<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
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 of Incorporation) (IRS Employer Identification No.)
2400 East Ganson St., Jackson, Michigan 49202
- - ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 787-8600
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
- - -------------------------- ------------------------------------------
COMMON STOCK, $1.25 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of September 1, 1994 was $23,712,000.
The number of shares of common stock outstanding as of September 1, 1994 were
7,811,370.
Documents incorporated in part by reference:
1994 Annual Report to Shareowners - Parts I, II, IV
Proxy Statement for October 26, 1994 Meeting - Part III
<PAGE> 2
PART I
- - ------
Item l. Business
- - ------- --------
Except as otherwise indicated, the term "Company" refers to Sparton
Corporation, and the term "Sparton" refers to Sparton Corporation and its
consolidated subsidiaries.
The Company has been in continuous existence since 1900. It was last
reorganized in 1919 as an Ohio corporation. Sparton operates in two principal
business segments. The major products of both industry segments and selected
data are included in the Annual Report in Note 10, Segment Information, of the
Notes to Consolidated Financial Statements on pages 17 and 18 and are
incorporated herein by reference. Additional information about each segment is
as follows.
Electronics
- - -----------
Historically, the electronics segment's principal product has been
sonobuoys, which are anti-submarine warfare devices used by the U.S. Navy and
other free world military organizations. According to publicly available
government procurement data, Sparton has historically been one of two leading
manufacturers of sonobuoys in the United States. It competes with a limited
number of qualified manufacturers for sonobuoy procurements by the U.S. and
selected foreign governments. Contracts are obtained through competitive bid
or directed procurement. U.S. government contracts normally include
termination provisions which allow the government to cancel contracts at its
election. Termination clauses generally provide, however, a mechanism for the
contractor to recoup some or all of the costs previously incurred. U.S.
government contracts also generally include provisions for progress billings
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based upon contract costs incurred, which reduce the amount of working capital
otherwise required to perform such contracts.
The electronics segment also designs and/or manufactures a variety of
electronic and electromechanical products for the telecommunications,
electronics and other industries. Competitive factors in these markets include
technical ability, customer service and price. A majority of the proprietary
products, principally transducers and monitoring systems, are sold to the
telecommunications industry. The primary industries of the Company's contract
manufacturing business include telecommunications and health care. In the
general contract manufacturing business, it must compete vigorously with a
number of manufacturers. Commercial electronics products are distributed
through a direct sales force and through a small group of distributors.
At June 30, 1994 and June 30, 1993, the aggregate backlog was
approximately $90 million and $93 million, respectively. A majority of the
1994 backlog is expected to be realized in fiscal 1995.
The Company's sales of sonobuoys, principally to the U.S. Navy, have
declined dramatically from $151,024,000 in 1992 to $47,645,000 in 1994,
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 at reduced levels. The Navy
is funding development efforts to improve the detection capability of current
systems and to implement new detection systems for planned deliveries starting
in 1996. The Company is currently developing certain of these new systems both
individually and jointly with a major competitor. At the present time, the
Company is uncertain as to the market potential of these new
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<PAGE> 4
systems, and if it would be the supplier of choice if these systems go to
production. 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 same high level of reserves of the U.S. Navy,
the reductions in the international market presently experienced and expected
in the future should be less severe. In response to this changing environment,
the Company has previously consolidated certain of its manufacturing
facilities, continues to reduce costs 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 on a worldwide basis. 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 impacts frequently occur.
Investors should be aware of this uncertainty and make their own independent
evaluation.
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Automotive and Industrial Products
- - ----------------------------------
The automotive and industrial products segment produces a variety of
automatic floors shifters, horns, metal airbag components, spare tire carriers,
and stampings and assemblies for manufacturers of automobiles, trucks and other
industrial and marine equipment. Competition in these markets is generally
based upon product quality, customer service and price. Based on information
provided by automobile manufacturers, the Company is believed to be one of the
largest independent manufacturers of automatic floor shifters and horns in the
United States. It is also one of numerous suppliers of automotive stampings.
Sales are generally obtained on a competitive basis through either a direct
sales force or manufacturers' representatives.
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Other Information
- - -----------------
Sparton's two principal business markets are dependent on a limited number
of customers and the loss of any one of them could have a materially adverse
financial effect. Materials for the manufacturing segments are obtained from a
variety of sources. While Sparton holds a number of patents relating to its
products and processes, none are considered of material importance to any of
the individual business segments. Neither of the business segments have
encountered or expect to encounter significant problems in obtaining sufficient
raw materials. While sales fluctuate during the year, such fluctuations have
not historically reflected a definitive seasonal pattern or tendency.
Research and development expenditures amounted to approximately
$19,621,000 in 1994, $18,511,000 in 1993 and $24,556,000 in 1992 (approximately
$16,197,000, $15,155,000 and $21,885,000 of these expenditures, respectively,
were customer funded), primarily in the electronics segment. There are
approximately 260 employees involved in research and development. Few, if any,
devote all of their time to such efforts.
Sparton employed approximately 2,300 people at June 30, 1994. The Company
has one operating division and eight wholly-owned subsidiaries.
Item 2. Properties
- - ------- ----------
The table below lists the principal properties of Sparton, by segment.
All are owned except as noted. There are manufacturing and/or office
facilities at each
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location. Sparton believes these facilities are suitable for its operations,
except as noted.
Electronics:
Jackson, Michigan
DeLeon Springs, Florida (2 plants)
Brooksville, Florida
London, Ontario
Albuquerque, New Mexico
Rio Rancho, New Mexico
Deming, New Mexico (lease/purchase, see below)
Automotive and industrial products:
Flora, Illinois
Grayville, Illinois (2 plants, one of which is leased)
Lake Odessa, Michigan
Kentwood, Michigan (leased)
Gladwin, Michigan
Grand Haven, Michigan (in part leased)
White Cloud, Michigan (in part leased)
Spring Lake, Michigan
Brownstown, Indiana
Hartford City, Indiana
The Company leases the Deming, New Mexico facility under terms of a
capital lease and has exercised an option to purchase the facility at the end
of the lease term which expires on July 1, 1997. Future minimum payments under
this capital lease at June 30, 1994 are as follows: 1995 - $89,000, 1996 -
$85,000, 1997 - $80,000, and $75,000 in 1998. Interest of $29,000, payable
over the remaining lease term at 6 1/8% per annum, was deducted in arriving at
the obligation at June 30, 1994. In July 1991, the Company leased an
additional production facility in Albuquerque, New Mexico under a four-year
agreement. This facility is presently vacant and available for sublease.
Both the White Cloud, Michigan and Grand Haven, Michigan facilities are
occupied under lease agreements that allow termination by either party upon
ninety (90) day notice. These facilities are owned by John J. Smith and Lawson
K. Smith, Chief
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Executive Officer, and Vice President-Secretary, respectively, of Sparton
Corporation. The agreements, the result of arms-length type negotiations,
grant the Company the option to acquire the properties during the lease term
for $252,400 and $223,200, respectively.
The adminitrative facility in Kentwood, Michigan is presently leased under
an agreement that expires in October, 1997. The Company officially closed the
Gladwin plant of Sparton Engineered Products, Inc.-Lake Odessa Group in August
1990 with this property subsequently offered for sale. The Gladwin facility
was placed back in service in October 1993 and is no longer actively offered
for sale.
Item 3. Legal Proceedings
- - ------ -----------------
Various litigation is pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company and in
others presenting allegations that are non-routine. The Company and its
subsidiaries are also involved in certain compliance issues with the United
States Environmental Protection Agency and various state agencies, including
being named as a potentially responsible party at several sites. Potentially
responsible parties can be held jointly and severally liable for the cleanup
costs at any specific site. The Company's past experience, however, has
indicated that when it has contributed only deminimus amounts of material or
waste to a specific site, its ultimate share of any cleanup costs has been very
small. Based upon available information, the Company believes it has
contributed only deminimus amounts to those sites in which it is currently
viewed a potentially responsible party.
One of the Company's facilities located in New Mexico has been the subject
of ongoing investigations by the U. S. Environmental Protection Agency (EPA).
To date, the work has involved remedial investigations, negotiation and
execution of an administrative order on consent with the EPA, establishment of
on-site and off-site monitoring systems, and the installation of some
groundwater recovery and air stripping equipment. The remedial investigation
has been completed and approved. The Company has prepared a corrective action
plan based upon the results of its investigation. This action plan has not yet
been approved. In addition, the Company is involved in related issues with
State of New Mexico environmental agencies and a nearby landowner. The
Company has charged to expense approximately $2,700,000, net of $3,000,000 of
insurance recoveries received, since the contamination problem was first
identified in the early 1980's. Efforts to resolve thses matters will likely
continue for a number of years.
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<PAGE> 9
The ultimate legal and financial liability of the Company in respect to the
above matters cannot be estimated with any certainty. Management of the
Company believes, however, based on its examination of such matters, experience
to date and discussions with counsel and other consultants, that such ultimate
liability (including insurance recoveries, where applicable) should not be
material in relation to the Company's consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------ ---------------------------------------------------
No matters were submitted to a vote of the security holders during the
last quarter of the period covered by this report.
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<PAGE> 10
<TABLE>
Executive Officers
- - ------------------
Information with respect to executive officers of the Registrant is set
forth below. The positions noted have been held for at least five years,
except where noted.
