Message from
Robert S. Graziano, President/CEOThe business world in general and the Department of Defense in particular were more competitive in Fiscal 2010 than in Fiscal 2009. I expect business to be even more competitive in Fiscal 2011. Budgets are shrinking, the DoD is working to cut contractor costs and at the same time insourcing people to significantly increase the work that can be done in house. Thus we must work harder, smarter, and with increased customer focus to maintain and grow TSC's business.
We are a small company; a very small part of the huge DoD budget and even the budgets of most our customers. Growth and profitability is still possible in this difficult business environment. So what can we do to maintain and grow our business?
First, we must be extremely responsive to our current customers. They pay our salaries and deserve great, beyond the call of duty service. It is a lot easier to keep and grow the business with current customers than to find new ones. When did you last ask your customer if he (or she) is pleased with our work, and is there any additional work where TSC can contribute? Every employee can become a sales person for TSC by being alert for business opportunities and bringing them to our attention. When you find an opportunity, make it your own responsibility to follow up and ensure that it gets the proper attention. These are things we all can do.
What is our management doing to maintain and grow the business? We are investing more resources into internal research and development, business development, and inter Operational cooperation. In Fiscal 2011, we will have 4 full time business development people and two corporate staff people working to obtain and coordinate new business. We have a Systems Group whose focus is obtaining inter Operational business. We are pursuing new customers and new business areas such as the Air Force at Warner Robbins and Sustainment Electronics. We have hired a full time business manager and are investing in facility upgrades for our very profitable electronic production subsidiary PIVC. We are working hard to identify acquisitions and investments that would help us grow. It is imperative that we work to a common purpose to do all of the above and more as we move forward.
Fiscal 2010 was a difficult year for revenue growth, but an excellent year for profit. TSC revenues grew a meager 1.8% from $81.8M to $83.3M. Operating profit, however, grew 25% from $6.0M to $7.4M; an outstanding 8.9% of sales. Earnings per share rose to $6.49 from $3.36 in the prior year. TSC's return on equity also rose to 11.0% from 6.3%. This profit growth and financial performance helped TSC stock rise 10.1% to $63.04 per share. This is a remarkable 31.5 multiplier over the original price of the stock in 1993.
It would be extremely difficult in the current market to maintain the profitability on sales achieved in Fiscal 2010. Many of our most profitable contracts have now transitioned to much less profitable contract vehicles. TSC stock is valued by many metrics and three basic techniques. The most important factor in the valuation is profit and the corresponding discounted cash flow of future profits. Fiscal 2010 operating profit was $7.4M. To better that number with a smaller profit on sales means doing more sales. It also means paying attention and achieving the absolute best profitability on every contract no matter how small. TSC profits are built by adding the small number that represents profit on literally dozens of contracts; and every one counts. Do your part. It will affect the value of your TSC stock and enrich you and your colleagues at TSC.
There were two corporate level management changes during Fiscal 2010. Mike Legg became the President of MagnaCom; TSC's fully owned subsidiary in Huntsville, Alabama. Mike is a Huntsville native and has been with MagnaCom for 3 years. He has over 20 years of experience in Missile Defense programs in the Huntsville area and is well suited to his new role as President.
During Fiscal 2010, we hired Alan Hislop as the Director of PIVC. PIVC is TSC's manufacturing facility in Huntsville, Alabama. PIVC's business is primarily derived from production orders for electronics designed at the Phase IV Operation. Bill Hooper had been managing PIVC part time and the business was so successful that we needed a full time director. Alan comes to TSC from Baron Services where he was the Vice President of Broadcast sales. Previous to Baron Services, he managed global accounts for the world's number one broad based semiconductor manufacturer. Alan has a long history of managing and selling commercial products and has achieved significant early success as the Director of PIVC.
The winner of the 2010 Swerling Award for Entrepreneurial Excellence was Marty Peatross. The Swerling Award is given to a person who has made a significant contribution through the development of new technology and/or the cultivation of new business that has resulted in the financial growth of TSC. There is a $5,000 prize associated with the award. Marty joined TSC after a distinguished 29 year career in the Marine Corps, retiring as a Colonel. Since retiring from the Corps and joining TSC, Marty has steadily grown into an outstanding businessman.
In July 2006, TSC opened an office in Stafford, Virginia near the Marine base at Quantico to develop business with the Marine Corps System Command. We bid and won a prime task order contract in September 2006 and since that time have booked over $25M is sales. Marty has been instrumental in the growth of this business. Developing this business has been challenging, because it requires a different business paradigm than much of TSC's historical business. The Marines are great customers. They require sustained and consistent outstanding performance, quick turn around on work, and a very dedicated workforce. If you can deliver, they will reward you with work. Marty and his team have consistently delivered. Congratulations to Marty Peatross, the recipient of this year's Swerling Award.
As we enter Fiscal 2011 we know our path to success. We have a dedicated management team and an outstanding staff. We have the willingness and the resources to invest in the future. Hard work, smart work, and perseverance are required in all aspects of the business. We all own TSC and we will all share in our mutual success.