1
INVESTOR PRESENTATION NYSE: SPA
July 2014
2
Safe Harbor Statement
Certain statements herein constitute forward-looking statements within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. When used herein, words such as “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “will” or “intend” and similar words or expressions as they relate to the Company or its management constitute forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are based on currently available financial, economic and competitive data and our current business plans. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, prices and other factors. Important factors that could cause actual results to differ materially from those forward-looking statements include those contained under the heading of risk factors and in the management’s discussion and analysis contained from time-to-time in the Company’s filings with the Securities and Exchange Commission.
Adjusted EBITDA and related reconciliation presented here represents earnings before interest, taxes, depreciation and amortization as adjusted for restructuring/impairment charges, gross profit effects of capitalized profit in inventory from acquisition and acquisition contingency settlement, and gain on sale of investment. 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 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.
3
Investment Considerations
Continued EPS
Growth
Established
Growing
Business
Expanded
EBITDA Margins
Solid
Balance Sheet
Repositioned the
Company for Growth
113 year old business with market leadership in defense and
medical sectors; 19% sales increase in fiscal 2013; 33% year-over-
year adjusted EBITDA increase in fiscal 2013
As of March 31, 2014, Debt to EBITDA coverage of 1.2x with $35
million borrowed, $30 million unused and a $35 million accordion on
the line of credit.
Fiscal 2013: 8.1% Fiscal 2010: 4.5%
Fiscal 2012: 7.6% Fiscal 2009: -4.8%
Fiscal 2011: 7.4% Fiscal 2008: -2.0%
Fiscal 2013: $ 1.17 Fiscal 2010: $ (0.40)
Fiscal 2012: $ 0.91 Fiscal 2009: $ (1.61)
Fiscal 2011: $ 0.64 All adjusted and include dilution.
New Programs
New Customers
Potential Annualized Revenue 39.4$
FY12
40
20
23.8$ 17.7$
FY13
71
12
FY11
26
11
4
Mission
Sparton will continue to differentiate itself as a premier supplier
of sophisticated electromechanical devices, sub-assemblies
and related services for highly regulated environments in the
Medical, Military & Aerospace, and Industrial markets by
leveraging and expanding its capabilities and offerings within
the electromechanical value stream.
5
• Sparton is in one single line of business called Electromechanical Devices
• Sparton is currently segmented into three financial reporting business units
Defense & Security Design and Manufacturing (both as a contractor and OEM)
Medical Device Contract Design, Manufacturing, and Assembly
Complex Systems Commonly referred to within legacy Sparton as EMS, but
currently consists of circuit card assembly and box build
(contract manufacturing and assembly) outside of the medical
and defense markets. In the future, may include electro-
mechanical based B2B products as well as EMS services.
• Sparton currently serves three electronics markets
– Military & Aerospace
– Medical
– Industrial & Instrumentation
Our Business
6
Strategically Located
• Nine domestic and one low-cost country
manufacturing facilities; four engineering
centers
– De Leon Springs, FL (Orlando)
– Birdsboro, PA (Philadelphia)
– Strongsville, OH (Cleveland)
– Watertown, SD (Sioux Falls)
– Frederick, CO (Denver)
– Brooksville, FL (Tampa)
– Plaistow, NH (Boston)
– Irvine, CA “Aubrey” (Los Angeles)
– Irvine, CA “eMT” (Los Angeles)
– Ho Chi Minh City, Viet Nam
• 1,500+ employees worldwide
• 100+ engineers on staff
MX
2
7
Senior Management Team
Cary B. Wood, Chief Executive Officer
• Appointed CEO November 2008
• Formerly Chief Operating Officer of Citation Corporation, a private company with foundry, machinery and assembly operations with 20+ years of experience at GM, United Technologies & Elkay Manufacturing
• Developed a track record with performance turn-around and growth strategies in both private and public company settings
Mark Schlei, Chief Financial Officer
• Appointed CFO in November 2012
• Previously CFO at Paperworks Industries, Thetford Corporation, and Lake City Industries as well as Corporate Controller for Littelfuse, Inc. and various financial roles at Newell Company.
