Magnetek, Inc. (“Magnetek” or “the Company”)(NYSE: MAG) today
reported the results of its 2011 fiscal third quarter ended April
3, 2011.
Third Quarter Results
In its third quarter of fiscal 2011, Magnetek recorded revenue
of $27.8 million, a 45% increase from the third quarter of fiscal
2010 and a 7% sequential increase from the second quarter of fiscal
2011. The increase in sales from the prior year quarter reflects
significant year-over-year sales growth in both the Company’s
traditional served markets as well as renewable energy markets.
Gross profit was $8.7 million (31% of sales) in the third quarter
of fiscal 2011 versus $5.5 million (29% of sales) in the same
period a year ago, while third quarter income from operations
improved more than $2.6 million year-over-year. Increased sales
volume and, to a lesser extent, cost containment contributed to the
expansion in both gross profit and operating income.
“Our third quarter results exceeded our expectations,
highlighted by record sales of nearly $28 million and bookings of
more than $31 million. Our end markets continue to show signs of
accelerating recovery, as evidenced by strong levels of bookings
and sales in each of our major served markets. Third quarter sales
of renewable energy products more than doubled from prior year
levels, while sales into material handling markets were up 30%
year-over-year. We believe we are well positioned to outpace
overall economic growth rates with our continuing focus on new
product introductions, the expected increasing demand for our
traditional products, and our growth prospects in renewable energy
markets,” said Peter McCormick, Magnetek’s president and chief
executive officer.
Total operating expenses, consisting of research and development
(R&D), pension expense, and selling, general and administrative
(SG&A) costs, were $7.3 million in the third quarter of fiscal
2011 compared to operating expenses of approximately $6.6 million
in the prior-year period. Compared to the prior year third quarter,
current year operating expenses were impacted by higher R&D
expenses, higher variable selling expenses and increased incentive
compensation provisions, partially offset by lower pension
expense.
Income from operations in the third quarter of fiscal 2011 was
$1.5 million compared to a loss from operations of $1.2 million for
the same period last year. Income from continuing operations after
provision for income taxes in the third quarter of fiscal 2011 was
$1.2 million or $.04 per share, compared to a loss from continuing
operations of $1.4 million, or a $.05 loss per share, in the same
period last year. Including results of discontinued operations, the
Company recorded net income of $.03 per share in the third quarter
of fiscal 2011 versus a net loss of $.05 per share in the third
quarter of fiscal 2010.
Unrestricted cash balances decreased by $0.8 million during the
third quarter of fiscal 2011 to $5.8 million at April 3, 2011,
reflecting higher working capital requirements and cash
contributions of $3.0 million to the Company’s defined benefit
pension plan in the third quarter.
Operations and Outlook
Total bookings for the third quarter of fiscal 2011 were $31.5
million, resulting in a book-to-bill ratio for the quarter of 113%.
Total Company order backlog of $26.1 million at April 3, 2011,
represents a 79% increase from the $14.5 million backlog at the end
of the prior year third quarter. Bookings of products for material
handling applications were $15.6 million in the third quarter of
fiscal 2011, a 29% increase over prior year third quarter bookings
of $12.1 million. In addition, the Company received orders valued
at nearly $8 million for its E-Force® renewable energy inverters
during the third quarter of fiscal 2011.
“Order rates and backlog levels continue to increase in our
traditional markets and recent economic data indicates a continued
expansion in U.S. manufacturing activity. As a result, we remain
optimistic that conditions will continue to improve in our business
during the fourth quarter of fiscal 2011, which has historically
been a seasonally stronger quarter for us,” said Mr. McCormick. “In
addition, the prospect of future higher energy prices could
positively impact our business going forward, as our product
offerings across all served markets focus on efficient delivery and
consumption of energy,” added McCormick.
The Company currently expects sales for the fourth quarter of
fiscal 2011 to reflect a sequential increase from the current year
third quarter sales of $27.8 million, mainly due to expected higher
seasonal demand in material handling markets. Gross margins in the
fourth quarter of fiscal 2011 are expected to increase from the 31%
achieved in the third quarter of fiscal 2011, due mainly to a
favorable shift in the Company’s projected sales mix. The Company
expects operating expenses in the fourth quarter of fiscal 2011 to
increase slightly sequentially from third quarter levels, due to
higher volume-related selling expenses and incentive compensation
provisions.
Pension Update
As previously disclosed, Magnetek has an underfunded defined
benefit pension plan that was frozen in 2003. 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 Internal Revenue Service
(“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, the scheduled
quarterly installment of $3.3 million due on April 15, 2011, was
not 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%.
