Sparton Corporation (NYSE: SPA) today announced results for the third quarter of fiscal year 2016 ended March 27, 2016.
Third Quarter Financial Results
- Net sales of $102.2 million
- Gross profit margin of 18.7%
- SG&A expenses of $13.7 million, 13.4% of sales ($12.7 million, 12.4% on an adjusted basis)
- Earnings per share of $0.12 ($0.34 on an adjusted basis)
- Operating margin of 2.6% (5.9% on an adjusted basis)
- EBITDA margin of 6.4% (7.7% on an adjusted basis)
- Free cash flow of $6.2 million, $16.1 million year-to-date
- Revolving credit facility reduced to $123 million
Third Quarter Highlights
- Finalized closure of Lawrenceville and consolidation of Irvine facilities
- 77 Manufacturing & Design Service Segment new program wins with expected annual revenue of $16 million when fully ramped into production
- Trailing four quarter Manufacturing & Design Service Segment wins total approximating $54 million when fully ramped into production
- $27.6 million award for the production of domestic sonobuoys
- $1.3 million award for the production of foreign sonobuoys
- Backlog of:
- $160 million in the Manufacturing & Design Segment
-
$112 million in the ECP Segment principally including:
- $80 million in domestic sonobouys
- $10 million in foreign sonobouys
- $17 million in ruggedized displays
Joseph J. Hartnett, Interim President & CEO, commented, “Our fiscal third quarter presented the Company with a number of events that made this an unusually challenging quarter. We experienced a change in executive leadership, the announcement of activities related to a strategic alternative review process, the engagement of activist shareholders and the continued integration of our prior year’s acquisitions. In spite of these challenges, we made significant progress towards implementing changes that we believe will contribute to our long-term operating performance.”
Joe McCormack, Senior Vice President and CFO, commented, “While there have been an unusual number of challenges during the quarter we remain committed to driving activities that will improve our operating performance, cash flow and new business development.”
| For the Quarters Ended, | |||||||||||||||||
| March 27, 2016 | December 27, 2015 | March 31, 2015 | |||||||||||||||
| Consolidated: | |||||||||||||||||
| Net sales | $ | 102,175 | $ | 103,529 | $ | 93,065 | |||||||||||
| Gross profit | 19,067 | 18,521 | 18,665 | ||||||||||||||
| Operating income | 2,676 | 454 | 4,882 | ||||||||||||||
| Net income | 1,136 | 268 | 4,133 | ||||||||||||||
| Earnings per share | 0.12 | 0.03 | 0.42 | ||||||||||||||
| For the Quarters Ended, | |||||||||||||||
| March 27, 2016 | December 27, 2015 | March 31, 2015 | |||||||||||||
| Manufacturing and Design Services: | |||||||||||||||
| Gross sales | $ | 68,187 | $ | 67,586 | $ | 62,150 | |||||||||
| Intercompany sales | (3,533 | ) | (4,640 | ) | (4,986 | ) | |||||||||
| Net sales | 64,654 | 62,946 | 57,164 | ||||||||||||
| Gross profit | 7,771 | 6,989 | 8,073 | ||||||||||||
| Operating income (loss) | 231 | (2,524 | ) | 2,093 | |||||||||||
| For the Quarters Ended, | |||||||||||||||
| March 27, 2016 | December 27, 2015 | March 31, 2015 | |||||||||||||
| Engineered Components and Products: | |||||||||||||||
| Gross sales | $ | 37,566 | $ | 40,642 | $ | 36,022 | |||||||||
| Intercompany sales | (45 | ) | (59 | ) | (121 | ) | |||||||||
| Net sales | 37,521 | 40,583 | 35,901 | ||||||||||||
| Gross profit | 11,296 | 11,532 | 10,592 | ||||||||||||
| Operating income | 6,424 | 6,957 | 7,208 | ||||||||||||
Liquidity and Capital Resources
As of March 27, 2016, the Company had $123 million borrowed and approximately $151 million available under its credit facility and had available cash and cash equivalents of $0.8 million.
Outlook
Mr. Hartnett concluded, "We are establishing fiscal fourth quarter 2016 revenue guidance of $100 million to $104 million with gross profit margin of 18.0% to 19.0%. Segment revenue and margins are expected to provide a similar relationship to this quarter's operating results."
Conference Call
The Company will host a conference call on Wednesday, May 4, 2016 at 10:00 a.m. CDT/11:00 a.m. EDT to discuss its fiscal year 2016 third quarter financial results. To participate, callers should dial (888) 221-1894. 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/gkqsdwm. 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, provides 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 116th 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.
