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 $0.19 EPS for Fiscal 2012 Second Quarter;

Net Sales Increase 14% after Effect of Acquisition;

Adjusted EBITDA Increases 65%

SCHAUMBURG, IL. — February 7, 2012 — Sparton Corporation (NYSE: SPA) today announced results for the second quarter of fiscal 2012 ended December 31, 2011. The Company reported second quarter sales of $55.4 million, or an increase of 14% after the effect of the Company’s prior year acquisition of Byers Peak Incorporated, from $46.3 million for the second quarter of fiscal 2011. Reported net income for the second quarter of fiscal 2012 was $1.9 million or $0.19 per share, compared to net income of $1.4 million, or $0.14 per share, in the same quarter a year ago. After the adjustments which are described in the non-GAAP reconciliations included later in this press release, second quarter fiscal 2012 adjusted net income was $1.8 million, or $0.18 per share, compared to adjusted net income of $1.0 million, or $0.10 per share, in the prior year quarter.

Sparton President and CEO Cary Wood commented, “All three businesses contributed to our improved operating results in the quarter. Sales growth in new and existing customer programs from the Medical and Complex Systems segments continued to outpace customer disengagements and the impact of Siemens dual sourcing, reflective of our increased investment in business development over the past year, while increased U.S. Navy and foreign sonobuoy shipments drove improved operating income contribution from our DSS business as compared to the prior year quarter.”

Consolidated results for the three and six months ended December 31, 2011 and 2010:

 

		For the Three Months Ended December 31,								For the Six Months  Ended December 31,
($ in 000’s, except per share)		2011				2010				2011				2010
Net sales		$	55,370			$	46,331			$	107,203			$	92,098
Gross profit			8,736				7,547				17,080				14,573
Operating income			2,919				1,581				5,308				5,835
Adjusted operating income			2,860				1,581				5,249				3,344
Net income			1,942				1,435				3,451				5,665
Adjusted net income			1,823				991				3,332				2,095
Income per share – basic			0.19				0.14				0.34				0.56
Adjusted income per share – basic			0.18				0.10				0.32				0.21
Income per share – diluted			0.19				0.14				0.33				0.55
Adjusted income per share – diluted			0.18				0.10				0.32				0.20
Adjusted EBITDA			3,402				2,066				6,313				4,226

Adjusted operating income, adjusted net income, adjusted income per share – basic and diluted and adjusted EBITDA are non-GAAP financial measures that exclude or add the effect of certain adjustments. Sparton believes that the presentation of non-GAAP financial information provides useful supplemental information to management and investors regarding financial and business trends relating to the Company’s financial results. More detailed information, including period over period segment comparisons, non-GAAP reconciliation tables and the reasons management believes non-GAAP measures provide useful information to investors, is included later in this press release.

 

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Second Quarter Financial Highlights

 

•

Net sales of $55.4 million, representing a 14% increase from the same quarter last year, after the effect of the Company’s prior year acquisition of Byers Peak Incorporated.

 

•

Complex Systems gross margin percentage increased to 10.4% of sales from 7.1% in the prior year quarter and 5.0% in the second quarter of fiscal 2010.

 

•

Selling and administrative expenses as a percentage of sales decreased to 10.0% of sales from 12.3% in the prior year quarter.

 

•

Adjusted net income of $1.8 million, or $0.18 per share, versus adjusted net income of $1.0 million, or $0.10 per share in the prior year quarter.

 

•

Awarded seven new business programs from new and existing customers during the second quarter of fiscal 2012 with estimated future annualized revenue of $5.0 million.

 

•

Adjusted EBITDA of $3.4 million versus adjusted EBITDA of $2.1 million in the prior year quarter.

 

•

Generated $4.5 million in cash flows from operations.

 

•

Sold non-performing investment in Cybernet Systems Corporation for $1.75 million resulting in $0.1 million gain.

 

•

Repurchases of common shares for the second quarter totaled $1.5 million or approximately 187,000 shares.

