Magnetek, Inc. (NYSE: MAG):
- Net sales for Q1 of Transition
Period 2011 increased 17% over prior year Q1 sales to $29.2
million.
- Income from continuing operations
increased significantly to nearly $2.0 million, or $.06 per share,
compared to prior year Q1 income from continuing operations of $0.7
million, or $.02 per share.
- Cash balances increased by $1.6
million during Q1 of TP 2011 to $14.1 million as of October 2,
2012.
Magnetek, Inc. (“Magnetek” or “the Company”, NYSE: MAG) today
reported the results of its first quarter of transition period
2011, ended October 2, 2011 (see below for a definition of
Transition Period 2011).
First Quarter Results
In its first quarter of transition period 2011, Magnetek
recorded revenue of $29.2 million, a 17% increase from the prior
year first quarter and a 6% sequential decrease from the fourth
quarter of fiscal 2011. The increase in sales from the prior year
quarter reflects year-over-year sales growth in the Company’s
served material handling, elevator and mining markets. As a result
of the increased sales volume and favorable shift in the Company’s
sales mix, first quarter earnings per share from continuing
operations tripled to $.06 per share over prior year first quarter
earnings per share from continuing operations.
“Most of our end markets continued to show signs of moderate
expansion during the first quarter, particularly on the industrial
side of our business. The only exception was in the renewable
energy market where, as we expected, sales of wind inverters
declined sequentially from prior quarter levels. While there is
increasing uncertainty over future economic activity in the U.S.
and a growing fear of recession, manufacturing activity remains one
of the few bright spots of the U.S. economy,” said Peter McCormick,
Magnetek’s president and chief executive officer. “Our incoming
order rate in the first quarter does not indicate any sign of a
slowdown in our business. In fact our first quarter bookings were
up 14% sequentially over our fourth quarter, so that should
translate into another solid performance in the current quarter.
Longer-term, we remain confident in our strategic initiatives for
growing our business, and as a result, we believe we are well
positioned to outpace overall economic growth rates going forward.
At the same time, we’re well aware that economic conditions remain
dynamic and very volatile. We’re mindful that our business
conditions could deteriorate in the future, and we’re well prepared
to respond accordingly if that happens,” said McCormick.
Gross profit amounted to $9.8 million (33.6% of sales) in the
first quarter of transition period 2011 versus $7.5 million (30.3%
of sales) in the same period a year ago. The increase in gross
profit and gross margin was mainly due to higher sales volume of
products with material handling and mining applications, as well as
improved margins in the Company’s elevator products due to new
product introductions and cost reduction actions.
Total operating expenses, consisting of research and development
(“R&D”), pension expense and selling, general and
administrative (“SG&A”) costs, were $7.6 million in the first
quarter of transition period 2011, compared to operating expenses
of approximately $6.6 million in the prior year period. Compared to
the prior year first quarter, current year operating expenses were
impacted by higher sales and marketing expenses, from both
volume-related selling expenses and increased payroll-related
costs, and increased incentive compensation provisions, partially
offset by lower pension expense. Compared to the Company’s fourth
quarter of fiscal 2011, operating expenses were down $1.2 million
sequentially, due to lower incentive compensation provisions, lower
pension expense, and lower R&D expenses, mainly due to
reductions in outside contracted labor costs.
Income from operations in the first quarter of Transition Period
2011 was $2.3 million compared to income from operations of $0.9
million for the same period last year. Income from continuing
operations after provision for income taxes in the first quarter of
Transition Period 2011 was $2.0 million, or $.06 per share,
compared to after-tax income from continuing operations of $0.7
million, or $.02 per share, in the same period last year. Including
results of discontinued operations, the Company recorded net income
of $.05 per share in the first quarter of Transition Period 2011
versus net income of $.01 per share in the first quarter of fiscal
2011.
Unrestricted cash balances increased by $1.6 million during the
first quarter of Transition Period 2011 to $13.9 million at October
2, 2011, reflecting both improved working capital velocity and the
impact of the Company’s pension funding waiver application. As
previously disclosed, the Company filed an application with the
Internal Revenue Service (“IRS”) in February 2011 for a waiver of
its minimum funding requirements (contributions) for the pension
plan year 2011. As a result of the funding waiver request, which
was approved by the IRS in October 2011, the Company did not make
the scheduled quarterly installment of $3.4 million due on July 15,
2011 (see “Pension Update” below). However, the Company did make a
cash contribution of $1.9 million to its pension plan in September
2011, which represented the final contribution for plan year
2010.