<CAPTION>
Age
---
<S> <C>
JOHN J. SMITH, Chairman of the Board, Chief Executive Officer and 82
Director.
DAVID W. HOCKENBROCHT, President, Chief Operating Officer and Director. 59
LAWSON K. SMITH, Vice President, Secretary and Director; President of 79
Sparton Engineered Products, Inc.-Lake Odessa Group.
RICHARD L. LANGLEY, Vice President-Treasurer since May 1990. Prior 49
to that date, Mr. Langley was employed by the Company as Assistant
Treasurer.
RICHARD H. NICHOLS, Vice President and Assistant Secretary since July 64
1994. Prior to that date, Mr. Nichols was also Vice President and
General Manager of Sparton Electronics.
MARK W. PICKARD, Vice President and General Manager of Sparton of 41
Canada, Ltd. since October 1992. Prior to that date, Mr. Pickard
was employed by the Company in several capacities, principally
within the financial management functions.
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
Age
---
<S> <C>
DOUGLAS E. JOHNSON, Vice President and General Manager of Sparton 46
Electronics since July 1994. Prior to that date, Mr. Johnson was
the Assistant General Manager of Sparton Electronics and prior to
August 1992, was employed by the Company in several capacities,
principally within engineering and manufacturing management.
GARY A. WHITE, Vice President and General Manager of Sparton Engineered 43
Products, Inc.-Lake Odessa Group since August 1991. Prior to that
date , Mr. White was employed by the Company as acting General
Manager of Sparton Engineered Products, Inc.-KPI Group and prior
to January 1991, as Director of Manufacturing.
JERRY R. GAUSE, Vice President and General Manager of Sparton Engineered 53
Products, Inc.-KPI Group since July 1991. Employed as Vice President
and General Manager of Sparton Engineered Products, Inc.-Lake Odessa
Group since November 1989 and before that as Director of Marketing since
April 1989.
WILLIAM C. MIRGAIN, Vice President and General Manager of Sparton 51
Engineered Products, Inc.-Flora Group since July 1994. Prior to that
date, Mr. Mirgain was employed as Managing Director of DME Europe
since August 1991 and prior to that date, was employed as Director
of International Manufacturing for FMC Corporation.
RICHARD D. MICO, Vice President and General Manager of Sparton Technology, 64
Inc.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
R. JAN APPEL, Vice President, General Counsel and Assistant 48
Secretary.
JOSEPH S. LERCZAK, Assistant Treasurer since June 1990 and Assistant to 37
the Treasurer since January 1990. Prior to that date, he was employed
as Controller of SMI PatientCare, Inc.
</TABLE>
John J. Smith and Lawson K. Smith are brothers. There are no other family
relationships between the persons named above. John J. Smith is employed as
Chief Executive Officer under the terms of an employment agreement through June
30, 1994. All other officers are elected annually and serve at the discretion
of the Board of Directors.
PART II
- - -------
Item 5. Market for the Registrant's Common Stock
- - ------ ----------------------------------------
and Related Security Holder Matters
-----------------------------------
Information with respect to the market for the Company's stock, including
stock prices, stock exchange and number of shareowners, and quarterly dividends
for the two year period ended June 30, 1994, is included under "Financial
Highlights" on page 1 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 20 of the Annual Report and is
incorporated herein by reference.
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<PAGE> 13
Item 6. Selected Financial Data
- - ------ -----------------------
The "Selected Financial Data" on page 19 of the Annual Report is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
- - ------ ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 20-22 of the Annual Report is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
- - ------ -------------------------------------------
The consolidated financial statements and "Report of Independent Auditors"
are included in the Annual Report on pages 8-18 and 12, respectively, and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
- - ------ -----------------------------------------------------------
and Financial Disclosure
------------------------
None.
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<PAGE> 14
PART III
- - --------
Item 10. Directors and Executive Officers
- - ------- --------------------------------
of the Registrant
-----------------
Information with respect to directors is included in the Proxy Statement
under "Election of Directors" and is incorporated herein by reference.
Information concerning the executive officers is included in Part I on pages
9-11.
Item 11. Executive Compensation
- - ------- ----------------------
Information concerning executive compensation is included under
"Compensation of Executive Officers and Directors" in the Proxy Statement and
is incorporated herein by reference.
Item 12. Security Ownership of Certain
- - ------- -----------------------------
Beneficial Owners and Management
--------------------------------
Information on management and certain other beneficial ownership of the
Company's common stock is included under "Outstanding Shares and Voting" in the
Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- - ------- ----------------------------------------------
Information as to certain relationships and related transactions is
included under "Certain Relationships and Transactions" in the Proxy Statement
and is incorporated herein by reference.
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<PAGE> 15
<TABLE>
PART IV
- - -------
Item 14. Exhibits, Financial Statement
- - ------- -----------------------------
Schedules, and Reports on Form 8-K
----------------------------------
The following financial statements and schedules are filed as part of this
report:
Index to Financial Statements and Schedules Covered by Report of
----------------------------------------------------------------
Independent Auditors:
- - --------------------
<CAPTION>
Page Reference
--------------------------------
Form Annual Report
10-K to Shareowners
----- --------------
<S> <C> <C>
Data incorporated by reference from
the 1994 Annual Report to Share-
owners of Sparton Corporation:
Consolidated balance sheets at June 30, 8 - 9
1994 and 1993
For the years ended June 30, 1994, 1993,
and 1992:
Consolidated statements of operations 10
Consolidated statements of cash flows 11
Consolidated statements of share- 12
owners' equity
Notes to consolidated financial 13 - 18
statements
Financial statement schedules for the years
ended June 30, 1994, 1993 and 1992:
VIII - Valuation and qualifying accounts S-1
IX - Short-term borrowings S-2
X - Supplementary income statement S-3
information
</TABLE>
All other prescribed schedules have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
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<PAGE> 16
Exhibit Index
- - -------------
3 and 4 Articles of Incorporation of the Registrant were filed
with Form 10-K for the year ended June 30, 1981 and an
amendment thereto was filed with Form 10-Q for the
three-month period ended September 30, 1983, and are
incorporated herein by reference.
By-laws of the Registrant were filed with Form 10-K for
the year ended June 30, 1981, and are incorporated herein
by reference.
Code of Regulations of the Registrant were filed with
Form 10-K for the year ended June 30, 1981 and an
amendment thereto was filed with Form 10-Q for the
three-month period ended September 30, 1982, and are
incorporated herein by reference.
10 The employment agreement with John J. Smith was filed
with Form 10-K for the year ended June 30, 1981 and
subsequent amendments thereto were filed with Form 10-K
for the year ended June 30, 1985, with Form 10-Q for the
three-month period ended September 30, 1988, and with
Form 10-Q for the three month period ended September 30,
1991 and are incorporated herein by reference.
13 1994 Annual Report to Shareowners (filed herewith and
attached). With the exception of the pages of the Annual
Report specifically incorporated herein by reference, the
Annual Report is not deemed to be filed as part of this
report on Form 10-K.
22 Subsidiaries (filed herewith and attached).
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<PAGE> 17
23 Consent of independent auditors (filed herewith and
attached).
27 Submitted to the Securities and Exchange Commission for
its information
Reports on Form 8-K Filed in the Fourth Quarter of Fiscal 1994
- - --------------------------------------------------------------
No reports on Form 8-K were required to be filed by the Registrant during
the last quarter of the period covered by this report.
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
---------------------------------
Date: September 26, 1994 By /s/ Richard L. Langley
-------------------------------
Richard L. Langley, Vice President-
Treasurer (Principal Accounting and
Financial Officer)
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<PAGE> 19
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
By /s/ John J. Smith August 26, 1994
- - -------------------------------------------------- ---------------
John J. Smith, Chairman of the Board
of Directors and Chief Executive Officer
By /s/ David W. Hockenbrocht August 26, 1994
- - -------------------------------------------------- ---------------
David W. Hockenbrocht, President,
Chief Operating Officer and Director
By /s/ Lawson K. Smith August 26, 1994
- - -------------------------------------------------- ---------------
Lawson K. Smith, Vice President, Secretary
and Director
By /s/ James N. DeBoer August 26, 1994
- - -------------------------------------------------- ---------------
James N. DeBoer, Director
By /s/ Robert J. Kirk August 26, 1994
- - -------------------------------------------------- ---------------
Robert J. Kirk, Director
By /s/ Marshall V. Noecker August 26, 1994
- - -------------------------------------------------- ---------------
Marshall V. Noecker, Director
By /s/ Blair H. Thompson August 26, 1994
- - --------------------------------------------------- ---------------
Blair H. Thompson, Director
</TABLE>
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1994, 1993, 1992
<CAPTION>
Additions
------------------ Deductions
Balance Charged Charged From Balance
Beginning to to Other (Recoveries at End
Description of Year Income Accounts to) Reserves of Year
- - ------------- --------- ------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts:
1994 $339,000 $607,000 $1,000 $ 844,000 $103,000
1993 397,000 70,000 -- 128,000 339,000
1992 281,000 32,000 -- (84,000) 397,000
</TABLE>
S-1
<PAGE> 21
<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
Years Ended June 30, 1994, 1993 and 1992
<CAPTION>
Maximum Weighted
Amount Average
Outstanding Average Interest
at Any Amount Rate
Balance Weighted Month-end Outstanding during
at End Average during during the
of Year Rate the Year the Year Year1
--------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Notes
payable
to banks:
1994 $20,615,000 5.5% $21,748,000 $13,719,000 4.7%
========== ===== ========== ========== =====
1993 $ 3,880,000 4.6% $15,620,000 $11,696,000 4.6%
========== ===== ========== ========== =====
1992 $ 8,959,000 5.3% $21,471,000 $15,660,000 6.5%
========== ===== ========== ========== =====
<FN>
____________________
1 Actual interest expense divided by average short-term borrowings.
</TABLE>
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<TABLE>
SPARTON CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended June 30, 1994, 1993 and 1992
<CAPTION>
Charged to Costs and Expenses
---------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Maintenance and repairs $3,059,000 $3,443,000 $4,171,000
========= ========= =========
</TABLE>
S-3
<PAGE> 1
- - ------------------
SPARTON
CORPORATION
LOGO
- - ------------------
-------------------------
Annual Report
Year Ended June 30, 1994
-------------------------
<PAGE> 2
<TABLE>
SPARTON CORPORATION
--------------------------------------------------------------------
INDEX
--------------------------------------------------------------------
<S> <C>
Financial Highlights.................................. 1
Shareowners' Letter................................... 2
Electronics........................................... 4
Automotive & Industrial Products...................... 6
Consolidated Balance Sheets........................... 8
Financial Trends at a Glance.......................... 8
Consolidated Statements of Operations................. 10
Consolidated Statements of Cash Flows................. 11
Consolidated Statements of Shareowners' Equity........ 12
Report of Independent Auditors........................ 12
Notes to Consolidated Financial Statements............ 13
Selected Financial Data............................... 19
Management's Discussion & Analysis.................... 20
Directors............................................. 22
Directors, Officers & General Managers................ 23
Business Segments..................................... 24
Notice of Annual Meeting....................Inside Back Cover
</TABLE>
SPARTON CORPORATION
Designs and manufactures high
quality technical products
for international
electronics, automotive and
telecommunications markets.
<PAGE> 3
<TABLE>
FINANCIAL HIGHLIGHTS
SPARTON CORPORATION & SUBSIDIARIES
For Years Ended June 30
----------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $201,174,014 $233,052,133 $245,379,966
Net Income (Loss) (4,899,414) 6,637,942 7,968,291
Working Capital 42,204,541 51,212,170 45,308,069
Working Capital Ratio 2.00:1 2.56:1 2.34:1
Common Shares Outstanding
at June 30 7,811,370 7,810,370 7,791,672
Long-Term Obligations $ 626,012 $ 785,120 $ 943,423
Per Common Share:
Net Income (Loss) $(.63) $ .85 $1.02
Working Capital 5.40 6.56 5.81
Shareowners' Equity 7.95 8.57 7.74
Dividends -- -- --
</TABLE>
<TABLE>
MARKET DATA
Price Range
<CAPTION>
New York Stock Exchange
Years Ended June 30
-------------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
Quarter Ended: HIGH LOW High Low High Low
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
September 30 6 5/8 5 3/8 8 1/8 5 1/4 9 1/8 5 1/2
December 31 7 1/2 6 6 5/8 4 3/4 8 1/2 6 1/4
March 31 7 1/4 6 1/8 6 1/4 5 7/8 8 1/8 6
June 30 6 1/2 4 7/8 6 1/4 5 8 3/4 6 1/2
Recent Price as of August 26, 1994 4 7/8
Shareowners of record 1,186
</TABLE>
1
<PAGE> 4
SHAREOWNERS' LETTER
September 29, 1994
TO OUR SHAREOWNERS:
Fiscal year 1994 represented the completion of another year of transition for
Sparton as it moves from its previous major orientation as a defense
contractor to a company whose emphasis is focused on the commercial marketplace.
We had hoped to complete this transition in three to five years and to remain
profitable while doing so. However, this was not possible this past year.
From 1992 to 1994, Sparton's government-related sales declined $115 million.
Using historical averages, these sales would have generated before-tax profits
of approximately $13 million. Our efforts to replace the declining defense
business have been fruitful but not at a rate commensurate with the dollar
decline in defense. Sparton's strategic focus remains on the growing electronics
contract manufacturing marketplace as well as our historic emphasis on
automotive and telecommunications.
During fiscal 1994, we booked $50 million in new commercial electronics contract
manufacturing business, $29 million in new automotive business and $7 million in
new telecommunications business. Additionally, we were able to acquire a new
proprietary telecommunications product called "The Receptionist(TM)" for
Sparton Technology, Inc. in Rio Rancho, New Mexico. This product is an
automatically attended telephone routing device designed to be sold
internationally for use in small offices and homes.
At this writing, all of our U.S. and Canadian electronics manufacturing plants
are ISO 9000 registered and the balance of our facilities have plans in place to
achieve registration.
ELECTRONICS
The electronics contract manufacturing market in North America is now estimated
to be about $8.4 billion yearly. It is forecast to grow to $16.5 billion by
1997. Some of the reasons for this dramatic growth are:
- Vertical integration in some areas of manufacturing is declining;
- Electronics' product life cycles average about 16 months; and
- High output manufacturing infrastructure is too expensive for many
companies to put in place on a timely basis.
Sparton is now recognized as a viable competitor in this market. We have
several competitive advantages which we can continue to exploit. Our profit
margins from electronics contract manufacturing were unsatisfactory in 1994, but
are showing improvement. Our learning curve experience in commercial
electronics has been longer than anticipated, principally due to the very
different disciplines required of the management organization in commercial
manufacturing environments. We expect that this area will contribute
meaningful earnings to Sparton in 1995.
Business at Sparton Technology Inc. (STI) declined during 1994 due to the
loss of its defense-related business, delays in some important
telecommunications-related orders and the follow-on effect of the loss of a
major contract with a contractor to the U.S. Postal Service. STI should
experience a return to profitable operations in fiscal year 1995. Higher sales
from the commercial marketplaces should replace nearly all of STI's lost defense
business.
AUTOMOTIVE AND INDUSTRIAL PRODUCTS
Sparton's automotive sales passed $100 million for the first time in the
Company's history. However, margins from this activity were unsatisfactory.
This was due to inadequate pricing on several key product lines coupled with
manufacturing inefficiencies and cost overruns related to quality issues, new
program launches and capacity constraints. All of these issues are currently
being addressed and positive results from these actions should be forthcoming.
Supplier consolidation continues within the automotive Original Equipment
Manufacturing (OEM) business. We expect that large Tier 1 supplier companies
will get larger and that small
2
<PAGE> 5
companies will be eliminated or assigned to Tier 2 status in future years.
Today, a Tier 1 supplier to the automotive OEM business has no future without
an engineering support base. Fortunately, Sparton has been able to maintain
its engineering excellence and is experiencing continuing new business
opportunities both in North America and in Europe.
SPARTON'S FUTURE
While Sparton's business remains in a difficult and somewhat unpredictable
transition phase, we have been and will continue to be rewarded with substantial
new business opportunities in all of our chosen fields. These will arise due to
our technical competence and our reputation as a producer of low cost, high
quality products for industry worldwide.
We wish to express our appreciation to our employees for their dedication and
hard work and to our shareowners for their continued support during this
transition period. We believe that our best years are in our future, not a part
of our past. It is our goal to demonstrate to you that we are correct.
Our Annual Meeting is scheduled for 10:00 A.M. on Wednesday, October 26, 1994 in
our Jackson, Michigan Board Room. We trust that many of you will find it
possible to attend.
Yours truly,
JOHN J. SMITH
Chairman
DAVID W. HOCKENBROCHT
President
[THE FOLLOWING ARE PHOTO CAPTIONS FOR THIS PAGE]
AUTOMOTIVE HORNS
AUTOMOTIVE TRANSMISSION SHIFTER
ELECTRONIC PAGER
BATHYTHERMOGRAPH SYSTEM
"THE RECEPTIONIST(TM)",
AN AUTOMATICALLY ATTENDED
TELEPHONE ROUTING SWITCHER FOR
OFFICE AND HOME
AUTOMOTIVE UNDERCARRIAGE SPARE TIER CARRIER
3
<PAGE> 6
SPARTON CORPORATION
ELECTRONICS
SPARTON ELECTRONICS
...........................................
[PHOTO] DOUGLAS E. JOHNSON
Vice President-
General Manager
Sparton Electronics
Sparton Electronics completed the third year of its planned transition from
being a defense contractor to becoming primarily a commercial electronics
engineering and manufacturing firm. The unit continued to develop full service
contract manufacturing support for its principal customers. These customers
represent a sizable commercial business opportunity in the industrial process
control, data communications, telecommunications and medical devices fields.
Sparton Electronics offers significant technical resources to support customers
by redesigning existing products and then cost-effectively manufacturing them.
The group can also assist by bringing their customers' products, featuring the
latest in electronic and electromechanical technologies, to the marketplace in a
timely manner.
In years one and two of this conversion process, the group spent considerable
time analyzing business opportunities with the assistance of an outside
consulting firm. The resulting Business Plan is still intact and feedback has
been very positive. Progress, however, has been slower than initially
anticipated. Several new commercial customers were obtained this past year.
Sparton Electronics is now recognized as a viable source for full service
contract manufacturing work. This unit continues to solicit new customers and
expand its business base with existing customers.
