EX-99.1 2 d406535dex991.htm PRESS RELEASE DATED SEPTEMBER 5, 2012 ISSUED BY SPARTON CORPORATION Press Release Dated September 5, 2012 Issued by Sparton Corporation

Exhibit 99.1

 

    Analyst Contact:    Greg Slome
       Sparton Corporation
       Email: gslome@sparton.com
       Office: (847) 762-5812
    Media Contact:    Mike Osborne
       Sparton Corporation
       Email: mosborne@sparton.com
       Office: (847) 762-5814
    Investor Contact:    John Nesbett/Jennifer Belodeau
       Institutional Marketing Services
       Email: jnesbett@institutionalms.com
       Office: (203) 972-9200

FOR IMMEDIATE RELEASE

Sparton Corporation Reports 43% Increase in Adjusted EPS to

$0.40 for Fiscal 2012 Fourth Quarter;

Operating Margin for Fourth Quarter Increases to 10%;

2012 Full Year Revenues Increase 10%

SCHAUMBURG, IL. — September 5, 2012 — Sparton Corporation (NYSE: SPA) today announced results for the fourth quarter of fiscal 2012 ended June 30, 2012. The Company reported fourth quarter sales of $61.3 million, up from $60.9 million in the fourth quarter of fiscal 2011. Reported net income for the fourth quarter of fiscal 2012 was $4.1 million or $0.40 per share, compared to a net loss of $0.7 million, or $0.07 per share, in the same quarter a year ago. After non-GAAP adjustments, fourth quarter fiscal 2012 adjusted net income was $4.0 million, or $0.40 per share, compared to adjusted net income of $2.9 million, or $0.28 per share, in the prior year quarter.

Cary Wood, president & CEO, commented, “We are extremely pleased with our fourth quarter performance. While showing a modest increase in sales over the prior year quarter, we increased profitability across all three segments, finishing the year with what was by most operational measures our best quarter since we began our turnaround in fiscal 2009.”

Consolidated results for the quarters and years ended June 30, 2012 and 2011:

 

     For the Quarter  Ended
June 30,
    For the Year Ended
June 30,
 

($ in 000’s, except per share)

   2012      2011     2012      2011  

Net sales

   $ 61,326       $ 60,902      $ 223,577       $ 203,352   

Gross profit

     12,261         10,393        38,502         33,168   

Adjusted gross profit

     12,261         10,393        38,396         33,168   

Operating income (loss)

     6,067         (12,343     14,545         (3,829

Adjusted operating income

     6,058         4,471        14,371         10,373   

Net income (loss)

     4,052         (727     9,508         7,461   

Adjusted net income

     4,043         2,860        9,312         6,566   

Income (loss) per share – basic

     0.40         (0.07     0.93         0.73   

Adjusted income per share – basic

     0.40         0.28        0.92         0.64   

Income (loss) per share – diluted

     0.40         (0.07     0.93         0.73   

Adjusted income per share – diluted

     0.40         0.28        0.91         0.64   

Adjusted EBITDA

     6,770         5,147        16,701         12,425   


Fourth Quarter Financial Highlights

 

   

Adjusted net income of $4.0 million, or $0.40 per share, versus adjusted net income of $2.9 million, or $0.28 per share in the prior year quarter.

 

   

Adjusted operating margin of 9.9% compared to 7.3% in same quarter last year.

 

   

Awarded twelve new business programs, of which five were with new customers, during the fourth quarter of fiscal 2012 with estimated future annualized revenue of $5.2 million.

 

   

Quarter end sales backlog of approximately $148.4 million, representing an 8% increase over a year ago.

 

   

Adjusted EBITDA of $6.8 million versus $5.1 million in the prior year quarter, an increase of 32%.

 

   

July 2012 amendment and extension of the Company’s revolving credit facility.

Additional Fiscal 2012 Financial Highlights

 

   

Net sales of $223.6 million, representing a 10% increase from the prior year.

 

   

Adjusted net income of $9.3 million, or $0.91 per diluted share, versus adjusted net income of $6.6 million, or $0.64 per diluted share in the prior year.

 

   

Awarded 40 new business programs, of which 20 were with new customers, during fiscal 2012 with estimated future annualized revenue of $23.8 million.

 

   

Adjusted EBITDA of $16.7 million versus adjusted EBITDA of $12.4 million in the prior year, an increase of 34%.

 

   

Repurchases of common shares during fiscal 2012 totaling $3.0 million or approximately 368,000 shares.