Gordon Madlock, Senior Vice President – Operations
• 30+ years experience improving manufacturing quality and productivity at companies including Citation Corporation, Lear Corp. and United Technologies
Mike Osborne, Senior Vice President – Corporate Development
• Responsible for driving corporate and business unit strategic planning and development, M&A activity, business development & customer retention, and investor relations
Steve Korwin, Senior Vice President – Quality & Engineering
• Extensive experience leading manufacturing operations and improving quality processes to increase profitability and sales
Larry Brand, Vice President – Corporate HR
• Considerable experience providing strategic leadership and tactical direction for the overall Human Resources function to senior management and company leadership teams
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X X X X P P P
Complex Systems Complex Systems
Market Dynamics
Medical Industrial &
Instrumentation
Military &
Aerospace Computer Automotive Consumer Communication
Electronics Market ($1.3 trillion)
Total 2010 EMS/ODM Outsourced Market: $276 billion
2010 – 2013 Compounded Annual Growth Rate: 7.6%
Defense & Security
Navigation & Exploration Medical
= business segment market focus
Highly regulated
market (FDA)
High growth
Blue chip
customers
New to
outsourcing
Contract design,
mfg, and assembly
roll-up opportunity
Highly regulated
market (ITAR,
COMSEC)
Moderate growth
Blue chip
customers
Preferred supplier
status
Contract design,
mfg, and assembly
roll-up opportunity
Moderate growth
Blue chip
customers
Preferred supplier
status
New to
outsourcing
Contract design,
mfg, and assembly
roll-up opportunity
Highest growth
sector
No current
customers
Volume &
commodity pricing
resulting in low
margins
OEMs are experts
at outsourcing
High growth
High volume
production drives
lower margins
Outsourcing
mostly in low cost
country regions
Complexity is
general low
Moderate growth
High volume
production drives
lower margins
Outsourcing
mostly in low cost
country regions
OEMs are experts
at outsourcing
Moderate growth
High volume
production drives
lower margins
Outsourcing
mostly in low cost
country regions
OEMs are experts
at outsourcing
Source: Technology Forecasters Inc, Dec. 2010
Market: $15B
Growth: 9.3%
Market: $6B
Growth: 6.2%
Market: $20B
Growth: 6.6%
Market: $10B
Growth: 12.9%
Market: $44B
Growth: 7.8%
Market: $84B
Growth: 6.8%
Market: $98B
Growth: 3.1%
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Vision
Sparton will become a $500 million revenue entity by
fiscal 2015 by attaining key market positions in our
primary lines of business and through complementary
and compatible acquisitions; and will consistently
rank in the top half of our peer group in return on
shareholder equity and return on net assets.
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122
137 145
127
147 148 156
212 209 200
183
192
175
0
50
100
150
200
250
($ in
mill
ion
s)
Medical 55%
DSS 29%
Complex Systems
16%
Backlog
Shifting Revenue Mix To
Higher Margin Businesses
DSS 20% - 25%
Medical 13% - 16%
Complex Systems 9% - 12%
FY2013 by Reporting Segment (Revenue of $266 million)
FY2009 by Segment (Revenue of $221 million)
Complex
Systems
18%
DSS 34%
Medical 48%
FY2014 Target Gross Margin by Segment
FY2013 by Market (Revenue of $266 million)
Medical
29%
DSS
19%
EMS
52%
Medical48%MilAero
42%
Industrial 10%
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• Develop, design, and manufacture security
products, primarily anti-submarine warfare
detection devices for the U.S. and other free-
world governments
• Develop and manufacture ruggedized flat-
panel monitors and systems
• Commercially develop spin-off technology for
existing and alternate markets (Navigation &
Exploration)
• FY2013 Sales: $77 million, consistently
profitable business
• Visible Business: $59 million in government
funded backlog as of March 31, 2014
• Key Customers:
Defense & Security Systems
Sonobuoys Navigation
Sensors
Ruggedized Flat
Panel Displays
12
Defense & Security Systems Market Outlook
• Government FY2009 production peak was realized primarily in Sparton’s FY2011
– Reduced U.S. Navy sonobuoy production volume in Sparton’s FY2012 will be partially offset by the pursuit of new developmental engineering funds from the DoD for Antisubmarine Warfare related applications ($37 million over 5 years of engineering funds already announced)
• Limited risk of a negative impact of sonobuoy sales to the U.S. Navy if sequestration occurs
– Anti-Submarine Warfare budget line item is less than $250 million
– Budget is a small fraction of the cost of a single ship
• Foreign sales are still somewhat unpredictable
– Continued military actions taken by North Korea and China should have an impact in the use of sonobuoys in that region
– The leak of government sensitive information may also put foreign nations on guard and require more monitoring of their territorial waterways
• The Boeing P-8 Poseidon aircraft to become the new launch vehicle for sonobuoys
– U.S. Navy plans to buy 117 P-8A anti-submarine warfare, anti-surface warfare, intelligence, surveillance and reconnaissance aircraft to replace its existing P-3 fleet. Initial operational capability is scheduled for 2013.
