Form 8-K SPARTON CORP For: Nov 04

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November 4, 2014 4:19 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
��
FORM 8-K
��
CURRENT REPORT
Pursuant to Section�13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 4, 2014
�
�
SPARTON CORPORATION
(Exact Name of Registrant as Specified in its Charter)
�
�
�
�
�
�
�
Ohio
�
1-1000
�
38-1054690
(State or other jurisdiction
�
(Commission
�
(IRS Employer
of incorporation)
�
File Number)
�
Identification No.)
�
�
�
�
425 Martingale Road
�
�
Suite 2050
�
�
Schaumburg, Illinois
�
60173-2213
(Address of Principal Executive Offices)
�
(Zip Code)
Registrants telephone number, including area code: (800)�772-7866
N/A
(Former Name or former address, if changed since last report)
�
�Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
�
�
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
�
�
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
�
�
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
�
�
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item�2.02 Results of Operations and Financial Condition
On November�4, 2014, Sparton Corporation, an Ohio corporation (the Company), issued a press release (the Press Release) announcing the financial results of the first quarter of fiscal year 2015.
The foregoing description of the Press Release is qualified in its entirety by reference to the Press Release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
ITEM�7.01 Regulation FD Disclosure
The Company is holding a call on November�5, 2014 at 10:00 a.m. Central Time to discuss its fiscal year 2015 first quarter financial results, provide a general business update and respond to investor questions. Interested parties may participate in the conference call by dialing (800)�750-5857 at least fifteen minutes before the call is scheduled to begin.
In order to streamline the earnings call process, the Company plans to post its presentation materials for the applicable call on its website and will discontinue filing the script in a Form 8-K prior to the calls.� You can find the presentation materials at the time of the meeting at www.sparton.com under Investor Relations or at https://sparton.globalmeet.com/MikeOsborne.
Investors and financial analysts are invited to ask questions after the presentation is made.
The presentation will be available on the Companys website at www.sparton.com under the heading Investor Relations for a period of up to two (2)�years after the date of the live call.
Item�9.01 Financial Statements and Exhibits
(d)�Exhibits
�
�
�
�
Exhibit No.
��
Description
�
�
Exhibit�99.1
��
Press Release dated November 4, 2014 issued by Sparton Corporation






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
�
�
�
�
�
�
�
�
�
�
�
�
SPARTON CORPORATION
�
�
�
�
Dated: November 4, 2014
�
�
�
By:
�
/s/ Cary B. Wood
�
�
�
�
Cary B. Wood, President and Chief Executive Officer





Index to Exhibits
Item�9.01 Financial Statements and Exhibits
(d)�Exhibits
�
�
�
�
Exhibit No.
��
Description
�
�
Exhibit�99.1
��
Press Release dated November 4, 2014 issued by Sparton Corporation





��
�
�Analyst Contact:
�
Don Pearson
�
�
�
�
Sparton Corporation
�
�
�
�
�
�
�
�
Office: (847)�762-5812
�
�
�
�
�
�
�
Media Contact:
�
Mike Osborne
�
�
�
�
Sparton Corporation
�
�
�
�
�
�
�
�
Office: (847)�762-5814
�
�
�
�
�
�
�
Investor Contact:
�
John Nesbett/Jennifer Belodeau
�
�
�
�
Institutional Marketing Services
�
�
�
�
�
�
�
�
Office: (203)�972-9200
FOR IMMEDIATE RELEASE
Sparton Corporation Reports Fiscal 2015 First Quarter Revenue Growth of 4%
SCHAUMBURG, IL. - November 4, 2014 - Sparton Corporation (NYSE: SPA) today announced results for the first quarter of fiscal 2015 ended September 30, 2014. The Company reported first quarter sales of $77.0 million, an increase of 4%, from $74.3 million for the first quarter of fiscal 2014. Operating income for the first quarter of fiscal 2015 was $0.8 million compared to $3.5 million in the first quarter of fiscal 2014. Net income for the first quarter of fiscal 2015 was $0.2 million or $0.02 per share, basic and diluted compared to net income of $2.3 million, or $0.23 per share, basic and diluted in the same quarter a year ago.
Select Consolidated Results for the Quarters Ended September 30, 2014 and 2013:
�
For the Three Months Ended
�
September 30,
2014
�
% of Sales
�
September 30,
2013
�
% of Sales
$ Chg
�
�% Chg
Net sales
$
77,025