Segment Results

Medical Device (“Medical”)

Medical sales increased approximately $2.4 million in the three months ended December 31, 2011 as compared with the same quarter last year, reflecting $4.2 million of net increased sales to new and existing customers and $2.5 million of fiscal 2012 incremental sales from the Company’s acquisition of Byers Peak in March 2011. Included in the net increase to new and existing customers is approximately $0.5 million of accelerated sales to one customer in advance of the transfer of production of this customer’s products in connection with the consolidation of the Byers Peak facility into the Frederick, Colorado facility. Partially offsetting these sales increases was $4.3 million of decreased sales to two customers. Decreased sales to one customer of $2.7 million reflect the impact of this customer’s disengagement during fiscal 2011. Decreased sales to another customer, Siemens Diagnostics, of $1.6 million reflects, in part, the impact of its intended dual sourcing of certain of its programs with the Company. Mr. Wood commented, “While we believe we are already seeing a significant portion of the impact of Siemens dual sourcing of these programs, the effect in the quarter was diluted by the strength of orders from our other Siemens programs.” Sales to Siemens dual sourced programs for the first half of fiscal 2012 were $7.5 million and the Company is forecasting fiscal 2012 revenues from these Siemens programs to range from $12 million to $13 million. The gross profit percentage on Medical sales remained relatively consistent at 14% for the three months ended December 31, 2011 compared to 15% for the prior year quarter. This comparable margin on Medical sales reflects decreased capacity utilization at the Strongsville, Ohio facility and certain unfavorable product mix between the two periods, partially offset by increased capacity utilization at the Frederick, Colorado facility and cost management efforts at the Strongsville, Ohio facility. Selling and administrative expenses relating to the Medical segment were $1.5 million and $1.8 million for the three months ended December 31, 2011 and 2010, respectively, reflecting $0.4 million of charges in the prior year period related to an unfavorable arbitration award related to a dispute with a disengaging customer, partially offset by increased allocated corporate selling and administrative expenses in the current year quarter. Medical reported operating income of $2.3 million for the quarter ended December 31, 2011 compared to operating income of $1.9 million in the prior year quarter.

 

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Complex Systems (“CS”)

CS sales increased approximately $2.0 million in the three months ended December 31, 2011 as compared with the same quarter last year. The comparable sales reflect $2.2 million of increased sales to multiple new and existing customers as well as $0.7 million of increased intercompany sales, partially offset by reduced demand for three customers’ programs. The gross profit percentage on CS sales increased to 10% for the three months ended December 31, 2011 compared to 7% for the three months ended December 31, 2010. The quarter over quarter comparison primarily reflects favorable product mix, including higher margins on new business, and improved capacity utilization at the Company’s Vietnam facility. Mr. Wood commented, “CS improvement has been remarkable, reflective in its ability to achieve double digit gross margins on average over the past four quarters.” Selling and administrative expenses relating to the CS segment were $0.7 million for the three months ended December 31, 2011 compared to $0.9 million for the three months ended December 31, 2010, primarily reflecting decreased allocated corporate selling and administrative expenses in the current year quarter. CS reported operating income of $0.6 million for the quarter ended December 31, 2011 compared to an operating loss of $0.1 million in the prior year quarter.

Defense & Security Systems (“DSS”)

DSS sales increased approximately $5.3 million in the three months ended December 31, 2011 as compared with the same quarter last year, reflecting increased sonobuoy sales to foreign governments, as well as increased U.S. Navy sonobuoy production and engineering sales in the current year quarter, partially offset by decreased legacy digital compass sales due to delays in customers’ related military programs of which these products were a part. Mr. Wood commented, “Despite the lost revenue related to these program delays, we continue to believe our product line is very competitive and technically appealing to a broad range of customers and, with the addition of two new digital compass products in the first half of this year, we remain confident in the future contribution potential of these products.” Gross profit percentage was adversely affected in the current year quarter by decreased digital compass sales, which typically carry higher margins, and by increased costs resulting from sonobuoy quality improvement activities in the current year quarter, partially offset by the positive impact from a significant increase in foreign sonobuoy sales. Mr. Wood further commented, “DSS made certain quality related investments during the quarter, including increased sample sonobuoy testing which reduced margins in the current quarter, but which should benefit the business in future periods by reducing future rework costs related to Navy lot test failures and by increasing revenue consistency from period to period.” Selling and administrative expenses relating to the DSS segment were $0.9 million and $0.8 million for the quarters ended December 31, 2011 and 2010, respectively, reflecting increased business development efforts in the current fiscal quarter. The Company incurred $0.2 million of internally funded research and development expenses in each of the three months ended December 31, 2011 and 2010, respectively. DSS reported operating income of $2.4 million for the quarter ended December 31, 2011 compared to operating income of $2.1 million in the prior year quarter.

