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White Electronic Designs Corporation (WEDC)

F4Q08 Earnings Call

December 11, 2008; 4:30 pm ET

Executives

Roger Derse - Chief Financial Officer

Joe Diaz - Investor relations, Lytham Partners

Analysts

Tom Carpenter - Hilliard Lyons

Mark Jordan - Noble Financial

Sam Bergman - Bayberry Asset Management

Scott Louis - Louis Capital Management

Sander Bosky - SAR Asset Management

Steven - Avanathi Group

Operator

Welcome to the White Electronic Designs fourth quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. (Operator instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Mr. Joe Diaz, with Lytham Partners.

Joe Diaz

Thank you, and thank all of you for joining us to review the financial results of White Electronic Designs Corporation for the fourth quarter and fiscal year ended September 27, 2008. With us on the call today is Mr. Roger Derse, Chief Financial Officer and a member of the interim Office of the President.

At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today’s call does have a full text copy of the release, you can retrieve it of the company’s website at www.whiteedc.com or numerous financial website on the internet.

Before we begin with prepared remarks, we submit for the record the following statement. Certain statements made during the course of this conference call constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides the Safe Harbor for such forward-looking statements. The words “believe”, “expect”, “anticipate”, “estimate”, “well” and other similar statements of expectation identify forward-looking statements.

Specific forward-looking statements in this conference call include the company’s expectations to disclose of discontinued operations within fiscal year 2009, the likely benefits of a more efficient operating structure and possibility that the review of strategic alternatives will identify or result in a transaction involving the company or any other strategic action by the company.

Additionally, other factors that could materially and unexpectedly effect the company’s results are set forth in the company’s most recent annual report on Form 10-K and subsequent quarter reports on Form 10-Q. The company cautions not to place undo reliance on its forward-looking statements.

The company does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this conference call also reflect the occurrence of unanticipated events.

With that said, I would like to turn the call over to Mr. Roger Derse, Chief Financial Officer and member of the interim Office of the President. Roger.

Roger Derse

Thank you, Joe. I would like to thank everyone participating on today’s call. We appreciate your continued interest in White. We are aware that a shareholder group filed a Schedule 13D this morning, stating that it intends to nominate an alternative slate of Directors at the company’s upcoming annual meeting of shareholders.

The Board advices its shareholders to take no action at this time in response to this action and the company will announce future Board recommendations when appropriate. We reiterate that the strategic alternatives committee, with the help of capable and experienced advisors is currently evaluating each strategic alternative that might in the best interest of the company and its shareholders.

We also reiterate, with the Board welcomes dialogue with all of its shareholders. We will therefore be focusing our remarks today on the financial results of the fourth quarter and the year-ended September 27, 2008, and providing you an overview of our new strategic direction as a defense electronics manufacturer and supplier.

Relative to financial performance, during the fiscal year the company made a strategic decision to disclose of its Display Systems Division, Interface Electronics Division and its commercial microelectronics product lines to focus operations in the defense electronics market.

These operations are reported as discontinued operations for all periods presented in our consolidated financial statements. I will restrict my comments to continuing operations only. All additional information regarding discontinued and consolidated results are included in our 10-K, which was filed today.

The fourth quarter 2008 results; for the quarter, the company reported revenues from continuing operations of $14.9 million, compared to $15.1 million in the fourth quarter of the previous year. Loss from continuing operations for the quarter was $1.1 million or $0.05 per diluted share, compared to income of $2 million or $0.08 per diluted share in the fourth quarter of fiscal year 2007.

Financial results for the just completed fourth quarter were impacted by a charge of $2.8 million, attributable to severance cost associated with the departure of the previous CEO of the company. Excluding the charge, income from continuing operations for the fourth quarter would have been $0.7 million or $0.03 per diluted share.

The fiscal year results; for the year-ended September 27, 2008, the company reported revenues from continuing operations of $56.4 million compared to $52.1 million in the previous year. Income from continuing operations for fiscal 2008 was $2.5 million or $0.11 per diluted compared to income of $5.2 million or $0.21 per diluted share in fiscal year 2007. Financial results for the fiscal year were impacted by the severance costs noted above. Excluding the charge income for the fiscal year 2008 would have been $4.2 million or $0.18 per diluted share.

