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.

 

Page 16 of 16