 

Page 2 of 16


Segment Results

Medical Device (“Medical”)

Fourth Quarter Results

Medical sales increased approximately $0.4 million in the three months ended June 30, 2012 as compared to the same quarter last year as growth in existing customer programs and revenue from new business wins outpaced $4.2 million of decreased sales to Siemens due to its dual sourcing decision. Mr. Wood stated, “The revenue growth Medical achieved in the fourth quarter is evidence of our ongoing business development efforts, which have resulted in 12 new business program wins for this business during fiscal 2012.” The gross profit percentage on Medical sales increased to 14.6% for the three months ended June 30, 2012 compared to 13.3% for the three months ended June 30, 2011. The quarter over quarter comparison primarily reflects favorable product mix for the segment as well as increased capacity utilization at the Frederick, Colorado facility, partially offset by decreased capacity utilization at the Strongsville, Ohio facility. Selling and administrative expenses relating to the Medical segment were $1.6 million and $1.5 million for the three months ended June 30, 2012 and 2011, respectively, reflecting increased allocated corporate selling and administrative expenses in the current year quarter, partially offset by cost savings from the consolidation of the Colorado facilities. Medical recognized impairments of goodwill and customer relationship intangibles of $13.2 million and $3.7 million, respectively, in the fiscal 2011 fourth quarter related to the Company’s Ohio Medical business which was acquired in fiscal 2006. Medical reported operating income of $2.4 million for the quarter ended June 30, 2012 compared to an operating loss of $14.9 million in the prior year quarter. Adjusted operating income was $2.4 million for the quarter ended June 30, 2012 compared to operating income of $2.0 million in the prior year quarter.

Fiscal Year Results

Medical sales increased approximately $12.9 million or 13.1% in the year ended June 30, 2012 as compared with the prior year. Excluding the impact of $12.7 million of decreased sales to Siemens Diagnostics due to its dual sourcing decision, and excluding the impact of $10.1 million of fiscal 2011 pre-acquisition sales related to Delphi Medical and Byers Peak, Medical sales increased approximately $15.5 million as compared with the prior year. Included within this net sales increase was a $10.8 million increase in sales related to Fenwal Blood Technologies programs and a $3.6 million negative impact of another customer’s disengagement during fiscal 2011. The adjusted gross profit percentage on Medical sales remained relatively consistent at 13.6% for the year ended June 30, 2012 compared to 13.2% for the prior year. The increase in gross margin on Medical sales resulted primarily from favorable product mix and increased capacity utilization at the Frederick, Colorado facility. Selling and administrative expenses relating to the Medical segment were $6.2 million and $6.0 million for the years ended June 30, 2012 and 2011, respectively, reflecting increased allocated corporate selling and administrative expenses and costs in the current year period relating to changes in operational leadership, partially offset by charges in the prior year period related to a $0.4 million unfavorable arbitration award related to a dispute with a disengaging customer. Medical reported operating income of $8.7 million for the year ended June 30, 2012 compared to an operating loss of $8.0 million in the prior year. Adjusted operating income was $8.5 million in the current year compared to $6.4 million in the prior year.

 

Page 3 of 16


Complex Systems (“CS”)

Fourth Quarter Results

CS sales increased approximately $1.0 million in the three months ended June 30, 2012, reflecting $1.7 million of increased sales to new and existing customers, partially offset by $0.7 million decreased intercompany sales as compared with the same quarter last year. The gross profit percentage on CS sales increased to 15.5% for the three months ended June 30, 2012 compared to 12.3% for the three months ended June 30, 2011. The quarter over quarter comparison primarily reflects favorable product mix and increased capacity utilization, somewhat offset by certain new program start-up costs in the current year quarter. Mr. Wood commented, “While sales mix and volume fluctuations continue to cause our Complex Systems margins to fluctuate on a quarterly basis, I am encouraged with the year-over-year improvement in our gross margin percent. In particular, we have made significant progress in enhancing the contribution from our Vietnam facility. Recently, Vietnam became a U.S. Food and Drug Administration registered facility for its manufacturing processes enabling us for the first time to offer a low cost country solution for our current and future Medical customers.” Selling and administrative expenses relating to the CS segment were $0.6 million for the three months ended June 30, 2012 compared to $0.8 million for the three months ended June 30, 2011, primarily reflecting decreased allocated corporate selling and administrative expenses in the current year quarter. CS reported operating income of $1.8 million for the quarter ended June 30, 2012 compared to operating income of $1.0 million in the prior year quarter.

Fiscal Year Results

CS sales increased approximately $3.8 million or 7.6% in the year ended June 30, 2012 as compared with the prior year. The comparable sales reflect $6.1 million of increased sales to multiple new and existing customers as well as $0.8 million increased intercompany sales, partially offset by $3.1 million reduced demand for two customers’ programs. The gross profit percentage on CS sales increased to 10.7% for the year ended June 30, 2012 compared to 9.7% for the year ended June 30, 2011. The period over period comparison primarily reflects improved capacity utilization at the Company’s Vietnam facility in the current year period and favorable changes in product mix, partially offset by an increase in new program start-up costs in the current year period. Selling and administrative expenses relating to the CS segment were $2.8 million for the year ended June 30, 2012 compared to $3.3 million for the year ended June 30, 2011, primarily reflecting decreased allocated corporate selling and administrative expenses in the current year period. CS reported operating income of $3.0 million for the year ended June 30, 2012 compared to operating income of $1.6 million in the prior year. Adjusted operating income was $3.0 million in the current year compared to $1.5 million in the prior year.

