EX-99.1 2 d433281dex991.htm PRESS RELEASE Press Release

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 $0.09 EPS for Fiscal 2013 First Quarter

SCHAUMBURG, IL. — November 6, 2012 — Sparton Corporation (NYSE: SPA) today announced results for the first quarter of fiscal 2013 ended September 30, 2012. The Company reported first quarter sales of $49.0 million, or a decrease of 5.4 %, from $51.8 million for the first quarter of fiscal 2012. Reported net income for the first quarter of fiscal 2013 was $1.0 million or $0.09 per share, compared to net income of $1.5 million, or $0.15 per share, in the same quarter a year ago.

Cary Wood, president & CEO, commented, “While consolidated revenue and earnings declined in comparison to the prior year quarter, this decrease is due to the timing of U.S. Navy lot deliveries from our DSS business as well as a shift of known demand within our CS segment from the first fiscal quarter into the remainder of fiscal 2013. We continue to be optimistic with the outlook for both the second quarter and the remainder of the fiscal year.”

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

 

     For the Three Months
Ended September 30,
 

($ in 000’s, except per share)

   2012      2011  

Net sales

   $ 49,020       $ 51,833   

Gross profit

     7,213         8,344   

Operating income

     1,344         2,389   

Net income

     953         1,509   

Income per share – basic and diluted

     0.09         0.15   

EBITDA

     1,933         2,911   

First Quarter Financial Highlights

 

  Awarded 14 new business programs during the first quarter of fiscal 2013 with estimated future annualized revenue $13.4 million.

 

  Quarter end sales backlog of approximately $156.1 million, representing a 6% increase over the previous quarter and a 7% increase over a year ago.

 

  Medical business continued sales growth of 2.2% and gross profit percentage improvement to 14.9% compared to 13.2% in the prior year quarter.

 

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

 

Page 1 of 11


Segment Results

Medical Device (“Medical”)

Medical sales increased approximately $0.6 million in the three months ended September 30, 2012 as compared with the same quarter last year. Reflected within the increase is $3.2 million of increased sales to this business unit’s largest customer, reflecting expanded demand for its programs and additional refurbishment service revenue which began in the second half of fiscal 2012. Additionally reflected is $1.4 million of increased sales to another customer to meet increased demand for its product in both the U.S. and Japan. Partially offsetting these increases were decreased sales to three customers totaling $4.0 million dollars. Decreased sales to one customer reflect the dual sourcing of certain of its programs with the Company during fiscal 2012. Decreased sales to the remaining two customers reflect these customers’ disengagements during fiscal 2012. Mr. Wood stated, “Medical won three new projects from existing customers during the first quarter with estimated future annualized revenue $3.4 million.”

The gross profit percentage on Medical sales increased to 14.9% from 13.2% for the three months ended September 30, 2012 and 2011, respectively. This improvement in margin on Medical sales reflects certain favorable product mix between the two periods and increased capacity utilization at the Strongsville, Ohio facility. Mr. Wood continued, “Medical’s gross margin improvement is indicative of the replacement of less profitable programs in the prior period with more profitable sales from newer programs.”

Selling and administrative expenses relating to the Medical segment were $1.5 million and $1.6 million for the three months ended September 30, 2012 and 2011, respectively. Medical reported operating income of $2.6 million for the quarter ended September 30, 2012 compared to operating income of $1.9 million in the prior year quarter.

Complex Systems (“CS”)

Excluding an increase in intercompany sales of $1.1 million, CS sales to external customers for the three months ended September 30, 2012 decreased $1.3 million as compared with the same quarter last year, primarily reflecting decreased sales to one customer, which delayed certain of its orders into future quarters. Mr. Wood commented, “Complex Systems won five new programs from existing customers during the first quarter with estimated future annualized revenue $1.7 million and finished the quarter with its highest backlog in three years at $37.3 million. Additionally, this business segment has begun to apply the successful business development model and business to business marketing approach recently developed by our Medical business to its own sales efforts. These new program awards, backlog and business development methodologies should help drive revenue growth for this business in the second half of fiscal 2013 and well into the future.”

The gross profit percentage on CS sales increased to 8.9% for the three months ended September 30, 2012 compared to 8.7% for the three months ended September 30, 2011. The quarter over quarter comparison primarily reflects favorable product mix, partially offset by lower capacity utilization at the Company’s Vietnam facility in the current year quarter.

