News Column

Sparton Corporation Reports Fiscal 2014 Third Quarter Revenue Growth of 29% and Adjusted EBITDA Growth of 120% to $8.9 Million

May 6, 2014

SCHAUMBURG, Ill.--(BUSINESS WIRE)-- Sparton Corporation (NYSE:SPA) today announced results for the third quarter of fiscal 2014 ended March 31, 2014. The Company reported third quarter sales of $83.9 million, or an increase of 29%, from $65.1 million for the third quarter of fiscal 2013. Operating income for the third quarter of fiscal 2014 was $6.3 million compared to $2.4 million in the third quarter of fiscal 2013. Net income for the third quarter of fiscal 2014 was $4.2 million or $0.42 per share, basic and diluted compared to net income of $1.5 million, or $0.15 per share, basic and diluted in the same quarter a year ago.

Consolidated Results for the Quarters and Nine Months Ended March 31, 2014 and 2013:

 
        For the Three Months Ended       For the Nine Months Ended

March 31,

2014

     

March 31,

2013

March 31,

2014

     

March 31,

2013

Net sales $ 83,931 $ 65,148 $ 242,691 $ 183,203
Gross profit 16,426 10,125 43,597 30,220
 
Operating income 6,323 2,350 14,957 8,681
Adjusted operating income 6,471 2,350 15,401 9,247
 
Net income 4,246 1,536 10,016 7,834
Adjusted net income 4,347 1,536 10,315 6,145
 
Income per share - basic 0.42 0.15 0.99 0.77
Adjusted income per share - basic 0.43 0.15 1.02 0.60
 
Income per share - diluted 0.42 0.15 0.99 0.77
Adjusted income per share - diluted 0.43 0.15 1.02 0.60
 
Adjusted EBITDA 8,865 4,020 21,772 12,558
 


Cary Wood, President & CEO, commented, “We are pleased with our continued success in this fiscal year. After nine months, we have seen a 32% increase in revenue and a 73% adjusted EBITDA improvement as compared to the same prior year period. As we enter the last quarter of the fiscal year, legacy revenue after three quarters is up 9% from the prior year with strong growth in our DSS segment as domestic and foreign sonobuoy sales are ahead of last fiscal year’s pace, and in Complex Systems where we have seen increased demand from a number of key customers. The Medical segment’s year-to-date results have held steady as programs in-sourced at two customers have been offset with increased demand at a number of customers. The remaining 23% revenue growth was realized through the acquisitions of Onyx, Creonix, Aydin, Beckwood Services and, most recently in the quarter, Aubrey Group. The results continue to reflect the successful execution of our strategic growth plan, in particular our new business development process and our approach to complementary acquisitions.”

Third Quarter Financial Highlights

  • Quarterly revenue grew 29% to $84 million as compared to the same quarter of the prior year.
  • Organic growth, net of acquisitions, was 11% from the same quarter of the prior year.
  • Adjusted EBITDA grew 120% in the quarter and 73% YTD as compared to the prior year periods.
  • 20 new business programs awarded with potential annualized sales of $6.1 million.
  • Completed the acquisition of Aubrey Group, Inc.

    Acquisition of Aubrey Group, Inc.

    On March 17, 2014, the Company completed the acquisition of Aubrey Group, Inc. ("Aubrey"). The acquired business, which is part of the Medical segment and which is expected to add $8.0 million in annualized revenue, develops new products for Original Equipment Manufacturers ("OEM'") in the Medical and Biotechnological markets. Inventors, entrepreneurs, and industry leading OEMs utilize Aubrey Group's design and engineering teams to develop innovative solutions in a timely and cost effective manner.

    “We are pleased to have acquired Aubrey Group, which will add an innovative product development offering to our portfolio, allowing us to provide enhanced services throughout the product lifecycle. A key component of our strategic vision at Sparton is to realize synergistic acquisition opportunities that add value to the core products and services in our portfolio. The Aubrey acquisition aligns tremendously with this vision. By combining our businesses, Sparton and Aubrey have the capability to enter into a new set of customer engagements that allow us to offer product design, product development, and product manufacturing more completely under one umbrella.”