�
100.0
%
�
$
74,301

�
100.0
%
$
2,724

�
3.7
�%
Legacy
62,077

�
80.6
%
�
73,120

�
98.4
%
(11,043
)
�
(15.1
)%
Acquisition
14,948

�
19.4
%
�
1,181

�
1.6
%
13,767

�
nmf

�
�
�
�
�
�
�
�


�
�
Gross profit
12,814

�
16.6
%
�
12,297

�
16.6
%
517

�
4.2
�%
Adjusted gross profit
12,912

�
16.8
%
�
12,297

�
16.6
%
615

�
5.0
�%
�
�
�
�
�
�
�
�


�
�
Selling and administrative expenses
10,599

�
13.8
%
�
7,645

�
10.3
%
2,954

�
38.6
�%
�
�
�
�
�
�
�
�
�
�
�
Operating income
829

�
1.1
%
�
3,480

�
4.7
%
(2,651
)
�
(76.2
)%
Adjusted operating income
1,509

�
2.0
%
�
3,668

�
4.9
%
(2,159
)
�
(58.9
)%
�
�
�
�
�
�
�
�


�
�
Net income
196

�


�
2,286

�
�
(2,090
)
�
(91.4
)%
Adjusted net income
926

�


�
2,412

�
�
(1,486
)
�
(61.6
)%
�
�
�
�
�
�
�
�


�
�
Income per share - basic
0.02

�
�
�
0.23

�
�
(0.21
)
�


Adjusted income per share - basic
0.09

�
�
�
0.24

�
�
(0.15
)
�


�
�
�
�
�
�
�
�


�
�
Income per share - diluted
0.02

�
�
�
0.23

�
�
(0.21
)
�


Adjusted income per share - diluted
0.09

�
�
�
0.24

�
�
(0.15
)
�


�
�
�
�
�
�
�
�


�
�
Adjusted EBITDA
4,113

�
5.3
%
�
5,458

�
7.3
%
(1,345
)
�
(24.6
)%




Cary Wood, President & CEO, commented, As anticipated, the first quarter was adversely impacted by the Manufacturing & Design Services segment (please note new reportable segments described below), in particular the continuing Fenwal rebalancing activity and a push of certain customer orders into future quarters. There were no additional program losses in the quarter and we continue to expect to meet our full year revenue growth target of 3-5%, net of acquisitions. The first quarter results reflected certain increased SG&A costs in anticipation of our future growth as well as a number of unusual charges totaling $1.1 million, or $0.07 per share net of tax benefits, related to our strategic initiatives such as the success based acquisition finder's fee for the purchase of EMT, a change in financial leadership, and fees expensed in relation to the execution of our new credit agreement. We view these items as long-term investments needed to execute our 2020 Vision.
First Quarter Financial Highlights
"
10 new business programs awarded with potential annualized sales of $7.9 million.
"
Completed the acquisition of Electronic Manufacturing Technology, LLC.
"
Entered into new $200 million credit facility with $100 million accordion feature.
"
Awarded $90.5 million subcontract to a $166 million U.S. Navy Sonobuoy contract awarded to the Company's ERAPSCO joint venture. The Navy award is the first award of a five year Indefinite Delivery Indefinite Quantity ("IDIQ") contract that has a maximum value of $810 million.
Acquisition of Electronic Manufacturing Technology, LLC.
On July 9, 2014, the Company completed the acquisition of Electronic Manufacturing Technology, LLC (eMT), located in Irvine, CA. The acquired business, which is part of the Company's Manufacturing & Design Services segment and which is expected to add $25 million in annualized revenue, is engaged in the contract services business of manufacturing electromechanical controls and electronic assemblies. Their customer profile includes international Fortune 1000 manufacturers of highly reliable industrial excimer laser products, laser eye surgery sub-assemblies, target simulators for space and aviation systems, power modules for computerized tomography products, test systems for commercial aerospace OEMs, and toll road antennas and control boxes.
The addition of eMT meets aspects of our 2020 Vision by providing Spartons entrance into the southern California geographic market as well as further enhancing our depth and breadth of capabilities within the electromechanical value stream in the highly regulated and demanding markets we serve, stated Cary Wood. Although this acquisition primarily increases our presence in the Industrial end market, it will further diversify our customer base in the Medical and MilAero markets as well.





