 

Page 4 of 16


Defense & Security Systems (“DSS”)

Fourth Quarter Results

DSS sales decreased approximately $1.6 million in the three months ended June 30, 2012 as compared with the same quarter last year, reflecting decreased U.S. Navy sonobuoy production and legacy digital compass sales, partially offset by increased sonobuoy sales to foreign governments and, to a lesser extent, increased engineering sales revenue in the current year quarter. The gross profit percentage on DSS sales for the three months ended June 30, 2012 was 27.0% compared to 21.5% for the three months ended June 30, 2011. Gross profit percentage was positively affected in the current year quarter by an increase in foreign sonobuoy sales and a favorable mix on those sales, partially offset by the adverse impact from decreased digital compass sales. Mr. Wood said, “As indicated in the past, DSS sales mix can fluctuate dramatically between quarters and within any fiscal year based on the timing of both U.S. Navy contracts and foreign orders. As foreign sales in fiscal 2012 were at unusually high levels, we expect a drop in foreign orders in fiscal 2013, with the majority of those sales being shipped in the second half of the fiscal year.” Selling and administrative expenses relating to the DSS segment remained relatively consistent at $0.9 million for each of the three months ended June 30, 2012 and 2011, respectively. The Company incurred $0.3 million and $0.5 million of internally funded research and development expenses in the three months ended June 30, 2012 and 2011, respectively. DSS reported operating income of $4.4 million for the quarter ended June 30, 2012 compared to operating income of $3.4 million in the prior year quarter.

Fiscal Year Results

DSS sales increased approximately $4.4 million or 6.3% in the year ended June 30, 2012 as compared with the prior year, reflecting increased sonobuoy sales to foreign governments and, to a lesser extent, increased engineering sales revenue, partially offset by decreased U.S. Navy sonobuoy production and digital compass sales in the current year. The gross profit percentage on DSS sales for the year ended June 30, 2012 was 23.6% compared to 22.1% for the year ended June 30, 2011. Gross profit percentage was positively affected in the current fiscal year by a significant increase in foreign sonobuoy sales, partially offset by the adverse impact from decreased digital compass sales and by increased costs resulting from sonobuoy quality improvement activities in the current year period. Selling and administrative expenses relating to the DSS segment were $3.8 million and $3.4 million for the years ended June 30, 2012 and 2011, respectively, reflecting increased business development efforts in the current fiscal period. The Company incurred $1.3 million and $1.1 million of internally funded research and development expenses in the years ended June 30, 2012 and 2011, respectively. DSS reported operating income of $12.4 million for the year ended June 30, 2012 compared to operating income of $10.9 million in the prior year.

 

Page 5 of 16


Liquidity and Capital Resources

As of June 30, 2012, the Company had approximately $47.0 million in cash and cash equivalents, including $25.8 million of advance billings received under U.S. Navy contracts in excess of the funding of production to date under those contracts. The Company had no outstanding borrowings against available funds on its $20 million revolving credit facility. The credit facility is subject to certain customary covenants with which the Company was in compliance at June 30, 2012. On July 20, 2012, the maturity date of the credit facility was extended to August 13, 2015 and the terms of the agreement were amended to reduce the interest rates on domestic and Eurodollar rate based loans, reduce unused line fees, eliminate any prepayment fee and lessen the restriction on annual capital expenditures. Mr. Wood commented, “We are pleased to continue our relationship with PNC Bank, National Association. The facility extension, with its amended market based terms, provides Sparton with needed flexibility as we look to execute on our growth initiatives.”

Outlook

Sparton President and CEO Cary Wood concluded, “Overall, we continue to make improvements on every front and I am proud of our team for driving better operating metrics across the organization. Our five-year strategic growth plan has provided measured in-roads to success. The progress we have made should provide for year-over-year increases in revenue and profitability with the second half of fiscal 2013 being stronger than the first half as experienced in the previous two fiscal years. We expect to continue to gain traction on our direct selling effort and quest for new opportunities with new prospects as well as current customers. Additionally, we expect to maintain our level of investment in internal research and development to commercially extend our product lines further by enabling our engineering workforce to develop new and innovative proprietary solutions for our end markets. Finally, we recognize that in order to achieve our vision of a $500 million revenue business by 2015, the majority of our growth will have to come from acquisitions and we will continue to seek out appropriate transactions that result in advancing our strategic growth plan while positively influencing shareholder value.”

Conference Call

Sparton will host a conference call with investors and analysts on September 6, 2012 at 10:00 a.m. CDT to discuss its fiscal year 2012 fourth quarter and fiscal year financial results, provide a general business update, and respond to investor questions. To participate, callers should dial (800) 624-1671. Participants should dial in at least 15 minutes prior to the start of the call. A Web presentation link is also available for the conference call: https://www.livemeeting.com/cc/gc_min_pro_usa/join?id=ZBCH7B&role=attend. Investors and financial analysts are invited to ask questions after the presentation is made. The presentation and a replay of the call will be available on Sparton’s Web site: http://www.sparton.com in the “Investor Relations” section for up to two years after the conference call.