An important milestone was achieved in 1994. All three Sparton Electronics'
facilities received formal ISO 9000 certification of their business systems.
This designation has become a prerequisite for a number of commercial customers.
Sales of governmental products, principally sonobuoys, declined substantially,
but still provided over one-half of Sparton Electronics' sales during the past
year. Commercial business accounted for 42% of 1994 sales and should constitute
60% in 1995. A loss was incurred in 1994 due to the termination of several
commercial contracts and the writedowns in value of certain governmental and
commercial inventories.
A significant sonobuoy production program started very slowly due to extensive
design testing required by the U.S. Navy. Approval was obtained and the program
should be substantially completed in the first quarter of 1995. During the year,
one production and three developmental sonobuoy contracts were received from the
U.S. Navy. Sparton Electronics secured 80% of the market share of 1994
international sonobuoy production awards for which they competed. U.S.
Government 1995 sonobuoy requirements are expected to increase versus 1994, but
the long-term outlook is uncertain.
The electronic pager business has been very slow to develop. A one-way
communications device that receives its signal from FM radio stations, this
pager and its related system design is now fully functional. Sparton's business
development staff is aggressively pursuing pager opportunities worldwide.
[THE FOLLOWING ARE PHOTO CAPTIONS FOR THIS PAGE]
MEDICAL EQUIPMENT BY
SPARTON ELECTRONICS
TELECOMMUNICATIONS
EQUIPMENT BY
SPARTON ELECTRONICS
ELECTRONICS AND CABLE
DESIGN AND MANUFACTURE
(LEFT) AND PRINTED
CIRCUIT BOARDS (RIGHT) BY
SPARTON ELECTRONICS
4
<PAGE> 7
SPARTON OF CANADA, LTD.
.........................
[PHOTO] MARK W. PICKARD
Vice President-
General Manager
Sparton of Canada, Ltd.
In 1994, Sparton of Canada (SOC) continued its diversification effort to develop
a significant commercial product line. Sales declined 60% versus the previous
year and a loss was incurred. Significant work force reductions were completed
during the year.
Operational highlights included ISO 9001 registration and the receipt of the
U.S. Defense General Supply Center (DGSC) Quality Vendor Award of Excellence.
The award was presented to SOC when it met the Center's stringent quality, price
and delivery requirements on solid state, high-voltage power supplies.
Results were mixed for the bathythermograph business. These air-, ship-, and
submarine-launched devices measure ocean temperatures as they descend in the
water. This product line has earned wide international customer acceptance, but
defense cuts and budget-related acquisition delays resulted in lower than
anticipated sales.
Sparton of Canada delivered a Deployable Acoustic Calibration System (DACS) to
the Canadian Navy during 1994. This represents the first sale of a full naval
system with proprietary technology. DACS has the potential for international
sales once in service in Canada. Furthermore, an SOC Free Flooded Ring (FFR)
sonar projector completed significant demonstration trials. FFR technology,
having achieved worldwide recognition, is being seriously considered by a
foreign navy. International interest in this proprietary product is growing
rapidly.
Progress was made in commercial diversification. The Sparton Marine Products'
Temperature Profiling System (TiPS(TM)) made a successful debut. This
bathythermograph system for the worldwide commercial fisheries industry is
expected to show continued growth as user acceptance continues. More
importantly, efforts were initiated to establish a Canadian-based regional
presence for contract manufacturing services. This resulted in a number of new
customer contacts. One contract was completed to design and produce a custom
power supply for an expanding Canadian wastewater treatment firm.
SPARTON TECHNOLOGY, INC.
........................
[PHOTO] RICHARD D. MICO
Vice President-
General Manager
Sparton Technology, Inc.
Sales at Sparton Technology, Inc. (STI) declined in 1994 and a small loss was
incurred. Sales of defense-related products declined substantially and its
contract manufacturing of wiring harnesses, support frames and electronic
products for a prime contractor to the U.S. Postal Service ended.
Proprietary product sales remained solid. STI completed its first major sale of
cable pressure monitoring equipment to Mexico. In addition, a PowerComTM power
management system was sold there. PowerComTM systems are installed in
telecommunications companies' central and satellite
[THE FOLLOWING ARE PHOTO CAPTIONS FOR THIS PAGE]
SHIP-LAUNCHED
BATHYTHER-
MOGRAPH BY
SPARTON OF
CANADA, LTD.
AIR-LAUNCHED
BATHYTHER-
MOGRAPH BY
SPARTON OF
CANADA, LTD.
5353 BATTERY
MONITOR BY SPARTON
TECHNOLOGY, INC.
5
<PAGE> 8
SPARTON CORPORATION
CONTINUED
offices to monitor and control electric power. Mainland China continued to
purchase pressure monitoring equipment during the year. These purchases,
together with a variety of other international contracts, have pushed export
sales to over 25% of total sales at STI. Interest in power and battery
monitoring equipment continues to grow both in the U.S. and overseas due to
personnel reductions at the telephone companies. Several large proposals for
proprietary products are pending with major telecommunications companies.
STI received the 1994 Governor's New Engineering Product award from the State of
New Mexico. The recognition was given for the design, development, production
and distribution of its 5353 Battery Monitoring system.
Bus wiring harness and electronics revenues increased notably during 1994. This
business shows good long-term potential. Remote Utility Meter Reading was a
disappointment to Sparton Technology as ongoing market tests have yet to result
in a production order. This is not seen as a significant product for the
near-term.
A significant development contract was received from a Fortune 500 company for
tone alert receivers. These emergency alarm receivers will be placed in
residences, schools, hospitals, nursing homes, businesses and other key
facilities located near chemical stockpiles. Prototypes of these Chemical
Stockpile Preparedness Program (CSEPP) receivers are to be delivered in the
first quarter of 1995. A follow-on production contract is possible.
STI has acquired the rights to The ReceptionistTM, an automatically attended
telephone routing switcher. This device, developed by a New York firm, is
intended for use by small businesses, home offices and consumers. There is the
potential to develop a complete line of related products.
AUTOMOTIVE & INDUSTRIAL PRODUCTS
SPARTON ENGINEERED PRODUCTS, INC.-
KPI GROUP
...................................
[PHOTO] JERRY R. GAUSE
Vice President-
General Manager
Sparton Engineered
Products, Inc. -
KPI Group
Fiscal 1994 featured record sales and steady profits at Sparton Engineered
Products, Inc. - KPI Group (KPI). The increase in sales was attributable to
greater new vehicle sales and new product launches of automatic transmission
shifters, undercarriage spare tire carriers, metal airbag inflator bodies and
reaction canisters. The unit's two-year 90% sales growth, however, created
manufacturing difficulties that reduced profitability. A very competitive labor
market added unanticipated expenses relating to turnover and training.
Engineering and manufacturing problems on a new airbag program resulted in
significant additional costs. Increased demands in customer requirements added
costs for technical support, warranty analysis and management of KPI's
suppliers. Margins were also adversely impacted by previously agreed-to price
reductions contained in a long-term agreement with a major customer, higher than
expected costs of a new European shifter program and several engineering changes
to existing products.
Significant capital expenditures were made to accommodate future growth. A
manufacturing plant was purchased in Hartford City, Indiana. Production
shipments from this facility began in the first quarter of 1995. Administrative
space at the Grand Haven, Michigan headquarters was doubled due to the necessary
increase in KPI's support staff.
New production items for 1995 include one parking brake, three shifters, one
spare tire carrier and five metal airbag components.
The largest new shifter contract is for the North American versions of a major
customer's World Car. KPI already ships similar shifters to Europe for the
customer's related models.
[THE FOLLOWING ARE PHOTO CAPTIONS FOR THIS PAGE]
METAL AIRBAG COMPONENTS AUTOMOTIVE
BY SPARTON ENGINEERED SHIFTERS
PRODUCTS, INC. - KPI GROUP BY SPARTON
ENGINEERED
PRODUCTS, INC.
-KPI GROUP
6
<PAGE> 9
SPARTON ENGINEERED PRODUCTS, INC.-
LAKE ODESSA GROUP
..................................
[PHOTO] GARY A. WHITE
Vice President-
General Manager
Sparton Engineered
Products, Inc. -
Lake Odessa Group
Sparton Engineered Products, Inc. - Lake Odessa Group (Lake Odessa) reported an
operating loss on a modest increase in sales revenues. A major expense was
incurred when its leased administrative and manufacturing center was closed
early in 1994 and a replacement production facility was reopened at Gladwin,
Michigan. The administrative and engineering center was relocated to another
leased facility in Kentwood, Michigan.
Operating margins were negatively impacted by continued competitive pricing
pressures and selected raw material price increases. Additional unanticipated
expenses were incurred due to the start-up of a new brake/accelerator pedal
program.
Lake Odessa was awarded a large contract for a brake pedal module on a new
customer's remodeled minivan. Production is scheduled to start in January 1995.
This customer has also added Lake Odessa to its long-term supplier program,
allowing it to participate in advanced vehicle design programs.
Lake Odessa continues to develop its capabilities to compete in today's
worldwide marketplace. The organization is actively pursuing new opportunities
with several international automobile companies.
SPARTON ENGINEERED PRODUCTS, INC.-
FLORA GROUP
..................................