Selling and administrative expenses relating to the CS segment remained consistent at $0.7 million for each of the three months ended September 30, 2012 and 2011, respectively. CS reported operating income of $0.4 million for the quarter ended September 30, 2012 compared to operating income of $0.3 million in the prior year quarter.

 

Page 2 of 11


Defense & Security Systems (“DSS”)

DSS sales decreased approximately $2.1 million in the three months ended September 30, 2012 as compared with the same quarter last year, reflecting decreased sonobuoy sales to foreign governments which can fluctuate from quarter to quarter, partially offset by increased U.S. Navy sonobuoy production and engineering sales and increased digital compass sales in the current year quarter. Mr. Wood said, “While we anticipated sonobuoy sales to foreign governments would be minimal this quarter, we expected our U.S. Navy sonobuoy sales to be higher than was achieved. The Company had two sonobuoy lots fail under suboptimal environmental conditions which were outside of the product’s design specifications at the Navy test range in the final weeks of September 2012. While these lot failures unfavorably impacted current year first quarter revenues by approximately $3.5 million, it is anticipated that these lots will be accepted by the Navy in the Company’s fiscal 2013 second quarter with revenues being recognized at that time.”

The gross profit percentage on DSS sales decreased to 14.6% for the three months ended September 30, 2012 compared to 23.8% for the three months ended September 30, 2011. Gross profit percentage was unfavorably affected in the current year quarter by a significant decrease in foreign sonobuoy sales and increased overhead expenses, partially offset by the positive impact from increased digital compass sales as compared to the prior year quarter. Mr. Wood continued, “Fluctuations in foreign sonobuoy sales can have a significant impact on our gross profit percentage as was demonstrated this past quarter. Foreign orders totaling $8.2 million were received during the first quarter which we expect to ship during fiscal 2013.”

Selling and administrative expenses relating to the DSS segment were $1.1 million and $1.0 million for the three months ended September 30, 2012 and 2011, respectively, primarily reflecting increased business development efforts in the current fiscal quarter. The Company incurred $0.3 million and $0.4 million of internally funded research and development expenses in the three months ended September 30, 2012 and 2011, respectively. DSS reported operating income of $0.5 million for the quarter ended September 30, 2012 compared to operating income of $2.2 million in the prior year quarter.

Liquidity and Capital Resources

As of September 30, 2012, the Company had approximately $43.1 million in cash and cash equivalents, including $23.3 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 September 30, 2012.

Outlook

Sparton President and CEO Cary Wood concluded, “We remain optimistic for fiscal 2013 and continue to expect year-over-year increases in both revenue and profitability. Also, we maintain guidance that the second half of fiscal 2013 will be stronger than the first half as seen in the previous two fiscal years. As stated in the form 10-Q, we have just recently signed a definitive Unit Purchase Agreement to acquire Onyx EMS, with details being covered under a separate release. We are excited with the addition of Onyx to the Sparton family and I look forward to reporting on its successful integration and the progress with our other growth initiatives in the future.”

Conference Call

Sparton will host a conference call with investors and analysts on November 7, 2012 at 10:00 a.m. CDT to discuss its fiscal year 2013 first quarter financial results, provide a general business update, and respond to investor questions. To participate, callers should dial (800) 407-3269. 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=Z3M3WC&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 3 of 11


Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), Sparton Corporation has provided a non-GAAP financial measure, EBITDA. EBITDA represents earnings before interest, taxes, depreciation and amortization. The Company believes EBITDA is commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors. The Company does not intend, nor should the reader consider, EBITDA an alternative to net income, net cash provided by operating activities or any other items calculated in accordance with GAAP. The Company’s definition of EBITDA may not be comparable with EBITDA as defined by other companies. Accordingly, the measurement has limitations depending on its use.