Liquidity and Capital Resources

Mr. Wood commented, “We are pleased with the success of our share repurchase plan to date having purchased $1.5 million of our common shares in the second quarter and an additional $1.2 million during the subsequent month of January. Second quarter positive cash flow from operations of $4.5 million and the sale of our investment in Cybernet Systems Corporation for $1.75 million further strengthened our cash position in the quarter.”

As of December 31, 2011, the Company had approximately $31 million in cash and cash equivalents and no outstanding borrowings against available funds on its $20 million revolving credit facility provided in August 2009 by PNC Bank, National Association. The credit facility is subject to certain customary covenants with which the Company was in compliance at December 31, 2011.

Outlook

Mr. Wood further commented, “We continue to focus on our three growth initiatives of targeted business development, internal research and development, and strategic mergers and acquisitions. Our business development efforts continue to generate new business leads through our trade show participation, enhanced collateral material and messaging, and other marketing vehicles such as the release of our first white paper and outreach via social media. In August at the Association for Unmanned Vehicle Systems International’s exhibition in Washington, D.C., we launched our new digital compasses, the DC-4 and GEDC-6, and began shipping those products in the second quarter. Although the near term revenue impact is modest, we have seen an increase in engineering sample orders with a number of new customers generated by our trade show presence, new website, and technical informational webinars. At the same time, we remain acquisitive in relation to strategic acquisitions and will continue to be prudent in our identification and evaluation of further opportunities. I look forward to reporting on each of these initiatives in future quarters.”

 

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Conference Call

Sparton will host a conference call with investors and analysts on February 8, 2012 at 10:00 a.m. CDT to discuss its fiscal year 2012 second quarter financial results, provide a general business update, and respond to investor questions. To participate, callers should dial (800) 681-8614. 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.

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, 2011, 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.

 

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SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Dollars in thousands, except share data)

 

		December 31, 2011				June 30, 2011 (a)
Assets
Current Assets:
Cash and cash equivalents		$	30,610			$	24,550
Accounts receivable, net of allowance for doubtful accounts of $123 and $65, respectively			24,411				23,896
Inventories and cost of contracts in progress, net			38,545				38,752
Deferred income taxes			2,483				4,417
Prepaid expenses and other current assets			2,984				1,796
Total current assets			99,033				93,411
Property, plant and equipment, net			12,702				11,395
Goodwill			7,472				7,472
Other intangible assets, net			1,831				2,053
Deferred income taxes — non-current			5,754				5,740
Other non-current assets			749				2,538
Total assets		$	127,541			$	122,609
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of long-term debt		$	131			$	126
Accounts payable			15,612				16,608
Accrued salaries and wages			4,142				5,626
Accrued health benefits			1,148				980
Current portion of pension liability			152				306
Advance billings on customer contracts			18,886				13,021
Other accrued expenses			4,564				5,421
Total current liabilities			44,635				42,088
Pension liability — non-current portion			—				41
Long-term debt — non-current portion			1,604				1,670
Environmental remediation — non-current portion			3,617				3,763
Total liabilities			49,856				47,562
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, no par value; 200,000 shares authorized, none outstanding			—				—
Common stock, $1.25 par value; 15,000,000 shares authorized, 10,205,780 and 10,236,484 shares issued and outstanding, respectively			12,757				12,796
Capital in excess of par value			19,780				20,635
Retained earnings			45,938				42,487
Accumulated other comprehensive loss			(790	)			(871	)
Total shareholders’ equity			77,685				75,047
Total liabilities and shareholders’ equity		$	127,541			$	122,609

 

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

 

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SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Dollars in thousands, except share data)

 