 

Page 6 of 16


Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), Sparton Corporation has provided non-GAAP financial measures as additional information for its operating results. These measures have not been prepared in accordance with GAAP and may be different from measures used by other companies. Whenever we use non-GAAP financial measures, we designate these measures, which exclude the effect of certain expenses and income, as “adjusted” and provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. The non-GAAP financial measures eliminate or add certain items of expense and income from cost of goods sold, total operating expense, other income (expense) and provision for (benefit from) income taxes. Management believes that this presentation is helpful to investors in evaluating the current operational and financial performance of our business and facilitates comparisons to historical results of operations. Management discloses this information along with a reconciliation of the comparable GAAP amounts to provide access to the detail and nature of adjustments made to GAAP financial results. While some of these excluded items have been periodically reported in our statements of operations, including significant restructuring and impairment charges as well as certain gains on sales of assets, their occurrence in future periods depends on future business and economic factors, among other evaluation criteria, and the occurrence of such events and factors may frequently be beyond the control of management.

We exclude restructuring/impairment charges, gain on acquisition and the related subsequent gross margin effect of an inventory contingency settlement, gain on sale of property, plant and equipment, net, impairment of intangible asset, impairment of goodwill and gain on sale of investment as well as the related tax effect of these items because we believe that they are not related directly to the underlying performance of our fundamental business operations. We exclude these measures when reviewing financial results and for business planning. Although these events are reflected in our GAAP financials, these transactions may limit the comparability of our fundamental operations with prior and future periods.

In fiscal year 2011, we calculated a separate provision for income taxes for GAAP and non-GAAP purposes. For non-GAAP purposes we used a 36% effective tax rate, which represented the estimated effective tax rate on non-GAAP pretax income for that period.

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization as adjusted for restructuring/impairment charges, gain on acquisition and the related subsequent gross margin effect of an inventory contingency settlement, gain on sale of property, plant and equipment, net, impairment of intangible asset, impairment of goodwill and gain on sale of investment.

About Sparton Corporation

Sparton Corporation (NYSE:SPA), now in its 112th year, is a provider of complex and sophisticated electromechanical devices with capabilities that include concept development, industrial design, design and manufacturing engineering, production, distribution, field service, and refurbishment. The primary markets served are Medical, Military & Aerospace, and Industrial & Instrumentation. Headquartered in Schaumburg, IL, Sparton currently has five manufacturing locations worldwide. Sparton’s Web site may be accessed at http://www.sparton.com.

Safe Harbor and Fair Disclosure Statement

Certain statements described in this press release are forward-looking statements within the scope of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “will” or “intend” and similar words or expressions. These forward-looking statements reflect Sparton’s current views with respect to future events and are based on currently available financial, economic and competitive data and its current business plans. Actual results could vary materially depending on risks and uncertainties that may affect Sparton’s operations, markets, prices and other factors. Important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, Sparton’s financial performance and the implementations and results of its ongoing strategic initiatives. For a more detailed discussion of these and other risk factors, see Part I, Item 1A, Risk Factors and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Sparton’s Form 10-K for the year ended June 30, 2012, and its other filings with the Securities and Exchange Commission. Sparton undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

Page 7 of 16


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)(a)

(Dollars in thousands, except per share amounts)

 

     June 30,
2012
    June 30,
2011
 

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 46,950      $ 24,550   

Accounts receivable, net of allowance for doubtful accounts of $146 and $65, respectively

     29,618        23,896   

Inventories and cost of contracts in progress, net

     35,102        38,752   

Deferred income taxes

     2,020        4,417   

Prepaid expenses and other current assets

     2,054        1,796   
  

 

 

   

 

 

 

Total current assets

     115,744        93,411   

Property, plant and equipment, net

     14,260        11,395   

Goodwill

     7,472        7,472   

Other intangible assets, net

     1,618        2,053   

Deferred income taxes — non-current

     5,136        5,740   

Other non-current assets

     325        2,538   
  

 

 

   

 

 

 

Total assets

   $ 144,555      $ 122,609   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current Liabilities:

    

Current portion of long-term debt

   $ 131      $ 126   

Accounts payable

     17,152        16,608   

Accrued salaries and wages

     5,855        5,626   

Accrued health benefits

     1,210        980   

Current portion of pension liability

     323        306   

Advance billings on customer contracts

     25,836        13,021   

Other accrued expenses

     5,890        5,421   
  

 

 

   

 

 

 

Total current liabilities

     56,397        42,088   

Pension liability — non-current portion

     990        41   

Long-term debt — non-current portion

     1,538        1,670   

Environmental remediation — non-current portion

     3,142        3,763   
  

 

 

   

 

 

 

Total liabilities

     62,067        47,562   
  

 

 

   

 

 

 

Commitments and contingencies

    

Shareholders’ Equity:

    

Preferred stock, no par value; 200,000 shares authorized; none issued

     —          —     

Common stock, $1.25 par value; 15,000,000 shares authorized, 10,105,759 and 10,236,484 shares issued and outstanding, respectively

     12,632        12,796   

Capital in excess of par value

     19,579        20,635   

Retained earnings

     51,995        42,487   

Accumulated other comprehensive loss

     (1,718 )     (871 )
  

 

 

   

 

 

 

Total shareholders’ equity

     82,488        75,047   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 144,555      $ 122,609   
  

 

 

   

 

 

 

 

(a) Derived from the Company’s audited financial statements as of June 30, 2012 and 2011.

