Magnetek, Inc. (“Magnetek” or “the Company”) (NYSE: MAG) today
reported the results of its 2011 fiscal year and fourth quarter
ended July 3, 2011.
Fourth Quarter Results
In its fourth quarter of fiscal 2011 Magnetek recorded revenue
of $31.1 million, a 28% increase from the fourth quarter of fiscal
2010 and a 12% sequential increase from the third 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, fiscal 2011
fourth quarter earnings per share from continuing operations more
than doubled to $.05 per share over prior year fourth quarter
earnings per share from continuing operations.
“Our fourth quarter sales result exceeded our expectations,
highlighted by record sales of more than $31 million. While some
believe the economic recovery in the U.S. is stalling, most of our
end markets continue to show signs of steady growth and recovery,
particularly on the industrial side of our business,” said Peter
McCormick, Magnetek’s president and chief executive officer. “We’re
forecasting continued moderate economic expansion and, as a result,
we’ve accelerated the level of investments we’re making in product
development and sales channel expansion aimed at driving future
sales growth. We continue to believe we are well positioned to
outpace overall economic growth rates with our continuing focus on
both new product introductions as well as new market initiatives,”
said McCormick.
Gross profit amounted to $10.4 million (33% of sales) in the
fourth quarter of fiscal 2011 versus $7.2 million (29% 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.
Total operating expenses, consisting of research and development
(“R&D”), pension expense and selling, general and
administrative (“SG&A”) costs, were $8.8 million in the fourth
quarter of fiscal 2011, compared to operating expenses of
approximately $6.3 million in the prior year period. Compared to
the prior year fourth quarter, current year operating expenses were
impacted by higher R&D expenses, 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. The Company
also reinstated wage and salary increases and its employer 401(k)
matching contributions given the improvement in performance
experienced during fiscal 2011.
Income from operations in the fourth quarter of fiscal 2011 was
$1.6 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 fourth quarter of fiscal 2011 was
$1.5 million, or $.05 per share, compared to income from continuing
operations of $0.6 million, or $.02 per share, in the same period
last year. Including results of discontinued operations, the
Company recorded net income of $.04 per share in the fourth quarter
of fiscal 2011 versus a net loss of $.01 per share in the fourth
quarter of fiscal 2010.
Unrestricted cash balances increased by $6.5 million during the
fourth quarter of fiscal 2011 to $12.3 million at July 3, 2011,
reflecting both improved working capital velocity and the impact of
the Company’s pending 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. Due to the pending funding waiver application, the
Company is not required to make scheduled plan year 2011
contributions until the Company is notified by the IRS of a
decision concerning the funding waiver. As a result, the scheduled
quarterly installment of $3.3 million due on April 15, 2011, was
not made (see “Pension Update” below).
Fiscal Year 2011 Results
For fiscal year 2011, the Company recorded revenue of $109.8
million, up 36% from $80.6 million in the prior year. Fiscal 2011
gross profit amounted to $35.2 million (32% of sales) versus $24.1
million (30% of sales) in fiscal 2010. The year-over-year increase
in revenue, gross profit and gross margin as a percentage of sales
was due mainly to higher sales in each of the Company’s served
markets, principally higher sales of material handling products,
which increased by $12.8 million in fiscal 2011 to $59.1 million,
and higher sales of renewable energy products, which increased by
$10.6 million in fiscal 2011 to $20.4 million. Operating expenses
totaled $29.7 million in fiscal 2011, an increase of $3.3 million
from $26.4 million in fiscal 2010, due mainly to higher variable
selling expenses and higher incentive compensation provisions.
Pension expense, which decreased by $1.7 million in fiscal 2011 as
compared to fiscal 2010, was $6.5 million, representing
approximately $.20 on a per share basis. The Company recorded
income from continuing operations of $4.8 million, or $.15 per
share, versus a loss from continuing operations of $3.2 million, or
a $.10 loss per share, for fiscal 2010. The loss from discontinued
operations was $1.2 million, or a $.04 loss per share in fiscal
2011, compared to a loss from discontinued operations of $1.9
million, or a $.06 loss per share, in fiscal 2010.
Including results of discontinued operations, the Company’s net
income improved by nearly $9 million to $3.7 million, or $.12 per
share, in fiscal 2011 compared to a net loss of $5.1 million, or a
$.16 loss per share, in fiscal 2010.
Fiscal 2011 cash provided by continuing operations was $14.1
million, excluding full year pension contributions of $8.4
million.