    Segment Results

    Medical Device (“Medical”)

    Included in the results for the Company’s Medical segment for the three months ended March 31, 2014 are net sales of approximately $0.3 million resulting from the acquisition of Aubrey. Excluding these sales, legacy Medical sales decreased approximately $2.2 million, or 6%, in the three months ended March 31, 2014 as compared with the prior year quarter. This comparative decrease primarily reflects a rebalancing of Fenwal program engagements with the Company beginning in the Company's fiscal 2014 third quarter. The rebalancing of this customer's programs is expected to negatively affect comparative sales to this customer by approximately $7 million in the Company's fiscal 2014 fourth quarter and as much as $19 million in the Company's fiscal 2015, substantially all of which will be realized during first half of that year.

    Gross margin on Medical sales increased to 14.3% from 13.6% for the three months ended March 31, 2014 and 2013, respectively. This increase in margin percentage on Medical sales primarily reflects certain favorable product mix between the two periods.

    Selling and administrative expenses relating to the Medical segment were $2.4 million for the three months ended March 31, 2014 compared to $2.2 million for the three months ended March 31, 2013, primarily reflecting incremental allocated expenses related to Onyx operations. Amortization of intangible assets was $0.5 million and $0.6 million for the three months ended March 31, 2014 and 2013, respectively. The Medical segment reported operating income of $2.5 million for each of the quarters ended March 31, 2014 and 2013 respectively.

    Complex Systems (“CS”)

    Included in the results for the Company’s Complex Systems segment for the three months ended March 31, 2014 are net sales of approximately $7.5 million resulting from the acquisitions of Creonix, LLC ("Creonix") and Beckwood. Excluding these sales and an increase in intercompany sales of $1.0 million, CS sales to legacy external customers for the three months ended March 31, 2014 decreased $1.4 million, or 12%, as compared with the same quarter last year. This comparative decrease primarily reflects a sales delay in the current year quarter with one customer as it makes engineering design changes.

    Gross margin on CS sales decreased to 10.6% for the three months ended March 31, 2014 compared to 11.5% for the three months ended March 31, 2013, primarily reflecting unfavorable product mix between the comparative periods.

    Selling and administrative expenses relating to the CS segment were $1.1 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively, primarily due to the inclusion of operating expenses of Creonix and Beckwood. Amortization of intangible assets was $0.5 million for the three months ended March 31, 2014 due to the acquisitions of Creonix and Beckwood. CS reported operating income of $0.9 million for the quarter ended March 31, 2014 compared to operating income of $1.2 million in the prior year quarter. CS adjusted operating income was $1.0 million compared to operating income of $1.2 million in the prior year quarter.

    Defense & Security Systems (“DSS”)

    Included in the results for the Company’s Defense and Security Systems segment for the three months ended March 31, 2014 are net sales of approximately $4.1 million resulting from the acquisition of Aydin. Excluding the fiscal year 2014 incremental sales from the acquisition of Aydin, DSS legacy sales increased approximately $10.6 million, or 75%, in the three months ended March 31, 2014 as compared with the same quarter last year, reflecting increased sonobuoy sales to the U.S. Navy and foreign governments, as well as increased U.S Navy engineering sales.

    Gross margin percentage on DSS sales increased to 29.8% for the three months ended March 31, 2014 compared to 20.4% for the three months ended March 31, 2013. Gross profit percentage was positively affected in the current year quarter by increased volume as well as favorable product mix as compared to the prior year quarter.

    Selling and administrative expenses relating to the DSS segment were $2.2 million and $1.2 million for the three months ended March 31, 2014 and 2013, respectively, reflecting incremental expenses related to Aydin operations. The Company incurred $0.2 million and $0.3 million of internally funded research and development expenses in the three months ended March 31, 2014 and 2013, respectively. DSS reported operating income of $6.1 million for the quarter ended March 31, 2014 compared to operating income of $1.4 million in the prior year quarter. DSS adjusted operating income was $6.2 million compared to operating income of $1.4 million in the prior year quarter.

    Liquidity and Capital Resources

    As of March 31, 2014, the Company had $35.0 million borrowed and approximately $29 million available under its credit facility and had available cash and cash equivalents of $7.5 million. As of this date, the Company had received performance based payments under U.S. Navy contracts in excess of the funding of production to date under those contracts of $7.4 million.