Under bookings and backlog; Bookings for continuing operations for the quarter totaled $17.3 million, compared to $11.6 million in the previous quarter, an increase of 49% and $18.6 million in the comparable quarter last year. The growth in sequential bookings is attributable to strength in the military FLASH/SRAM business. The bookings activity for the quarter yielded a book-to-bill ratio of 1.17:1. Which we believe it’s a good indicator of our ability to grow revenues in 2009.

Backlog at the end of the fourth quarter of fiscal 2008 increased 8% to $38.6 million, compared to $35.9 million in the previous quarter and was consistent with $38.6 million in the fourth quarter of fiscal 2007.

Bookings and shipments historically are lumpy quarter to quarter, that is referenced in our 10-K filings; 74% of our opening year backlog of FY 2008 shipped during the year. Our estimate of FY 2009 indicates approximately 61% will ship in FY 2009. We do not typically experienced cancellations, movements that do occur in backlog is customer driven by either moving out or moving in.

On the gross margins; gross margin from continuing operations for the quarter was 40% compared with 43% in the comparable quarter last year from continuing operations. Gross margin for the fiscal year was 41% compared to the 43% in the previous year.

We believe that we will be able to consistently operate the business with gross margins that center around 40% compared to the 25% to 30% range of previous years. We are confident at focusing the operations of the company where we have clear competitive advantages, we’ll deliver operational efficiencies, more consistent profitability and the enhance shareholder value that we see.

From our business outlook perspectives; if we focus in three fundamental defense electronics categories and those are missiles and ordnance, aircraft and communication and net centric operations. We participate across these categories in numerous programs. Under missiles and ordnance for example, AMRAM, AIM-9X, Tomahawk, PGK, Urgo, PAC-3, Excalibur. Under aircraft, F35, F18, F22, V-22, Osprey, Eurofighter and the Apache Helicopter, communication in net-centric JTRS, Sincgars and C-Cell are good examples. We believe the expanded play over the next year revolves around communication and net centric operations, coupled with the move to more sophisticated missiles and smart ordnance.

As a definition by the way, net centric operation is the robust networking of well informed geographically dispersed forces. Secured communication coupled with GPS is required. We address this expanding market with GPS modules utilizing our anti-tamper technology. We have expanded vertically to build Circuit Card Assemblies where our components reside.

Additionally, we look to expanding our participation on these assemblies with RF technology. These are natural enhancements to our digital technology roots. Secured GPS communications is experiencing an increased demand by the military. While shipments today represent a moderate portion of our revenue, we do believe this will grow over the next several years to perhaps half of our bookings plus shipment. To this point, as a level of technological sophistication grows, we see growth.

A brief update on discontinued operations; commercial product lines are shutdown with one exception of an offshore production of a System Integration Products. That process will complete by March 2009. Our manpower, equipment inventory has been disposed. Interface Electronics in Columbus has been a challenge. Numerous buyers have visited the operation; unfortunately there are several similar businesses on the market. We would like to establish a transaction by the end of March 2009. Our Display Systems Division is actively being marketed. We have interested arties and we are early in the process and we’ll report as appropriate.

On other topics, strategic alternatives; the company has previously announced expiration of strategic alternatives under the supervision of the independent special committee of its Board is actively underway. The company continues to work close with its financial advisor Jefferies Quarterdeck, a division of Jefferies & Company, to identify opportunities to enhance stockholder value. Wilson Sonsini Goodrich & Rosati, Professional Corporation, is acting as legal advisor.

As previously indicated, the process involves a thorough review of strategic alternatives, including WEDC continuing as an independent public company, merging with or acquiring another public or private defense electronics company or being acquired by a strategic or financial investor. The special committee is giving due consideration and deliberation with respect to all opportunities that are available to the company with the goal of identifying what it believes is the best strategy for the company.

We believe the company’s realignment to focus as a defense electronics manufacturer and supplier, coupled with its positive cash flow, substantial cash reserves and lack of debt allows the company substantial flexibility to conduct a thorough process with a focus on creating long-term shareholder value.

