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| 8-K - 8-K - SPARTON CORP | spa-7032016x8xkearningsrel.htm |
Media Contact: | Joe McCormack | |||
Sparton Corporation | ||||
Email: ir@sparton.com | ||||
Office: (847) 762-5800 | ||||
FOR IMMEDIATE RELEASE
Sparton Corporation Reports Fourth Quarter and Fiscal Year 2016 Financial Results
SCHAUMBURG, IL. - September 6, 2016 - Sparton Corporation (NYSE: SPA) today announced financial results for its fourth quarter and fiscal year ended July 3, 2016.
Fourth Quarter Financial Results:
• | Net sales of $107.0 million |
• | Gross profit margin of 20.0% |
• | SG&A expenses of $13.5 million, 12.6% of sales; $12.4 million, 11.6% on an adjusted basis |
• | Adjusted operating income of $5.9 million, a 5.5% adjusted operating margin |
• | Recognized an impairment of MDS Segment goodwill of $64.2 million |
• | Loss per share of ($4.30); Earnings per share of $0.50 on an adjusted basis |
• | Adjusted EBITDA of $10.0 million, 9.4% adjusted EBITDA margin |
• | Free cash flow of $26.0 million |
• | Borrowings under Credit Facility reduced $26.2 million from Q3 to $97.2 million |
Fourth Quarter Highlights
• | Announced the exploration of a potential sale of the Company |
• | Amended Credit Facility to provide additional flexibility |
• | 66 new program wins in the MDS Segment with expected annual revenue of $15 million when fully ramped up into production |
• | Total new program wins in the MDS Segment in fiscal 2016 of $61 million of expected annual revenue when fully ramped up into production |
• | $54 million award for the production of domestic sonobuoys |
• | $11 million in awards for the production of foreign sonobuoys |
• | Backlog of: |
• | $138 million in the MDS Segment |
• | $142 million in the ECP Segment principally including: |
• | $117 million in domestic sonobouys |
• | $6 million in foreign sonobouys |
• | $14 million in ruggedized displays |
Fiscal Year 2016 Financial Results:
• | Net sales of $419.4 million |
• | Gross profit margin of 19.1% |
• | SG&A expenses of $55.2 million, 13.2% of sales; $51.9 million, 12.4% on an adjusted basis |
• | Adjusted operating income of $16.3 million, a 3.9% adjusted margin |
• | Loss per share of ($3.91); Earnings per share of $1.56 on an adjusted basis |
• | Adjusted EBITDA of $33.5 million, adjusted EBITDA margin of 8.0% |
• | Free cash flow of $42.0 million |
Joseph J. Hartnett, Interim President & CEO, commented, “Our fourth quarter has been a very active one with the ongoing exploration of a potential sale of the Company as well as continuing to implement operational and financial improvements. Our sales pipeline and new program wins continue to show traction as a result of our focus on organic growth initiatives. Additionally, we believe the Company is well on its way to building a business model that supports profitable revenue growth through new business development and improved operating performance. ”
Joe McCormack, Senior Vice President and CFO, commented, “We recognized an impairment of goodwill in our MDS Segment as a result of the underperformance of our Hunter Technology acquisition and our inability to achieve sufficient organic revenue growth to offset the loss of a large customer as well as revenue declines due to fluctuation in customer demand across the segment. While we are disappointed in the need for a goodwill write-off, we continue to have positive developments in our financial performance including continued quarter over quarter improvements in our revenues, continued reductions in our SG&A footprint, and strong free cash flows.”