Segment Results
During the first quarter of fiscal 2015, the Company changed its reportable segments to align with the way it internally reports and manages the business. The prior reportable segments of Medical and Complex Systems have been combined and are referred to as Manufacturing & Design Services or "MDS". The prior DSS reportable segment remains unchanged and is now referred to as Engineered Components & Products or "ECP".
Manufacturing & Design Services (MDS)
�
For the Three Months Ended September 30,
�
2014
�
% of Sales
�
2013
�
% of Sales
�
$ Chg
�
% Chg
Sales
�
�
�
�
�
�
�
�
�
�
�
Legacy
$
42,380

�
75.3
%
�
$
56,411

�
94.6
%
�
$
(14,031
)
�
(24.9
)%
Acquisitions
11,621

�
20.7
%
�


�
�
�
11,621

�
�
Intercompany
2,250

�
4.0
%
�
3,206

�
5.4
%
�
(956
)
�
(29.8
)%
���Total Sales
56,251

�
100.0
%
�
59,617

�
100.0
%
�
(3,366
)
�
(5.6
)%
�
�
�
�
�
�
�
�
�
�
�
�
Gross Profit
7,086

�
12.6
%
�
8,949

�
15
%
�
(1,863
)
�
(20.8
)%
�
�
�
�
�
�
�
�
�
�
�
�
Selling and administrative expenses
3,729

�
6.6
%
�
3,234

�
5.4
%
�
495

�
15.3
�%
Amortization of intangible assets
1,251

�
2.2
%
�
598

�
1.0
%
�
653

�
109.2
�%
Restructuring charges


�
�
�
188

�
0.3
%
�
(188
)
�
(100
)%
Operating income
$
2,106

�
3.7
%
�
$
4,929

�
8.3
%
�
$
(2,823
)
�
(57.3
)%
The increase in MDS acquisition revenue relates to acquisitions of Beckwood and Aubrey in fiscal 2014 and the acquisition of eMT in fiscal 2015. The comparative decrease in legacy sales reflects the previously disclosed rebalancing of Fenwal Blood Technologies' program engagements with the Company that began in the Company's fiscal 2014 third quarter. The rebalancing of Fenwal programs negatively affected comparative sales to this customer by $8.1 million in the first quarter of fiscal 2015 and is expected to negatively affect comparative sales to this customer by approximately $19 million in fiscal 2015, substantially all of which will be realized during first half of this year. Further, approximately $7 million of customer orders that were expected in the first quarter have been delayed, as communicated by the customers, to the second and third quarters of this fiscal year.
The decrease in gross margin percentage on MDS sales primarily reflects the negative effect of fixed overhead costs on lower legacy sales. The selling and administrative expense increase primarily reflects incremental direct and allocated expenses related to the eMT, Aubrey and Beckwood operations. The increase in amortization of intangible assets relates to the amortization of customer relationships and non-compete agreements acquired as part of the fiscal 2015 eMT transaction and the customer relationships and non-compete agreements acquired as part of the fiscal 2014 Aubrey and Beckwood transactions.


















Engineered Components & Products (ECP)
�
For the Three Months Ended September 30,
�
2014
�
% of Sales
�
2013
�
% of Sales
�
$ Chg
�
% Chg
Sales
�
�
�
�
�
�
�
�
�
�
�
Legacy
$
19,697