[PHOTO] WILLIAM C. MIRGAIN
Vice President-
General Manager
Sparton Engineered
Products, Inc. -
Flora Group
The strong North American automotive marketplace and several new horn contracts
boosted sales at Sparton Engineered Products, Inc. - Flora Group (Flora) during
the year. This increase required the addition of a third shift and a seven day
production schedule for most of the second half of the year.
The city of Flora, Illinois developed a severe labor shortage in 1994 due to the
rapid expansion in employment at several automotive suppliers in the area. As
these suppliers competed for a limited labor market, Flora Group and the others
were forced to hire temporary employees. The combination of an added third
shift, seven day a week production and temporary employees resulted in higher
production costs than were anticipated. This situation, plus the lack of
resolution of several pricing issues, led to a loss for the year.
In light of the Flora labor market and the need for added production capacity to
fulfill horn demand, a decision was made to add a second production line at its
plant in Grayville, Illinois. This new line is to be at full production in
October 1994.
Contract manufacturing of telecommunications products increased significantly in
1994 and is anticipated to experience added growth over the next several years.
A limited capacity electronic horn production line was completed and small
quantities of these horns have been shipped to customers. Both the seashell and
vibrator versions of the World ClassTM electronic horn have successfully passed
required tests for European Economic Community (EEC) and United Nations Economic
Commission for Europe (ECE) registration approvals. These approvals clear the
way for European sales and distribution.
New business opportunities for both electromechanical and electronic horns are
being actively pursued internationally by Flora Group.
[THE FOLLOWING ARE PHOTO CAPTIONS FOR THIS PAGE]
BRAKE PEDAL SEASHELL HORN (TOP)
MODULE BY AND VIBRATOR HORN
SPARTON (BOTTOM) BY
ENGINEERED SPARTON ENGINEERED
PRODUCTS, INC. PRODUCTS, INC. -
- - -LAKE ODESSA FLORA GROUP
GROUP
7
<PAGE> 10
<TABLE>
CONSOLIDATED BALANCE SHEETS
SPARTON CORPORATION & SUBSIDIARIES
June 30, 1994 and 1993
--------------------------------------------------------------------------------------------
<CAPTION>
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 1,713,718 $ 2,560,566
Income taxes recoverable 2,591,000 --
Accounts receivable:
Trade, less allowance of $103,000
($339,000 in 1993) for doubtful accounts 24,783,888 21,496,823
U.S. and foreign governments 7,149,291 10,122,048
Inventories (Notes 1 and 2) 45,835,914 47,419,133
Prepaid expenses (Note 7) 2,434,109 2,362,297
------------ ------------
Total current assets 84,507,920 83,960,867
Other assets (Note 6) 3,060,062 2,673,690
Property, plant and equipment, at cost:
Land and land improvements 1,823,505 1,423,920
Buildings and building equipment 19,184,574 17,423,631
Machinery and equipment 38,675,057 34,352,547
------------ ------------
59,683,136 53,200,098
Less accumulated depreciation (38,529,178) (35,445,936)
------------ ------------
Net property, plant and equipment 21,153,958 17,754,162
------------ ------------
$108,721,940 $104,388,719
============ ============
<FN>
See accompanying notes
</TABLE>
_______________________________________________________________________________
FINANCIAL TRENDS AT A GLANCE
NET SALES
(IN MILLIONS OF DOLLARS)
'90 '91 '92 '93 '94
- - ----------------------------------------------
$178.1 $214.4 $245.4 $233.1 $201.2
NET INCOME (LOSS) PER COMMON SHARE
'90 '91 '92 '93 '94
- - ----------------------------------------------
($1.19) $0.53 $1.02 $0.85 ($.63)
8
<PAGE> 11
<TABLE>
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY 1994 1993
------------ ------------
<S> <C> <C>
Current liabilities:
Notes payable (Note 3) $ 20,614,550 $ 3,880,000
Accounts payable (Note 2) 12,872,286 18,900,081
Salaries and wages 2,840,827 3,215,012
Income taxes 446,331 1,078,584
Accrued liabilities 5,529,385 5,675,020
------------ ------------
Total current liabilities 42,303,379 32,748,697
Deferred compensation 1,912,265 1,924,079
Deferred income taxes (Note 7) 1,809,500 1,965,000
Long-term obligations, net of current maturities (Note 4) 626,012 785,120
Commitments and contingencies (Note 8)
Shareowners' equity:
Preferred stock, serial, no par value;
200,000 shares authorized, none outstanding -- --
Common stock, $1.25 par value; 8,500,000
shares authorized, 7,811,370 shares outstanding
(7,810,370 in 1993) after deducting 123,342 shares
(124,342 in 1993) in treasury (Notes 1 and 5) 9,764,213 9,762,963
Capital in excess of par value 403,067 399,942
Retained earnings 51,903,504 56,802,918
------------ ------------
Total shareowners' equity 62,070,784 66,965,823
------------ ------------
$108,721,940 $104,388,719
============ ============
</TABLE>
______________________________________________________________________________
EQUITY PER COMMON SHARE
'90 '91 '92 '93 '94
- - ---------------------------------------------
$6.18 $6.71 $7.74 $8.57 $7.95
WORKING CAPITAL
(IN MILLIONS OF DOLLARS)
'90 '91 '92 '93 '94
- - ---------------------------------------------
$24.1 $37.3 $45.3 $51.2 $42.2
9
<PAGE> 12
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
SPARTON CORPORATION & SUBSIDIARIES
Years Ended June 30, 1994, 1993 and 1992
----------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................. $201,174,104 $233,052,133 $245,379,966
Costs and expenses:
Costs of goods sold.................. 183,941,559 198,059,278 210,885,656
Selling and administrative........... 24,038,992 23,977,155 22,028,891
------------ ------------ ------------
207,980,551 222,036,433 232,914,547
------------ ------------ ------------
(6,806,447) 11,015,700 12,465,419
Other income (expense):
Interest............................. (685,279) (601,975) (1,073,423)
Other--net........................... 471,312 229,217 417,295
------------ ------------ ------------
(213,967) (372,758) (656,128)
------------ ------------ ------------
Income (loss) before income taxes......... (7,020,414) 10,642,942 11,809,291
Provision (credit) for income
taxes (Notes 1 and 7)................ (2,121,000) 4,005,000 3,841,000
------------ ------------ ------------
Net income (loss)......................... $ (4,899,414) $ 6,637,942 $ 7,968,291
============ ============ ============
Net income (loss) per share of
common stock............................ $(.63) $.85 $1.02
===== ==== =====
<FN>
See accompanying notes
</TABLE>
________________________________________________________________________________
FINANCIAL TRENDS AT A GLANCE
CONTINUED
GOVERNMENT SALES
(IN MILLIONS OF DOLLARS)
'90 '91 '92 '93 '94
- - ----------------------------------------------
$99.0 $139.6 $165.0 $111.1 $50.2
COMMERCIAL SALES
(IN MILLIONS OF DOLLARS)
'90 '91 '92 '93 '94
- - ----------------------------------------------
$79.1 $74.8 $80.4 $122.0 $151.0
10
<PAGE> 13
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SPARTON CORPORATION & SUBSIDIARIES
Years Ended June 30, 1994, 1993 and 1992
-------------------------------------------------------------------------------------------
<CAPTION>
OPERATING ACTIVITIES: 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss).................... $(4,899,414) $ 6,637,942 $ 7,968,291
Add (deduct) non-cash items affecting
continuing operations:
Depreciation.................... 3,488,907 3,074,963 2,729,582
Deferred income taxes........... 102,000 517,000 249,000
Other........................... (470,104) (363,243) 35,252
Add (deduct) changes in operating
assets and liabilities:
Income taxes recoverable........ (2,591,000) 348,580 157,337
Accounts receivable............. (314,308) (668,129) 2,871,259
Inventories and prepaid
expenses...................... 1,666,407 (5,906,256) 1,422,826
Accounts payable, salaries and
wages, accrued liabilities and
income taxes.................. (7,592,865) 4,119,432 (4,356,107)
----------- ----------- -----------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES............ (10,610,377) 7,760,289 11,077,440
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment.......................... (6,911,908) (3,381,636) (3,053,919)
Proceeds from sale of property, plant
and equipment...................... 23,205 13,362 267,042
Other................................ 71,918 (62,846) 86,072
----------- ----------- -----------
NET CASH USED BY INVESTING
ACTIVITIES...................... (6,816,785) (3,431,120) (2,700,805)
FINANCING ACTIVITIES:
Increase (decrease) in notes
payable............................ 16,734,550 (5,078,810) (8,022,990)
Proceeds from the exercise of stock
options............................ 4,375 51,938 --
Principal payments on long-term
borrowings......................... (158,611) (157,916) (157,313)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES............ 16,580,314 (5,184,788) (8,180,303)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH............... (846,848) (855,619) 196,332
Cash at beginning of year............ 2,560,566 3,416,185 3,219,853
----------- ----------- -----------
CASH AT END OF YEAR....................... $ 1,713,718 $ 2,560,566 $ 3,416,185
=========== =========== ===========
Supplemental disclosures of cash paid
during the year for:
Interest........................... $ 672,199 $ 580,508 $ 1,070,364
=========== =========== ===========
Income taxes....................... $ 984,844 $ 3,103,929 $ 5,193,419
=========== =========== ===========
<FN>
See accompanying notes
</TABLE>
11
<PAGE> 14
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
SPARTON CORPORATION & SUBSIDIARIES
Years Ended June 30, 1994, 1993 and 1992
---------------------------------------------------------------------------------------------------------
<CAPTION>
Capital
in
Common stock, excess
$1.25 par value of
------------------------- par Retained
Shares Amount value earnings Total
---------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance July 1, 1991.......... 7,791,672 $9,739,590 $371,377 $42,196,685 $52,307,652
Net income............... 7,968,291 7,968,291
---------- ---------- -------- ----------- -----------
Balance June 30, 1992......... 7,791,672 9,739,590 371,377 50,164,976 60,275,943
Net income............... 6,637,942 6,637,942
Exercise of stock
options................ 18,698 23,373 28,565 51,938
---------- ---------- -------- ----------- -----------
Balance June 30, 1993......... 7,810,370 9,762,963 399,942 56,802,918 66,965,823
Net income (loss)........ (4,899,414) (4,899,414)
Exercise of stock
options................ 1,000 1,250 3,125 4,375
---------- ---------- -------- ----------- -----------
Balance June 30, 1994......... 7,811,370 $9,764,213 $403,067 $51,903,504 $62,070,784
========= ========== ========= =========== ===========
<FN>
See accompanying notes
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareowners
Sparton Corporation
We have audited the accompanying consolidated balance sheets of
Sparton Corporation and subsidiaries as of June 30, 1994 and 1993,
and the related consolidated statements of operations, shareowners'
equity, and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Sparton Corporation and subsidiaries at June 30, 1994
and 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended June 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in the year
ended June 30, 1994, the Company changed its methods of accounting
for income taxes and postemployment benefits.