SPARTON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) | ||||||||||
| March 27, 2016 | June 30, 2015 | |||||||||
| Assets | (Unaudited) | |||||||||
| Current Assets: | ||||||||||
| Cash and cash equivalents | $ | 834 | $ | 14,914 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $552 and $173, respectively | 61,096 | 70,974 | ||||||||
| Inventories and cost of contracts in progress, net | 79,959 | 79,503 | ||||||||
| Deferred income taxes | 4,714 | 4,714 | ||||||||
| Prepaid expenses and other current assets | 8,132 | 5,488 | ||||||||
| Total current assets | 154,735 | 175,593 | ||||||||
| Property, plant and equipment, net | 34,045 | 32,608 | ||||||||
| Goodwill | 76,837 | 74,175 | ||||||||
| Other intangible assets, net | 39,202 | 45,825 | ||||||||
| Deferred income taxes | 2,281 | 2,199 | ||||||||
| Other assets | 6,281 | 7,151 | ||||||||
| Total assets | $ | 313,381 | $ | 337,551 | ||||||
| Liabilities and Shareholders’ Equity | ||||||||||
| Current Liabilities: | ||||||||||
| Accounts payable | $ | 38,307 | $ | 29,948 | ||||||
| Accrued salaries and wages | 10,852 | 9,089 | ||||||||
| Accrued health benefits | 1,237 | 1,510 | ||||||||
| Performance based payments on customer contracts | — | 1,756 | ||||||||
| Current portion of capital lease obligations | 165 | — | ||||||||
| Other accrued expenses | 11,255 | 16,328 | ||||||||
| Total current liabilities | 61,816 | 58,631 | ||||||||
| Pension liability | 424 | 424 | ||||||||
| Long-term debt | 123,400 | 154,500 | ||||||||
| Environmental remediation | 6,554 | 7,117 | ||||||||
| Capital lease obligations, less current portion | 439 | — | ||||||||
| Total liabilities | 192,633 | 220,672 | ||||||||
| 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, 9,842,458 and 9,886,618 shares issued and outstanding, respectively | 12,303 | 12,358 | ||||||||
| Capital in excess of par value | 16,088 | 16,045 | ||||||||
| Retained earnings | 93,732 | 89,933 | ||||||||
| Accumulated other comprehensive loss | (1,375 | ) | (1,457 | ) | ||||||
| Total shareholders’ equity | 120,748 | 116,879 | ||||||||
| Total liabilities and shareholders’ equity | $ | 313,381 | $ | 337,551 | ||||||
SPARTON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands, except per share data) | ||||||||||||||||||
| For the Third Quarter of Fiscal Years | For the First Three Quarters of Fiscal Years | |||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||||
| Net sales | $ | 102,175 | $ | 93,065 | $ | 312,395 | $ | 255,732 | ||||||||||
| Cost of goods sold | 83,108 | 74,400 | 253,669 | 209,008 | ||||||||||||||
| Gross profit | 19,067 | 18,665 | 58,726 | 46,724 | ||||||||||||||
| Operating Expense: | ||||||||||||||||||
| Selling and administrative expenses | 13,727 | 11,873 | 41,691 | 33,249 | ||||||||||||||
| Internal research and development expenses | 561 | 418 | 1,512 | 715 | ||||||||||||||
| Amortization of intangible assets | 2,361 | 1,492 | 7,323 | 4,317 | ||||||||||||||
| Restructuring charges | (258 | ) | — | 2,102 | — | |||||||||||||
| Reversal of accrued contingent consideration | — | — | (1,530 | ) | — | |||||||||||||
| Total operating expense | 16,391 | 13,783 | 51,098 | 38,281 | ||||||||||||||
| Operating income | 2,676 | 4,882 | 7,628 | 8,443 | ||||||||||||||
| Other income (expense) | ||||||||||||||||||
| Interest expense, net | (956 | ) | (458 | ) | (2,739 | ) | (1,559 | ) | ||||||||||
| Other, net | 28 | 27 | 130 | 127 | ||||||||||||||
| Total other expense, net | (928 | ) | (431 | ) | (2,609 | ) | (1,432 | ) | ||||||||||
| Income before income taxes | 1,748 | 4,451 | 5,019 | 7,011 | ||||||||||||||
| Income taxes | 612 | 318 | 1,221 | 1,120 | ||||||||||||||
| Net income | $ | 1,136 | $ | 4,133 | $ | 3,798 | $ | 5,891 | ||||||||||
| Income per share of common stock: | ||||||||||||||||||
| Basic | $ | 0.12 | $ | 0.42 | $ | 0.38 | $ | 0.59 | ||||||||||
| Diluted | $ | 0.12 | $ | 0.42 | $ | 0.38 | $ | 0.59 | ||||||||||
| Weighted average shares of common stock outstanding: | ||||||||||||||||||
| Basic | 9,789,807 | 9,764,838 | 9,784,544 | 9,874,185 | ||||||||||||||
| Diluted | 9,789,807 | 9,769,375 | 9,784,544 | 9,888,905 | ||||||||||||||
SPARTON CORPORATION AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES - EPS (UNAUDITED) (Dollars in thousands, except per share data) | |||||||||||||||
| For the Quarters Ended, | |||||||||||||||
| March 27, 2016 | December 27, 2015 | March 31, 2015 | |||||||||||||
| Earnings per share, as reported | $ | 0.12 | $ | 0.03 | $ | 0.42 | |||||||||
| Nonrecurring items | 0.06 | 0.06 | (0.09 | ) | |||||||||||
| Earnings per share, excluding nonrecurring items | 0.18 | 0.09 | 0.33 | ||||||||||||
| Amortization of intangible assets | 0.16 | 0.16 | 0.11 | ||||||||||||
| Adjusted earnings per share | $ | 0.34 | $ | 0.25 | $ | 0.44 | |||||||||
Adjustments (net of tax): | |||||||||||||||
| Restructuring charges | $ | (168 | ) | $ | 1,533 | $ | — | ||||||||
| Reversal of accrued contingent consideration | — | (1,530 | ) | — | |||||||||||
| Other nonrecurring costs | 822 | (1) | 606 | (2) | (894 | ) | |||||||||
| Total nonrecurring items | 654 | 609 | (894 | ) | |||||||||||
| Amortization of intangible assets | 1,535 | 1,598 | 1,119 | ||||||||||||
| Total adjustments | $ | 2,189 | $ | 2,207 | $ | 225 | |||||||||
| Weighted average shares of common stock outstanding: | |||||||||||||||
| Basic | 9,789,807 | 9,783,237 | 9,764,838 | ||||||||||||
| Diluted | 9,789,807 | 9,783,237 | 9,769,375 | ||||||||||||
(1) Includes costs related to executive separations, strategic alternatives review and sales process, corporate headcount reduction and nonrecurring legal and consulting costs.
