Sparton releases fiscal 2006 Q4 results

BDO Seidman LLP, auditors for Electronic Manufacturing Service (EMS) provider, Sparton Corporation (NYSE:SPA - News), have substantially completed their audit for the fiscal year ended June 30, 2006.
 
Net sales for the fourth quarter of fiscal 2006 were $50,503,000 versus $45,881,000 last year. Sales for the year ended June 30, 2006, totaled $170,805,000, an increase of $3,648,000 (2%) from fiscal 2005. Government sales in fiscal 2006 increased from the prior year, primarily due to increased availability of the sonobuoy test range and accepted lots. Industrial sales, which include gaming, improved significantly. This is reflective of continued strong sales to existing customers. Sales in the aerospace market decreased during fiscal 2006 from the prior year, due principally to experiencing strong sales of collision avoidance systems in fiscal 2005, which level of sales were not expected to continue into fiscal 2006. We expect aerospace sales to expand in fiscal 2007. Medical sales improved from the prior year, primarily due to new program start-ups. The Company's new acquisition, Astro Instrumentation, Inc., operates principally in the medical device market. We expect sales in the medical markets will expand as a result of this acquisition. At June 30, 2006 and 2005, the aggregate government funded EMS backlog was approximately $41 million and $42 million, respectively. A majority of the June 30, 2006, backlog is expected to be realized in the next 12-15 months.

The majority of the Company's sales come from a small number of customers. Sales to our six largest customers, including government sales, accounted for approximately 77% of net sales in both fiscal 2006 and 2005. Four of the customers, including government, were the same both years. One customer accounted for 20% and 13% of our sales in fiscal 2006 and 2005, respectively. Additionally, one other customer, with several facilities, provided 19% and 28% of our sales for the years ended June 30, 2006 and 2005, respectively.

The gross profit percentage for the fourth quarter was 7.8%, down from 10.6% for the same period last year. The gross profit percentage of 8.2% was reported for the fiscal year ended June 30, 2006, compared to 10.8% for the fiscal year ended June 30, 2005. The results of Astro for the one month period ended June 30, 2006, did not have a significant impact on the Company's fiscal 2006 results. Gross profit variations from period to period can be affected by a number of factors, including product mix, production efficiencies, capacity utilization, and new product introduction, all of which impacted fiscal 2006 performance. Reflected in gross profit for the year ended June 30, 2006, were charges of $1,789,000 resulting from changes in estimates, primarily related to certain sonobuoy programs. Of these charges, $903,000 were incurred in the fourth quarter. These programs are now expected to be loss contracts and the Company has recognized the entire estimated losses as of June 30, 2006. While some of these programs were completed and shipped by June 30 of this fiscal year, there is a backlog of $5.5 million which will be completed and shipped during fiscal 2007. These $5.5 million of sales will reflect no profit margin upon their sale due to their loss position. In addition, the prior year's gross profit benefited by the inclusion of delayed government sales of $4.7 million. These sales carried a higher than usual margin, contributing $1.7 million in the first quarter of fiscal 2005, which sales the Company was unable to match in fiscal 2006. The current year's reduced gross profit also includes several medical programs, which are operating at a loss or breakeven position due to their current status in the start-up phase. Two of these programs had negative margins which, for the year ended June 30, 2006, totaled $585,000, $269,000 of which occurred during the fourth quarter. The issues related to these losses are being addressed. Finally, discussions and resolution with a customer regarding the recovery of past material component costs, $183,000 of which were previously deferred in fiscal 2005, were not completed during the period and as a result, $378,000 was charged to expense during the year ended June 30, 2006. The Company is continuing its efforts to resolve this issue with the customer and fully recover these costs.