 

Page 8 of 16


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Dollars in thousands, except per share amounts)

 

     For the Quarter Ended     For the Year Ended  
     June 30,
2012
    June 30,
2011
    June 30,
2012 (a)
    June 30,
2011 (a)
 

Net sales

   $ 61,326      $ 60,902      $ 223,577      $ 203,352   

Cost of goods sold

     49,065        50,509        185,075        170,184   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     12,261        10,393        38,502        33,168   

Operating expense:

        

Selling and administrative expenses

     5,777        5,176        22,232        20,842   

Internal research and development expenses

     330        546        1,293        1,110   

Amortization of intangible assets

     105        198        435        545   

Restructuring/impairment charges

     (9 )     (2 )     (68 )     75   

Gain on acquisition

     —          —          —          (2,550 )

Gain on sale of property, plant and equipment, net

     —          —          —          (139 )

Impairment of intangible asset

     —          3,663        —          3,663   

Impairment of goodwill

     —          13,153        —          13,153   

Other operating expenses

     (9 )     2        65        298   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     6,194        22,736        23,957        36,997   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     6,067        (12,343 )     14,545        (3,829 )

Other income (expense):

        

Interest expense

     (174 )     (177 )     (696 )     (706 )

Interest income

     21        33        94        151   

Gain on sale of investment

     —          —          127        —     

Other, net

     170        141        516        441   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     17        (3 )     41        (114 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for (benefit from) income taxes

     6,084        (12,346 )     14,586        (3,943 )

Provision for (benefit from) income taxes

     2,032        (11,619 )     5,078        (11,404 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 4,052      $ (727 )   $ 9,508      $ 7,461   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) per share of common stock:

        

Basic

   $ 0.40      $ (0.07 )   $ 0.93      $ 0.73   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.40      $ (0.07 )   $ 0.93      $ 0.73   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock outstanding:

        

Basic

     10,082,712        10,236,484        10,174,176        10,217,494   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     10,109,505        10,287,479        10,208,810        10,255,368   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Derived from the Company’s audited financial statements for the years ended June 30, 2012 and 2011.

 

Page 9 of 16


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) (a)

(Dollars in thousands)

 

     For The Years Ended June 30,  
     2012     2011  

Cash Flows from Operating Activities:

    

Net income

   $ 9,508      $ 7,461   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     1,814        1,611   

Deferred income tax expense (benefit)

     3,703        (11,276 )

Pension (income) expense

     (100 )     372   

Stock-based compensation expense

     943        646   

Gain on acquisition

     —          (2,550

Gain on sale of property, plant and equipment, net

     —          (139 )

Gain on sale of investment

     (127     —     

Impairment of intangible asset

     —          3,663   

Impairment of goodwill

     —          13,153   

Excess tax benefit from stock-based compensation

     (376     (145

Other

     348        348   

Changes in operating assets and liabilities, net of business acquisitions:

    

Accounts receivable

     (5,722 )     (4,595 )

Income taxes receivable

     9        (9 )

Inventories and cost of contracts in progress

     3,650        77   

Prepaid expenses and other assets

     (99 )     140   

Advance billings on customer contracts

     12,815        (8,574 )

Accounts payable and accrued expenses

     551        2,273   
  

 

 

   

 

 

 

Net cash provided by operating activities

     26,917        2,456   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Purchase of certain assets of Delphi Medical

     —          (8,419

Purchase of certain assets of Byers Peak

     —          (4,140

Change in restricted cash

     —          3,162   

Purchases of property, plant and equipment

     (4,244 )     (3,177 )

Proceeds from sale of property, plant and equipment

     275        4,039   

Proceeds from sale of investment

     1,750        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,219 )     (8,535 )
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Repayments of long-term debt

     (135 )     (130 )

Repurchase of stock

     (2,997 )     —     

Proceeds from the exercise of stock options

     458        25   

Excess tax benefit from stock-based compensation

     376        145   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (2,298     40   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     22,400        (6,039 )

Cash and cash equivalents at beginning of year

     24,550        30,589   
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 46,950      $ 24,550   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 350      $ 365   
  

 

 

   

 

 

 

Cash paid (received) for income taxes

   $ 1,244      $ (94 )
  

 

 

   

 

 

 

 

(a) Derived from the Company’s audited financial statements for the years ended June 30, 2012 and 2011.