Company management believes that receipt of a funding waiver
would have a significant favorable impact on the Company’s cash
flow, mainly in fiscal year 2012, and would also enable the Company
to increase its cash reserves while continuing to invest additional
resources in growth opportunities. At the same time, receipt of a
funding waiver would defer contributions from the current period of
historically low interest rates. An 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.
The Company’s pension plan assets were approximately $134
million as of March 31, 2011, while annual payments from plan
assets to participants in pay status have averaged approximately
$12 million over the past several years. As a result, the Company
currently does not expect pension plan participants to be
negatively impacted by the funding waiver process, nor does the
Company expect any interruption in payments to participants
resulting from the waiver process.
Fiscal 2011 annual pension expense per GAAP is expected to total
$6.5 million, a decrease of approximately $1.7 million from fiscal
2010 pension expense. Fiscal 2012 pension expense per GAAP would
not be significantly impacted by a funding waiver as described
above, but receipt of a funding waiver could impact pension expense
beyond fiscal 2012 due to contributions not made during the waiver
period. Pension expense for fiscal year 2012 is currently projected
to decline by more than $1 million compared to fiscal 2011 pension
expense, however, the actual amount of the decline will be
dependent on interest rates, expected asset return rates and the
value of pension plan assets at the end of June 2011.
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 third 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 May 11, 2011, by phoning
706-645-9291 (Conference ID # 58092470).
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 fourth quarter of fiscal year 2011 and for fiscal
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 Nine months
ended (Unaudited) (Unaudited) (13 weeks)
(13 weeks) (40 weeks) (39 weeks) April
3, March 28, April 3, March 28, Results
of Operations: 2011 2010
2011 2010 Net sales $ 27,831 $ 19,185 $
78,774 $ 56,251 Cost of sales 19,087
13,721 54,016
39,287 Gross profit 8,744 5,464 24,758 16,964
Research and development 1,117 1,002 3,186 2,898 Pension expense
1,594 2,052 4,905 6,155 Selling, general and administrative
4,551 3,576 12,859
11,123 Income (loss) from operations 1,482
(1,166 ) 3,808 (3,212 ) Interest income
- (11 ) (1 ) (27 ) Income
(loss) from continuing operations before provision for income taxes
1,482 (1,155 ) 3,809 (3,185 ) Provision for income taxes
241 251 528
612 Income (loss) from continuing operations
1,241 (1,406 ) 3,281 (3,797 ) Loss from discontinued operations
(270 ) (207 ) (803 )
(836 ) Net income (loss) $ 971
$ (1,613 ) $ 2,478 $ (4,633 )
Per
common share - basic and diluted:
Income (loss) from continuing
operations $ 0.04 $ (0.05 ) $ 0.10 $ (0.12 ) Loss from discontinued
operations $ (0.01 ) $ (0.01 ) $ (0.03 ) $ (0.03 ) Net income
(loss) per common share $ 0.03 $ (0.05 ) $
0.08 $ (0.15 ) Weighted average shares
outstanding: Basic 31,327 31,098 31,305 31,025 Diluted
31,858 31,098
31,703 31,025
Three months ended Nine months ended
(Unaudited) (Unaudited) April 3, March
28, April 3, March 28, Other Data:
2011 2010 2011
2010 Depreciation expense $ 254 $ 259 $ 693 $
774
Amortization expense 13 13 40 39
Capital
expenditures 256 284 411 977
Magnetek,
Inc. Consolidated Balance Sheet (in thousands )
April 3, 2011 June 27,
(Unaudited) 2010 Cash
$
5,802
$
8,244 Restricted cash 262 262 Accounts receivable 18,617 16,436
Inventories 14,249 10,285 Prepaid and other current assets
574 480 Total current assets 39,504 35,707
Property, plant & equipment, net 3,561 3,825 Goodwill
30,514 30,443 Other assets 5,461 6,125
Total assets $ 79,040 $ 76,100
Accounts payable $ 10,864 $ 9,887 Accrued liabilities 6,453
4,957 Total current liabilities 17,317 14,844
Pension benefit obligations, net 69,228 77,914 Other
long-term obligations 1,312 1,461 Deferred income taxes 6,541 5,818
Common stock 313 312 Paid in capital in excess of par value
139,634 138,965 Accumulated deficit (4,144 ) (6,622 ) Accumulated
other comprehensive loss (151,161 ) (156,592 ) Total
stockholders' deficit (15,358 ) (23,937 )
Total liabilities and stockholders' deficit $ 79,040 $
76,100