		For the Three Months Ended								For the Six Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
Net sales		$	55,370			$	46,331			$	107,203			$	92,098
Cost of goods sold			46,634				38,784				90,123				77,525
Gross profit			8,736				7,547				17,080				14,573
Operating Expense:
Selling and administrative expenses			5,535				5,689				10,946				10,523
Internal research and development expenses			218				155				616				282
Amortization of intangible assets			110				110				221				220
Restructuring/impairment charges			(59	)			—				(59	)			77
Gain on acquisition			—				—				—				(2,550	)
Gain on sale of property, plant and equipment, net			—				—				—				(18	)
Other operating expenses			13				12				48				204
Total operating expense, net			5,817				5,966				11,772				8,738
Operating income			2,919				1,581				5,308				5,835
Other income (expense)
Interest expense			(175	)			(181	)			(347	)			(351	)
Interest income			24				28				48				86
Gain on sale of investment			127				—				127				—
Other, net			116				121				233				195
Total other income (expense), net			92				(32	)			61				(70	)
Income before provision for income taxes			3,011				1,549				5,369				5,765
Provision for income taxes			1,069				114				1,918				100
Net income		$	1,942			$	1,435			$	3,451			$	5,665
Income per share of common stock:
Basic		$	0.19			$	0.14			$	0.34			$	0.56
Diluted		$	0.19			$	0.14			$	0.33			$	0.55
Weighted average shares of common stock outstanding:
Basic			10,287,797				10,209,376				10,278,127				10,204,955
Diluted			10,325,029				10,249,593				10,319,275				10,229,449

 

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SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollars in thousands)

 

		For the Six Months Ended
		December 31, 2011				December 31, 2010
Cash Flows from Operating Activities:
Net income		$	3,451			$	5,665
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			831				687
Deferred income tax expense			1,914				228
Pension expense			14				285
Stock-based compensation expense			532				372
Gain on acquisition			—				(2,550	)
Gain on sale of property, plant and equipment, net			—				(18	)
Gain on sale of investment			(127	)			—
Other			174				174
Changes in operating assets and liabilities:
Accounts receivable			(515	)			(537	)
Inventories and cost of contracts in progress			207				2,094
Prepaid expenses and other assets			(1,191	)			(606	)
Advance billings on customer contracts			5,865				1,178
Accounts payable and accrued expenses			(3,436	)			(954	)
Net cash provided by operating activities			7,719				6,018
Cash Flows from Investing Activities:
Purchase of certain contract manufacturing assets of Delphi Medical			—				(8,419	)
Change in restricted cash			—				3,162
Purchases of property, plant and equipment			(1,917	)			(1,362	)
Proceeds from sale of property, plant and equipment			—				18
Proceeds from sale of investment			1,750				—
Net cash used in investing activities			(167	)			(6,601	)
Cash Flows from Financing Activities:
Repayment of long-term debt			(66	)			(65	)
Repurchase of stock			(1,476	)			—
Proceeds from the exercise of stock options			50				—
Net cash used in financing activities			(1,492	)			(65	)
Net increase (decrease) in cash and cash equivalents			6,060				(648	)
Cash and cash equivalents at beginning of period			24,550				30,589
Cash and cash equivalents at end of period		$	30,610			$	29,941
Supplemental disclosure of cash flow information:
Cash paid for interest		$	176			$	182
Cash paid (received) for income taxes		$	464			$	(102	)

 

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SPARTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(Dollars in thousands, except share data)

 

		Six Months Ended December 31, 2011
		Common Stock								Capital In Excess				Retained				Accumulated Other Comprehensive
		Shares				Amount				of Par Value				Earnings				Income (Loss)				Total
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			(188,055	)			(235	)			(1,241	)			—				—				(1,476	)
Exercise of stock options			10,000				12				38				—				—				50
Stock-based compensation			—				—				532				—				—				532
Comprehensive income, net of tax:
Net income			—				—				—				3,451				—				3,451
Change in unrecognized pension costs			—				—				—				—				81				81
Comprehensive income																							3,532
Balance at December 31, 2011			10,205,780			$	12,757			$	19,780			$	45,938			$	(790	)		$	77,685

 