    Mr. Wood commented, “As we continue to see an increased number of opportunities, not only in number, but also in size, our remaining credit facility availability, coupled with the facility's potential $35 million accordion feature, provides the Company with flexibility as we continue to pursue strategic acquisitions as part of our growth plan.”

    Outlook

    Cary Wood concluded, “The third quarter’s strong results build upon the success of the first two quarters of the fiscal year. As in prior years, we can experience revenue fluctuations within our reporting segments on a quarter-over-quarter basis. Our focus continues to be on managing the overall business, not only on the top line with revenue performance, but more importantly, the flow through of that revenue as adjusted EBITDA. As in prior quarters, we continue to execute our strategic growth plan to meet our growth expectations by focusing on new business development, internal product research and development, and compatible and complementary acquisitions. We are experiencing positive momentum from our new business development process with additional new business wins, increased inclusion of our inertial navigation sensors in key military projects and engineering wins from the sale of those products. The acquisition of synergistic entities remains a priority as evidenced by the closing of the Aubrey Group transaction that provides us with further product development capabilities and regional presence on the West Coast. As we look forward, we expect the fourth quarter will produce results at or above our current performance levels, adding to what has been an excellent fiscal year.”

    Conference Call

    Sparton will host a conference call with investors and analysts on May 7, 2014 at 10:00 a.m. CDT/11:00 a.m. EDT to discuss its fiscal year 2014 third quarter financial results, provide a general business update, and respond to investor questions. To participate, callers should dial (800) 706-9230. 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=4RSNBJ&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.

    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, gross profit effects of capitalized profit in inventory from acquisition and acquisition contingency settlement, and gain on sale of investment, the related tax effect of these items as well as unusual discrete tax benefits or expense 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.

    Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization as adjusted for restructuring/impairment charges, gross profit effects of capitalized profit in inventory from acquisition and acquisition contingency settlement, and gain on sale of investment. The Company believes Adjusted 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, Adjusted EBITDA an alternative to operating income, net income, net cash provided by operating activities or any other items calculated in accordance with GAAP. The Company's definition of Adjusted EBITDA may not be comparable with Adjusted 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 114th 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 six 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, 2013, 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.

     

    SPARTON CORPORATION AND SUBSIDIARIES

    CONSOLIDATED BALANCE SHEETS

    (UNAUDITED)

    (Dollars in thousands, except share per share amounts)

     
           

    March 31,

    2014

         

    June 30,

    2013 (a)

    Assets
    Current Assets:
    Cash and cash equivalents $ 7,502 $ 6,085
    Accounts receivable, net of allowance for doubtful accounts of $108 and $61, respectively 46,259 49,572
    Inventories and cost of contracts in progress, net 51,466 46,334
    Deferred income taxes 2,779 2,951
    Prepaid expenses and other current assets 3,999   1,731  
    Total current assets 112,005 106,673
    Property, plant and equipment, net 28,562 28,904
    Goodwill 28,653 14,767
    Other intangible assets, net 20,975 10,713
    Deferred income taxes — non-current 102 4,075
    Other non-current assets 2,924   790  
    Total assets $ 193,221   $ 165,922  
    Liabilities and Shareholders’ Equity
    Current Liabilities:
    Current portion of long-term debt $ 1,737 $ 136
    Accounts payable 20,425 19,596
    Accrued salaries and wages 8,098 6,329
    Accrued health benefits 1,433 1,793
    Performance based payments on customer contracts 7,444 20,902
    Other accrued expenses 10,188   6,733  
    Total current liabilities 49,325 55,489
    Pension liability — non-current portion 233 274
    Long-term debt — non-current portion 34,700 11,403
    Environmental remediation — non-current portion 2,468   2,684  
    Total liabilities 86,726 69,850
    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, 10,126,275 and

       10,095,716 shares issued and outstanding, respectively

    12,658 12,619
    Capital in excess of par value 19,057 18,751
    Retained earnings 75,973 65,957
    Accumulated other comprehensive loss (1,193 ) (1,255 )
    Total shareholders’ equity 106,495   96,072  
    Total liabilities and shareholders’ equity $ 193,221   $ 165,922  
     


    (a) Derived from the Company's audited financial statements as of June 30, 2013.