 

Page 10 of 16


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED) (a)

(Dollars in thousands)

 

     Common Stock     Capital
In Excess of
    Retained      Accumulated
Other
Comprehensive
    Total
Shareholders’
 
     Shares     Amount     Par Value     Earnings      Loss     Equity  

Balance at June 30, 2010

     10,200,534      $ 12,751      $ 19,864      $ 35,026       $ (3,372 )   $ 64,269   

Issuance of stock

     30,950        39        (39 )     —           —          —     

Exercise of stock options

     5,000        6        19        —           —          25   

Stock-based compensation expense

     —          —          646        —           —          646   

Excess tax benefit from stock-based compensation

     —          —          145        —           —          145   

Comprehensive income, net of tax:

             

Net income

     —          —          —          7,461         —          7,461   

Change in unrecognized pension costs

     —          —          —          —           2,501        2,501   
             

 

 

 

Comprehensive income

                9,962   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at June 30, 2011

     10,236,484        12,796        20,635        42,487         (871 )     75,047   

Issuance of stock

     160,641        201        (201     —           —          —     

Forfeiture of restricted stock

     (13,290     (17     17        —           —          —     

Repurchase of stock

     (368,068     (460     (2,537     —           —          (2,997

Exercise of stock options, net of common stock surrendered to facilitate exercise

     89,992        112        346        —           —          458   

Stock-based compensation expense

     —          —          943        —           —          943   

Excess tax benefit from stock-based compensation

     —          —          376        —           —          376   

Comprehensive income, net of tax:

             

Net income

     —          —          —          9,508         —          9,508   

Change in unrecognized pension costs

     —          —          —          —           (847 )     (847 )
             

 

 

 

Comprehensive income

                8,661   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at June 30, 2012

     10,105,759      $ 12,632      $ 19,579      $ 51,995       $ (1,718 )   $ 82,488   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) Derived from the Company’s audited financial statements for the years ended June 30, 2012 and 2011.

 

Page 11 of 16


SPARTON CORPORATION AND SUBSIDIARIES

SELECT SEGMENT INFORMATION

(UNAUDITED)

(Dollars in thousands)

Sales:

 

     For the Quarter Ended June 30,     For the Year Ended June 30,  

SEGMENT

   2012     2011     % Chg     2012     2011     % Chg  

Medical

   $ 28,361      $ 27,956        1.4 %   $ 110,894      $ 98,028        13.1 %

CS

     15,688        14,704        6.7        53,609        49,835        7.6   

DSS

     20,976        22,594        (7.2     74,102        69,720        6.3   

Eliminations

     (3,699 )     (4,352 )     (15.0     (15,028 )     (14,231 )     5.6   
  

 

 

   

 

 

     

 

 

   

 

 

   

Totals

   $ 61,326      $ 60,902        0.7      $ 223,577      $ 203,352        9.9   
  

 

 

   

 

 

     

 

 

   

 

 

   

Gross profit:

 

     For the Quarter Ended June 30,     For the Year Ended June 30,  

SEGMENT

   2012      GP %     2011      GP %     2012      GP %     2011      GP %  

Medical

   $ 4,152         14.6 %   $ 3,727         13.3 %   $ 15,242         13.7 %   $ 12,938         13.2 %

CS

     2,435         15.5        1,815         12.3        5,762         10.7        4,835         9.7   

DSS

     5,674         27.0        4,851         21.5        17,498         23.6        15,395         22.1   
  

 

 

      

 

 

      

 

 

      

 

 

    

Totals

   $ 12,261         20.0      $ 10,393         17.1      $ 38,502         17.2      $ 33,168         16.3   
  

 

 

      

 

 

      

 

 

      

 

 

    

Adjusted gross profit:

 

     For the Quarter Ended June 30,     For the Year Ended June 30,  

SEGMENT

   2012      GP %     2011      GP %     2012      GP %     2011      GP %  

Medical

   $ 4,152         14.6 %   $ 3,727         13.3 %   $ 15,136         13.6 %   $ 12,938         13.2 %

CS

     2,435         15.5        1,815         12.3        5,762         10.7        4,835         9.7   

DSS

     5,674         27.0        4,851         21.5        17,498         23.6        15,395         22.1   
  

 

 

      

 

 

      

 

 

      

 

 

    

Totals

   $ 12,261         20.0      $ 10,393         17.1      $ 38,396         17.2      $ 33,168         16.3   
  

 

 

      

 

 

      

 

 

      

 

 

    

Operating income (loss):

 

     For the Quarter Ended June 30,     For the Year Ended June 30,  

SEGMENT

   2012     % of
Sales
    2011     % of
Sales
    2012     % of
Sales
    2011     % of
Sales
 

Medical

   $ 2,431        8.6   $ (14,852 )     (53.1 )%    $ 8,685        7.8   $ (8,011 )     (8.2 )% 

CS

     1,798        11.5        1,027        7.0        2,985        5.6        1,586        3.2   

DSS

     4,434        21.1        3,410        15.1        12,415        16.8        10,869        15.6   

Other Unallocated

     (2,596 )     —          (1,928 )     —          (9,540 )     —          (8,273 )     —     
  

 

 

     

 

 

     

 

 

     

 

 

   

Totals

   $ 6,067        9.9      $ (12,343     (20.3   $ 14,545        6.5      $ (3,829     (1.9
  