Operations and Outlook
Total bookings for the fourth quarter of fiscal 2011 were $25.7
million, resulting in a book-to-bill ratio for the quarter of 83%,
which was negatively impacted by soft renewable energy orders
relative to sales in the fourth quarter. The book-to-bill ratio for
the Company’s industrial markets (material handling, elevator and
mining) was 98% in the fourth quarter of fiscal 2011, as bookings
of products for material handling applications were $17.6 million,
roughly equal to fourth quarter material handling sales. Total
Company order backlog was $21.0 million at July 3, 2011.
“Demand levels have remained strong in our traditional served
industrial markets, particularly for products with material
handling and mining applications. While it appears that U.S.
manufacturing activity has moderated over the past several months,
we have not seen signs of a slowdown on the industrial side of our
business. However, it remains to be seen how recent political
developments, the debt rating downgrade in the U.S. and increasing
market volatility will impact our served markets and customer
spending patterns going forward,” said Mr. McCormick. “Renewable
energy sales, comprised mainly of wind power inverters, were nearly
$6 million in the fourth quarter and more than $20 million in
fiscal 2011. While fourth quarter sales were strong, our incoming
order rate for wind inverters during the quarter is indicative of
the challenging conditions that have persisted in the wind market
for some time. As a result, we view the solar market as offering
better growth opportunities, particularly at the large-scale end of
the market. We also recognize the need to diversify our customer
base and product offering if we are to compete more effectively in
the renewable space. Accordingly, we’ve strategically allocated
additional resources toward the ongoing development of
utility-scale power inverters for the solar market in an effort to
shift our renewable sales mix through a more diverse product
portfolio. In summary, our focus for the next 12 months will be
directed toward aligning our resources and investments with the
best growth opportunities, maximizing those opportunities through
new product introductions and penetration of new markets. At the
same time, we’ll continue to effectively manage our cost structure
and our assets to optimize cash flow and profitability,” concluded
McCormick.
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 a six month transition period
from July 4, 2011 through January 1, 2012.
Historically the Company’s fiscal quarter ending on the Sunday
nearest September 30 has been seasonally slower from a sales
standpoint, particularly in material handling. Given this, along
with an expected decline in shipments of wind power inverters from
fourth quarter fiscal 2011 levels, the Company currently expects
sales for the quarter ending October 2, 2011, to reflect a
sequential decrease from the current year fourth quarter sales of
$31.1 million. Gross margins in the quarter ending October 2, 2011,
are expected to exceed the Company’s 30% target. Operating expenses
in the quarter ending October 2, 2011, should decline sequentially
from the level of operating expenses in the fourth quarter of
fiscal 2011, due mainly to lower non-cash pension expense, lower
variable selling expenses, and lower incentive compensation
provisions, partially offset by higher discretionary spending aimed
at increasing future sales volumes.
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. Due to the pending funding
waiver application, the Company is not required to make scheduled
plan year 2011 contributions until the Company is notified by the
IRS of a decision concerning the funding waiver. As a result, two
scheduled quarterly installments of $3.3 million due in April 2011
and July 2011 have not been made.
In the event the funding waiver is granted, the 2011 plan year
scheduled contributions of $17 million would be deferred and
amortized with interest over plan years 2012 through 2016. In the
event the funding waiver is not granted, the Company would be
obligated to make its plan year 2011 minimum funding contributions
by September 2012 at the latest, with the contribution amount
increasing due to interest and penalties through the actual date of
contribution. The current rate of interest is approximately 6%
while the current penalty rate, applied to the late period only, is
5%.
“As evidenced by our strong positive cash flow in the fourth
quarter of fiscal 2011, receipt of a funding waiver would have a
significant favorable impact on our cash flow over the next several
quarters. The funding waiver would also enable us to increase our
cash reserves while providing increased resources for investments
in growth opportunities. In addition, any increase in interest
rates during the waiver period could have a significant favorable
impact on the Company’s funding obligation as measured upon
expiration of the waiver period,” said Mr. McCormick.
The Company measured its pension plan for accounting purposes
(GAAP) as of the end of fiscal 2011. The Company’s pension plan
assets were approximately $133 million as of July 3, 2011, while
the projected benefit obligation was estimated at $194 million
using a discount rate assumption of 5.15%. As a result, the Company
adjusted its balance sheet liability as of July 3, 2011, to $61
million, down from $78 million a year ago.