     

    SPARTON CORPORATION AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF INCOME

    (UNAUDITED)

    (Dollars in thousands, except per share amounts)

     
            For the Three Months Ended       For the Nine Months Ended

    March 31,

    2014

         

    March 31,

    2013

    March 31,

    2014

         

    March 31,

    2013

    Net sales $ 83,931 $ 65,148 $ 242,691 $ 183,203
    Cost of goods sold 67,505   55,023   199,094   152,983  
    Gross profit 16,426 10,125 43,597 30,220
    Operating Expense:
    Selling and administrative expenses 8,807 6,803 25,139 19,650
    Internal research and development expenses 213 341 1,004 889
    Amortization of intangible assets 1,089 609 2,323 984
    Restructuring charges 188
    Other operating (income) expenses (6 ) 22   (14 ) 16  
    Total operating expense, net 10,103   7,775   28,640   21,539  
    Operating income 6,323 2,350 14,957 8,681
    Other income (expense):
    Interest expense (187 ) (136 ) (547 ) (390 )
    Interest income 48 2 99
    Other, net 124   106   461   275  
    Total other income (expense), net (63 ) 18   (84 ) (16 )
    Income before provision for income taxes 6,260 2,368 14,873 8,665
    Provision for income taxes 2,014   832   4,857   831  
    Net income $ 4,246   $ 1,536   $ 10,016   $ 7,834  
    Income per share of common stock:
    Basic $ 0.42   $ 0.15   $ 0.99   $ 0.77  
    Diluted $ 0.42   $ 0.15   $ 0.99   $ 0.77  

    Weighted average shares of common stock

    outstanding:

    Basic 10,124,587   10,225,012   10,104,029   10,198,454  
    Diluted 10,150,253   10,250,700   10,127,811   10,225,191  
     
     

    SPARTON CORPORATION AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (UNAUDITED)

    (Dollars in thousands)

     
            For the Nine Months Ended

    March 31,

    2014

         

    March 31,

    2013

    Cash Flows from Operating Activities:
    Net income $ 10,016 $ 7,834

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

      activities:

    Depreciation and amortization 5,910 3,036
    Deferred income tax expense 545 844
    Stock-based compensation expense 1,287 862
    Gross profit effect of capitalized profit in inventory from acquisition 256 566
    Excess tax benefit of stock-based compensation (496 )
    Other 66 75
    Changes in operating assets and liabilities:
    Accounts receivable 7,426 (1,359 )
    Inventories and cost of contracts in progress 3,497 (3,405 )
    Prepaid expenses and other assets (1,196 ) (1,597 )
    Performance based payments on customer contracts (13,458 ) (15,123 )
    Accounts payable and accrued expenses 1,358   1,960  
    Net cash provided by (used in) operating activities 15,211 (6,307 )
    Cash Flows from Investing Activities:
    Purchase of Onyx (45,438 )
    Purchase of certain assets of Creonix 105
    Purchase of certain assets and liabilities of Aydin Displays (15,502 )
    Purchase of Beckwood (15,346 )
    Purchase of Aubrey, net of acquired cash (4,817 )
    Purchases of property, plant and equipment (2,253 ) (2,971 )
    Change in restricted cash (535 )
    Proceeds from sale of property, plant and equipment 69   275  
    Net cash used in investing activities (37,744 ) (48,669 )
    Cash Flows from Financing Activities:
    Short-term bank borrowings, net 22,400
    Borrowings of long-term debt 53,000
    Repayment of long-term debt (28,108 ) (9,505 )
    Payment of debt financing costs (445 )
    Repurchase of stock (1,559 ) (234 )
    Proceeds from the exercise of stock options 121 168
    Excess tax benefit from stock-based compensation 496    
    Net cash provided by financing activities 23,950   12,384  
    Net increase (decrease) in cash and cash equivalents 1,417 (42,592 )
    Cash and cash equivalents at beginning of period 6,085   46,950  
    Cash and cash equivalents at end of period $ 7,502   $ 4,358  
    Supplemental disclosure of cash flow information:
    Cash paid for interest $ 465   $ 368  
    Cash paid for income taxes $ 4,734   $ 1,337  
     
     

    SPARTON CORPORATION AND SUBSIDIARIES

    SELECT SEGMENT INFORMATION

    (UNAUDITED)