About Sparton Corporation

Sparton Corporation (NYSE:SPA), now in its 113th year, is a provider of complex and sophisticated electromechanical devices with capabilities that include concept development, industrial design, design and manufacturing engineering, production, distribution, and field service. The primary market classifications served are Navigation & Exploration, Defense & Security, Medical, and Complex Systems. 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 4 of 11


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share amounts)

 

     September 30,
2012
    June 30,
2012 (a)
 

Assets

  

Current Assets:

    

Cash and cash equivalents

   $ 43,096      $ 46,950   

Accounts receivable, net of allowance for doubtful accounts of $105 and $146, respectively

     25,772        29,618   

Inventories and cost of contracts in progress, net

     38,467        35,102   

Deferred income taxes

     2,020        2,020   

Prepaid expenses and other current assets

     2,042        2,054   
  

 

 

   

 

 

 

Total current assets

     111,397        115,744   

Property, plant and equipment, net

     14,939        14,260   

Goodwill

     7,472        7,472   

Other intangible assets, net

     1,517        1,618   

Deferred income taxes — non-current

     5,067        5,136   

Other non-current assets

     295        325   
  

 

 

   

 

 

 

Total assets

   $ 140,687      $ 144,555   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current Liabilities:

    

Current portion of long-term debt

   $ 131      $ 131   

Accounts payable

     16,034        17,152   

Accrued salaries and wages

     4,727        5,855   

Accrued health benefits

     1,236        1,210   

Current portion of pension liability

     158        323   

Advance billings on customer contracts

     23,338        25,836   

Other accrued expenses

     5,864        5,890   
  

 

 

   

 

 

 

Total current liabilities

     51,488        56,397   

Pension liability — non-current portion

     1,055        990   

Long-term debt — non-current portion

     1,506        1,538   

Environmental remediation — non-current portion

     3,060        3,142   
  

 

 

   

 

 

 

Total liabilities

     57,109        62,067   

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, 10,233,270 and 10,105,759 shares issued and outstanding, respectively

     12,792        12,632   

Capital in excess of par value

     19,534        19,579   

Retained earnings

     52,948        51,995   

Accumulated other comprehensive loss

     (1,696 )     (1,718 )
  

 

 

   

 

 

 

Total shareholders’ equity

     83,578        82,488   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 140,687      $ 144,555   
  

 

 

   

 

 

 

 

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

 

Page 5 of 11


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Dollars in thousands, except share data)

 

     For the Three Months Ended  
     September 30,
2012
    September 30,
2011
 

Net sales

   $ 49,020      $ 51,833   

Cost of goods sold

     41,807        43,489   
  

 

 

   

 

 

 

Gross profit

     7,213        8,344   

Operating Expense (Income):

    

Selling and administrative expenses

     5,472        5,411   

Internal research and development expenses

     305        398   

Amortization of intangible assets

     102        111   

Other operating expenses

     (10     35   
  

 

 

   

 

 

 

Total operating expense, net

     5,869        5,955   
  

 

 

   

 

 

 

Operating income

     1,344        2,389   

Other income (expense)

    

Interest expense

     (81 )     (172 )

Interest income

     28        24   

Other, net

     110        117   
  

 

 

   

 

 

 

Total other income (expense), net

     57        (31 )
  

 

 

   

 

 

 

Income before provision for income taxes

     1,401        2,358   

Provision for income taxes

     448        849   
  

 

 

   

 

 

 

Net income

   $ 953      $ 1,509   
  

 

 

   

 

 

 

Income per share of common stock:

    

Basic

   $ 0.09      $ 0.15   
  

 

 

   

 

 

 

Diluted

   $ 0.09      $ 0.15   
  

 

 

   

 

 

 

Weighted average shares of common stock outstanding:

    

Basic

     10,141,612        10,268,456   
  

 

 

   

 

 

 

Diluted

     10,163,151        10,313,481   
  

 

 

   

 

 

 

 

Page 6 of 11


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(Dollars in thousands, except share data)

 

     For the Three Months Ended  
     September 30,
2012
     September 30,
2011
 

Net income

   $ 953       $ 1,509   

Other comprehensive income — Change in unrecognized pension costs, net of tax

     22         85   
  

 

 

    

 

 

 

Comprehensive income

   $ 975       $ 1,594   
  

 

 

    

 

 

 

 

Page 7 of 11


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     For the Three Months Ended  
     September 30,
2012
    September 30,
2011
 

Cash Flows from Operating Activities:

    

Net income

   $ 953      $ 1,509   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     479        405   

Deferred income tax expense

     56        847   

Pension expense

     —          93   

Stock-based compensation expense

     264        176   

Other

     31        87   

Changes in operating assets and liabilities:

    

Accounts receivable

     3,846        (5,303 )

Inventories and cost of contracts in progress

     (3,365 )     (3,064 )

Prepaid expenses and other assets

     14        (199 )