 

 

     

 

 

     

 

 

     

 

 

   

Adjusted operating income (loss):

 

     For the Quarter Ended June 30,     For the Year Ended June 30,  

SEGMENT

   2012     % of
Sales
    2011     % of
Sales
    2012     % of
Sales
    2011     % of
Sales
 

Medical

   $ 2,431        8.6 %   $ 1,994        7.1 %   $ 8,549        7.7 %   $ 6,362        6.5 %

CS

     1,798        11.5        1,005        6.8        2,985        5.6        1,546        3.1   

DSS

     4,434        21.1        3,410        15.1        12,415        16.8        10,869        15.6   

Other Unallocated

     (2,605 )     —          (1,938 )     —          (9,578 )     —          (8,404 )     —     
  

 

 

     

 

 

     

 

 

     

 

 

   

Totals

   $ 6,058        9.9      $ 4,471        7.3      $ 14,371        6.4      $ 10,373        5.1   
  

 

 

     

 

 

     

 

 

     

 

 

   

 

Page 12 of 16


SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in thousands, except per share amounts)

 

     For the Quarter Ended June 30, 2012     For the Quarter Ended June 30, 2011  
     GAAP     Non-GAAP
Adjustments
    Adjusted     GAAP     Non-GAAP
Adjustments
    Adjusted  

Net sales

   $ 61,326      $ —        $ 61,326      $ 60,902      $ —        $ 60,902   

Cost of goods sold

     49,065        —          49,065        50,509        —          50,509   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     12,261        —          12,261        10,393        —          10,393   

Operating expense:

            

Selling and administrative expenses

     5,777        —          5,777        5,176        —          5,176   

Internal research and development expenses

     330        —          330        546        —          546   

Amortization of intangible assets

     105        —          105        198        —          198   

Restructuring/impairment charges

     (9     9        —          (2     2        —     

Impairment of intangible asset

     —          —          —          3,663        (3,663     —     

Impairment of goodwill

     —          —          —          13,153        (13,153     —     

Other operating expenses

     (9 )     —          (9 )     2        —          2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense, net

     6,194        9        6,203        22,736        (16,814 )     5,922   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     6,067        (9 )     6,058        (12,343 )     16,814        4,471   

Other income (expense):

            

Interest expense

     (174 )     —          (174 )     (177 )     —          (177 )

Interest income

     21        —          21        33        —          33   

Other, net

     170        —          170        141        —          141   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     17        —          17        (3 )     —          (3 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for (benefit from) income taxes

     6,084        (9     6,075        (12,346 )     16,814        4,468   

Provision for (benefit from) income taxes

     2,032        —          2,032        (11,619     13,227        1,608   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 4,052      $ (9   $ 4,043      $ (727 )   $ 3,587      $ 2,860   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) per share of common stock:

            

Basic

   $ 0.40        $ 0.40      $ (0.07 )     $ 0.28   
  

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

   $ 0.40        $ 0.40      $ (0.07 )     $ 0.28   
  

 

 

     

 

 

   

 

 

     

 

 

 

Weighted average shares of common stock outstanding:

            

Basic

     10,082,712          10,082,712        10,236,484          10,236,484   
  

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

     10,109,505          10,109,505        10,287,479          10,287,479   
  

 

 

     

 

 

   

 

 

     

 

 

 

 

Page 13 of 16


SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in thousands, except per share amounts)

 

    For the Year Ended June 30, 2012     For the Year Ended June 30, 2011  
    GAAP     Non-GAAP
Adjustments
    Adjusted     GAAP     Non-GAAP
Adjustments
    Adjusted  

Net sales

  $ 223,577      $ —        $ 223,577      $ 203,352      $ —        $ 203,352   

Cost of goods sold

    185,075        106        185,181        170,184        —          170,184   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    38,502        (106 )     38,396        33,168        —          33,168   

Operating expense:

           

Selling and administrative expenses

    22,232        —          22,232        20,842        —          20,842   

Internal research and development expenses

    1,293        —          1,293        1,110        —          1,110   

Amortization of intangible assets

    435        —          435        545        —          545   

Restructuring/impairment charges

    (68     68        —          75        (75     —     

Gain on acquisition

    —          —          —          (2,550     2,550        —     

Gain on sale of property, plant and equipment, net

    —          —          —          (139     139        —     

Impairment of intangible asset

    —          —          —          3,663        (3,663     —     

Impairment of goodwill

    —          —          —          13,153        (13,153     —     

Other operating expenses

    65        —          65        298        —          298   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense, net

    23,957        68        24,025        36,997        (14,202 )     22,795   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    14,545        (174 )     14,371        (3,829 )     14,202        10,373   

Other income (expense):

           

Interest expense

    (696 )     —          (696 )     (706 )     —          (706 )

Interest income

    94        —          94        151        —          151   

Gain on sale of investment

    127        (127     —          —          —          —     

Other, net

    516        —          516        441        —          441   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    41        (127     (86     (114 )     —          (114 )
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for (benefit from) income taxes