�
85.4
%
�
$
16,709

�
93.4
%
�
$
2,988

�
17.9
�%
Acquisitions
3,327

�
14.4
%
�
1,181

�
6.6
%
�
2,146

�
181.7
�%
Intercompany
45

�
0.2
%
�
3

�

%
�
42

�
nmf

���Total Sales
23,069

�
100.0
%
�
17,893

�
100.0
%
�
5,176

�
28.9
�%
�
�
�
�
�
�
�
�
�
�
�
�
Gross Profit
5,728

�
24.8
%
�
3,348

�
18.7
%
�
2,380

�
71.1
�%
�
�
�
�
�
�
�
�
�
�
�
�
Selling and administrative expenses
2,312

�
10.0
%
�
1,675

�
9.4
%
�
637

�
38.0
�%
Amortization of intangible assets
50

�
0.2
%
�


�

%
�
50

�

Research and development expenses
100

�
0.4
%
�
389

�
2.2
%
�
(289
)
�
(74.3
)%
Operating income
$
3,266

�
14.2
%
�
$
1,284

�
7.2
%
�
$
1,982

�
154.4
�%
The increase in ECP acquisition revenue relates to the acquisition of Aydin during the first quarter of fiscal 2014. The increase in ECP legacy sales reflects increased sonobuoy sales to the U.S. Navy and U.S. Navy engineering sales, partially offset by decreased sonobuoy sales to foreign governments.
Gross profit percentage was positively affected in the current year quarter by increased volume as compared to the prior year quarter. The selling and administrative expense increase primarily reflect incremental direct and allocated expenses related to the Aydin operation acquired August 30, 2013.
Liquidity and Capital Resources
On September 11, 2014, the Company replaced its previous credit facility with a new $200.0 million revolving line-of-credit facility with a group of banks (the Credit Facility) to fund future acquisitions and to support the Companys working capital needs and other general corporate purposes. The Credit Facility expires on September 11, 2019, is secured by substantially all assets of the Company and provides for up to an additional $100.0 million in uncommitted loans.
As of September 30, 2014, the Company had $42.0 million borrowed and approximately $158.0 million available under its credit facility and had available cash and cash equivalents of $6.5 million. As of that date, the Company had received performance based payments under U.S. Navy contracts in excess of the funding of production to date under those contracts of $10.1 million.
The $200 million in credit facilities, coupled with its flexible accordion feature of an additional $100 million, adds to our already strong liquidity position. With access to these funds in place, we plan to continue executing on complementary and compatible acquisitions as a key part of our 2020 Vision,
On October 22, 2014, the Companys Board of Directors approved a repurchase by the Company of up to $5.0 million of shares of its common stock. The Company has been authorized to purchase shares from time to time in open market, block transactions and privately negotiated transactions. The stock repurchase program does not require the Company to repurchase any specific number of shares.�




Outlook
Cary Wood concluded, Although the first quarter was not as strong as previous quarters, the results were as expected, reflecting certain increased SG&A costs in anticipation of our future growth as well as a number of unusual charges related to our strategic initiatives. We continue to maintain guidance that, net of acquisitions, we will achieve our 3-5% full-year revenue growth target. In October, as a continuation to our Fiscal 2010 Strategic Growth Plan, we disseminated to our employees and investors the Companys 2020 Vision, including the three strategies that support how we will achieve that vision. First, we will continue to grow our Manufacturing & Design Services segments capabilities in the same regulated and demanding markets we serve today with select regional expansion. Second, we will grow our Engineered Components & Products segment by acquiring and growing companies that manufacture components and products found in our customers devices that we produce or could produce for them today. Third, we will apply the Sparton Business System to unlock value by deploying best practices and tools to make business improvements as well as being able to effectively & efficiently utilize our financial and human resources. By executing these strategies, we expect to profitably grow the company without overleveraging the balance sheet to $1 billion in revenue by the end of fiscal 2020.
Conference Call
Sparton will host a conference call with investors and analysts on November 5, 2014 at 10:00 a.m. CDT/11:00 a.m. EDT to discuss its fiscal year 2015 first quarter financial results, provide a general business update, and respond to investor questions. To participate, callers should dial (800) 750-5857. 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://sparton.globalmeet.com/MikeOsborne
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 Spartons Web site: http://www.sparton.com in the Investor Relations section for up to two years after the conference call.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), Sparton Corporation has provided non-GAAP financial measures as additional information for its operating results. These measures have not been prepared in accordance with GAAP and may be different from measures used by other companies. Whenever we use non-GAAP financial measures, we designate these measures, which exclude the effect of certain expenses and income, as adjusted and provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. The non-GAAP financial measures eliminate or add certain items of expense and income from cost of goods sold, total operating expense, other income (expense) and provision for (benefit from) income taxes. Management believes that this presentation is helpful to investors in evaluating the current operational and financial performance of our business and facilitates comparisons to historical results of operations. Management discloses this information along with a reconciliation of the comparable GAAP amounts to provide access to the detail and nature of adjustments made to GAAP financial results. While some of these excluded items have been periodically reported in our statements of operations, including significant restructuring and impairment charges, certain success based acquisition finders fees and functional reorganization costs 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, success based acquisition finders fees, certain functional reorganization costs, gross profit effects of capitalized profit in inventory from acquisitions, accelerated recognition of debt financing costs due to refinancing, the related tax effect of these items and unusual discrete tax benefits or expense because we believe that they are not related directly to the underlying performance of our fundamental business operations. We exclude these measures when reviewing financial results and for business planning. Although these events are reflected in our GAAP financials, these transactions may limit the comparability of our fundamental operations with prior and future periods.
Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization as adjusted for restructuring/impairment charges, success based acquisition finders fees, certain functional reorganization costs, gross profit effects of capitalized profit in inventory from acquisitions and accelerated recognition of debt financing costs due to refinancing. The Company believes Adjusted EBITDA is commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors. The Company does not intend, nor should the reader consider, Adjusted EBITDA an alternative to operating income, net income, net cash provided by operating activities or any other items calculated in accordance with GAAP. The Company's definition of Adjusted EBITDA may not be comparable with Adjusted EBITDA as defined by other companies. Accordingly, the measurement has limitations depending on its use.




About Sparton Corporation
Sparton Corporation (NYSE: SPA), now in its 115th year, is a provider of complex and sophisticated electromechanical devices with capabilities that include concept development, industrial design, design and manufacturing engineering, production, distribution, and field service. The primary markets served are Medical & Biotechnology, Military & Aerospace, and Industrial & Commercial.�Headquartered in Schaumburg, IL, Sparton currently has seven manufacturing locations and three design centers 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 Spartons 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 Spartons 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, Spartons 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, Managements Discussion and Analysis of Financial Condition and Results of Operations, in Spartons Form 10-K for the year ended June�30, 2013, and its other filings with the Securities and Exchange Commission. Sparton undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.





SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands, except share per share amounts)
�
�
September 30,
2014
�
June 30,
2014 (a)
Assets
�
�
�
Current Assets:
�
�
�
Cash and cash equivalents
$
6,546

�
$
8,028

Accounts receivable, net of allowance for doubtful accounts of $111 and $126, respectively
40,239

�
48,697

Inventories and cost of contracts in progress, net
57,201

�
53,372

Deferred income taxes
3,811

�
3,813

Prepaid expenses and other current assets
4,684

�
2,654

Total current assets
112,481

�
116,564

Property, plant and equipment, net
29,288

�
28,523

Goodwill
31,986

�
28,189

Other intangible assets, net
27,081

�
20,041

Deferred income taxes  non-current
1,218

�
1,192

Other non-current assets
5,081

�
4,471

Total assets
$
207,135

�
$
198,980

Liabilities and Shareholders Equity
�
�
�
Current Liabilities:
�
�
�
Current portion of long-term debt
$


�
$
900

Accounts payable
17,937

�
16,543

Accrued salaries and wages
7,935

�
7,854

Accrued health benefits
1,879

�
1,538

Performance based payments on customer contracts
10,095

�
3,196

Other accrued expenses
9,851

�
11,090

Total current liabilities
47,697

�
41,121

Long-term debt  non-current portion
42,000

�
40,100

Environmental remediation  non-current portion
7,502

�
7,644

Total liabilities
97,199

�
88,865

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, 10,062,125 and 10,129,031 shares issued and outstanding, respectively
12,578

�
12,661

Capital in excess of par value
19,166

�
19,478

Retained earnings
79,140

�
78,944

Accumulated other comprehensive loss
(948
)
�
(968
)
Total shareholders equity
109,936

�
110,115

Total liabilities and shareholders equity
$
207,135

�
$
198,980




(a) Derived from the Company's audited financial statements as of June 30, 2014.





SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands, except per share amounts)
�
�
For the Three Months Ended
�
September 30,
2014
�
September 30,
2013
Net sales
$
77,025

�
$
74,301

Cost of goods sold
64,211

�
62,004

Gross profit
12,814

�
12,297

Operating Expense:
�
�
�
Selling and administrative expenses
10,599

�
7,645

Internal research and development expenses
100

�
389

Amortization of intangible assets
1,301

�
598

Restructuring charges


�
188

Other operating income, net
(15
)
�
(3
)
Total operating expense, net
11,985

�
8,817

Operating income
829

�
3,480

Other income (expense):
�
�
�
Interest expense
(746
)
�
(158
)
Interest income
2

�
2

Other, net
146

�
69

Total other expense, net
(598
)
�
(87
)
Income before provision for income taxes
231

�
3,393

Provision for income taxes
35

�
1,107

Net income
$
196

�
$
2,286

Income per share of common stock:
�
�
�
Basic
$
0.02

�
$
0.23

Diluted
$
0.02

�
$
0.23

Weighted average shares of common stock outstanding:
�
�
�
Basic
9,960,817

�
10,072,694

Diluted
9,985,111

�
10,104,089









SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
�
For the Three Months Ended
�
September 30,
2014
�
September 30,
2013
Cash Flows from Operating Activities:
�
�
�
Net income
$
196

�
$
2,286

Adjustments to reconcile net income to net cash provided (used in) by operating activities:
�
�
�
Depreciation
1,118

�
1,123

Amortization of intangible assets
1,340

�
598

Deferred income tax benefit
(36
)
�
(122
)
Stock-based compensation expense
449

�
297

Excess tax benefit of stock-based compensation
(974
)
�
(460
)
Other
451

�
36

Changes in operating assets and liabilities, net of business acquisitions:
�
�
�
Accounts receivable
12,882

�
2,715

Inventories and cost of contracts in progress
1,848

�
(1,299
)
Prepaid expenses and other assets
(469
)
�
165

Performance based payments on customer contracts
6,898

�
(7,536
)
Accounts payable and accrued expenses
(5,086
)
�
(3,098
)
Net cash provided by (used in) operating activities
18,617

�
(5,295
)
Cash Flows from Investing Activities:
�
�
�
Acquisition of businesses, net of cash acquired and post-closing adjustments
(18,260
)
�
(15,000
)
Purchases of property, plant and equipment
(1,013
)
�
(474
)
Proceeds from sale of property, plant and equipment


�
37

Net cash used in investing activities
(19,273
)
�
(15,437
)
Cash Flows from Financing Activities:
�
�
�
Borrowings of long-term debt
20,014

�
25,500

Repayment of long-term debt
(19,014
)
�
(7,035
)
Payment of debt financing costs
(982
)
�


Repurchase of stock
(1,830
)
�
(1,559
)
Proceeds from the exercise of stock options
12

�


Excess tax benefit from stock-based compensation
974

�
460

Net cash provided by (used in) financing activities
(826
)
�
17,366

Net decrease in cash and cash equivalents
(1,482
)
�
(3,366
)
Cash and cash equivalents at beginning of period
8,028

�
6,085

Cash and cash equivalents at end of period
$
6,546

�
$
2,719

Supplemental disclosure of cash flow information:
�
�
�
Cash paid for interest
$
291

�
$
153

Cash paid for income taxes
$
1,529

�
$
338

Supplemental disclosure of non-cash investing activities:
�
�
�
Accounts receivable recognized in relation to acquisition purchase consideration adjustments
$
216

�
$
105

Accounts payable recognized in relation to acquisition purchase consideration adjustments
$
616

�
$
357




�










SPARTON CORPORATION AND SUBSIDIARIES
SELECT SEGMENT INFORMATION
(UNAUDITED)
(Dollars in thousands)
Net sales:
�
�
�
�
�
�
For the Three Months Ended September 30,
SEGMENT
2014
�
2013
�
%�Chg
Manufacturing & Design Services
$
56,251