Operations and Outlook
Total bookings for the first quarter of Transition Period 2011
were $29.2 million, resulting in a book-to-bill ratio for the
quarter of 100%. The book-to-bill ratio for the Company’s
industrial markets (material handling, elevator and mining) was
104% in the first quarter of Transition Period 2011, as bookings of
products for material handling applications were $19.0 million,
while new orders for mining products totaled $3.5 million. Total
Company order backlog was $21.1 million at October 2, 2011.
“Demand levels continued to increase in our traditional served
industrial markets, particularly for products with material
handling and mining applications. It remains to be seen how various
political and economic uncertainties will impact our served markets
and customer spending patterns going forward,” said Mr. McCormick.
“Despite this uncertainty, we continued to make steady progress
during the quarter toward our growth, profitability and cash flow
objectives. We’re committed to expanding our business through a
combination of market share gains, new product introductions, and
new market penetration, including new geographies. We made a
strategic decision some time ago to allocate resources toward the
development of utility-scale power inverters for the solar market
in an effort to diversify both our customer base and our product
portfolio in renewable energy,” continued Mr. McCormick. “We
believe the North American solar market offers us the best growth
opportunities in renewable energy, particularly at the large-scale
end of the market, and we made significant progress toward entering
the market in early calendar 2012. At the same time, we’ve
continued to introduce new products and gain market share in our
more established markets. We’ve also managed our cost structure and
our asset base quite effectively, optimizing both profitability and
cash flow. In summary, our business has good momentum in the
near-term, and we’re confident in our ability to execute well and
grow our business in the long-term,” concluded Mr. McCormick.
Historically the Company’s fiscal quarter ending on the Sunday
nearest December 31st has been seasonally stronger from a sales
standpoint, particularly in material handling. However, the Company
also does not currently anticipate growth in shipments of wind
power inverters during the second quarter of Transition Period
2011. As a result, the Company currently expects its operating
results for the second quarter of Transition Period 2011 to be
similar to the operating results of the first quarter of Transition
Period 2011.
Pension Update
As previously disclosed, Magnetek has an underfunded defined
benefit pension plan that was frozen in 2003. Based mainly on the
number of participants and decreasing interest rates over the past
several years, both the annual pension expense as calculated under
U.S. generally accepted accounting principles (“GAAP”) as well as
Company contributions to the pension plan, as calculated under the
Pension Protection Act of 2006 as amended, have been significant
for the past several years.
In response to the level of the Company’s projected pension
funding obligations relative to its current operating cash flows,
the Company filed an application with the IRS in February 2011 for
a waiver of its minimum funding requirements (contributions) for
the pension plan year 2011. The amount of the funding waiver
requested was approximately $17 million, scheduled to be funded in
quarterly installments from April 2011 through January 2012, with a
final installment due in September 2012. The Company’s waiver
request was approved by the IRS in October 2011. As a result, the
2011 plan year scheduled contributions of $17 million will be
deferred and amortized with interest over plan years 2012 through
2016.
“While we haven’t had any recent positive news on our pension
issue in the form of higher interest rates or positive asset
returns, the funding waiver has had a significant favorable impact
on our cash flow over the past six months, as our cash balances
have increased by more than $8 million since March 2011. Provided
our business remains healthy, we would expect to see a similar
positive impact on our cash over the following six months. Our main
objective in applying for the waiver was primarily to strengthen
our balance sheet by increasing our cash reserves, and we’ve been
successful in doing that. The higher cash reserves provide us with
greater financial stability as well as additional resources should
we choose to invest in accelerating certain growth opportunities,”
said Mr. McCormick.
Transition Period 2011
On August 9, 2011, the Company announced a change in its fiscal
year-end from the Sunday nearest to June 30 of each calendar year
to the Sunday nearest December 31, with the change to a
calendar year reporting cycle beginning January 2, 2012. As a
result, the Company is currently in Transition Period 2011, a six
month fiscal period from July 4, 2011, through January 1, 2012.
Company Webcast
This morning, at 11:00 a.m. Eastern daylight time, Magnetek
management will host a conference call to discuss Magnetek’s
Transition Period 2011 first quarter results. The conference call
will be carried live and individual investors can listen to the
call at www.earnings.com while institutional investors can access
the call at www.streetevents.com. A replay of the call will be
available on the “Investor Relations” page of Magnetek's website
www.magnetek.com for at least ninety days. A replay of the call
also will be available through November 23, 2011, by phoning
617-801-6888 (passcode # 14037342).