ERNST & YOUNG LLP
Toledo, Ohio
August 19, 1994
12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTON CORPORATION & SUBSIDIARIES
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements
include the accounts of Sparton Corporation and all subsidiaries.
All significant intercompany transactions and accounts have been
eliminated.
CONTRACT ACCOUNTING -- Long-term contracts relate principally to
government defense and commercial contracts within the Electronics
segment. Production contracts are accounted for based on completed
units shipped and their estimated average contract cost per unit.
Development contracts are accounted for based on percentage
completion. Costs and fees billed under cost reimbursement type
contracts are recorded as sales.
CREDIT PRACTICES -- The Company manufactures and sells products
principally in the commercial electronics, defense and automotive
manufacturing industries. Credit terms are granted and periodically
revised based on evaluations of the customers' financial condition
with collateral generally not required. Receivables from foreign
customers are generally secured by letters of credit. Credit losses
relating to customers consistently have been within management's
expectations and comparable to losses incurred by organizations
similar to the Company.
INVENTORIES -- Inventories are valued at the lower of cost
(first-in, first-out basis) or market.
DEPRECIATION AND AMORTIZATION -- Depreciation is provided over
estimated useful lives on accelerated methods, except for certain
buildings, machinery and equipment with an aggregate cost of
approximately $13,404,000 at June 30, 1994, which are being
depreciated on the straight-line method.
TREASURY STOCK -- The excess of cost over par value allocated to
capital in excess of par value of shares acquired for the treasury
is based on the per share amount of capital in excess of par value
for all shares, with the difference charged to retained earnings.
RESEARCH AND DEVELOPMENT EXPENDITURES -- Expenditures for research
and development not funded by customers amounted to approximately
$3,424,000 in 1994, $3,356,000 in 1993, and $2,671,000 in 1992.
EARNINGS PER SHARE -- Earnings per share are computed using the
weighted average number of common shares outstanding of 7,810,721 in
1994, 7,800,543 in 1993 and 7,791,672 in 1992. Inclusion of
outstanding stock options in the computation would not result in any
significant dilution.
CHANGES IN METHODS OF ACCOUNTING -- Effective the first quarter of
1994, the Company adopted 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. They 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. Under the deferred method, deferred income tax
provisions were made for all timing differences between earnings for
financial reporting and income tax purposes. The adoption of SFAS
No. 109 has not changed the actual amount of income tax paid by the
Company. The cumulative effect of this accounting change was to
decrease the net loss for the first quarter of fiscal 1994 by
$264,000 ($.03 per share).
In the fourth quarter of 1994, the Company elected to early adopt
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits," retroactively as of July 1,
1993. Under this new method of accounting, the Company accrues
disability benefits when it becomes probable that such benefits will
be paid and when sufficient information exists to make reasonable
estimates of the amounts to be paid. Prior to adoption, the Company
recognized the cost of providing these benefits on a cash basis.
Prior years' financial statements have not been restated. The
cumulative effect of this accounting change was to increase the net
loss for the first quarter of 1994 by $264,000 ($.03 per share), net
of income taxes of $149,000. The effect of this accounting change on
1994 operations was not material.
2. LONG-TERM CONTRACTS
Inventories include costs related to long-term contracts of
approximately $23,439,000 and $38,970,000 at June 30, 1994 and 1993,
respectively, reduced by progress billings from the United States
Government of approximately $5,627,000 and $6,900,000, respectively.
Accounts payable includes billings in excess of costs of $1,236,000
and $6,995,000 at June 30, 1994 and 1993, respectively.
3. SHORT-TERM LOANS AND CREDIT AVAILABILITY
At June 30, 1994, the Company has unsecured, informal lines of
credit totalling $26,500,000 with three separate banks. At June 30,
1994, $20,000,000 was outstanding under these agreements. The
Company's Canadian subsidiary maintains a revolving credit facility
(the Facility) with a Canadian bank for borrowings up to $723,000.
The Facility is unsecured and due on demand. At June 30, 1994,
$615,000 was outstanding under this Facility.
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4. LONG-TERM OBLIGATIONS AND LEASE INFORMATION
Long-term obligations consisted of the following at June 30, 1994
and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Unsecured 3% notes payable................................... $464,101 $547,636
Capitalized lease obligation................................. 300,000 375,000
-------- --------
764,101 922,636
Less current maturities,
included in accrued liabilities.............................. (138,089) (137,516)
-------- --------
$626,012 $785,120
======== ========
</TABLE>
Annual maturities of long-term obligations, including the principal
portion of the capital lease, for the years subsequent to June 30,
1994 are as follows: 1995 - $138,000, 1996 - $160,000, 1997 -
$160,000, 1998 - $161,000, 1999 - $145,000.
The Company leases various facilities and equipment under agreements
accounted for as operating leases. Rent expense amounted to
approximately $1,980,000, $2,145,000 and $2,404,000 in 1994, 1993
and 1992, respectively. Commitments under these leases are not
significant.
5. STOCK OPTIONS
The Company has an incentive stock option plan under which 400,000
common shares were reserved for option grants to key employees at
the fair market value of the stock at the date of the grant. Under
the plan, the options generally become exercisable cumulatively,
beginning one year after the date granted, in equal annual
installments. Individual grants may have a stock appreciation rights
feature whereby optionees can surrender up to one-half of their
unexercised options to the extent then exercisable in exchange for
cash or common shares equal to the difference between the then
current market value and the option prices for shares issuable upon
surrender of such options. In addition, the plan permits the Company
to award restricted stock to eligible employees, providing the
recipient with limited ability to sell or otherwise transfer the
restricted shares.
Information on options is as follows:
<TABLE>
<CAPTION>
Shares
Under
Option Price Range
------- --------------
<S> <C> <C>
Outstanding at July 1, 1991................................... 93,896 $2.69 to $4.38
Cancelled................................................ (1,800) 4.38
------- --------------
Outstanding at June 30, 1992.................................. 92,096 2.69 to 4.38
Granted.................................................. 71,000 6.63
Exercised (17,698 as stock
appreciation rights)................................... (36,396) 2.69 to 4.38
Cancelled................................................ (4,900) 4.38 to 6.63
------- --------------
Outstanding at June 30, 1993.................................. 121,800 4.38 to 6.63
Exercised................................................ (1,000) 4.38
Cancelled................................................ (9,200) 4.38 to 6.63
------- --------------
Outstanding at June 30, 1994.................................. 111,600 $4.38 to $6.63
======= ============
</TABLE>
At June 30, 1994 there were 286,400 shares reserved for option
grants and 60,172 share options exercisable which expire in 1995
through 1999. The remaining 51,428 share options outstanding become
exercisable beginning in 1995 and expire through 1999.
6. EMPLOYEE BENEFIT PLANS
The Company has a contributory pension plan for the benefit of
certain salaried and hourly employees. Basic plan benefits are based
upon the participants' years of service. Additional benefits are
available to contributory participants based upon their years of
contributory service and compensation. The Company's policy is to
fund the plan based upon legal requirements and tax regulations.