The committee is dedicated to completing the process expeditiously as possible while ensuring that all alternatives are given appropriate consideration. In order to optimize the process of the committee, the company and the committee won’t be commenting on the committee’s internal deliberations or any negotiations that the company may pursue unless and until a definitive agreement if any is reached or the company completes its review.

Regard the CEO departure; as was indicated in our previous press release, Hamid Shokrgozar elected to pursue other alternatives and we wish them the best. Pursuant to the terms of his severance agreement, we are limited to what details have been previously disclosed. Regarding the CEO search, we are 90 days through a transitional period where the board and strategic alternatives committee are analyzing alternative directions for the company.

As noted in our release, we are moving forward as a defense electronics operation that at least for interim period is well directed by the Office of the President. As it relates to the CEO search, a final conclusion of the strategic alternatives committees review of alternatives, a specification of qualifications will drawn up reflecting the direction that the board intends to take the company going forward.

Following on the stock buyback; no further purchased activity occurred during the fourth quarter. As we disclosed in our annual report on Form 10-K, resumption of the program is under evaluation.

I’d like now to open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mark Jordan – Noble Financial.

Mark Jordan – Noble Financial

Looking at the business and from the comments in that 10-K, it seems with once the dust has settled here, you should the operating at roughly a 40% gross margins and I believe you said that R&D being the 6% to 7% range, SG&A 24% to 26% which would yield an operating margin potential of 7% to 10%, is that the correct inference from the comments indicate?

Roger Derse

I think those are reasonable planning numbers.

Mark Jordan – Noble Financial

Is there any specific reducible expenses? I know as you scale back the organization, you have at least all of the overhead of a large company. Is there efficiencies that need to be rung out of your cost structure and when can it may be achieved so that we would see that normalize operating margin. I mean is that something we should see in the first quarter or is it later in the year before you should achieve that level?

Roger Derse

I think from a continuing operation perspective we’re done, okay. We are in order and we are moving forward. Relative to the obvious relationship of being a public company, as the top line grows, the public company costs drop as a percent. From an overall perspective we are in order and we are going forward and don’t plan to make any further adjustments.

Mark Jordan – Noble Financial

Giving your comments its sounds like you have put all commercial revenues in a discontinued status and so it fair to say therefore that the $56.4 million that you reported is a pure ongoing numbers; there’s no residual business revenue that will drop off early in the year?

Roger Derse

No, you’re absolutely correct Mark and that was a challenge for us over the last several weeks and that’s why it took us a considerable amount of time to basically review and reconstruct that 10-K to reflect continuing as a pure defense electronics place. So that 56 that you see, the numbers that you see in the prior years are pure play defense electronics only not tainted at all by anything commercial, display or interface that’s up in command.

Mark Jordan – Noble Financial

Your book-to-bill was one for the year, but had clearly a strong fourth quarter. Could you give some sense of range in terms of that might be reasonable from a revenue side in the upcoming year?

Roger Derse

Well I think that we obviously remain very positive. We had a strong booking in the fourth quarter. The first quarter as you know we announced publicly a $4 million South Korean order; we’ve had other orders come in; we are looking at certainly an up year for 2009. If you track our historical numbers going 52 to 56. Our play of course is in the communication eccentric GPS, coupled with anti-tamper and it’s very, very positive.

Mark Jordan – Noble Financial

Okay. As you did mention the 13D filing, mechanically was that filing made promptly enough, so that that information will be included in the approximately or if anything moves forward on that front, that would have to done independently?

Roger Derse

We have no response at this point on this Mark; we just received it. We’ve advised council, advised the Board and we’ll comment on that in the future.

Mark Jordan – Noble Financial

Just a final question; looking at seasonality, would you expect that again a similar type of weaker first quarter and that would you make any statement now as a standalone company where you are today that well the weakest quarter of the year will be profitable?

Roger Derse

Yes, I think we’re tending to look at remaining at more of a consistent level, from our fourth quarter into our first quarter and keep in mind the most important point to make is the $7 million euro flight are booking that we received is shifting in the fourth quarter of ’09. So, if anything we’re going to have an extremely strong fourth quarter.

Mark Jordan – Noble Financial

Okay. Again let me speak to on last thing and you did have I think about $12 million net of assets held for sale. When do you think that you will be able to convert those to cash?