Magnetek, Inc. (NYSE: MAG) manufactures digital power and motion
control systems used in material handling, people moving and energy
delivery. The Company is headquartered in Menomonee Falls, Wis. in
the greater Milwaukee area and operates manufacturing plants in
Pittsburgh, Pa. and Canonsburg, Pa. as well as Menomonee Falls.
This news release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including statements regarding the Company's anticipated financial
results for its fiscal quarter ending January 1, 2012. These
forward-looking statements are based on the Company's expectations
and are subject to risks and uncertainties that cannot be predicted
or quantified and are beyond the Company's control. Future events
and actual results could differ materially from those set forth in,
contemplated by, or underlying these forward-looking statements.
These include, but are not limited to, economic conditions in
general, business conditions in material handling, elevator,
mining, and renewable energy markets, operating conditions,
competitive factors such as pricing and technology, risks
associated with acquisitions and divestitures, legal proceedings
and the risk that the Company’s ultimate costs of doing business
exceed present estimates. Other factors that could cause actual
results to differ materially from expectations are described in the
Company's reports filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
The Company may, in the course of its financial presentations,
earnings releases, earnings conference calls, and otherwise,
publicly disclose certain numerical measures which are or may be
considered "non-GAAP financial measures” under SEC Regulation G.
"GAAP" refers to generally accepted accounting principles in the
United States. Non-GAAP financial measures disclosed by management
are provided as additional information to investors in order to
provide them with an alternative method for assessing the Company’s
financial condition and operating results. These measures are not
in accordance with, or a substitute for, GAAP, and may be different
from or inconsistent with non-GAAP financial measures used by other
companies. The Company’s public disclosures may include non-GAAP
measures such as EBITDA and adjusted EBITDA. EBITDA represents its
GAAP results adjusted to exclude interest, taxes, depreciation and
amortization. Adjusted EBITDA represents EBITDA adjusted to exclude
non-cash pension and stock compensation expenses.
Magnetek, Inc. Consolidated Results of
Operations (in thousands except per share data)
Three months ended (Unaudited) October 2,
October 3, 2011 2010 Results of
Operations: (13 weeks) (14 weeks)
Net sales $ 29,220 $ 24,877 Cost of sales 19,408
17,333 Gross profit 9,812 7,544
Research and development 1,029 996 Pension expense 1,363 1,717
Selling, general and administrative 5,170
3,897 Income from operations 2,250 934
Interest income - (1 ) Income
from continuing operations before provision for income taxes 2,250
935 Provision for income taxes 284
272 Income from continuing operations 1,966 663 Loss
from discontinued operations, net of taxes (232 )
(392 ) Net income $ 1,734 $ 271
Per common share - basic and diluted:
Income from continuing operations $ 0.06 $
0.02 Loss from discontinued operations $ (0.01 ) $
(0.01 ) Net income $ 0.05 $ 0.01
Weighted average shares outstanding: Basic 31,431 31,230
Diluted 32,032 31,319
Three months ended (Unaudited)
October 2, October 3, 2011 2010
Other Data: (13 weeks) (14
weeks) Depreciation expense $ 212 $ 258
Amortization
expense 13 13
Capital expenditures 319 274
Magnetek, Inc.
Consolidated Balance Sheet (in thousands )
October 2, 2011 July 3, (Unaudited)
2011 Cash 13,863 $ 12,269 Restricted cash 262 262 Accounts
receivable 16,291 18,237 Inventories 13,940 14,329 Prepaid and
other current assets 752 530 Total
current assets 45,108 45,627 Property, plant &
equipment, net 3,716 3,622 Goodwill 30,442 30,519 Other assets
5,342 5,665 Total assets $ 84,608
$ 85,433 Accounts payable $ 11,637 $ 12,083
Accrued liabilities 6,571 8,341 Total
current liabilities 18,208 20,424 Pension benefit
obligations, net 59,226 61,382 Other long-term obligations 1,308
1,318 Deferred income taxes 7,001 6,771 Common stock 315 314
Paid in capital in excess of par value 140,161 139,878 Accumulated
deficit (1,225 ) (2,959 ) Accumulated other comprehensive loss
(140,386 ) (141,695 ) Total stockholders' deficit
(1,135 ) (4,462 ) Total liabilities and stockholders'
deficit $ 84,608 $ 85,433