SELECTED FINANCIAL DATA
For the Quarters Ended | For Fiscal Year | ||||||||||||||||||
Q4 FY16 | Q3 FY16 | Q4 FY15 | 2016 | 2015 | |||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||
Consolidated: | |||||||||||||||||||
Net sales | $ | 106,967 | $ | 102,175 | $ | 126,393 | $ | 419,362 | $ | 382,125 | |||||||||
Gross profit | 21,422 | 19,067 | 28,090 | 80,148 | 74,814 | ||||||||||||||
Selling and administrative expenses | 13,460 | 13,727 | 16,220 | 55,151 | 46,969 | ||||||||||||||
Impairment of goodwill | 64,174 | — | — | 64,174 | — | ||||||||||||||
Operating income (loss) | (59,417 | ) | 2,676 | 8,809 | (51,789 | ) | 17,252 | ||||||||||||
Adjusted operating income (non-GAAP) | 5,875 | 3,740 | 11,604 | 16,329 | 21,760 | ||||||||||||||
Earnings (loss) per share - diluted | (4.30 | ) | 0.12 | 0.51 | (3.91 | ) | 1.10 | ||||||||||||
Adjusted Earnings (loss) per share (non-GAAP) | 0.50 | 0.34 | 0.81 | 1.56 | 1.74 | ||||||||||||||
EBITDA (non-GAAP) | (55,594 | ) | 6,546 | 12,398 | (36,021 | ) | 28,647 | ||||||||||||
Adjusted EBITDA (non-GAAP) | 10,019 | 7,865 | 15,361 | 33,542 | 34,307 | ||||||||||||||
Adjusted EBITDA margin (non-GAAP) | 9.4 | % | 7.7 | % | 12.2 | % | 8.0 | % | 9.0 | % | |||||||||
Free cash flow | $ | 25,953 | $ | 6,235 | $ | 1,296 | $ | 42,034 | $ | 8,950 | |||||||||
MDS Segment: | |||||||||||||||||||
Gross sales | $ | 72,346 | $ | 68,187 | $ | 84,749 | $ | 282,076 | $ | 263,940 | |||||||||
Intercompany sales | (3,627 | ) | (3,532 | ) | (6,592 | ) | (17,028 | ) | (17,756 | ) | |||||||||
Net sales | 68,719 | 64,655 | 78,157 | 265,048 | 246,184 | ||||||||||||||
Gross profit | 9,732 | 7,771 | 13,094 | 34,788 | 36,461 | ||||||||||||||
Selling and administrative expenses | 3,155 | 3,608 | 6,744 | 14,621 | 11,934 | ||||||||||||||
Allocation of corporate expenses | 2,281 | 2,242 | 1,886 | 9,192 | 6,681 | ||||||||||||||
Impairment of goodwill | 64,174 | — | — | 64,174 | — | ||||||||||||||
Operating Income (loss) | (61,861 | ) | 231 | 2,663 | (61,813 | ) | 9,535 | ||||||||||||
Segment EBITDA, excluding goodwill impairment charge | 7,597 | 5,235 | 7,244 | 24,424 | 25,335 | ||||||||||||||
ECP Segment: | |||||||||||||||||||
Gross sales | $ | 38,262 | $ | 37,566 | $ | 48,305 | $ | 154,559 | $ | 136,315 | |||||||||
Intercompany sales | (14 | ) | (46 | ) | (69 | ) | (245 | ) | (374 | ) | |||||||||
Net sales | 38,248 | 37,520 | 48,236 | 154,314 | 135,941 | ||||||||||||||
Gross profit | 11,690 | 11,296 | 14,961 | 45,360 | 38,353 | ||||||||||||||
Selling and administrative expenses | 3,115 | 2,837 | 2,513 | 11,128 | 8,107 | ||||||||||||||
Allocation of corporate expenses | 1,168 | 1,061 | 981 | 4,354 | 2,931 | ||||||||||||||
Operating Income | 6,196 | 6,424 | 10,286 | 25,880 | 25,033 | ||||||||||||||
Segment EBITDA | 8,009 | 8,140 | 12,027 | 32,821 | 29,602 | ||||||||||||||
Liquidity and Capital Resources
During the fourth quarter of 2016, the Company entered into Amendment #3 to its Credit Facility. This Amendment, among other things, reduced the facility from $275 million to $175 million and changed certain financial covenants to provide additional flexibility. As of July 3, 2016, the Company had $97 million borrowed and $77 million available under the facility.
Outlook
Mr. Hartnett concluded, "Looking forward, we expect the first quarter of fiscal year 2017 revenues to be in the range of $97 million to $101 million with a gross profit margin of approximately 18%. Segment revenues are expected to provide a similar relationship to this quarter's operating results."
Conference Call
The Company will host a conference call on Wednesday, September 7, 2016 at 10:00 a.m. CDT/11:00 a.m. EDT to discuss its fourth quarter and fiscal year 2016 financial results. To participate, callers should dial (888) 222-5602. Participants should dial in at least 5 minutes prior to the start of the call. A Web presentation link, including the slide presentation which will accompany the call, will also be available at: http://tinyurl.com/gpa8376. A replay of the call will be available on Sparton’s Web site: http://www.sparton.com in the “Investors” section.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), Sparton Corporation has provided certain 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 effects 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 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, 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.