		Six Months Ended December 31, 2010
		Common Stock										Capital In Excess				Retained				Accumulated Other Comprehensive
		Shares						Amount				of Par Value				Earnings				Income (Loss)				Total
Balance at June 30, 2010					10,200,534			$	12,751			$	19,864			$	35,026			$	(3,372	)		$	64,269
Issuance of stock					15,950				20				(20	)			—				—				—
Stock-based compensation					—				—				372				—				—				372
Comprehensive income, net of tax:
Net income					—				—				—				5,665				—				5,665
Change in unrecognized pension costs					—				—				—				—				280				280
Comprehensive income																									5,945
Balance at December 31, 2010					10,216,484			$	12,771			$	20,216			$	40,691			$	(3,092	)		$	70,586

 

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SPARTON CORPORATION AND SUBSIDIARIES

SELECT SEGMENT INFORMATION

(UNAUDITED)

(Dollars in thousands)

Sales:

 

		For the Three Months Ended December 31,												For the Six Months Ended December 31,
SEGMENT		2011				2010				% Chg				2011				2010				% Chg
Medical		$	28,027			$	25,650				9	%		$	55,487			$	44,695				24	%
CS			12,549				10,512				19	%			25,109				22,840				10	%
DSS			18,476				13,179				40	%			33,763				30,776				10	%
Eliminations			(3,682	)			(3,010	)			22	%			(7,156	)			(6,213	)			15	%
Totals		$	55,370			$	46,331				20	%		$	107,203			$	92,098				16	%

Gross profit:

 

		For the Three Months Ended December 31,																For the Six Months Ended December 31,
SEGMENT		2011				GP %				2010				GP %				2011				GP %				2010				GP %
Medical		$	3,883				14	%		$	3,790				15	%		$	7,497				14	%		$	5,657				13	%
CS			1,306				10	%			749				7	%			2,394				10	%			1,656				7	%
DSS			3,547				19	%			3,008				23	%			7,189				21	%			7,260				24	%
Totals		$	8,736				16	%		$	7,547				16	%		$	17,080				16	%		$	14,573				16	%

Operating income (loss):

 

		For the Three Months Ended December 31,																For the Six Months Ended December 31,
SEGMENT		2011				% of Sales				2010				% of Sales				2011				% of Sales				2010				% of Sales
Medical		$	2,332				8	%		$	1,850				7	%		$	4,219				8	%		$	4,797				11	%
CS			600				5	%			(106	)			(1	)%			943				4	%			(9	)			—	%
DSS			2,404				13	%			2,069				16	%			4,645				14	%			5,391				18	%
Other Unallocated			(2,417	)			—				(2,232	)			—				(4,499	)			—				(4,344	)			—
Totals		$	2,919				5	%		$	1,581				3	%		$	5,308				5	%		$	5,835				6	%

Adjusted Operating income (loss):

 

		For the Three Months Ended December 31,																For the Six Months Ended December 31,
SEGMENT		2011				% of Sales				2010				% of Sales				2011				% of Sales				2010				% of Sales
Medical		$	2,302				8	%		$	1,850				7	%		$	4,189				8	%		$	2,324				5	%
CS			600				5	%			(106	)			(1	)%			943				4	%			(27	)			—	%
DSS			2,404				13	%			2,069				16	%			4,645				14	%			5,391				18	%
Other Unallocated			(2,446	)			—				(2,232	)			—				(4,528	)			—				(4,344	)			—
Totals		$	2,860				5	%		$	1,581				3	%		$	5,249				5	%		$	3,344				4	%

 

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SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES (a)

(UNAUDITED)

(Dollars in thousands, except share data)

 

