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Article Excerpt
OPERATOR: Good morning. My name is Rachel and I will be your conference operator today. At this time, I would like to welcome everyone to the Allied Defense Group conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Mr. Drewitz, you may begin your conference.
JIM DREWITZ, IR, ALLIED DEFENSE GROUP: Thank you, Rachel. Good morning, everyone, and welcome to the Allied Defense Group's third quarter and nine months 2008 financial results conference call. I am Jim Drewitz, Investor Relations for the Company.
We are joined this morning by John Marcello, CEO and President, and Debbie Ricci, the Chief Financial Officer. We will start off our call with a few prepared remarks and then open it up for questions. But before we get to that discussion, I would like to draw your attention to the fact that certain matters discussed in this conference call will constitute forward-looking statements within the meaning of the US securities laws.
These statements reflect our current views with respect to future events or financial performance and are based on management's current assumptions and information currently available. Actual results and the timing of certain events could differ materially from those projected or contemplated by forward-looking statements due to numerous factors.
With that said, let me turn the call over to John Marcello, our Chief Executive Officer. John, it's all yours, sir.
JOHN MARCELLO, PRESIDENT & CEO, ALLIED DEFENSE GROUP: Thank you, Jim. Hopefully most of you have had a chance to review the press release that we issued yesterday. Debbie and I would like to go over some of the information from the release and then open it up for questions.
$0.12 per share. As we review the first quarter, please keep this number in mind. $0.12 per share represents earnings from continuing operations after eliminating all of the noise of some relatively complex issues. In addition, please note that were it not for three relatively conservative provisions that $0.12 per share would have been $0.23 per share.
One of those provisions will be reversed in Q4 and we will work to reverse those others over time. Debbie will discuss these very two important points in a few moments.
As evidenced by last quarter's financial results, we have come a very long way but still have a way to go. ADG is still in its transition phase. We are rebuilding and that rebuilding is not yet completed. We are confident, however, that the transformation of the Allied Defense Group to a single, core competency focused entity with an extraordinary backlog, a much improved cash position, strong internal growth, little or no debt, and a new and improved Belgian bank pool will be completed by the end of January 2009.
Let me explain, recently our focus has shifted away from operating in multiple businesses toward reinforcing the success we have achieved in the ammunition business. Fiscal year 2008 is an important year in that process and we continue to divest other than ammunition-focused subsidiaries and to grow the ammunition business. In addition we are investing in new markets, in new clients, in new products.
It's important to note that today's transition allows us to shed burdens which have hindered us in the past such as debt and its associated interest charges in non-performing subsidiaries and their associated losses. There is a cost associated with the transformation. Impairment charges, for example, associated with NS Microwave, our last California subsidiary, represent a near-term cost associated with ADG's transformation.
So let me tell you about the progress we have made in the transformation process tactically, operationally, and strategically. Tactically we continue to execute profitably on our very large backlog. All quarterly financial indices when compared to 2007 are meaningfully improved. Remember that $0.12 earnings per share for continuing operations I mentioned earlier.
Operationally we penetrated important new markets, added valuable new clients, and expanded our product line. In the process we have enjoyed exponential internal growth in our new service center and have dramatically reduced our dependence on our largest client. In fact, in 2010 we do not expect to be dependent at all on that client. Those of you who have been with us for awhile will understand the significance of that operational improvement.
Strategically, we are one subsidiary a way from being a single focused, core competency-oriented, ammunition-only business. The drain from those non-performing subsidiaries will have been abated.
So let me highlight the recent sale of GMS as well, which allows us to significantly address debt. Approximately one half of our bondholder and European credit facility debt has been repaid since the second quarter. By the end of January, the remainder of these debts is planned to be repaid in accordance with the terms of those agreements, thereby reducing our corporate debt to virtually zero. Consequently, the heavy burden of interest expense will be reduced by about 75% going forward.
As for revenue and EBITDA this quarter, both are up dramatically over the third quarter of last year. ADG's real performance in this third quarter of $0.12 is obscured by non-cash charges reported. These unrealized currency losses are for the most part defined by accounting treatments associated by the interim fair valuation of our forward currency contracts at MECAR and NS Microwave's goodwill write-down. We will talk more about that later.
I ask that our investors not lose sight of two meaningful ongoing activities within ADG given these required accounting treatments. First, ADG is executing profitably and is continuing to add to its historically high backlog. Comparing this quarter to the corresponding quarter in 2007, we really have come a very long way. Revenue is up 300% and EBITDA is up some 200% over that quarter.
While the Company did report large currency losses in the quarter mainly related to the forward currency contract, that financial facility is in fact designed to protect proceeds from currency fluctuations at the time our US-denominated ammunition contract is actually fulfilled and it is doing so.
Interim fair value evaluations of this financial facility, such as we have reported, can and probably have been misinterpreted. Think about it, the dollar is stronger. It's a dollar-denominated contract. It's actually worth more now than it was then.
Secondly, our last non-ammunition Electronic Security element is in the sales process and has been moved to discontinued operational status. Running down...
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