    (Dollars in thousands)

     

    Net sales:

     
            For the Three Months Ended March 31,     For the Nine Months Ended March 31,
    SEGMENT2014   2013   % Chg2014   2013   % Chg
    Medical $ 37,215 $ 39,139 (4.9 )% $ 123,539 $ 102,002 21.1 %
    CS 23,563 16,482 43.0 60,132 42,888 40.2
    DSS 28,853 14,186 103.4 72,824 51,850 40.5
    Eliminations (5,700 ) (4,659 ) 22.3 (13,804 ) (13,537 ) 2.0
    Totals $ 83,931   $ 65,148   28.8 $ 242,691   $ 183,203   32.5

    Gross profit:

     
            For the Three Months Ended March 31,     For the Nine Months Ended March 31,
    SEGMENT2014   GP %     2013     GP %2014     GP %     2013   GP %
    Medical $ 5,332 14.3 % $ 5,339 13.6 % $ 19,134 15.5 % $ 13,877 13.6 %
    CS 2,488 10.6 1,890 11.5 6,300 10.5 4,414 10.3
    DSS 8,606   29.8 2,896   20.4 18,163   24.9 11,929   23.0
    Totals $ 16,426   19.6 $ 10,125   15.5 $ 43,597   18.0 $ 30,220   16.5

    Adjusted gross profit:

     
            For the Three Months Ended March 31,     For the Nine Months Ended March 31,
    SEGMENT2014     GP %     2013     GP %2014     GP %     2013     GP %
    Medical $ 5,332 14.3 % $ 5,339 13.6 % $ 19,134 15.5 % $ 14,443 14.2 %
    CS 2,555 10.8 1,890 11.5 6,367 10.6 4,414 10.3
    DSS 8,687   30.1 2,896   20.4 18,352   25.2 11,929   23.0
    Totals $ 16,574   19.7 $ 10,125   15.5 $ 43,853   18.1 $ 30,786   16.8

    Operating income:

     
            For the Three Months Ended March 31,     For the Nine Months Ended March 31,
    SEGMENT2014     % of Sales     2013     % of Sales2014     % of Sales     2013     % of Sales
    Medical $ 2,468 6.6 % $ 2,483 6.3 % $ 10,072 8.2 % $ 6,908 6.8 %
    CS 946 4.0 1,203 7.3 2,850 4.7 2,366 5.5
    DSS 6,112 21.2 1,351 9.5 10,986 15.1 7,506 14.5
    Other Unallocated (3,203 ) (2,687 ) (8,951 ) (8,099 )
    Totals $ 6,323   7.5 $ 2,350   3.6 $ 14,957   6.2 $ 8,681   4.7

    Adjusted operating income:

     
            For the Three Months Ended March 31,     For the Nine Months Ended March 31,
    SEGMENT2014     % of Sales     2013     % of Sales2014     % of Sales     2013     % of Sales
    Medical $ 2,468 6.6 % $ 2,483 6.3 % $ 10,072 8.2 % $ 7,474 7.3 %
    CS 1,013 4.3 1,203 7.3 3,105 5.2 2,366 5.5
    DSS 6,193 21.5 1,351 9.5 11,175 15.3 7,506 14.5
    Other Unallocated (3,203 ) (2,687 ) (8,951 ) (8,099 )
    Totals $ 6,471   7.7 $ 2,350   3.6 $ 15,401   6.3 $ 9,247   5.0
     
     

    SPARTON CORPORATION AND SUBSIDIARIES

    RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

    (UNAUDITED)

    (Dollars in thousands, except share data)

     
            For the Three Months Ended March 31, 2014     For the Three Months Ended March 31, 2013
    GAAP    