(2) Costs related to corporate headcount reduction and legal settlement.
SPARTON CORPORATION AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES - EBITDA (UNAUDITED) (Dollars in thousands) | |||||||||||||||
| For the Quarters Ended, | |||||||||||||||
| March 27, 2016 | December 27, 2015 | March 31, 2015 | |||||||||||||
| Net income | $ | 1,136 | $ | 268 | $ | 4,133 | |||||||||
| Interest expense | 956 | 900 | 458 | ||||||||||||
| Income tax expense | 612 | (680 | ) | 318 | |||||||||||
| Depreciation and amortization | 3,842 | 4,274 | 2,631 | ||||||||||||
| EBITDA | 6,546 | 4,762 | 7,540 | ||||||||||||
Adjustments: | |||||||||||||||
| Restructuring charges | (258 | ) | 2,360 | — | |||||||||||
| Reversal of accrued contingent consideration | — | (1,530 | ) | — | |||||||||||
| Other nonrecurring costs | 1,265 | (1) | 931 | (2) | 77 | ||||||||||
| Stock-based compensation | 365 | 438 | 500 | ||||||||||||
| Total adjustments | 1,372 | 2,199 | 577 | ||||||||||||
| Adjusted EBITDA | $ | 7,918 | $ | 6,961 | $ | 8,117 | |||||||||
| EBITDA margin | 6.4 | % | 4.6 | % | 8.1 | % | |||||||||
| Adjusted EBITDA margin | 7.7 | % | 6.7 | % | 8.7 | % | |||||||||
(1) Includes costs related to executive separations, strategic alternatives review and sales process, corporate headcount reduction and nonrecurring legal and consulting costs.
(2) Costs related to corporate headcount reduction and legal settlement.
SPARTON CORPORATION AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES - SG&A AND OPERATING INCOME (UNAUDITED) (Dollars in thousands) | ||||||||||||||||||||||||||
| For the Quarters Ended, | ||||||||||||||||||||||||||
| March 27, 2016 | December 27, 2015 | March 31, 2015 | ||||||||||||||||||||||||
| SG&A | Operating Income | SG&A | Operating Income | SG&A | Operating Income | |||||||||||||||||||||
| As reported | $ | 13,727 | $ | 2,676 | $ | 14,340 | $ | 454 | $ | 11,873 | $ | 4,882 | ||||||||||||||
| Percent of sales | 13.4 | % | 2.6 | % | 13.9 | % | 0.4 | % | 12.8 | % | 5.2 | % | ||||||||||||||
Adjustments: | ||||||||||||||||||||||||||
| Restructuring charges | — | (258 | ) | — | 2,360 | — | — | |||||||||||||||||||
| Reversal of accrued contingent consideration | — | — | — | (1,530 | ) | — | — | |||||||||||||||||||
| Other nonrecurring costs | 1,065 | (1) | 1,265 | (1) | 931 | (2) | 931 | (2) | — | 77 | ||||||||||||||||
| Amortization of intangible assets | — | 2,361 | — | 2,459 | — | — | ||||||||||||||||||||
| Total adjustments | 1,065 | 3,368 | 931 | 4,220 | — | 77 | ||||||||||||||||||||
| As adjusted | $ | 12,662 | $ | 6,044 | $ | 13,409 | $ | 4,674 | $ | 11,873 | $ | 4,959 | ||||||||||||||
| Percent of sales | 12.4 | % | 5.9 | % | 13.0 | % | 4.5 | % | 12.8 | % | 5.3 | % | ||||||||||||||
(1) Includes costs related to executive separations, strategic alternatives review and sales process, corporate headcount reduction and nonrecurring legal and consulting costs.
(2) Costs related to corporate headcount reduction and legal settlement.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160503006980/en/
Contacts:
Sparton Corporation
Joe McCormack, 847-762-5800 (Office)
ir@sparton.com