– The Indian navy signed a contract for eight P-8I aircraft in January 2009. Boeing will deliver the first P-8I within 48 months of contract signing and the remaining seven by 2015.
$5
$6
$10
$11 $11
$8
$10
$11 $11 $12
$12
$13 $13
$-
$2
$4
$6
$8
$10
$12
$14
$16
0
20
40
60
80
100
120
140
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E FY2016E FY2017E FY2018E FY2019E FY2020E
$ s
pe
nd
(in
mill
ion
s)
# o
f e
ngi
ne
ers
DSS Engineering Activity
Engineers (FTE) Engineering Project Spend - Gov't & IR&D ($ in mil)
$31.1
$53.7
$40.9 $42.3 $49.3
$53.0
0
20
40
60
80
100
120
140
160
180
200
GFY 2008 GFY 2009 GFY 2010 GFY 2011 GFY 2012 GFY 2013 GFY2014E
GFY2015E
GFY2016E
GFY2017E
GFY2018E
GFY2019E
GFY2020E
Spe
nd
($
in m
illio
ns)
DoD Estimated ASW Budgets / SPA Historical Spend
Source: Navy Budget (Actual/Estimate) Navy Spend on Buoys (Actual) Navy Spend on Buoys (Estimate) Sparton Awards (Actual)
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Medical
• Design and manufacture medical devices
and instruments for the In Vitro Diagnostics
and Therapeutics Device markets
• Work with OEMs and biomedical companies to
interface their core technology into a complex medical
laboratory instrument or point of care device
• Manufacturer of The NeuroStar® TMS Therapy
System, the first and only Transcranial Magnetic
Stimulation (TMS) device cleared by the FDA for the
treatment of depression
• Recurring revenue due to highly regulated
medical industry
• FY2013 Sales: $147 million of consistently
profitable business
• Visible Business: $80 million of backlog as of
March 31, 2014
• Key Customers:
Analyzers
Neurology
Blood Separation
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Complex Systems
• Manufacturer of circuit card assemblies and
electronic based box build products primarily
for the military and commercial aerospace
markets
• New prototyping capabilities to shorten
development and introduction lead times for
customers
• Consolidated business from old and
inefficient sites to state-of-the-art and
technologically advanced facilities in Florida
and Viet Nam for improved efficiencies and
capacity utilization
• FY2013 External Sales: $42 million
• Visible Business: $36 million of backlog as of
March 31, 2014
• Key Customers:
Circuit Board
Assembly Sub Assembly
Complete System Box Build
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Growth Investments Summary
Focus: Use growth investments to achieve sustainable year-over-year revenue and profit
increases and to further place protective barriers around Sparton.