The following major assumptions were used in the actuarial
valuations:
<TABLE>
<S> <C>
Long-term rate of investment return................................................ 8.0%
Long-term rate of increase in compensation levels.................................. 5.0%
Discount rate...................................................................... 7.5%
</TABLE>
14
<PAGE> 17
Net periodic pension income of $458,000, $576,000 and $273,000 was
recognized in 1994, 1993 and 1992, respectively. The components of
these credits are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits earned during the year...... $ 240,000 $ 178,000 $ 286,000
Interest on projected benefit obligation.......... 599,000 577,000 633,000
Actual return on plan assets...................... (251,000) (571,000) (2,555,000)
Net amortization and deferral..................... (1,046,000) (760,000) 1,363,000
----------- ----------- -----------
Net periodic pension income.................. $ (458,000) $ (576,000) $ (273,000)
========== ========== ==========
</TABLE>
The following table summarizes the funding status of the plan at
March 31:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested................................................ $ 6,754,000 $ 6,346,000
Nonvested............................................. 160,000 138,000
----------- -----------
$ 6,914,000 $ 6,484,000
========== ==========
Projected benefit obligation.................................... $ 8,197,000 $ 7,434,000
Market value of plan assets consisting principally of common
stock (including 319,100 shares of the Company's common
stock), corporate bonds and U.S. Government obligations... 12,523,000 12,978,000
----------- -----------
Excess of plan assets over projected benefit obligation......... 4,326,000 5,544,000
Unrecognized net loss (gain).................................... 969,000 (410,000)
Unrecognized net transition asset............................... (2,371,000) (2,668,000)
----------- -----------
Prepaid pension cost included in other assets................... $ 2,924,000 $ 2,466,000
========== ==========
</TABLE>
The Company also maintains several contributory progress sharing
retirement plans. The aggregate costs of these plans amounted to
$484,000 for 1994, $485,000 for 1993 and $500,000 for 1992.
7. INCOME TAXES
During the first quarter of 1994, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." The Statement requires the use of the
asset and liability approach for financial accounting and reporting
for income taxes (liability method). Under this method, deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities.
Financial statements for prior years have not been restated.
Comparative income tax information is reflected under the liability
method for 1994 and the deferred method for 1993 and 1992.
The cumulative effect of adopting SFAS No. 109 as of July 1, 1993
was to decrease the net loss by $264,000 ($.03 per share), primarily
due to a reduction in the expected tax rates used to measure the
deferred tax assets and liabilities.
Significant components of the Company's deferred tax assets and
liabilities at June 30, 1994 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Canadian tax carryovers..................................................... $ 1,304,000
Employment and compensation................................................. 1,231,000
Inventories................................................................. 1,164,000
Other....................................................................... 397,000
-----------
Total deferred tax assets................................................ 4,096,000
Less valuation reserve for Canadian tax carryovers.......................... (1,304,000)
-----------
2,792,000
Deferred tax liabilities:
Property, plant and equipment............................................... 1,593,000
Prepaid pension costs....................................................... 1,053,000
-----------
Total deferred tax liabilities........................................... 2,646,000
-----------
Net deferred tax assets.................................................. $ 146,000
==========
</TABLE>
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Deferred taxes are included in the balance sheet at June 30, 1994 as
follows:
<TABLE>
<S> <C>
Prepaid expenses.............................................................. $ 1,955,500
Deferred tax liabilities...................................................... 1,809,500
-----------
$ 146,000
==========
</TABLE>
Significant timing differences affecting deferred taxes in 1993 and
1992 were inventory valuation for financial reporting purposes under
those for tax purposes of $970,000 and $1,041,000, respectively. The
1993 deferred taxes also include net periodic pension income not
currently taxable of $576,000.
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
United States..................................... $(5,625,236) $12,069,999 $12,459,156
Canada............................................ (1,395,178) (1,427,057) (649,865)
----------- ----------- -----------
$(7,020,414) $10,642,942 $11,809,291
========== ========== ==========
</TABLE>
The related provision (credit) for income taxes consists of:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Current:
United States................................ $(2,397,000) $ 3,073,000 $ 3,725,000
Canada....................................... (32,000) (48,000) (243,000)
State and local.............................. 206,000 463,000 110,000
----------- ----------- -----------
(2,223,000) 3,488,000 3,592,000
Deferred:
United States................................ 102,000 447,000 270,000
Canada....................................... -- 70,000 (21,000)
----------- ----------- -----------
102,000 517,000 249,000
----------- ----------- -----------
$(2,121,000) $ 4,005,000 $ 3,841,000
========== ========== ==========
</TABLE>
The consolidated effective tax rate differs from the statutory U.S.
federal tax rate for the following reasons and by the following
percentages:
<TABLE>
<CAPTION>
1994 1993 1992
------ ----- -----
<S> <C> <C> <C>
Statutory U.S. federal tax (benefit) rate.............. (34.0%) 34.0% 34.0%
Significant increases (reductions) resulting from:
Canadian tax loss carryovers...................... 6.3 4.7 --
State and local income taxes...................... 1.9 2.9 0.6
Tax benefit of foreign sales corporation.......... (2.4) (2.5) (1.3)
Other............................................. (2.0) (1.5) (0.8)
------ ----- -----
Effective tax (benefit) rate........................... (30.2%) 37.6% 32.5%
====== ===== =====
</TABLE>
For Canadian income tax purposes, approximately $2,429,000 of
non-capital losses and scientific research and experimental
development expenditures are available at June 30, 1994 for
carryover against income in future tax years. These carryovers begin
to expire in the year 2000. In addition, unused investment tax
credits of approximately $333,000 at June 30, 1994 are available for
carryover against tax liabilities in future tax years. These
carryover credits will begin to expire in the year 2004. For
financial reporting purposes, a valuation reserve for the full
amount of the Canadian carryovers has been established. This
valuation reserve amounted to $622,000 at July 1, 1993 and
$1,304,000 at June 30, 1994.
16
<PAGE> 19
8. COMMITMENTS AND CONTINGENCIES
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 Company and its subsidiaries
are also involved in certain compliance issues with the United
States Environmental Protection Agency and various state
environmental regulatory agencies. The Company has been involved in
an environmental clean-up effort at one of its facilities since
1983. A reserve of $1,200,000 was established and charged against
operations in 1991 in order to cover estimated minimum future costs
of this clean-up effort. As of June 30, 1994, the remaining reserve
for these future costs at this facility, principally ongoing
monitoring, totaled $663,000. The Company has previously recovered
all amounts available under insurance policies concerning this
clean-up effort.
The ultimate legal and financial liability of the Company in respect
to these matters cannot be estimated with certainty. 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 matters should not
have a material impact on the Company's consolidated financial
statements.
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following unaudited information shows selected items by quarter
for the years ended June 30, 1994 and 1993, respectively. As
explained in Note 1, Changes in Methods of Accounting, the first
quarter 1994 loss and loss per common share have been restated to
reflect the retroactive application of SFAS No. 112. This
restatement increased the first quarter 1994 net loss by $264,000
($.03 per share) from amounts previously reported.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
1994........................... $41,392,602 $47,898,718 $51,477,828 $60,404,956
1993........................... 57,716,268 50,113,806 63,016,458 62,205,601
Gross profit:
1994........................... 5,101,531 6,209,244 5,191,543 730,227
1993........................... 7,911,474 7,071,957 8,761,818 11,247,606
Income (loss):
1994........................... (715,971) 196,231 (562,642) (3,817,032)
1993........................... 1,194,609 922,502 1,543,887 2,976,944
Income (loss) per common share:
1994........................... $(.09) $.03 $(.08) $(.49)
1993........................... .15 .12 .20 .38
</TABLE>
In the fourth quarter of 1994, gross profit was decreased by
approximately $4,600,000 due to downward adjustments in the carrying
value of inventories and related costs of certain commercial and
defense contracts within the Electronics segment.
10. SEGMENT INFORMATION
The Company's operations have been classified into two segments: (1)
ELECTRONICS includes micro-processor based systems, transducers,
printed circuit boards and assemblies, sensors and electronic and
electromechanical contract manufacturing for the telecommunications,
electronics and other industries. It also includes sonobuoys which
are anti-submarine warfare (ASW) devices used by the U.S. Navy and
other free world military establishments. (2) AUTOMOTIVE AND
INDUSTRIAL PRODUCTS include electric and air horns for passenger
cars, trucks and boats, stampings and assemblies for a variety of
passenger cars and trucks including floor shifters, spare tire
carriers and metal airbag components, other automotive parts and
marine devices and products for the telecommunication industry.
Total sales to the Ford Motor Company were $34,428,000 in 1994,
$30,623,000 in 1993 and $19,354,000 in 1992; total sales to General
Motors Corporation were $30,962,000, $24,437,000 and $20,220,000 in
1994, 1993 and 1992, respectively, from the Automotive and
Industrial Products segment. Total direct sales on prime contracts
to United States Government agencies were $33,649,000 in 1994,
$88,006,000 in 1993 and $123,177,000 in 1992, principally from the
Electronics segment. No other customer accounted for 10% or more of
consolidated sales in 1994, 1993 or 1992. Trade receivables of the
Automotive and Industrial Products segment, principally representing
the three largest domestic automotive manufacturers, were
approximately $16,522,000, $13,615,000 and $9,968,000 at June 30,
1994, 1993 and 1992, respectively.
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Foreign export sales by U.S. operations to unaffiliated customers
were $34,675,000 in 1994, $32,607,000 in 1993 and $37,789,000 in
1992, respectively, with a majority of these sales from the
Electronics segment. Sales of ASW devices and related engineering
contract services for the years 1994-1990 contributed approximately
24%, 45%, 61%, 61% and 50%, respectively, to total sales. Sales of
floor shifter assemblies for 1994 and 1993 contributed approximately
18% and 13%, respectively, to total sales while sales of horns for
1994 contributed approximately 10% to total sales. Sales between
segments were not significant in any of these years.