When we calculate adjusted earnings per share, adjusted EBITDA and other adjustments to the statements of income, we exclude certain expenses and income, including discrete tax benefits, 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 financial statements, these transactions may limit the comparability of our fundamental operations with prior and future periods. We believe EBITDA and adjusted EBITDA are commonly used by financial analysts and others in the industries in which the Company operates and, thus, provide useful information to investors. The Company does not intend, nor should the reader consider, EBITDA or adjusted EBITDA to be 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 other companies. Accordingly, the measurement has limitations depending on its use.
About Sparton Corporation
Sparton Corporation (NYSE:SPA), now in its 117th 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 & Biotechnology, Military & Aerospace and Industrial & Commercial. Headquartered in Schaumburg, IL, Sparton currently has thirteen manufacturing locations and engineering design centers worldwide. Sparton's Web site may be accessed at www.sparton.com.
Safe Harbor and Fair Disclosure Statement
Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: To the extent any statements made in this release contain information that is not historical, these statements are essentially forward-looking and are subject to risks and uncertainties, including the difficulty of predicting future results, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in Sparton’s filings with the Securities and Exchange Commission (SEC). The matters discussed in this press release may also involve risks and uncertainties concerning Sparton’s services described in Sparton’s filings with the SEC. In particular, see the risk factors described in Sparton’s most recent Form 10K and Form 10Q. Sparton assumes no obligation to update the forward-looking information contained in this press release.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended (Unaudited) | For Fiscal Years | ||||||||||||||||||||||||||
July 3, 2016 | June 30, 2015 | July 3, 2016 | June 30, 2015 | ||||||||||||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||||||||||
Net sales | $ | 106,967 | 100.0 | % | $ | 126,393 | 100.0 | % | $ | 419,362 | 100.0 | % | $ | 382,125 | 100.0 | % | |||||||||||
Cost of goods sold | 85,545 | 80.0 | % | 98,303 | 77.8 | % | 339,214 | 80.9 | % | 307,311 | 80.4 | % | |||||||||||||||
Gross profit | 21,422 | 20.0 | % | 28,090 | 22.2 | % | 80,148 | 19.1 | % | 74,814 | 19.6 | % | |||||||||||||||
Selling and administrative expenses | 13,460 | 12.6 | % | 16,220 | 12.8 | % | 55,151 | 13.2 | % | 46,969 | 12.3 | % | |||||||||||||||
Impairment of goodwill | 64,174 | 60.0 | % | — | — | % | 64,174 | 15.3 | % | — | — | % | |||||||||||||||
Other operating expenses | 3,205 | 3.0 | % | 3,061 | 2.4 | % | 12,612 | 3.0 | % | 10,593 | 2.8 | % | |||||||||||||||
Operating income (loss) | (59,417 | ) | (55.5 | )% | 8,809 | 7.0 | % | (51,789 | ) | (12.3 | )% | 17,252 | 4.5 | % | |||||||||||||
Interest expense and other | (1,101 | ) | (1.0 | )% | (865 | ) | (0.7 | )% | (3,710 | ) | (0.9 | )% | (2,297 | ) | (0.6 | )% | |||||||||||
Income (loss) before income taxes | (60,518 | ) | (56.6 | )% | 7,944 | 6.3 | % | (55,499 | ) | (13.2 | )% | 14,955 | 3.9 | % | |||||||||||||
Income taxes | (18,437 | ) | (17.2 | )% | 2,846 | 2.3 | % | (17,216 | ) | (4.1 | )% | 3,966 | 1.0 | % | |||||||||||||
Net income (loss) | $ | (42,081 | ) | (39.3 | )% | $ | 5,098 | 4.0 | % | $ | (38,283 | ) | (9.1 | )% | $ | 10,989 | 2.9 | % | |||||||||