Roger Derse

I think that as I just mentioned in my update to the group in this press release relative to this group that we’re looking to draw in things to a close in March. With our Columbus facility, no later than the end of the year of course on our display facility and we honestly feel that there’s no further costs net of operations that we need to be concerned with.

Operator

Your next question comes from Tom Carpenter - Hilliard Lyons.

Tom Carpenter - Hilliard Lyons

That’s impressive; you grew cash with that payment?

Roger Derse

As with the payment of course, we always say the after tax amount is always less than the amount.

Tom Carpenter - Hilliard Lyons

Yes. So, $52.6 million at the end of the quarter; we’re almost through December here. Do you expect December to be above the $52.6 million?

Roger Derse

Can you rephrase that Tom?

Tom Carpenter - Hilliard Lyons

Sure, at the end of your fiscal fourth quarter, cash and equivalents were $52.6 million…

Roger Derse

I’m sorry. For some reason I was moving right into the revenue. While considering the fact that we’re consistently cash flow positive and our stock buyback is currently inactive at this point, we certainly expect the cash to go up.

Tom Carpenter - Hilliard Lyons

There’s been no payment then within the businesses; with the close there’s been no large payments on the businesses that are closed, so far in the quarter?

Roger Derse

Correct and keep in mind we’re looking to net cash on any of the dispositions at this point. While we are sort of cash neutral in Columbus, we’re not cash flow positive. A display, net-net after the dust settles, we will add to cash as a direct result of discontinuing those operation.

Tom Carpenter - Hilliard Lyons

Would you expect the quarter that ends in March of next year to include any and all if there where any charges when you cleaned up the dust for the business and after that everything would be defense, mostly defense only going forward?

Roger Derse

Well we feel it’s rather aggressive to assume that we are going to be able to move our display facility into a new home by the March period. We’re really actively engaging as we speak. The commercial really is a non-issue and we look to take care of the Columbus facility by the end of March. So, I think you’re going to see in discontinued operations, activity associated with display and as I just indicated the operation is cash flow negative. So, we’re going to see some negative results from display for a period of time until we dispose of them.

Tom Carpenter - Hilliard Lyons

Okay. Is Dan on the call with you?

Roger Derse

No.

Tom Carpenter - Hilliard Lyons

Okay and I’m not trying to ask this in anyway that would lead this in discussions you guys want to not have on this call. So, why is decline in public company values year-to-date, which were also in fact part of the company values. I would assume as you guys look around, there has to be some pretty attractive opportunities out there to add to the areas you want to grow; is that a fair statement?

Roger Derse

It is a very fair statement and we have active process. We have a very, very engaged, warrant strategic alternatives committee; the management team here is very, very energized. Keep in mind Tom, if we really see significant growth overtime in the space where we can now confine our attention and that area is of course in the communications that centric to the guidance systems.

Initiations are no longer down there; they are now more smart in the ordinance etc and the natural extension is to add the Board activities in the circuit card assembly which we’re doing now. Ask the big question, in order to have communications in GPS while we have RF okay and they’re out there and we are very, very alert to it and we are engaged.

Tom Carpenter - Hilliard Lyons

Right. If someone is coming new into the story now, I’ve got $52.6 million in cash or $50.4 million, your market cap is $73 million, whether you guys go play that or acquire some companies that can add to revenue and earnings. It seems like you guys are in a pretty good position from here going forward, with no charges coming. I mean the business is exposing us.

Roger Derse

I mean the key point Tom is that we are very, very now in our focus and we’re looking for a greater play going a bit vertical, with the existing customer base which is a very strong customer base. Whether it be a Rapheon, whether it be an L3 etc and we’re just looking for greater play in a very narrow area that we clearly understand and tie to our roots.

Tom Carpenter - Hilliard Lyons

Looking at a more macro perspective with all the events going on in the world and countries are going to tapped for cash and some other things we’re splitting, at least right now you might get more on the special programs, seeing their economies back into play, maybe not so much defense. I could cause a year or two where something’s declined; I know a lot of defense budgets that set the foreign advance on programs.

Can you comment on, what’s going into the world that might affect you guys in the next year or two and also maybe a longer three to five year outlook?