    14,586        (301     14,285        (3,943 )     14,202        10,259   

Provision for (benefit from) income taxes

    5,078        (105     4,973        (11,404     15,097        3,693   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 9,508      $ (196   $ 9,312      $ 7,461      $ (895 )   $ 6,566   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income per share of common stock:

           

Basic

  $ 0.93        $ 0.92      $ 0.73        $ 0.64   
 

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

  $ 0.93        $ 0.91      $ 0.73        $ 0.64   
 

 

 

     

 

 

   

 

 

     

 

 

 

Weighted average shares of common stock outstanding:

           

Basic

    10,174,176          10,174,176        10,217,494          10,217,494   
 

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

    10,208,810          10,208,810        10,255,368          10,255,368   
 

 

 

     

 

 

   

 

 

     

 

 

 

 

Page 14 of 16


SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in thousands)

 

     For the Quarter Ended     For the Year Ended  
     June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011  

Net income (loss)

   $ 4,052     $ (727 )   $ 9,508      $ 7,461   

Interest expense

     174        177        696        706   

Interest income

     (21     (33     (94     (151

Provision for (benefit from) income taxes

     2,032        (11,619     5,078        (11,404

Depreciation and amortization

     542        535        1,814        1,611   

Gross profit effect of acquisition contingency settlement

     —          —          (106     —     

Restructuring/impairment charges

     (9     (2     (68     75   

Gain on acquisition

     —          —          —          (2,550

Gain on sale of property, plant and equipment, net

     —          —          —          (139

Impairment of intangible asset

     —          3,663        —          3,663   

Impairment of goodwill

     —          13,153        —          13,153   

Gain on sale of investment

     —          —          (127     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 6,770      $ 5,147      $ 16,701      $ 12,425   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the Year Ended June 30, 2012  
     Medical     CS      DSS      Corporate
and Other
Unallocated
     Total  

Gross profit

   $ 15,242      $ 5,762       $ 17,498       $ —         $ 38,502   

Gross profit effect of acquisition contingency settlement

     (106     —           —           —           (106
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted gross profit

   $ 15,136      $ 5,762       $ 17,498       $ —         $ 38,396   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 15 of 16


SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in thousands)

 

     For the Quarter Ended June 30, 2012  
     Medical      CS      DSS      Corporate
and Other
Unallocated
    Total  

Operating income (loss)

   $ 2,431       $ 1,798       $ 4,434       $ (2,596 )   $ 6,067   

Restructuring/impairment charges

     —           —           —           (9 )     (9 )
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted operating income (loss)

   $ 2,431       $ 1,798       $ 4,434       $ (2,605 )   $ 6,058   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Depreciation/amortization (a)

   $ 179       $ 171       $ 158       $ 34      $ 542   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     For the Quarter Ended June 30, 2011  
     Medical     CS     DSS      Corporate
and Other
Unallocated
    Total  

Operating income (loss)

   $ (14,852 )   $ 1,027      $ 3,410       $ (1,928 )   $ (12,343

Restructuring/impairment charges

     30        (22     —           (10     (2

Impairment of intangible asset

     3,663        —          —           —          3,663   

Impairment of goodwill

     13,153        —          —           —          13,153   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted operating income (loss)

   $ 1,994      $ 1,005      $ 3,410       $ (1,938 )   $ 4,471   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation/amortization (a)

   $ 262      $ 151      $ 104       $ 18      $ 535   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     For the Year Ended June 30, 2012  
     Medical     CS      DSS      Corporate
and Other
Unallocated
    Total  

Operating income (loss)

   $ 8,685      $ 2,985       $ 12,415       $ (9,540 )   $ 14,545   

Restructuring/impairment charges

     (30 )     —           —           (38     (68

Gross profit effect of acquisition contingency settlement

     (106     —           —           —          (106
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted operating income (loss)

   $ 8,549      $ 2,985       $ 12,415       $ (9,578 )   $ 14,371   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Depreciation/amortization (a)

   $ 704      $ 565       $ 461       $ 84      $ 1,814   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     For the Year Ended June 30, 2011  
     Medical     CS     DSS      Corporate
and Other
Unallocated
    Total  

Operating income (loss)

   $ (8,011 )   $ 1,586      $ 10,869       $ (8,273 )   $ (3,829

Restructuring/impairment charges

     107        (22     —           (10     75   

Gain on acquisition

     (2,550     —          —           —          (2,550

Gain on sale of property, plant and equipment, net

     —          (18 )     —           (121     (139 )

Impairment of intangible asset

     3,663        —          —           —          3,663   

Impairment of goodwill

     13,153        —          —           —          13,153   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted operating income (loss)

   $ 6,362      $ 1,546      $ 10,869       $ (8,404 )   $ 10,373   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation/amortization (a)

   $ 793      $ 498      $ 249       $ 71      $ 1,611   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) While not a reconciling item between GAAP and non-GAAP operating income, depreciation/amortization is provided here for additional investor information purposes.

 

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