    Non-GAAP

    Adjustment

        AdjustedGAAP    

    Non-GAAP

    Adjustment

        Adjusted
    Net sales $ 83,931 $ $ 83,931 $ 65,148 $ $ 65,148
    Cost of goods sold 67,505   (148 ) 67,357   55,023     55,023  
    Gross profit 16,426 148 16,574 10,125 10,125
    Operating Expense:
    Selling and administrative expenses 8,807 8,807 6,803 6,803
    Internal research and development expenses 213 213 341 341
    Amortization of intangible assets 1,089 1,089 609 609
    Restructuring charges
    Other operating (income) expenses (6 )   (6 ) 22     22  
    Total operating expense, net 10,103     10,103   7,775     7,775  
    Operating income 6,323 148 6,471 2,350 2,350
    Other income (expense):
    Interest expense (187 ) (187 ) (136 ) (136 )
    Interest income 48 48
    Other, net 124     124   106     106  
    Total other income (expense), net (63 )   (63 ) 18     18  
    Income before provision for income taxes 6,260 148 6,408 2,368 2,368
    Provision for income taxes 2,014   47   2,061   832     832  
    Net income $ 4,246   $ 101   $ 4,347   $ 1,536   $   $ 1,536  
    Income per share of common stock:
    Basic $ 0.42   $ 0.43   $ 0.15   $ 0.15  
    Diluted $ 0.42   $ 0.43   $ 0.15   $ 0.15  

    Weighted average shares of common

      stock outstanding:

    Basic 10,124,587   10,124,587   10,225,012   10,225,012  
    Diluted 10,150,253   10,150,253   10,250,700   10,250,700  
     
     

    SPARTON CORPORATION AND SUBSIDIARIES

    RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

    (UNAUDITED)

    (Dollars in thousands, except share data)

     
            For the Nine Months Ended March 31, 2014     For the Nine Months Ended March 31, 2013
    GAAP    

    Non-GAAP

    Adjustment

        AdjustedGAAP    

    Non-GAAP

    Adjustment

        Adjusted
    Net sales $ 242,691 $ $ 242,691 $ 183,203 $ $ 183,203
    Cost of goods sold 199,094   (256 ) 198,838   152,983   (566 ) 152,417  
    Gross profit 43,597 256 43,853 30,220 566 30,786
    Operating Expense:
    Selling and administrative expenses 25,139 25,139 19,650 19,650
    Internal research and development expenses 1,004 1,004 889 889
    Amortization of intangible assets 2,323 2,323 984 984
    Restructuring charges 188 (188 )
    Other operating (income) expenses (14 )   (14 ) 16     16  
    Total operating expense, net 28,640   (188 ) 28,452   21,539     21,539  
    Operating income 14,957 444 15,401 8,681 566 9,247
    Other income (expense):
    Interest expense (547 ) (547 ) (390 ) (390 )
    Interest income 2 2 99 99
    Other, net 461     461   275     275  
    Total other income (expense), net (84 )   (84 ) (16 )   (16 )
    Income before provision for income taxes 14,873 444 15,317 8,665 566 9,231
    Provision for income taxes 4,857   145   5,002   831   2,255   3,086  
    Net income $ 10,016   $ 299   $ 10,315   $ 7,834   $ (1,689 ) $ 6,145  
    Income per share of common stock:
    Basic $ 0.99   $ 1.02   $ 0.77   $ 0.60  
    Diluted $ 0.99   $ 1.02   $ 0.77   $ 0.60  

    Weighted average shares of common

      stock outstanding:

    Basic 10,104,029   10,104,029   10,198,454   10,198,454  
    Diluted 10,127,811   10,127,811   10,225,191   10,225,191  
     
     

    SPARTON CORPORATION AND SUBSIDIARIES

    RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

    (UNAUDITED)

    (Dollars in thousands)

     
            For the Three Months Ended     For the Nine Months Ended

    March 31,

    2014

       

    March 31,

    2013

    March 31,

    2014

       

    March 31,

    2013

    Net income $ 4,246 $ 1,536 $ 10,016 $ 7,834
    Interest expense 187 136 547 390
    Interest income (48 ) (2 ) (99 )
    Provision for income taxes 2,014 832 4,857 831
    Depreciation and amortization 2,270 1,564 5,910 3,036
    Restructuring/impairment charges 188

    Gross profit effect of

       capitalized profit in inventory

       from acquisition

    148     256   566  
    Adjusted EBITDA $ 8,865   $ 4,020   $ 21,772   $ 12,558  
     
     

    SPARTON CORPORATION AND SUBSIDIARIES

    RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

    (UNAUDITED)

    (Dollars in thousands)