Income (Loss) per share of common stock: | |||||||||||||||||||||||||||
Basic | $ | (4.30 | ) | $ | 0.52 | $ | (3.91 | ) | $ | 1.10 | |||||||||||||||||
Diluted | (4.30 | ) | 0.51 | (3.91 | ) | 1.10 | |||||||||||||||||||||
Weighted average shares of common stock outstanding: | |||||||||||||||||||||||||||
Basic | 9,791,212 | 9,792,873 | 9,786,315 | 9,874,441 | |||||||||||||||||||||||
Diluted | 9,791,212 | 9,794,603 | 9,786,315 | 9,885,961 | |||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For fiscal years | |||||||
2016 | 2015 | ||||||
($ in thousands) | |||||||
Cash Flows from Operating Activities, net of | |||||||
changes in working capital | $ | 22,084 | $ | 26,161 | |||
Net changes in working capital | 26,048 | (21,624 | ) | ||||
Cash Flows from Operating Activities | 48,132 | 4,537 | |||||
Cash Flows from Investing Activities: | |||||||
Business acquisitions | 178 | (97,319 | ) | ||||
Capital expenditures | (6,098 | ) | (5,802 | ) | |||
Other investing activities | 1,078 | (986 | ) | ||||
Cash Flows from Investing Activities | (4,842 | ) | (104,107 | ) | |||
Cash Flows from Financing Activities: | |||||||
Net change in Credit Facility | (57,294 | ) | 113,500 | ||||
Other financing activities | (778 | ) | (7,044 | ) | |||
Cash Flows from Financing Activities | (58,072 | ) | 106,456 | ||||
Change in Cash and Cash Equivalents | (14,782 | ) | 6,886 | ||||
Cash and Cash Equivalents - Beginning | 14,914 | 8,028 | |||||
Cash and Cash Equivalents - Ending | $ | 132 | $ | 14,914 | |||
CONDENSED CONSOLIDATED BALANCE SHEETS
July 3, 2016 | June 30, 2015 | ||||||
($ in thousands) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 132 | $ | 14,914 | |||
Accounts receivable, net | 46,759 | 70,974 | |||||
Inventories | 77,871 | 79,503 | |||||
Prepaid and other current assets | 5,844 | 5,488 | |||||
Property, plant and equipment, net | 33,320 | 32,608 | |||||
Goodwill | 12,663 | 74,175 | |||||
Other intangible assets, net | 36,933 | 45,825 | |||||
Other assets | 32,476 | 14,064 | |||||
Total assets | $ | 245,998 | $ | 337,551 | |||
Liabilities and Shareholders’ Equity | |||||||
Accounts payable | $ | 38,290 | $ | 29,948 | |||
Accrued expenses | 11,512 | 12,355 | |||||
Other current liabilities | 12,637 | 16,328 | |||||
Credit facility | 97,206 | 154,500 | |||||
Capital lease obligations | 332 | — | |||||
Environmental | 6,117 | 7,117 | |||||
Pension | 1,276 | 424 | |||||
Shareholders’ Equity | 78,628 | 116,879 | |||||
Total Liabilities and Shareholders’ Equity | $ | 245,998 | $ | 337,551 | |||
RECONCILIATION OF NON-GAAP MEASURES
ADJUSTED EPS (NON-GAAP) | For the Quarters Ended | For the Fiscal Year Ended | |||||||||||||||||
Q4 FY16 | Q3 FY16 | Q4 FY15 | 2016 | 2015 | |||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||
Earnings per share - diluted, as reported | $ | (4.30 | ) | $ | 0.12 | $ | 0.51 | $ | (3.91 | ) | $ | 1.10 | |||||||
Nonrecurring items | 4.65 | 0.06 | 0.14 | 4.83 | 0.21 | ||||||||||||||
Amortization of intangible assets | 0.15 | 0.16 | 0.16 | 0.64 | 0.43 | ||||||||||||||
Adjusted earnings per share | $ | 0.50 | $ | 0.34 | $ | 0.81 | $ | 1.56 | $ | 1.74 | |||||||||
Adjustments, net of tax: | |||||||||||||||||||
Impairment of goodwill | $ | 44,766 | $ | — | $ | — | $ | 44,766 | $ | — | |||||||||
Costs related to potential sale of the Company | 436 | 280 | — | 716 | — | ||||||||||||||
Restructuring costs | 107 | 73 | — | 2,070 | — | ||||||||||||||
Other nonrecurring adjustments, net | 184 | 301 | 1,376 | (222 | ) | 2,077 | |||||||||||||