Strategic M&A
Internal Research &
Development (IP)
Targeted Business
Development
Supported by market research & go-to-
market programs
Aubrey Group
New Programs
New Customers
Potential Annualized Revenue
Acquisitions
New Business Awards
FY13
71
Fiscal 2011
Delphi Medical
Byers Peak
12
FY11
26
11
Fiscal 2015
eMT
Fiscal 2014
PHOD-1
Aydin Displays
Beckwood Services
Fiscal 2013
Onyx EMS
Creonix
FY12
40
20
23.8$ 17.7$
Internal Research & Development
Fiscal 2011
Gyro-enhanced digital compass
Hydrophone
39.4$
GEDC-6
Fiscal 2012
AHRS-8 Temperature compensated attitude heading reference system
Fiscal 2014
IMU-10 Harsh environment inertial sensing system
16
Acquisition Update
eMT(Jul ’14)
• $25 million in revenue
• Device mfg for the Industrial,
Medical & mil/aero market
• Stand-alone in Irvine, CA
• Major Customers are Cypher,
ASML, Alcon LenSx, Teal, Exelis,
and Raytheon.
Aydin Displays (Aug ’13)
• $18 million in revenue
• Ruggedized video displays
• Located near Philadelphia
• Major Customers are the U.S.
Navy, BAE, and the FAA
Aubrey Group (Mar ’14)
• $8 million in revenue
• Product development and
engineering in the Medical market
• Located in Irvine, CA
• Major Customers are Life Sciences,
Kimberly Clark and Nanomix
Beckwood Services (Nov ’13)
• $18 million in revenue
• Industrial control panels & Patriot
missile launcher controls
• Located near Boston
• Major Customers are Trumpf,
Raytheon, and ESI
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• Acquired assets of Delphi Medical in August 2010
and certain assets and liabilities of Byers Peak in
March 2011 (both FY11)
• Immediately replaced the General Manager at
Delphi and developed a 100 day plan
• Deployed the Sparton Production System
– Instilled a culture of safety
– Aligned the organization to Sparton’s Corporate
Values
– Implemented Sparton’s balanced scorecard
methodology
– Consolidated 3 facilities into 1 location
– Reduced fixed overhead structure by $1.2 million
– Applied S&OP to reduce inventory and increase on-
time delivery from 70% to 95%+
• Grew the business at a 17% CAGR
– Account expansion with key customers increased
quickly once service level issues were resolved
– Won new business opportunities through acquired
funnels and from the recently launched national
business development process & organization
• Leveraged the Vietnam location to multiple
customers (3 programs were transferred)
Acquisition Reconciliation Delphi Medical & Byers Peak (now Frederick)
ACQUISITION RESULTS (7/1/09 to 6/30/13)
Revenue FY11 $39 million
FY12 $67 million
FY13 $74 million
Days Inventory FY11 126 days
On-Hand (DIO) FY12 92 days
FY13 73 days
On-Time FY11 70%
Delivery (OTD) FY12 88%
FY13 96%
95% increase in sales
26 percentage point improvement
42% reduction
ROI: 68.1%
Payback: 2.0 years
18
Financial Highlights
19
• Quarterly revenue grew 29% to $84 million as compared to the same
quarter of the prior year
– Organic growth, net of acquisitions, increased 11% from the same quarter of
the prior year.
• Adjusted EBITDA grew 120% in the quarter and 73% YTD as compared
to the prior year periods
• 20 new business programs awarded with potential annualized sales of
$6.1 million
• Completed the acquisition of Aubrey Group, Inc.
