Sparton Corporation Releases Fiscal 2002 Fourth Quarter Results

(JACKSON, MICHIGAN)-August 26, 2002-Sparton Corporation (NYSE:SPA) announced the financial results for the fourth quarter and fiscal year ended June 30, 2002.

Chairman Bradley O. Smith and President and CEO David W. Hockenbrocht reported sales for the fourth quarter were $32.8 million versus $51.9 million for the same quarter last year. For the full fiscal year, the Company reported net sales of $149.7 million, down 20% from the previous year.

Net income for the quarter was $1.1 million ($0.14 per share) compared to $1.3 million ($0.17 per share) last year. Net income for the entire fiscal year 2002 of $2.9 million ($0.38 per share) was reported versus $1.3 million ($0.17 per share) for fiscal 2001, as adjusted for the change in method of accounting. Without this change in accounting, net income for fiscal year 2002 would have been $3.2 million ($0.42 per share), compared to $1.6 million ($0.21 per share) in fiscal 2001. The improved results for the current year were reflective of a more favorable sales mix, continuing cost containment measures and a reduced effective income tax rate.

At the beginning of the Company’s 2002 fiscal year in July 2001, sufficient manufacturing business was in the backlog and pending to produce a second year of growth in both sales and earnings. Unfortunately the economic recession, which began in March of 2001, coupled with the terrorist attack of September 11, 2001 seriously altered the Company’s plans. In general, every market represented by the Company’s commercial base was impacted in a negative way and manufacturing schedules fell markedly. The Company’s objective became one of maintaining profitability and avoiding borrowings, in what would be a challenging year marked with many unknowns. Actions were taken to reduce additional head count put in place to facilitate the Company’s planned growth. The Company also moved to accelerate the production of its government-sonobuoy backlog to make up for some of the lost or delayed commercial sales.

In the fourth quarter of the year ended June 30, 2002, the Company changed its method of accounting for its investment in Cybernet. The investment in Cybernet, which represents a 14% interest, was acquired in June 1999. Cybernet is a privately held company headquartered in Ann Arbor, Michigan. The Company believes that the equity method is more appropriate given Sparton’s increasing involvement in the company. The use of the cost method of accounting in the past was appropriate but reflective of the more passive involvement at that time. The financial statements were retroactively adjusted as required by Accounting Principles Board Opinion No.18 “The Equity Method of Accounting for Investments In Common Stock ". This has resulted in a decrease in previously reported net income of $79,000 ($0.01 per share) and $318,000 ($0.04 per share) for quarter and year ended June 30, 2001, respectively.

At June 30, 2002, total shareowners’ equity was $82 million. The Company had no outstanding long or short-term bank debt and cash equivalents and investments securities totaled $20.2 million. The government EMS backlog at June 30, 2002 was $60.0 million.

As the first quarter of the new fiscal year progresses, we have been encouraged by the evidence of resurgence in our manufacturing schedules from existing customers. Several new contracts, some from existing and some from new customers, are in the start up phase and should make a good contribution to our results in the second quarter. New business opportunities are abundant, and particularly strong in Defense, Homeland Security and Medical. Our current expectation is that our fiscal year ending June 30, 2003, will represent a return to growth absent a deterioration in the worldwide business community.

Notes:

(1) Earnings per share are computed using the weighted average number of shares outstanding as follows - for the quarter ended June 30, 7,559,790 in 2002 and 7,622,376 in 2001; for the year-ended June 30, 7,564,099 in 2002 and 7,737,843 in 2001.

(2) No dividends were declared in any of the periods presented.

(3) For the quarter and year ended June 30, 2001, net income and per share amounts differ from amounts previously reported due to the adoption of the equity method of accounting for Sparton’s investment in Cybernet in the fourth quarter of fiscal 2002.

The news release contains forward-looking statements within the scope of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “encouraged", “appear", “should", “expectation", and similar expressions, and the negatives of such expressions, are intended to identify forward-looking statements. Although the Company believes that these statements are based upon reasonable assumptions, such statements involve risks, uncertainties, and assumptions, including but not limited to industry and economic conditions, customer actions, and the other factors discussed in the Company’s form 10K for the year ended June 30, 2002, and its other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.

Further details regarding the years highlights will be contained in the Company’s Annual Shareowners Report which will be mailed and available on Sparton’s website the last week of September, 2002.