Thanks, and hello everyone. I’m going to focus the discussion on Q4 results while the fiscal year financials can be found in our press release. I’ll follow that up with the details of our FY 2019 guidance. The highlights of Q4 were the strong top line performance that exceeded our expectations combined with good expense control. These were more than offset by gross margin challenges due to tariffs and unfavorable manufacturing variances at our Santa Clara glass fab facility. The variances were significantly higher than expected and we anticipate similar difficulties in the first quarter of fiscal year 2019.
You will recall that last quarter we announced the shutdown of the Santa Clara fab operations, which is on track for the end of the calendar year. Tariffs are now having a direct impact on our business. In Q4, our gross margin was reduced by about $2 million due to tariffs with roughly half due to price concessions to Chinese customers importing our products and the other half due to direct payments of supply chain related tariffs in the U.S. and China.
As we look ahead to fiscal year 2019 we expect to incur about two to three points of negative impact to gross margin due to currently enacted tariffs including price concessions in the range of $10 million to $15 million.
Our fourth quarter revenues were down 5% compared to a very strong quarter a year ago, which had all-time high levels of detector sales for the dental and oncology markets. Sequentially, we saw revenues increased 7% from the third quarter with good performance in the Medical segment.
For the fourth quarter, our gross margin was 29% compared to 36% in the prior year quarter. The adjusted gross margin was 33% compared to 38% a year ago. The declines in the gross margin rate reflects the recent changes due to tariffs and detector manufacturing variances.
In addition, gross margins for the Industrial segment were lower than the prior year due to unfavorable product mix that we have encountered throughout the year. R&D expenses were $21 million or 10% of revenues in the quarter, which was comparable with the year ago quarter. Fourth quarter SG&A expenses were $32 million compared to $29 million in the prior year quarter. In the fourth quarter we had approximately $5 million of acquisition integration and restructuring costs compared to $2 million of integration costs in the prior year quarter. Depreciation and amortization totaled $14 million for the fourth quarter compared to $11 million a year ago. The current quarter included $4 million of accelerated depreciation associated with the restructuring of the glass fab operations.
Our operating earnings for the fourth quarter were $6 million, down from $27 million in the same quarter a year ago.
Our operating margin rate was 3% in the fourth quarter, a decline from 12% in the year ago quarter, reflecting restructuring and acquisition-related costs and a lower gross margin rate.
For the fourth quarter, our adjusted operating earnings were $21 million compared to $35 million in the prior year. The adjusted operating earnings margin was 10% compared to 16% in the prior year. Interest expense in the fourth quarter was $5 million compared to $7 million in the year ago quarter. We had other expense of approximately $1 million in the fourth quarter compared to $2 million in the prior year quarter, primarily due to the results from investments in privately held companies.
Our effective tax rate for the fourth quarter was 25% compared to 18% in the prior year quarter. Net earnings for the fourth quarter were less than $1 million or $0.01 per diluted share compared to $15 million or $0.39 per diluted share in the prior year quarter.
For the fourth quarter of fiscal year 2018, adjusted net earnings were $11 million or $0.29 per diluted share compared to $22 million or $0.59 per diluted share in the prior year. Diluted shares outstanding were $38.4 million shares versus $38.0 million shares in the prior year.
Looking at our working capital, accounts receivable increased by $22 million during the quarter. Day sales outstanding was 68 days compared to 72 days in the prior year. Inventory decreased $11 million in the fourth quarter to $235 million. We ended the fourth quarter with cash and cash equivalents of $52 million.
For the full fiscal year, we had cash flow from operations of approximately $86 million. We spent $20 million for property, plant and equipment and $5 million for an acquisition while reducing debt by $96 million. Guidance for our net earnings per diluted share is provided on an adjusted basis only. This adjusted financial measure is forward-looking and we are unable to provide a meaningful or accurate compilation of reconciling items to guidance for GAAP net earnings per diluted share due to the uncertainty of the amount and timing of the unusual items. In summary, for fiscal year 2018, we managed our balance sheet well, but our operating margins did not meet our expectations.
Over the past six months, we've been performing a detailed review of our cost structure, focused on reducing the cost of goods sold and SG&A expenses, as well as reprioritizing our R&D portfolio for maximum return on investment.
As a result we have taken multiple actions. We've previously talked about the planned closure of the glass fab operations in Santa Clara and London R&D site. But in addition, we have restructured certain management positions, negotiated double digit cost reductions from several of our key suppliers, significantly reduced our spending on outside services and are expediting our in-sourcing plans for key detector manufacturing process.
We are targeting R&D expense to be less than 10% of revenues in fiscal year 2019, compared to 10.7% in fiscal year 2018.
We also expect SG&A expense to be less than 13% of revenues in fiscal year 2019, compared to 13.6% in fiscal year 2018, excluding the impact of restructuring and acquisition related costs.
In addition to these operating expense reductions we also expect to make sizable gains in reducing our cost of goods sold.
Some of these benefits, such as those from the closure of the glass fab operations will not be fully realized until the second half of the year. Unfortunately, these gains will be offset by the negative impact from tariffs.
Our expectations is that adjusted gross margins for fiscal year 2019 will be in the range of 34% to 35%, which includes 2% to 3% of tariff headwinds. This compares to an adjusted gross margin of 34.9% in fiscal year 2018.
We expect interest expense to be $18 million to $20 million and the effective tax rate to be 23% to 24%.
For fiscal year 2019, we expect revenues to be in the range of $755 million to $780 million and we expect adjusted net earnings per diluted share to be in the range of $1.25 to $1.55. To be clear, this guidance does not assume any changes in currency exchange rates and only includes the estimated impact of tariffs that are currently in place.
Our outlook for the first quarter of fiscal year 2019 is that revenues will be similar to the year ago quarter.
Let me hand it back over to Sunny for some closing comments.