3rd Quarter Highlights
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Consolidated Financial Results Fiscal 2014 YTD
(Adjusted)
2014 2013 2014 2013
Net Sales $ 242,691 $ 183,203 $ 242,691 $ 183,203 $ 59,488
Gross Profit 43,597 30,220 43,853 30,786 13,067
18.0% 16.5% 18.1% 16.8%
Selling and Administrative Expense 25,139 19,650 25,139 19,650 (5,489)
10.4% 10.7% 10.4% 10.7%
Internal R&D Expense 1,004 889 1,004 889 (115)
Amortization of intangible assets 2,323 984 2,323 984 (1,339)
Restructuring/impairment charges 188 - - - -
Other operating expense, net (14) 16 (14) 16 30
Operating Income 14,957 8,681 15,401 9,247 6,154
6.2% 4.7% 6.3% 5.0%
Income Before Provision For Income Tax 14,873 8,665 15,317 9,231 6,086
Provision For (Benefit From) Income Taxes 4,857 831 5,002 3,086 (1,916)
Net Income $ 10,016 $ 7,834 $ 10,315 $ 6,145 $ 4,170
4.1% 4.3% 4.3% 3.4%
Income per Share (Basic) $ 0.99 $ 0.77 $ 1.02 $ 0.60 $ 0.42
Income per Share (Diluted) $ 0.99 $ 0.77 $ 1.02 $ 0.60 $ 0.42
($ in 000’s, except per share)
(adjusted removes certain gains and charges)
(Reported) (Adjusted)
9 months ended Mar 31, 9 months ended Mar 31, Total YoY
Variance
21
Consolidated Financial Results Adjusted EBITDA
2014 2013 2014 2013 Variance
Net Income $ 4,246 $ 1,536 $ 10,016 $ 7,834 $ 2,182
Interest expense 187 136 547 390 157
Interest income - (48) (2) (99) 97
Provision for (benefit from) income taxes 2,014 832 4,857 831 4,026
Depreciation and amortization 2,270 1,564 5,910 3,036 2,874
Restructuring/impairment charges - - 188 - 188
Capitalized profit in inventory from acquisition 148 - 256 566 (310)
Adjusted EBITDA $ 8,865 $ 4,020 $ 21,772 $ 12,558 $ 9,214
10.6% 6.2% 9.0% 6.9%
3 months ended Mar 31, 9 months ended Mar 31,
22
Historical Performance EBITDA Margin & EPS
* EBITDA margins and EPS results are based on as adjusted financial statements.
$1.02
-4.8%
4.5%
7.4% 7.6% 8.1%9.0%
$(1.61)
$0.40
$0.64 $0.91
$1.17
$(2.00)
$(1.50)
$(1.00)
$(0.50)
$-
$0.50
$1.00
$1.50
$2.00
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
FY09 FY10 FY11 FY12 FY13 FY14 YTD
EPS YTD ($) EBITDA Margin EPS ($)
23
Liquidity & Capital Resources
1,796 1,669
11,539
30,006
26,331
36,437
0.26
0.34
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0
25,000
50,000
Jun-11 Jun-12 Jun-13 Sep-13 Dec-13 Mar-14
Deb
t:E
qu
ity R
ati
o
Ou
tsta
nd
ing
Deb
t ($
'000)
Debt-to-EBITDA
Leverage = 1.2x
($ in '000) Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Cash and equivalents 4,358 6,085 2,719 1,009 7,502
LOC Availability* 87,000 90,000 71,000 75,000 65,000
Total 91,358 96,085 73,719 76,009 72,502
* Includes a $35 million accordian feature as part of the existing credit facility.
($ in '000) Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Credit Revolver 13,000 10,000 28,500 25,000 35,000
IRB (Ohio) 1,572 1,539 1,506 1,472 1,437
Total 14,572 11,539 30,006 26,472 36,437
($ in '000) Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Net Inventory 46,928 46,334 55,658 52,393 51,466
Cash Availability
Debt
Inventory
24
• Implementation of the strategic growth plan
– Continue to grow organically
– Maintain our level of investment in internal research & development to commercially
extend our product lines
– Continue to enable our engineering workforce to develop new and innovative
proprietary solutions for our end markets
– Continue to seek out complementary and compatible acquisitions
– Further leverage Viet Nam as a low cost country alternative and in-region provider
• Focus on sustained profitability
– Continue margin improvements across the entire company
– Increase capacity utilization
– Continue additional improvements in operating performance through lean and quality
efforts
• Complete the integration of Beckwood Services, Aubrey Group & eMT
Fiscal 2014/2015 Outlook
25
Sparton Corporation NYSE: SPA
Cary Wood, President & CEO
425 N. Martingale Road
Suite 2050
Schaumburg, IL 60173