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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-1000
SPARTON CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 38-1054690
- - ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
- - ------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
517-787-8600
----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of
common stock outstanding as of April 30, 1994 was 7,811,370.
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<TABLE>
SPARTON CORPORATION
INDEX
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements:
Consolidated Condensed Balance Sheet - March 31, 1994 and June 30, 1993 3
Consolidated Condensed Statement of Operations - Three-Month and Nine-Month
Periods ended March 31, 1994 and 1993 4
Consolidated Condensed Statement of Cash Flows - Nine-Month Periods ended
March 31, 1994 and 1993 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results of
Operations 7-9
Other Information and Signatures 10
</TABLE>
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 1994 AND JUNE 30, 1993
<CAPTION>
MARCH 31 JUNE 30
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,028,108 $2,560,566
Income taxes recoverable 768,000 --
Accounts receivable 34,637,597 31,618,871
Inventories and costs on contracts in progress,
less progress payments of $4,500,000 at
March 31, 1994 ($6,900,000 at June 30) 52,487,533 47,419,133
Prepaid expenses 4,538,048 2,362,297
------------ ------------
Total current assets 94,459,286 83,960,867
Miscellaneous receivables and other assets 2,541,670 2,673,690
Property, plant and equipment - net 18,528,871 17,754,162
------------ ------------
Total assets $115,529,827 $104,388,719
============ ============
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Notes payable - due within one year $20,600,000 $3,880,000
Accounts payable 14,181,619 18,900,081
Taxes on income 228,564 1,078,584
Accrued liabilities 9,931,382 8,890,032
------------ ------------
Total current liabilities 44,941,565 32,748,697
Deferred income taxes 1,755,000 1,965,000
Deferred compensation 2,034,350 1,924,079
Long-term obligations, net of current maturities 647,096 785,120
Shareowners' equity:
Common stock - 7,811,370 shares outstanding
at March 31, 1994 (7,810,370 at June 30, 1993)
after deducting 123,342 shares in treasury
at March 31, 1994 (124,342 at June 30, 1993) $9,764,213 9,762,963
Capital in excess of par value 403,067 399,942
Retained earnings 55,984,536 56,802,918
------------ ------------
Total shareowners' equity 66,151,816 66,965,823
------------ ------------
Total liabilities & shareowners' equity $115,529,827 $104,388,719
============ ============
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
--------------------------- -----------------------------
1994 1993 1994 1993
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $51,477,828 $63,016,458 $140,769,148 $170,846,532
Costs and expenses 52,195,601 60,424,702 142,117,806 164,811,419
----------- ----------- ------------ ------------
(717,773) 2,591,756 (1,348,658) 6,035,113
Other income (expense):
Interest (179,607) (178,984) (376,356) (446,649)
Other - net 18,738 115 33,632 132,534
----------- ----------- ------------ ------------
Income (loss) before income
taxes and cumulative effect
of accounting change (878,642) 2,412,887 (1,691,382) 5,720,998
Provision (credit) for income
taxes (316,000) 869,000 (609,000) 2,060,000
----------- ----------- ------------ ------------
Income (loss) before cumulative
effect of accounting change (562,642) 1,543,887 (1,082,382) 3,660,998
Change (credit) in method of
accounting for income taxes -- -- (264,000) --
----------- ----------- ------------ ------------
Net income (loss) ($562,642) $1,543,887 ($818,382) $3,660,998
=========== =========== ============ ============
Income (loss) per share of
common stock:
Income (loss) before
cumulative effect of
accounting change $(.08) $ .20 $(.14) $ .47
Change (credit) in method
of accounting for income
taxes -- -- (.03) --
----------- ----------- ------------ ------------
Net income (loss) $(.08) $ .20 $(.11) $ .47
=========== =========== ============ ============
Dividends $-0- $-0- $-0- $-0-
=========== =========== ============ ============
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Operating activities:
Income (loss) from operations ($1,082,382) $3,660,998
Cumulative effect of accounting change 264,000 --
Add non-cash items charged to operations:
Depreciation 2,909,869 2,517,039
Deferred compensation 110,271 104,564
Deferred income taxes (210,000) --
---------- ----------
1,991,758 6,282,601
Add (deduct) changes in operating assets
and liabilities:
Income taxes recoverable (768,000) 261,323
Accounts receivable (3,018,726) 318,592
Inventories (5,068,400) (10,288,712)
Accounts payable (4,718,462) 1,091,854
Taxes on income (850,020) (215,069)
Other (1,134,833) 850,117
---------- ----------
Net cash provided (used) by operating activities (13,566,683) (1,699,294)
Investing activities:
Purchases of property, plant and equipment-net (3,684,578) (2,847,526)
Other 132,020 19,605
---------- ----------
(3,552,558) (2,827,921)
Financing activities:
Increase in notes payable 16,720,000 3,991,190
Changes in long-term obligations, including
current maturities thereof (137,592) (137,091)
Proceeds from the exercise of
stock options 4,375 49,750
---------- ----------
16,586,783 3,903,849
---------- ----------
Increase (decrease) in cash and cash equivalents (532,458) (623,366)
Cash and cash equivalents at beginning of period 2,560,566 3,416,185
---------- ----------
Cash and cash equivalents at end of period $2,028,108 $2,792,819
========== ==========
Cash paid during the period for:
Interest $371,000 $451,000
========== ==========
Income taxes $807,000 $1,989,000
========== ==========
<FN>
See accompanying notes.