		For the Three Months Ended December 31, 2011												For the Three Months Ended December 31, 2010
		GAAP				Non-GAAP Adjustments				Adjusted				GAAP				Non-GAAP Adjustments				Adjusted
Net sales		$	55,370			$	—			$	55,370			$	46,331			$	—			$	46,331
Cost of goods sold			46,634				—				46,634				38,784				—				38,784
Gross profit			8,736				—				8,736				7,547				—				7,547
Operating expense (income):
Selling and administrative expenses			5,535				—				5,535				5,689				—				5,689
Internal research and development expenses			218				—				218				155				—				155
Amortization of intangible assets			110				—				110				110				—				110
Restructuring/impairment charges (b)			(59	)			59				—				—				—				—
Gain on acquisition (b)			—				—				—				—				—				—
Gain on sale of property, plant and equipment, net (b)			—				—				—				—				—				—
Other operating expenses			13				—				13				12				—				12
Total operating expense, net			5,817				59				5,876				5,966				—				5,966
Operating income			2,919				(59	)			2,860				1,581				—				1,581
Other income (expense):
Interest expense			(175	)			—				(175	)			(181	)			—				(181	)
Interest income			24				—				24				28				—				28
Gain on sale of investment			127				(127	)			—				—				—				—
Other, net			116				—				116				121				—				121
Total other income (expense), net			92				(127	)			(35	)			(32	)			—				(32	)
Income before provision for income taxes			3,011				(186	)			2,825				1,549				—				1,549
Provision for income taxes (c)			1,069				(67	)			1,002				114				444				558
Net income		$	1,942			$	(119	)		$	1,823			$	1,435			$	(444	)		$	991
Income per share of common stock:
Basic		$	0.19							$	0.18			$	0.14							$	0.10
Diluted		$	0.19							$	0.18			$	0.14							$	0.10
Weighted average shares of common stock outstanding:
Basic			10,287,797								10,287,797				10,209,376								10,209,376
Diluted			10,325,029								10,325,029				10,249,593								10,249,593

 

(a)

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 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.

(b)

We exclude restructuring/impairment charges, gain on acquisition, gain on sale of property, plant and equipment, net and gain on sale of investment 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.

(c)	In the fiscal year 2011 second quarter, we calculate a separate provision for income taxes for GAAP and non-GAAP purposes. For non-GAAP purposes we use a 36% effective tax rate, which represents the projected long-term effective tax rate on non-GAAP pretax income.

 

Page 10 of 14

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SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES (a)

(UNAUDITED)

(Dollars in thousands, except share data)

 

		For the Six Months Ended December 31,												For the Six Months Ended December 31,
		2011												2010
		GAAP				Non-GAAP Adjustments				Adjusted				GAAP				Non-GAAP Adjustments				Adjusted
Net sales		$	107,203			$	—			$	107,203			$	92,098			$	—			$	92,098
Cost of goods sold			90,123				—				90,123				77,525				—				77,525
Gross profit			17,080				—				17,080				14,573				—				14,573
Operating expense (income):
Selling and administrative expenses			10,946				—				10,946				10,523				—				10,523
Internal research and development expenses			616				—				616				282				—				282
Amortization of intangible assets			221				—				221				220				—				220
Restructuring/impairment charges (b)			(59	)			59				—				77				(77	)			—
Gain on acquisition (b)			—				—				—				(2,550	)			2,550				—
Gain on sale of property, plant and equipment, net (b)			—				—				—				(18	)			18				—
Other operating expenses			48				—				48				204				—				204
Total operating expense, net			11,772				59				11,831				8,738				2,491				11,229
Operating income			5,308				(59	)			5,249				5,835				(2,491	)			3,344
Other income (expense):
Interest expense			(347	)			—				(347	)			(351	)			—				(351	)
Interest income			48				—				48				86				—				86
Gain on sale of investment			127				(127	)			—				—				—				—
Other, net			233				—				233				195				—				195
Total other income (expense), net			61				(127	)			(66	)			(70	)			—				(70	)
Income before provision for income taxes			5,369				(186	)			5,183				5,765				(2,491	)			3,274
Provision for income taxes (c)			1,918				(67	)			1,851				100				1,079				1,179
Net income		$	3,451			$	(119	)		$	3,332			$	5,665			$	(3,570	)		$	2,095
Income per share of common stock:
Basic		$	0.34							$	0.32			$	0.56							$	0.21
Diluted		$	0.33							$	0.32			$	0.55							$	0.20
Weighted average shares of common stock outstanding:
Basic			10,287,127								10,287,127				10,204,955								10,204,955
Diluted			10,319,275								10,319,275				10,229,449								10,229,449

 

(a)

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 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.

(b)

We exclude restructuring/impairment charges, gain on acquisition, gain on sale of property, plant and equipment, net and gain on sale of investment 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.