Advance billings on customer contracts

     (2,498     12,190   

Accounts payable and accrued expenses

     (2,392 )     (3,533 )
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (2,612     3,208   

Cash Flows from Investing Activities:

    

Purchases of property, plant and equipment

     (1,058 )     (731 )
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,058 )     (731 )

Cash Flows from Financing Activities:

    

Repayment of long-term debt

     (35 )     (33 )

Repurchase of stock

     (234     (10

Proceeds from the exercise of stock options

     85        —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (184 )     (43 )
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (3,854     2,434   

Cash and cash equivalents at beginning of period

     46,950        24,550   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 43,096      $ 26,984   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 86      $ 88   

Cash paid for income taxes

   $ 49      $ 4   

 

Page 8 of 11


SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(Dollars in thousands, except share data)

 

     Three Months Ended September 30, 2012  
     Common Stock    

Capital

In Excess

    Retained     

Accumulated

Other

Comprehensive

       
     Shares     Amount     of Par Value     Earnings      Loss     Total  

Balance at June 30, 2012

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

Issuance of stock

     131,108        164        (164     —           —          —     

Repurchase of stock

     (20,564     (25     (209     —           —          (234

Exercise of stock options

     16,967        21        64        —           —          85   

Stock-based compensation

     —          —          264        —           —          264   

Comprehensive income, net of tax

     —          —          —          953         22        975   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2012

     10,233,270      $ 12,792      $ 19,534      $ 52,948       $ (1,696 )   $ 83,578   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     Three Months Ended September 30, 2011  
     Common Stock    

Capital

In Excess

    Retained     

Accumulated

Other

Comprehensive

       
     Shares     Amount     of Par Value     Earnings      Loss     Total  

Balance at June 30, 2011

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

Issuance of stock

     141,376        177        (177     —           —          —     

Forfeiture of restricted stock

     (13,290     (17     17        —           —          —     

Repurchase of stock

     (1,260     (2     (8     —           —          (10

Stock-based compensation

     —          —          176        —           —          176   

Comprehensive income, net of tax

     —          —          —          1,509         85        1,594   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2011

     10,363,310      $ 12,954      $ 20,643      $ 43,996       $ (786 )   $ 76,807   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

Page 9 of 11


SPARTON CORPORATION AND SUBSIDIARIES

SELECT SEGMENT INFORMATION

(UNAUDITED)

(Dollars in thousands)

Sales:

 

($ in 000’s)

   For the Three Months Ended September 30,  

SEGMENT

   2012     2011     % Chg  

Medical

   $ 28,059      $ 27,460        2.2

CS

     12,347        12,560        (1.7

DSS

     13,206        15,287        (13.6

Eliminations

     (4,592     (3,474     32.2   
  

 

 

   

 

 

   

Totals

   $ 49,020      $ 51,833        (5.4
  

 

 

   

 

 

   

Gross profit:

 

($ in 000’s)

   For the Three Months Ended September 30,  

SEGMENT

   2012      GP %     2011      GP %  

Medical

   $ 4,194         14.9   $ 3,614         13.2

CS

     1,096         8.9        1,088         8.7   

DSS

     1,923         14.6        3,642         23.8   
  

 

 

      

 

 

    

Totals

   $ 7,213         14.7      $ 8,344         16.1   
  

 

 

      

 

 

    

Operating income:

 

($ in 000’s)

   For the Three Months Ended September 30,  

SEGMENT

   2012     % of
Sales
    2011     % of
Sales
 

Medical

   $ 2,622        9.3   $ 1,887        6.9

CS

     386        3.1        343        2.7   

DSS

     538        4.1        2,241        14.7   

Other Unallocated

     (2,202     —          (2,082     —     
  

 

 

     

 

 

   

Totals

   $ 1,344        2.7      $ 2,389        4.6   
  

 

 

     

 

 

   

 

Page 10 of 11


SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in thousands)

 

     For the Three Months Ended  
     September 30,
2012
    September 30,
2011
 

Net income

   $ 953      $ 1,509   

Interest expense

     81        172   

Interest income

     (28 )     (24

Provision for (benefit from) income taxes

     448        849   

Depreciation and amortization

     479        405   
  

 

 

   

 

 

 

EBITDA

   $ 1,933      $ 2,911   
  

 

 

   

 

 

 

 

Page 11 of 11