</TABLE>
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SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The accompanying consolidated condensed balance sheet at March
31, 1994, and the related consolidated condensed statements of operations for
the three-month and nine-month periods ended March 31, 1994 and 1993 and cash
flows for the nine-month periods ended March 31, 1994 and 1993 are unaudited,
but include all adjustments (consisting only of normal recurring accruals)
which the Company considers necessary for a fair presentation of such financial
statements. The results of operations for the nine-month period ended March
31, 1994 are not necessarily indicative of the results that may be expected for
the full fiscal year.
2) Effective July 1, 1993, the Company has determined tax expense
and other deferred tax information in compliance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. Prior years financial statements have not
been restated to apply the provisions of SFAS No. 109 and, accordingly, reflect
the deferred method. The adoption of SFAS No. 109 has not changed the actual
amount of income tax that the Company pays. Provision is made for all deferred
income taxes due to timing differences between earnings for financial reporting
and income tax purposes.
The cumulative effect of this accounting change made as of July
1, 1993 was to increase net earnings for the first quarter of fiscal 1994 by
$264,000 ($.03 per share) with corresponding changes to the Company's deferred
tax assets and deferred tax liabilities.
3) Earnings per share are computed using the weighted average
number of shares outstanding as follows: For the three-month periods,
7,810,781 in 1994 and 7,808,493 in 1993. For the nine-month periods, 7,810,505
in 1994 and 7,797,307 in 1993.
4) There are various legal proceedings pending against the Company.
In many cases, these proceedings involve ordinary and routine claims incidental
to the business of the Company. In others, they represent allegations that are
non-routine. The ultimate legal and financial liability of the Company in
respect to these matters cannot be estimated with certainty. However, the
Company believes, based on its examination of such matters, experience to date
and discussions with legal counsel, that the ultimate liability (including
insurance recoveries, where applicable) will not be material in relation to the
Company's Consolidated Financial Statements.
The Company and its subsidiaries are also involved in certain
compliance issues with the United States Environmental Protection Agency and
various state environmental regulatory agencies. Based upon its own
examination and experience to date, and upon information provided by legal
counsel and outside consultants, it is management's opinion that the resolution
of these issues will not have a material impact on the Company's Consolidated
Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
events affecting the Company's earnings and financial condition during the
periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
- - ---------------------
Nine-Month Periods
- - ------------------
Sales for the nine-month period ended March 31, 1994 were $140,769,000, a
decline of $30,078,000 (18%) from the corresponding period last year. These
revenues were within internal expectations. Sales decreased 42% at Sparton
Electronics, reflecting both the anticipated declining level of U.S. government
defense-related sales and unexpected delays in certain defense product
shipments. In addition, certain commercial sales did not materialize as
planned. Sparton Electronics' commercial sales continue to expand, but not at
a level sufficient to offset the decline in defense-related revenues. Sales
decreased substantially at the Canadian unit compared to last year. Revenues
also declined at Sparton Technology as anticipated due to reduced government
and contract manufacturing sales partially offset by expanding foreign and
proprietary product revenues. The Automotive and Industrial Products segment
continues to expand with an aggregate sales increase of $14,826,000 (24%) for
the current nine-month period compared to the same period last year. Sales
increases took place at all three units that comprise this segment. This
growth exceeded expectations and reflects both increased customer demand as
well as new product shipments.