(c)	In the fiscal year 2011 first six months, we calculate a separate provision for income taxes for GAAP and non-GAAP purposes. For non-GAAP purposes we use a 36% effective tax rate, which represents the projected long-term effective tax rate on non-GAAP pretax income.

 

Page 11 of 14

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SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES (a)

(UNAUDITED)

(Dollars in thousands)

 

		For the Three Months Ended								For the Six Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
Net income		$	1,942			$	1,435			$	3,451			$	5,665
Interest expense			175				181				347				351
Interest income			(24	)			(28	)			(48	)			(86	)
Provision for income taxes			1,069				114				1,918				100
Depreciation and amortization			426				364				831				687
Restructuring/impairment charges (b)			(59	)			—				(59	)			77
Gain on acquisition (b)			—				—				—				(2,550	)
Gain on sale of property, plant and equipment, net (b)			—				—				—				(18	)
Gain on sale of investment (b)			(127	)			—				(127	)			—
Adjusted EBITDA (c)		$	3,402			$	2,066			$	6,313			$	4,226

 

(a)

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 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.

(b)

We exclude restructuring/impairment charges, gain on acquisition, gain on sale of property, plant and equipment, net and gain on sale of investment 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.

(c)	Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization as adjusted for restructuring/impairment charges, gain on acquisition, gain on sale of property, plant and equipment, net and gain on sale of investment.

 

Page 12 of 14

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SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES (a)

(UNAUDITED)

(Dollars in thousands)

 

		For the Three Months Ended December 31, 2011
		Medical				CS				DSS				Corporate and Other Unallocated				Total
Operating income (loss)		$	2,332			$	600			$	2,404			$	(2,417	)		$	2,919
Restructuring/impairment charges (b)			(30	)			—				—				(29	)			(59	)
Adjusted operating income (loss)		$	2,302			$	600			$	2,404			$	(2,446	)		$	2,860
Depreciation/amortization (c)		$	178			$	134			$	101			$	13			$	426

 

		For the Three Months Ended December 31, 2010
		Medical				CS				DSS				Corporate and Other Unallocated				Total
Operating income (loss)		$	1,850			$	(106	)		$	2,069			$	(2,232	)		$	1,581
			—				—				—				—				—
Adjusted operating income (loss)		$	1,850			$	(106	)		$	2,069			$	(2,232	)		$	1,581
Depreciation/amortization (c)		$	178			$	120			$	48			$	18			$	364

 

(a)

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 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.

(b)

We exclude restructuring/impairment charges, gain on acquisition and gain on sale of property, plant and equipment, net 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.

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

 

Page 13 of 14

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SPARTON CORPORATION AND SUBSIDIARIES

RECONCILIATON OF NON-GAAP FINANCIAL MEASURES (a)

(UNAUDITED)

(Dollars in thousands)

 

		For the Six Months Ended December 31, 2011
		Medical				CS				DSS				Corporate and Other Unallocated				Total
Operating income (loss)		$	4,219			$	943			$	4,645			$	(4,499	)		$	5,308
Restructuring/impairment charges (b)			(30	)			—				—				(29	)			(59	)
Adjusted operating income (loss)		$	4,189			$	943			$	4,645			$	(4,528	)		$	5,249
Depreciation/amortization (c)		$	347			$	264			$	195			$	25			$	831

 

		For the Six Months Ended December 31, 2010
		Medical				CS				DSS				Corporate and Other Unallocated				Total
Operating income (loss)		$	4,797			$	(9	)		$	5,391			$	(4,344	)		$	5,835
Restructuring/impairment charges (b)			77				—				—				—				77
Gain on acquisition (b)			(2,550	)			—				—				—				(2,550	)
Gain on sale of property, plant and equipment, net (b)			—				(18	)			—				—				(18	)
Adjusted operating income (loss)		$	2,324			$	(27	)		$	5,391			$	(4,344	)		$	3,344
Depreciation/amortization (c)		$	340			$	227			$	84			$	36			$	687

 

(a)

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 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.

(b)

We exclude restructuring/impairment charges, gain on acquisition and gain on sale of property, plant and equipment, net 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.

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

 

Page 14 of 14