Roger Derse

It’s interesting; in the New York Times and this would have been an the article yesterday and the title was “The Fighters Jet Speed poses a quandary for Obama” and here is the F22 on the block. Do we continue, do we not continue; if we do not continue there is a considerable play of suppliers out there that feed F22 and here we’re looking at the unemployment ranks going up, it’s factoring in as a challenge.

I think while everything is under scrutiny, as you pointed out I think we’re locked in for a period of time. It’s inevitable that the defense budget for instance will be reviewed and analyzed. The key here once again for us is while that is going on, we’re looking to do a greater play going vertical, okay, number one.

In the area for instant let’s just take ordinance. Ordinance is a prime example, where we had basically expending from ordinance or for instance in the press release that we made about the Howitzer; we no longer shoot 20 or 30 munitions right. Out of that gun, we shoot two or three because in that particular munitions or ordinance there intelligent, okay.

So as some of the base underlying ordinances replenished, we have a play on that and we have a strong play on that because our roots are in the multi-chip modules, the shock, the shake, rattle and roll aspect of what we make, we can make it small, we can make it compact, we can make it no spec and we see plays and areas where while the overall ordinance may go down, we’re playing in an ordinance that we didn’t use to play in.

Tom Carpenter - Hilliard Lyons

Do you have any current contracts or smart ordinance?

Roger Derse

Yes.

Tom Carpenter - Hilliard Lyons

Land, sea or air?

Roger Derse

Yes.

Tom Carpenter - Hilliard Lyons

Going forward will you focus on all three or just one of those to spread that?

Roger Derse

One thing that as I try to illustrate Tom in the outline of where we play, we just don’t have concentration. We may be involved with L3 and Rate Gun heavily for example, but there are so many platforms across those categories that we play in so.

Tom Carpenter - Hilliard Lyons

And one final question and I’ll jump back in the queue. When you do the September 7, 2008 year end numbers, the income from continuing operations of $0.11, you probably mentioned this, but does that exclude or include the severance?

Roger Derse

That includes.

Operator

(Operator Instructions) Your next question comes from Sam Bergman – Bayberry Asset Management.

Sam Bergman – Bayberry Asset Management

A couple of questions; can you compare your RFP’s currently versus last years RFP’s this time?

Roger Derse

The requests for proposals or quotations are definitely up. We’re seeing a very, very strong activity and once again the actively is very heavily in that communications, net centers, GPS area.

Sam Bergman – Bayberry Asset Management

Can you give us a dollar value on all particular RFP’s or the largest one that’s out there currently?

Roger Derse

No, I don’t have those metrics in front of me, but I thing the key thing is that we will continue. You saw our release in September; you saw our release in October, for large programs that we’re committed to inform the shareholder base of that activity and we will do that.

Sam Bergman – Bayberry Asset Management

What is the opportunity for licensing the anti-tamper products that you have the technology?

Roger Derse

Is an absolute bureau; it’s a very, very tightly controlled not only material, but process. That is we’re restricted on it’s use and as a matter of fact we’re very restricted on conversations about what program, especially that the anti-tamper might even be employed on.

Sam Bergman – Bayberry Asset Management

In the press release you mentioned that bookings were being positive in the first quarter. Is there no visibility beyond that, that’s mentioned in that form?

Roger Derse

We don’t give forward guidance; we’ve not given forward guidance before. One thing which you would expect is that we model the business going forward; we know the program activities, we know what we’re planning to book for the year; we have at floors, we have our upsize; we know programs that shift where there may have been a large booking that I can think of that I’m not going to speak to, that we had a initially expected would be booked at the end of September, it likely maybe booked in January and in fact maybe it will be a material when we buy this, so that we can get the material in the Q. So, I can’t really speak to that at a detail level.

Sam Bergman – Bayberry Asset Management

What’s the employee count at the end of the fourth quarter?

Roger Derse

If we look at continuing okay, we have about 223 in continuing. In the aggregate, we have about 337. Okay, so we have about 110 people in fiscal category.

Sam Bergman – Bayberry Asset Management

When the continued ones in the fiscal are completely gone; do you expect to continue to remain in that 223 area?