An operating loss of $1,349,000 was reported for the nine-month period ended
March 31, 1994 compared to operating income of $6,035,000 last year. These
operating results were below expectations. Sparton Electronics operated at a
slight loss for the period as margins continue to be adversely impacted by
increased costs associated with multiple program launches, unexpected
production delays and lower overall volumes. The Canadian and Sparton
Technology units both reported operating losses, but these losses were
significantly less than last years due to various cost cutting measures
instituted. The Automotive and Industrial Products segment incurred a small
operating loss for the current period compared to an operating profit last
year. A modest operating profit for the nine-month period was anticipated.
Factors contributing to the current period loss included costs associated with
the relocation of a production facility, unexpected difficulties on new
products launches, capacity problems at certain locations and an inability to
adjust certain prices due to competitive pressures. A production facility was
recently purchased in Hartford City, Indiana in order to expand this segment's
manufacturing capacity and price increases on several product lines have also
been requested.
Interest expense declined $71,000 to $376,000 primarily due to lower interest
rates. After provision (credit) for applicable income taxes and before the
cumulative effect of an accounting change, the Company incurred a loss of
$1,082,000 ($.14 per share) for the nine months ended March 31, 1994 compared
to income of $3,661,000 ($.47 per share) for the corresponding period last
year.
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The cumulative effect of
this required change in the method for accounting for income taxes resulted in
a credit in the first quarter of $264,000 ($.03 per share), primarily from a
reduction in the income tax rates used to record deferred tax liabilities. The
Company's net loss for the nine-month period ended March 31, 1994 was $818,000
($.11 per share) compared to net income of $3,661,000 ($.47 per share) for the
corresponding period last year.
Statement of Financial Accounting Standards No. 106, "Accounting for
Postretirement Benefits Other than Pensions", has no effect on the Company as
the Company does not provide postretirement benefits of the type described
within this Statement. In addition, the Company has not elected to early
comply with Statement of Financial Accounting Standards No. 112, "Employer's
Accounting for Postemployment Benefits". The impact of
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such change, which is required in fiscal 1995, is not expected to have a
material effect on the Company's financial position or results of operations.
Three-Month Periods
- - -------------------
Sales for the three-month period ended March 31, 1994 were $51,478,000, a
decline of $11,539,000 (18%) from the corresponding period last year. At
Sparton Electronics, sales decreased $16,300,000 (47%) from the levels of the
prior year due to the previously mentioned declining defense-related revenues
and delays in commercial production. Sales were lower at the Canadian unit,
while revenue at Sparton Technology decreased 14% from last year primarily due
to the previously mentioned reductions in the government and contract
manufacturing areas. The Automotive and Industrial Products segment reported
an increase of $5,751,000 (24%) in overall sales compared to the same quarter
last year. All three of the operating units that comprise this segment had
higher sales during this period due to both increased customer demand and new
product shipments.
An operating loss of $718,000 was reported for the three months ended March 31,
1994 compared to operating income of $2,592,000 in the same period last year.
Sparton Electronics operated at a small loss and below internal expectations
compared to an operating profit last year. This current period loss was due to
the previously mentioned problems of multiple program launches, production
delays and lower volumes. The Canadian unit operated at a loss principally due
to low sales volume. Sparton Technology operated at a loss for the current
period, but its performance improved over last year primarily due to cost
cutting measures that were implemented. The Automotive and Industrial Products
segment operated at a slight loss for the current three-month period compared
to an operating profit for the same period last year. This profit decrease was
due to the previously mentioned difficulties on product launches, capacity
problems and several unresolved product pricing issues.
Higher average borrowings offset by lower borrowing costs during the current
three-month period resulted in interest costs remaining virtually unchanged at
$180,000. After provisions for applicable income taxes, the Company incurred
an operating loss of $563,000 ($.08 per share) for the three-month period ended
March 31, 1994 compared to operating income of $1,544,000 ($.20 per share) last
year.
FINANCIAL POSITION
- - ------------------
For the nine-month period ended March 31, 1994, cash and cash equivalents
decreased $532,000 to $2,028,000. Operating activities used $13,567,000.
Principal uses of cash flows from operating activities included increases in
accounts receivable and product inventories and decreases in accounts payable.