     
            For the Three Months Ended March 31, 2014
    Medical     CS     DSS     Other

    Unallocated

        Total
    Gross profit $ 5,332 $ 2,488 $ 8,606 $ $ 16,426

    Gross profit effect of capitalized

       profit in inventory from

       acquisition

      67   81     148
    Adjusted gross profit $ 5,332   $ 2,555   $ 8,687   $   $ 16,574
     
            For the Three Months Ended March 31, 2013
    Medical     CS     DSS     Other

    Unallocated

        Total
    Gross profit $ 5,339 $ 1,890 $ 2,896 $ $ 10,125
           
    Adjusted gross profit $ 5,339   $ 1,890   $ 2,896   $   $ 10,125
     
            For the Nine Months Ended March 31, 2014
    Medical     CS     DSS     Other

    Unallocated

        Total
    Gross profit $ 19,134 $ 6,300 $ 18,163 $ $ 43,597

    Gross profit effect of capitalized

       profit in inventory from

       acquisition

      67   189     256
    Adjusted gross profit $ 19,134   $ 6,367   $ 18,352   $   $ 43,853
     
            For the Nine Months Ended March 31, 2013
    Medical     CS     DSS     Other

    Unallocated

        Total
    Gross profit $ 13,877 $ 4,414 $ 11,929 $ $ 30,220

    Gross profit effect of capitalized

       profit in inventory from

       acquisition

    566         566
    Adjusted gross profit $ 14,443   $ 4,414   $ 11,929   $   $ 30,786
     
     

    SPARTON CORPORATION AND SUBSIDIARIES

    RECONCILIATON OF NON-GAAP FINANCIAL MEASURES

    (UNAUDITED)

    (Dollars in thousands)

     
            For the Three Months Ended March 31, 2014
    Medical     CS     DSS     Other

    Unallocated

        Total
    Operating income (loss) $ 2,468 $ 946 $ 6,112 $ (3,203 ) $ 6,323

    Gross profit effect of capitalized

       profit in inventory from

       acquisition

      67   81     148
    Adjusted operating income (loss) $ 2,468   $ 1,013   $ 6,193   $ (3,203 ) $ 6,471
     
    Depreciation/amortization $ 1,164   $ 666   $ 341   $ 99   $ 2,270
     
           
    For the Three Months Ended March 31, 2013
    Medical     CS     DSS     Other

    Unallocated

        Total
    Operating income (loss) $ 2,483 $ 1,203 $ 1,351 $ (2,687 ) $ 2,350
           
    Adjusted operating income (loss) $ 2,483   $ 1,203   $ 1,351   $ (2,687 ) $ 2,350
     
    Depreciation/amortization $ 1,182   $ 148   $ 157   $ 77   $ 1,564
     
           
    For the Nine Months Ended March 31, 2014
    Medical     CS     DSS     Other

    Unallocated

        Total
    Operating income (loss) $ 10,072 $ 2,850 $ 10,986 $ (8,951 ) $ 14,957

    Gross profit effect of capitalized

       profit in inventory from

       acquisition

    67 189 256
    Restructuring expense   188       188
    Adjusted operating income (loss) $ 10,072   $ 3,105   $ 11,175   $ (8,951 ) $ 15,401
     
    Depreciation/amortization $ 3,626   $ 1,088   $ 905   $ 291   $ 5,910
     
           
    For the Nine Months Ended March 31, 2013
    Medical     CS     DSS     Other

    Unallocated

        Total
    Operating income (loss) $ 6,908 $ 2,366 $ 7,506 $ (8,099 ) $ 8,681

    Gross profit effect of capitalized

       profit in inventory from

       acquisition

    566         566
    Adjusted operating income (loss) $ 7,474   $ 2,366   $ 7,506   $ (8,099 ) $ 9,247
     
    Depreciation/amortization $ 1,989   $ 439   $ 454   $ 154   $ 3,036
     





    Sparton Corporation

    Analyst:

    Mark Schlei, 847-762-5812

    mschlei@sparton.com

    or

    Media:

    Mike Osborne, 847-762-5814

    mosborne@sparton.com

    or

    Investors:

    Institutional Marketing Services

    John Nesbett/Jennifer Belodeau, 203-972-9200

    jnesbett@institutionalms.com


    Source: Sparton Corporation


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    Source: Business Wire


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