Roger Derse

Yes, absolutely. I think that’s favorable to keep in mind, that as we grow in this year, our plan that we have here in the defense category as I described, greater play on the board, as we work through incorporation of RF etc, we will see headcount go up. It is expected in our plan to add several engineers. We are a very much an engineering driven company and we will add those accordingly as we now rollout our tactical elements in that plan.

Sam Bergman – Bayberry Asset Management

Just one last question, again on the RFP’s; can you tell me what percentage they’ve increased since last year?

Roger Derse

All about 20%, perhaps just a rough cut, but once again that’s not a table of metrics that something will take a notice herein and perhaps have that available for the call and I thank your for question.

Operator

Your next question comes from Scott Louis - Louis Capital Management.

Scott Louis - Louis Capital Management

I wanted to ask about pro forma Q4 of ’08 versus ’07. There’s a drop in gross margin and a drop in operating income. Could you talk about that a little bit, what was it cause it on?

Roger Derse

Yes, I’ll be more than happy to and I did speak to that in the release material. We’ve talked about gross margin. Once again, if you rewind back a few years, not the advantage now on our 10-K which you can go back several years and you can see really how we performed and you perhaps saw a little gross margin that was a little higher. We are mixed dependent. I mean its very, very clear, we’re mixed dependent and what it like mean by that?

If you go back a few years, the mixed dependency was more specifically associated with our standard product components, compared to maybe a portion of the business that was custom components and that would be we’re doing custom device; maybe a power PC and some S round; that would be an example of something that we derive the higher margin. So, it revolved around a blend of the standard products, standard military products that we do with the custom products.

Now, as we move to the end of 2008, what your seeing is the incorporation of circuit card assembly and we know and clearly keep in mind, we’re talking about nil spec circuit card assembly, generally with white components on that board that we know we’re going to get a good margin. We’re not in the dorm assembly area, where we’re concerned about planning that space on board okay, but we know that those margins are going to be slightly less, let’s say than that 40%, so that now we can speak to a blend at around 40%.

We had a different shift in mix year-to-year as we closed ’08; we also had some startup cost associated with getting into that circuit card assembly space that rounded out the year.

Scott Louis - Louis Capital Management

Okay, so going forward though you expect your operating margin to improve a little bit, because you want to have to startup some circuit board cost?

Roger Derse

Well, I’m speaking rate at the gross margin level, but at the end of the day, as we throw more dollars off at the top okay, we’re going to see the op dollars grow, but I think that for modeling purposes, you can see.

We don’t expect and I think that’s a key point to look for as you model us going forward. We’re looking at going vertical where we’re getting a greater play with our customer; let’s say rates down or an L3. We’re doing more, we’re doing the board, but we’re dealing with the same customer, so we’re not looking at that SG&A doing anything other than the incremental year-to-year, that 5% increase or so.

You add to that, a little bit of an up tick on engineering the tracks against your revenue; as your revenues goes up, you’re up dollars expand.

Scott Louis - Louis Capital Management

Okay and then on your comment in the release about the technical leadership of the anti-tamper segment is beginning to gain sustainable traction, what do you really mean by that?

Roger Derse

I think that the point to be made is that, as we move forward in a very, very conscious environment where the anti-tamper is very, very important, our products that are GPS and communication based need to be secure, okay. Now that we’re seeing clearly in up tick in our activity, were gaining traction. If you look at the year-over-year shipments in the anti-tamper area only, we’ve got some $6 million to $12 million year-over-year and we see that going further.

Operator

Your next question comes from [Sander Bosky] - SAR Asset Management.

Sander Bosky - SAR Asset Management

You’ve done well handling your new responsibilities today, I know it’s difficult. As far as the discontinued operations, it seems to be fair to assume that there will be loses, because there is this negative cash flow in both quarters and either you will sell or liquidate this operation? Will you make a judgment of what the total cost will be or profit going forward? How we’ll get it make a judgment on that?

Roger Derse

We can make a judgment that we will add the net cash okay. I’ll just give you a purely hypothetical. If I have an operation and its cash flow negative of a quarter of $50 million and I go two more quarters and that’s a million dollars collectively, but I derive my full carried value at this point of $5 million on that $4 million and I’ll throw that back as I disclose of the entity.

So, from a pure P&L standpoint or an our operation standpoint, we are going to experience probably a couple more quarters in the discontinued operations portion of our P&L, where we have negative results to report associated with the display operation.