Total nonrecurring | 45,493 | 654 | 1,376 | 47,330 | 2,077 | ||||||||||||||
Amortization of intangible assets | 1,474 | 1,535 | 1,548 | 6,235 | 4,284 | ||||||||||||||
Total adjustments | $ | 46,967 | $ | 2,189 | $ | 2,924 | $ | 53,565 | $ | 6,361 | |||||||||
ADJUSTED EBITDA (NON-GAAP) | For the Quarters Ended | For the Fiscal Year Ended | |||||||||||||||||
Q4 FY16 | Q3 FY16 | Q4 FY15 | 2016 | 2015 | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Net income (loss) | $ | (42,081 | ) | $ | 1,136 | $ | 5,098 | $ | (38,283 | ) | $ | 10,989 | |||||||
Interest expense | 1,059 | 956 | 894 | 3,803 | 2,456 | ||||||||||||||
Income taxes | (18,437 | ) | 612 | 2,846 | (17,216 | ) | 3,966 | ||||||||||||
Depreciation and amortization | 3,865 | 3,842 | 3,560 | 15,675 | 11,236 | ||||||||||||||
EBITDA | (55,594 | ) | 6,546 | 12,398 | (36,021 | ) | 28,647 | ||||||||||||
Adjustments: | |||||||||||||||||||
Impairment of goodwill | 64,174 | — | — | 64,174 | — | ||||||||||||||
Costs related to potential sale of Company | 671 | 430 | — | 1,101 | — | ||||||||||||||
Restructuring charges | 164 | 113 | — | 3,185 | — | ||||||||||||||
Stock-based compensation | 321 | 255 | 167 | 1,445 | 1,885 | ||||||||||||||
Other non-recurring adjustments, net | 283 | 521 | 2,796 | (342 | ) | 3,775 | |||||||||||||
Total adjustments | 65,613 | 1,319 | 2,963 | 69,563 | 5,660 | ||||||||||||||
Adjusted EBITDA | $ | 10,019 | $ | 7,865 | $ | 15,361 | $ | 33,542 | $ | 34,307 | |||||||||
Adjusted EBITDA margin | 9.4 | % | 7.7 | % | 12.2 | % | 8.0 | % | 9.0 | % | |||||||||
ADJUSTED SG&A AND OPERATING INCOME (NON-GAAP)
For the Quarters Ended | |||||||||||||||||||||||
Q4 FY16 | Q3 FY16 | Q4 FY15 | |||||||||||||||||||||
SG&A | Operating Income | SG&A | Operating Income | SG&A | Operating Income | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
As reported | $ | 13,460 | $ | (59,417 | ) | $ | 13,727 | $ | 2,676 | $ | 16,220 | $ | 8,809 | ||||||||||
Percentage of sales | 12.6 | % | (55.5 | )% | 13.4 | % | 2.6 | % | 12.8 | % | 7.0 | % | |||||||||||
Adjustments: | |||||||||||||||||||||||
Impairment of goodwill | — | 64,174 | — | — | — | — | |||||||||||||||||
Costs related to potential sale of the Company | 671 | 671 | 430 | 430 | — | — | |||||||||||||||||
Restructuring costs | 60 | 164 | 371 | 113 | — | — | |||||||||||||||||
Other nonrecurring adjustments, net | 283 | 283 | 321 | 521 | 252 | 2,795 | |||||||||||||||||
Total adjustments | 1,014 | 65,292 | 1,122 | 1,064 | 252 | 2,795 | |||||||||||||||||
As adjusted | $ | 12,446 | $ | 5,875 | $ | 12,605 | $ | 3,740 | $ | 15,968 | $ | 11,604 | |||||||||||
Adjusted percentage of sales | 11.6 | % | 5.5 | % | 12.3 | % | 3.7 | % | 12.6 | % | 9.2 | % | |||||||||||
For the Fiscal Year Ended | |||||||||||||||
July 3, 2016 | June 30, 2015 | ||||||||||||||
SG&A | Operating Income | SG&A | Operating Income | ||||||||||||
(Dollars in thousands) | |||||||||||||||
As reported | $ | 55,151 | $ | (51,789 | ) | $ | 46,969 | $ | 17,252 | ||||||
Percentage of sales | 13.2 | % | (12.3 | )% | 12.3 | % | 4.5 | % | |||||||
Adjustments: | |||||||||||||||
Impairment of goodwill | — | 64,174 | — | — | |||||||||||
Costs related to potential sale of the Company | 1,101 | 1,101 | — | — | |||||||||||
Restructuring costs | 979 | 3,185 | — | 152 | |||||||||||
Other nonrecurring adjustments, net | 1,188 | (342 | ) | 1,322 | 4,356 | ||||||||||
Total adjustments | 3,268 | 68,118 | 1,322 | 4,508 | |||||||||||
As adjusted | $ | 51,883 | $ | 16,329 | $ | 45,647 | $ | 21,760 | |||||||
Adjusted percentage of sales | 12.4 | % | 3.9 | % | 11.9 | % | 5.7 | % | |||||||