and a net loss of $15.8 million or a $1.61 loss per share, for fiscal year 2009. As you know, we launched an aggressive and robust restructuring plan in the second half of fiscal 2009 that was intended to reshape the Company and return it to profitability. The implementation of these actions has led to four consecutive quarters in which the Company has posted pre-tax income, after reporting pre-tax losses for the previous 12 consecutive quarters. Additionally, our ability to accelerate the implementation of these actions has resulted in our ability to outperform our fiscal 2010 internal expectations.
Our consolidated fiscal year 2010 revenue was $174.0 million, decreasing 22% or $47.9 million from the same period in the prior year. The overall drop in revenue was in line with our expectations and reflects the full disengagement from several significant customer contracts within our EMS business in the second half of fiscal 2009 and the first six months of fiscal 2010. This reduction was partially offset by increased sonobuoy sales to the U.S. Navy and other foreign nations within the DSS business.
Despite the overall reduction in sales, our gross profit for fiscal year 2010 was $26.6 million compared to $15.9 million in fiscal 2009. The gross profit percentage improved from 7% a year ago to 15% in fiscal year 2010. The improvement in gross margin was mainly attributable to favorable product mix, improved pricing, the disengagement from certain unprofitable customers and the continued effects of successful sonobuoy drop tests. In addition, margin was also favorably impacted by the reduced overhead costs associated with the closing of three plants in the last 18 months, aggressive cost reduction efforts and the continued implementation of our lean and quality programs. Partially offsetting the increase was the impact of the significant drop in EMS volume combined with a drop in Medical gross margins experienced in the last two quarters as operational right sizing actions that were initiated to off-set the reduction in sales volume began to be realized in the fourth quarter.
While significantly reduced from the last fiscal year, we continued to incur $4.1 million of additional restructuring and impairment charges in the year relating to the restructuring actions which had been previously announced in fiscal 2009 and impairment charges on properties both sold and currently held for sale. We believe that these previously announced restructuring activities have now been completed. Partially offsetting the impact of the restructuring and impairment charges, a gain totaling $3.1 million was recorded in the fourth quarter relating to the consummation of a long-term lease on our Coors Road property in Albuquerque New Mexico. Interest expense in the fiscal year was $0.8 million compared to $1.6 million in fiscal year 2009. The drop primarily reflects the repayment of the Company’s outstanding bank debt in August 2009. Finally, fiscal year 2010 net income includes a net tax benefit of $1.9 million resulting from the release of approximately $2.3 million of the Company’s deferred tax asset valuation allowance due to recent tax regulation changes. Overall, we are pleased with the financial results and operational success achieved in fiscal year 2010 as we outperformed to our internal projections. I would now like to turn over the next portion of today’s call to Greg so that he can update you on our individual segment results from the 4th quarter and year-to-date and our liquidity and capital resources.