Our operation up in Columbus, we are able to manage that; we have upping in our run rate and a cost structure that allows us to run that neutral. When we finish the disposal out that entity, we will generate cash as we sell those assets.

Sander Bosky - SAR Asset Management

Okay, it appears based on your negotiating strategy with the potential purchase year, that you feels it’s profitable not to make any judgments or make any comments relative to what any losses on profits you might see.

Now, you’re paying both Jefferies and Sonsini. What are you paying them as cash, I presume its cash and if there was successfully built in, what kind fees or anything charged for their services in the September quarter?

Roger Derse

We had a nominal expense associated with the Jefferies operation and I would say that anything associated with the Jeffrey’s engagement cost associated with it etc. will be disclosed going forward as the product of the strategic alternatives committee communication and we’re really not in a position to discuss the agreements, excess fees, etc. at this time.

Sander Bosky - SAR Asset Management

So, when do you expect to disclose what will be in the proxy, or….?

Roger Derse

As I indicated earlier, when we were discussing the strategic alternatives and attempting to provide an update. When that committee is in a position to communicate, because I feel they have reportable progress, any agreements, terms etc., so report they will report, there is nothing that’s scheduled on the near horizon to communicate that.

Sander Bosky - SAR Asset Management

Okay and the $2.8 million fee to the prior President was that all cash and how was that calculated? Is that part of this agreement or would that be a number of uses; how did you come up to a fee like that?

Roger Derse

Keep in mind and as we’ve pointed this out, the disclosures we made relative to his severance package, whatever we’ve communicated in previous releases is the extent that is just in honoring the severance package terms that we’re outlined.

The $2.8 million that was recorded, it is an accounting expense okay, that flowed to our continued operation’s results in the fourth quarter and as we all know, the scenario with all the pay checks so to speaks, the difference between gross pay and net pay. So, it’s very easy to conclude that the actual cash was something less than the $2.8 million.

Sander Bosky - SAR Asset Management

That’s sounds okay and so, your continuing operations, I guess will be special committee decide whether if your operations would be very profitable, it would appear at this opportunity to buy stock in the open market. How do you make a decision on that? What is that? Could you sort of state how that process goes about?

Roger Derse

I would say that’s completely outside of the scope of this conservation. I know that the alternatives committee is analyzing that and as I indicated relative to the stock buyback, at this point we are not active on that and don’t have any further comment.

Sander Bosky - SAR Asset Management

Well hopefully the profitability improves and the value of the company increases so that everybody could be happy.

Roger Derse

I think the key is to look at the history as now outlined, that we have in our 10-K and your going to see what was really always there, is a very, very successfully defense electronics business that is growing consistently and now with some of the new plays, we are very, very encouraged.

Sander Bosky - SAR Asset Management

I mean some of the other companies in your space have done very well in this kind of climate and it would appear that you should be able to do something similar, whether your are sold or whether you acquire or you just grow the piece. I mean this is a business area that is doing rather well, so hopefully you could sort of rubber stamp that, then the stock could trade at a higher level or be sold or one other thing, because shareholders would like to see the stock value trade at a higher level.

What about the buying of stock by management? What’s their expectation? I see some options were giving 50,000 options or stock; what about the management based on these values here, stepping up and buying some stock in the open market. This demonstrates there comfort level with White Electronic.

Roger Derse

All I can say is that we are very, very pleased with the increased participation at the Board and especially the engagement of our compensation comity to reevaluate and look at our option, restricted stock programs etc. Keep in mind we are fresh off a very significant change in the structure here at White. We are really only 90 days in after the change of leadership and we have a very active Board as I said, very active Board relative to the comp committee and the review and the discussion and the evaluation of what management can do. The options that could be offered etc. as you see we are starting to see some of that report out and we are encouraged going forward.

Sander Bosky - SAR Asset Management

Well I would suggest that going forward, that whatever happens, assuming you stay as a public company that all members of the Board and officers, they entertain and attend the five plan and vote with their whole self and add some stock in the open market.

If you do stay as the public company, option doesn’t close anybody anything and shareholders bet in this kind of market climate. Do that and I would suggest that the board will put that on the table and vote seriously if we’re tending for everybody to buy stock and there is not a rational, but there’s a window close. So, I think something that should be considered.