GAAP pension expense for the next 12 months is expected to total
$5.5 million, a decrease of approximately $1.0 million from fiscal
2011 pension expense. The expected decrease in non-cash pension
expense from fiscal 2011 levels is due mainly to higher pension
plan asset values resulting from contributions made in fiscal 2011
as well as greater than expected returns on assets experienced
during fiscal 2011. The Company also decreased its expected return
rate on assets to 8.25%, down from 8.5% in fiscal 2011.
Turning to pension funding obligations, which impact cash flows,
the Company has made cash contributions to the pension plan of more
than $66 million since December 2006. The net present value of the
future funding obligation as of July 3, 2011, approximates the
balance sheet liability of $61 million at that date, assuming a
discount rate of 5.15%. In the event the funding waiver is granted,
the Company currently expects pension contributions to total less
than $6 million over the next 12 months. If the funding waiver is
not granted, pension contributions over the next 12 months would be
expected to total approximately $19 million. The Company expects a
final decision on the funding waiver to be made by the IRS during
the current transition period.
Company Webcast
This morning, at 11:00 a.m. Eastern daylight time, Magnetek
management will host a conference call to discuss Magnetek’s fiscal
2011 fourth quarter and full year 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 ninety days. A replay of the call also will be
available through August 24, 2011, by phoning 617-801-6888
(Conference ID # 66403358).
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 October 2, 2011. 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)
Twelve months ended (13 weeks) (13 weeks)
(53 weeks) (52 weeks) July 3, June 27,
July 3, June 27, Results of Operations:
2011 2010 2011
2010 Net sales $ 31,058 $ 24,320 $ 109,832 $ 80,571 Cost of
sales 20,659 17,156
74,675 56,443 Gross profit
10,399 7,164 35,157 24,128 Research and development 1,174 904 4,360
3,802 Pension expense 1,595 2,051 6,500 8,206 Selling, general and
administrative 5,992 3,311
18,851 14,434 Income
(loss) from operations 1,638 898 5,446 (2,314 ) Interest income -
(2 ) (1 ) (29 ) Income (loss) from continuing operations before
provision for income taxes 1,638 900 5,447 (2,285 ) Provision for
income taxes 102 261
630 873 Income (loss) from
continuing operations 1,536 639 4,817 (3,158 ) Loss from
discontinued operations (351 ) (1,107 )
(1,154 ) (1,943 ) Net income (loss) $
1,185 $ (468 ) $ 3,663 $ (5,101
)
Per common share - basic and diluted:
Income (loss) from
continuing operations - basic and diluted $ 0.05 $ 0.02 $ 0.15 $
(0.10 ) Loss from discontinued operations - basic and diluted $
(0.01 ) $ (0.04 ) $ (0.04 ) $ (0.06 ) Net income (loss) per common
share - basic $ 0.04 $ (0.01 ) $ 0.12 $ (0.16 ) Net income (loss)
per common share - diluted $ 0.04 $ (0.01 )
$ 0.11 $ (0.16 ) Weighted average
shares outstanding: Basic 31,363 31,178 31,339 31,078 Diluted
31,978 31,408
31,867 31,351
Three months ended (Unaudited) Twelve months
ended July 3, June 27, July 3, June
27, Other Data: 2011 2010
2011 2010 Depreciation expense $ 221 $
228 $ 914 $ 1,002 Amortization expense 13 14 53 53 Capital
expenditures 293 181 704 1,158
Magnetek, Inc. Consolidated Balance
Sheets
(in thousands)
July 3, June 27, 2011
2010 Cash $ 12,269 $ 8,244 Restricted cash 262 262 Accounts
receivable 18,237 16,436 Inventories 14,329 10,285 Prepaid and
other 530 480 Total current assets
45,627 35,707 Property, plant & equipment, net 3,622
3,825 Goodwill 30,519 30,443 Other assets 5,665
6,125 Total assets $ 85,433 $ 76,100
Accounts payable $ 12,083 $ 9,887 Accrued liabilities
8,341 4,957 Total current liabilities 20,424
14,844 Pension benefit obligations, net 61,382 77,914 Other
long-term liabilities 1,318 1,461 Deferred income taxes 6,771 5,818
Common stock 314 312 Additional paid-in capital 139,878
138,965 Accumulated deficit (2,959 ) (6,622 ) Accumulated other
comprehensive loss (141,695 ) (156,592 ) Total
stockholders' equity (deficit) (4,462 ) (23,937 ) Total
liabilities and stockholders' equity $ 85,433 $ 76,100