�
$
59,617

�
(5.6
)%
Engineered Components & Products
23,069

�
17,893

�
28.9

Eliminations
(2,295
)
�
(3,209
)
�
(28.5
)
Totals
$
77,025

�
$
74,301

�
3.7


Gross profit:
�
�
�
�
�
�
�
�
For the Three Months Ended September 30,
SEGMENT
2014
�
GP %
�
2013
�
GP %
Manufacturing & Design Services
$
7,086

�
12.6
%
�
$
8,949

�
15.0
%
Engineered Components & Products
5,728

�
24.8

�
3,348

�
18.7

Totals
$
12,814

�
16.6

�
$
12,297

�
16.6


Adjusted gross profit:
�
�
�
�
�
�
�
�
For the Three Months Ended September 30,
SEGMENT
2014
�
GP %
�
2013
�
GP %
Manufacturing & Design Services
$
7,184

�
12.8
%
�
$
8,949

�
15.0
%
Engineered Components & Products
5,728

�
24.8

�
3,348

�
18.7

Totals
$
12,912

�
16.8

�
$
12,297

�
16.6


Operating income:�
�
�
�
�
�
�
�
�
For the Three Months Ended September 30,
SEGMENT
2014
�
% of Sales
�
2013
�
% of Sales
Manufacturing & Design Services
$
2,106

�
3.7
%
�
$
4,929

�
8.3
%
Engineered Components & Products
3,266

�
14.2

�
1,284

�
7.2

Other Unallocated
(4,543
)
�


�
(2,733
)
�


Totals
$
829

�
1.1

�
$
3,480

�
4.7


Adjusted operating income:
�
�
�
�
�
�
�
�
For the Three Months Ended September 30,
SEGMENT
2014
�
% of Sales
�
2013
�
% of Sales
Manufacturing & Design Services
$
2,204

�
3.9
%
�
$
5,117

�
8.6
%
Engineered Components & Products
3,266

�
14.2

�
1,284

�
7.2

Other Unallocated
(3,961
)
�


�
(2,733
)
�


Totals
$
1,509

�
2.0

�
$
3,668

�
4.9





SPARTON CORPORATION AND SUBSIDIARIES
RECONCILIATON OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
(Dollars in thousands, except share data)

�
For the Three Months Ended September 30, 2014
�
For the Three Months Ended September 30, 2013
�
GAAP
�
Non-GAAP Adjustment
�
Adjusted
�
GAAP
�
Non-GAAP Adjustment
�
Adjusted
Net sales
$
77,025

�
$


�
$
77,025

�
$
74,301

�
$


�
$
74,301

Cost of goods sold
64,211

�
(98
)
(a)
64,113

�
62,004

�


�
62,004

Gross profit
12,814

�
98

�
12,912

�
12,297

�


�
12,297

Operating Expense:
�
�
�
�
�
�
�
�
�
�
�
Selling and administrative expenses
10,599

�
(582
)
(b)
10,017

�
7,645

�


�
7,645

Research and development expenses
100

�


�
100

�
389

�


�
389

Amortization of intangible assets
1,301

�


�
1,301

�
598

�


�
598

Restructuring charges


�


�


�
188

�
(188
)
�


Other operating income, net
(15
)
�


�
(15
)
�
(3
)
�


�
(3
)
Total operating expense, net
11,985

�
(582
)
�
11,403

�
8,817

�
(188
)
�
8,629

Operating income
829

�
680

�
1,509

�
3,480

�
188

�
3,668

Other income (expense):
�
�
�
�
�
�
�
�
�
�
�
Interest expense
(746
)
�
421

(c)
(325
)
�
(158
)
�


�
(158
)
Interest income
2

�


�
2

�
2

�


�
2

Other, net
146

�


�
146

�
69

�


�
69

Total other expense, net
(598
)
�
421

�
(177
)
�
(87
)
�


�
(87
)
Income before provision for income taxes
231

�
1,101

�
1,332

�
3,393

�
188

�
3,581

Provision for income taxes
35

�
371

�
406

�
1,107

�
62

�
1,169

Net income
$
196

�
$
730

�
$
926

�
$
2,286

�
$
126

�
$
2,412

Income per share of common stock:
�
�
�
�
�
�
�
�
�
�
�
Basic
$
0.02

�
�
�
$
0.09

�
$
0.23

�
�
�
$
0.24

Diluted
$
0.02

�
�
�
$
0.09

�
$
0.23

�
�
�
$
0.24

Weighted average shares of common stock outstanding:
�
�
�
�
�
�
�
�
�
�
�
Basic
9,960,817