Roger Derse

What we’ve done is, we take notes on these calls. The notice taken and we appreciate the interest.

Operator

Your next question comes from Robert Sibi – [Avinathi Group].

Steven – Avanathi Group

Roger, its Steven standing for Rob. A quick question on the display business; how long will you continue to look for a partner, before you shutdown? Tell me, how long it will take you guys to make a decision?

Roger Derse

We’re engaged with several players as we speak and it’s a tough market right now. We know that it’s a tough play out there in the consumer ruggedized display section. We do have a small military industrial play up there. We don’t want to see this extend out too long. We announced that at the end of September, we’d like to think that this could be completely wrapped up no latter than the end of this fiscal year.

Steven – Avanathi Group

Those are hard decisions and we pay you guys to make those decision. So, we hope that will [Inaudible]. Secondly, can you guys help me understand or give me some clarity on past dividend offered for the company publicly or has or not?

Roger Derse

This is really outside the scope of this call. As I indicated, we really would like to continue to focus on operational questions as we go forward and expect that the product of the strategic alternatives, committee analysis will be made public as appropriate.

Steven – Avanathi Group

I understand that, but we’re shareholders and then when an event like that is rumored, somebody from management need to step up to the plate and tell the shareholders that there has a little bid, what it is and your response. I think we shareholders are entitled to know that. I mean this is sort of material guys and it’s not a caustic statement by me. We have shareholders, we’ve been shareholders for a long time and I don’t know whether this is a rumor or whether this is true?

Roger Derse

I will tell you and there is certainly language in the 13-D filing that was placed today, but we did receive an offer of an amount from account capital and it was forwarded to the strategic alternatives committee for analysis, who in-turn are working with Jefferies Quarterdeck.

Now the analysis is underway. Keep in mind we were talking both sell side, buy side activities that are in hopper and working. That was communicated to that group and I expect that that group will respond, when they deem it appropriate to respond. It’s something that I don’t control as the management player here in the Office of the President here in Phoenix.

Steven – Avanathi Group

Well, if the offer was as we heard, superior to the prior offer and the prior offer was sort of accepted, kind of globally accepted. I think you guys whether it’s the strategic alternative committee or the Office of the President, I think it’s fair that all shareholders we alerted to the fact that you have it, if you believe it; it’s real, that’s something that we need to know. If you don’t think it’s financed that’s something else we need to do.

These are just material thing that shareholders deserve to be alerted to and if you decide not to take it, we sure we’d like to know why, because it seems to be that amount is equal to or superior to the last bid that you accepted and so again I’m trying to be a caustic, just trying to be a baffled shareholder and we’d like to know soon, what’s going on. By the way I speak for many shareholders. Just so you know we think it’s important that somebody step up and communicate with us and we appreciate it too?

Roger Derse

And I respect your input, I appreciate it. We are in not for a protracted process here, we expect feedback. The process is evolving with the relationship with that strategic charters committee and the board and you’re point is well taken; it will be communicated and we’ll encourage them to act on that.

Operator

Thank you. Ladies and gentlemen, I would now like to turn the conference over to your host Mr. Roger Derse for any closing comments.

Roger Derse

Again I would like to thank you for participating on today’s call. As I’ve indicated, we are in the process of making significant changes that we believe will better position the company for more predictable and consistent performance going forward. We’ve recognized that the difficult economic environment that the U.S. economy faces provides a real opportunity to realign our company to operate more efficiently and profitably in the coming years.

With the leading hedge technologies that we are now in for, the high level engineering talents that we have in-house, and the strong financial underpinnings of the company, we believe that the future is bright and we are dedicated to driving enhanced value for our loyal shareholders. In that regard we look forward to hearing from and meeting with our shareholders over the next course of weeks and months.

We want all of our holders to clearly understand our strategic plans and how we expect to grow our business going forward. We encourage our shareholders to contact us; we look forward to answering any questions that they might have. We thank you for your time and we look forward to talking with you again with the conclusion of the current quarter. We wish you and your the best in holiday season and have a great day.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: White Electronic Designs F4Q08 (Qtr End 27/09/08) Earnings Call Transcript
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