Operations provided cash flows of $1,992,000. Investing activities used
$3,553,000 in cash flows primarily for purchases of property and equipment. As
previously discussed, the Company recently purchased a production facility in
Hartford City, Indiana in order to expand its automotive operations. Financing
activities provided $16,588,000 in cash flows as the Company increased its
short-term borrowings to fund its operating and investing activities. The
Company will continue to invest in additional plant and equipment to
accommodate additional automotive business previously awarded. Currently the
expectation is to fund these investments from existing sources. No dividends
were declared or paid in any of the periods presented. At March 31, 1994, the
Company had $66,152,000 ($8.47 per share) in recorded shareowners' equity,
$49,518,000 in working capital, and a 2.10:1 working capital ratio.
OTHER
- - -----
Environmental clean-up costs at Sparton Technology's Coors Road facility
totalled $53,000 for the current nine-month period compared to $152,000 for the
corresponding period last year. These costs were charged against a provision
initiated in 1991 to cover management's estimate of the future minimum costs.
As of March 31, 1994, the remaining reserve to fund these future minimum costs
totalled $691,000. Due to the nature of the problem, however, management is
unable to reasonably estimate the ultimate costs to be incurred. At the
present time, the Company has completed cost-recovery efforts against its
insurers. Negotiations with regulatory authorities continue and based on
information provided by counsel and outside consultants, it is management's
continued opinion that the ultimate resolution of this issue will not have a
material effect on the Company's consolidated financial position or results of
operations.
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Historically, approximately 50% of the Company's sales have been from the sale
of sonobuoys, principally to the U.S. Navy. Purchases of production sonobuoys
have been at reduced levels reflecting overall changes in the U.S. Navy's
budget. Based on current information, it is expected that the U.S. Navy's
budget for production sonobuoys for the foreseeable future will continue to be
reduced and may be no more than 20% of the dollar levels of the late 1980's.
The Navy is presently using available funds to improve the detection capability
of current systems and to implement new detection systems for planned
deliveries starting in 1996. The Company and Magnavox, our major competitor,
are jointly developing certain of these new systems. While the Company is
uncertain as to the market potential of these new systems, it believes that
this joint effort would be the supplier of choice. The international market
for sonobuoys has also been adversely impacted by reduced budgets. As most
foreign governments use sonobuoys for training and do not maintain the high
level of reserves of the U.S. Navy, the reductions in the international market
presently experienced and expected in the future are less severe. In response
to this changing environment, the Company has previously consolidated certain
of its manufacturing facilities, completed a cost reduction program within the
defense-oriented operations and is developing commercial opportunities which
will utilize its existing technological and manufacturing capabilities. In
addition, the Company is focusing on expanding sales in its automotive and
other commercial electronics markets. Management, however, cannot predict the
level of U.S. sonobuoy awards it will receive over the next several years, the
growth in sales volume of new commercial business intended to replace these
declining defense revenues, nor the resulting financial impact of these changes
on the Company's operations. As with any change of this magnitude, unexpected
delays in new program start-ups and their associated cost impact should not be
unanticipated. Investors should be aware of this uncertainty and make their
own independent evaluation.
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OTHER INFORMATION
PART II
- - -------
Item 6 - Exhibits and Reports on Form 8-K
- - ---------
(a) Exhibits
3 & 4 Instruments defining the rights of security holders have
been previously filed as follows:
Articles of Incorporation of the Registrant were filed on Form 10-K
for the year ended June 30, 1981 and an amendment thereto was filed
on Form 10-Q for the three-month period ending September 30, 1983
and are incorporated herein by reference.
By-laws of the Registrant were filed on Form 10-K for the year
ended June 30, 1981 and are incorporated herein by reference.
Code of Regulations of the Registrant was filed on Form 10-K for the
year ended June 30, 1981 and an amendment thereto was filed on Form
10-Q for the three-month period ended September 30, 1982 and are
incorporated herein by reference.
(b) Reports on Form 8-K Filed in the Third Quarter of Fiscal 1994: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPARTON CORPORATION
----------------------------------------------
Registrant
Date: 5/10/94 /s/ John J. Smith
---------------------------------------------
John J. Smith, Chairman of
the Board of Directors and
Chief Executive Officer
Date: 5/10/94 /s/ Richard Langley
---------------------------------------------
Richard Langley, Vice President-
Treasurer & Principal Financial Officer
10
