SCHAUMBURG, Ill. -- (Business Wire)

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.”

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.

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.

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.”

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.