�
�
�
9,960,817

�
10,072,694

�
�
�
10,072,694

Diluted
9,985,111

�
�
�
9,985,111

�
10,104,089

�
�
�
10,104,089

(a)
Gross profit effect of capitalized profit in inventory from acquisitions.
(b)
Includes adjustments to remove $430 success based acquisition finders fee paid in relation to the acquisition of eMT and $152 of costs recognized in relation to the reorganization of the Company's finance function.
(c)
accelerated recognition of unamortized debt financing costs from prior credit facility due to refinancing.






SPARTON CORPORATION AND SUBSIDIARIES
RECONCILIATON OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
(Dollars in thousands)


�
For the Three Months Ended
�
September 30,
2014
�
September 30,
2013
Net income
$
196

�
$
2,286

Interest expense
746

(a)
158

Interest income
(2
)
�
(2
)
Provision for income taxes
35

�
1,107

Depreciation and amortization
2,458

�
1,721

Restructuring/impairment charges


�
188

Gross profit effect of capitalized profit in inventory from acquisitions
98

�


Success based acquisition finders fees
430

�


Finance function reorganization
152

�


Adjusted EBITDA
$
4,113

�
$
5,458

(a)
includes $421 accelerated recognition of unamortized debt financing costs from prior credit facility due to refinancing.






SPARTON CORPORATION AND SUBSIDIARIES
RECONCILIATON OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
(Dollars in thousands)


�
For the Three Months Ended September 30, 2014
�
Manufacturing & Design Services
�
Engineered Components & Products
�
Other
Unallocated
�
Total
Gross profit
$
7,086

�
$
5,728

�
$


�
$
12,814

Gross profit effect of capitalized profit in inventory from acquisition
98

�


�


�
98

Adjusted gross profit
$
7,184

�
$
5,728

�
$


�
$
12,912


�
For the Three Months Ended September 30, 2013
�
Manufacturing & Design Services
�
Engineered Components & Products
�
Other
Unallocated
�
Total
Gross profit
$
8,849

�
$
3,348

�
$


�
$
12,197

Gross profit effect of capitalized profit in inventory from acquisition


�


�


�


Adjusted gross profit
$
8,849

�
$
3,348

�
$


�
$
12,197


�
For the Three Months Ended September 30, 2014
�
Manufacturing & Design Services
�
Engineered Components & Products
�
Other
Unallocated
�
Total
Operating income (loss)
$
2,106

�
$
3,266

�
$
(4,543
)
�
$
829

Gross profit effect of capitalized profit in inventory from acquisition
98

�


�


�
98

Success based acquisition finders fees
�
�
�
�
$
430

�
430

Finance reorganization
�
�
�
�
$
152

�
152

Adjusted operating income (loss)
$
2,204

�
$
3,266

�
$
(3,961
)
�
$
1,509

�
�
�
�
�
�
�
�
Depreciation/amortization
$
2,059

�
$
292

�
$
107

�
$
2,458



�
For the Three Months Ended September 30, 2013
�
Manufacturing & Design Services
�
Engineered Components & Products
�
Other
Unallocated
�
Total
Operating income (loss)
$
4,929

�
$
1,284

�
$
(2,733
)
�
$
3,480

Restructuring/impairment charges
$
188

�
�
�
�
�
188

Adjusted operating income (loss)
$
5,117

�
$
1,284

�
$
(2,733
)
�
$
3,668

�
�
�
�
�
�
�
�
Depreciation/amortization
$
1,455

�
$
174

�
$
92

�
$
1,721






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