Operating profit is total revenue less operating expenses. In
computing operating profit, general corporate expenses and interest
expense have not been allocated to business segments. General
corporate expenses include general and administrative costs. General
corporate assets consist primarily of cash and invested funds,
deferred taxes, prepaid pension costs and income taxes recoverable.
<TABLE>
<CAPTION>
Years ended June 30
------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
(not covered by Report of
Independent Auditors)
<S> <C> <C> <C> <C> <C>
SALES:
Electronics........................ $ 95,453,340 $147,457,053 $180,945,228 $153,775,837 $107,806,247
Automotive and Industrial
Products......................... 105,720,764 85,595,080 64,434,738 60,580,936 70,332,231
------------ ------------ ------------ ------------ ------------
$201,174,104 $233,052,133 $245,379,966 $214,356,773 $178,138,478
============= ============= ============= ============= =============
OPERATING PROFIT (LOSS):
Electronics........................ $ (5,274,868) $ 9,865,696 $ 15,518,782 $ 14,022,267 $(11,414,261)
Automotive and Industrial
Products......................... 573,524 3,160,202 (982,050) (2,602,540) 1,361,698
------------ ------------ ------------ ------------ ------------
(4,701,344) 13,025,898 14,536,732 11,419,727 (10,052,563)
General corporate expenses......... (2,105,103) (2,010,198) (2,071,313) (2,135,147) (1,824,736)
------------ ------------ ------------ ------------ ------------
$ (6,806,447) $ 11,015,700 $ 12,465,419 $ 9,284,580 $(11,877,299)
============= ============= ============= ============= =============
IDENTIFIABLE ASSETS:
Continuing operations:
Electronics...................... $ 55,820,560 $ 63,627,181 $ 62,026,667 $ 68,404,250 $ 65,894,663
Automotive and Industrial
Products....................... 45,137,343 35,304,845 31,286,830 29,263,794 35,286,344
General corporate................ 7,764,037 5,456,693 5,257,583 5,344,239 12,176,061
------------ ------------ ------------ ------------ ------------
108,721,940 104,388,719 98,571,080 103,012,283 113,357,068
Discontinued oil and gas
operations....................... -- -- -- -- 9,087,384
------------ ------------ ------------ ------------ ------------
$108,721,940 $104,388,719 $ 98,571,080 $103,012,283 $122,444,452
============= ============= ============= ============= =============
PROVISION FOR DEPRECIATION:
Electronics........................ $ 935,345 $ 963,582 $ 1,151,321 $ 1,425,243 $ 1,487,954
Automotive and Industrial
Products......................... 2,546,650 2,106,533 1,575,177 1,441,472 1,501,635
General corporate.................. 6,912 4,848 3,084 1,728 4,256
------------ ------------ ------------ ------------ ------------
$ 3,488,907 $ 3,074,963 $ 2,729,582 $ 2,868,443 $ 2,993,845
============= ============= ============= ============= =============
CAPITAL EXPENDITURES:
Electronics........................ $ 1,092,066 $ 398,712 $ 846,898 $ 603,054 $ 678,606
Automotive and Industrial
Products......................... 5,797,573 2,977,916 2,201,911 1,336,314 1,418,739
General corporate.................. 22,269 5,008 5,110 4,056 3,021
------------ ------------ ------------ ------------ ------------
$ 6,911,908 $ 3,381,636 $ 3,053,919 $ 1,943,424 $ 2,100,366
============= ============= ============= ============= =============
</TABLE>
18
<PAGE> 21
<TABLE>
SELECTED FINANCIAL DATA
SPARTON CORPORATION & SUBSIDIARIES
Years Ended June 30
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales............................ $201,174,104 $233,052,133 $245,379,966 $214,356,773 $178,138,478
Costs and expenses................... 207,980,551 222,036,433 232,914,547 205,063,593 189,925,531
------------ ------------ ------------ ------------ ------------
(6,806,447) 11,015,700 12,465,419 9,293,180 (11,787,053)
Other income (expense):
Interest........................... (685,279) (601,975) (1,073,423) (2,675,050) (3,490,703)
Other-net.......................... 471,312 229,217 417,295 924,206 1,380,998
------------ ------------ ------------ ------------ ------------
(213,967) (372,758) (656,128) (1,750,844) (2,109,705)
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations before income taxes..... (7,020,414) 10,642,942 11,809,291 7,542,336 (13,896,758)
Provision (credit) for income
taxes.............................. (2,121,000) 4,005,000 3,841,000 3,245,000 (6,246,000)
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations......................... (4,899,414) 6,637,942 7,968,291 4,297,336 (7,650,758)
Loss from discontinued oil and gas
operations, net of income taxes.... -- -- -- (167,880) (1,663,402)
------------ ------------ ------------ ------------ ------------
Net income (loss).................... $ (4,899,414) $ 6,637,942 $ 7,968,291 $ 4,129,456 $ (9,314,160)
============= ============= ============= ============= =============
Weighted average common shares
outstanding........................ 7,810,721 7,800,543 7,791,672 7,791,672 7,826,808
PER SHARE OF COMMON STOCK
Income (loss):
Continuing operations.............. $(.63) $ .85 $1.02 $ .55 $ (.98)
Discontinued operations............ -- -- -- (.02) (.21)
------------ ------------ ------------ ------------ ------------
$(.63) $ .85 $1.02 $ .53 $(1.19)
============= ============= ============= ============= =============
Shareowners' equity.................. $7.95 $8.57 $7.74 $6.71 $ 6.18
Dividends............................ -- -- -- -- .26
OTHER FINANCIAL DATA
Total assets......................... $108,721,940 $104,388,719 $98,571,080 $103,012,283 $122,444,452
Working capital...................... 42,204,541 51,212,170 45,308,069 37,336,643 24,064,996
Working capital ratio................ 2.00:1 2.56:1 2.34:1 1.81:1 1.34:1
Long-term obligations................ $ 626,012 $ 785,120 $ 943,423 $ 1,101,184 $ 1,237,865
Shareowners' equity.................. 62,070,784 66,965,823 60,275,943 52,307,652 48,178,196
Return on ending shareowners'
equity............................. (7.9%) 9.9% 13.2% 7.9% (19.3%)
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations have been classified into two segments:
Electronics and Automotive and Industrial Products.
FISCAL 1994 COMPARED TO FISCAL 1993
Sales for the year ended June 30, 1994 totaled $201,174,000, a
decline of $31,878,000 (14%) from 1993. Revenues were below internal
expectations. Sales decreased 36% 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. Commercial sales volume at Sparton
Electronics continues to expand, but not at a level sufficient to
offset the decline in defense-related revenues. Sales decreased
substantially at the Canadian unit compared both to last year and to
internal expectations. Revenues also declined at Sparton Technology,
as anticipated, due to reduced government and contract manufacturing
sales. This revenue decrease was partially offset by expanding
foreign and proprietary product revenues. The Automotive and
Industrial Products segment sales continue to expand with an
aggregate revenue increase of $20,126,000 (24%) for the current
year. Sales increases occurred at all three units that comprise this
segment. This growth exceeded expectations by over $6,000,000 and
reflects both increased demand as well as new product shipments.
The Company reported a loss from operations of $6,806,000 in 1994
compared to income from operations of $11,016,000 in 1993. These
operating results were below expectations. Sparton Electronics
incurred a loss for the current year compared to profitable
operations the previous year. Margins continue to be adversely
impacted by increased costs associated with the start-up of several
new programs, unexpected production delays and lower than
anticipated sales volumes. In the fourth quarter of 1994, gross
margins were decreased by approximately $4,600,000 due to the
writedown in carrying value of inventories and related costs of
certain commercial and defense contracts within Sparton Electronics.
This adjustment resulted from a review of existing products and
markets and the inventories' realizable value. The Canadian unit
incurred an operating loss primarily due to extremely low sales
volume. Sparton Technology reported a small loss in 1994, but this
loss was significantly less than that incurred in 1993 primarily due
to various cost cutting measures instituted. The Automotive and
Industrial Products segment incurred a small operating loss for the
current year compared to an operating profit last year. An operating
profit for 1994 was anticipated. Factors contributing to this loss
included costs associated with the relocation of a production
facility, unexpected difficulties on new product launches, capacity
problems at certain facilities, and an inability to adjust certain
prices due to competitive pressures. A production facility was
purchased in Hartford City, Indiana during the year in order to
expand this segment's manufacturing capacity. Price increases on
several product lines have been requested, but with only limited
success. Efforts to obtain price increases continue.
Interest expense increased $83,000 in 1994 to $685,000 due to higher
average borrowings. Other income increased $242,000 to $471,000
primarily due to the realization of gain on the sale of a plant.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standard 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 1994 of $264,000 ($.03 per share), primarily from a
reduction in the income tax rates used to record deferred tax
liabilities. In the fourth quarter of 1994, the Company elected to
early adopt Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," retroactively
as of July 1, 1993. The cumulative effect of this change as of the
beginning of the year was a charge of $264,000 ($.03 per share), net
of income taxes of $149,000. This accounting change had no material
effect on the results of operations for the year or for the
individual quarterly reporting periods. The accounting changes, when
taken together, had no effect on the net loss reported for 1994.
After provision (credit) for applicable income taxes, as discussed
in Note 7 to the financial statements, the Company incurred a net
loss of $4,899,000 ($.63 per share) in 1994 compared to net income
of $6,638,000 ($.85 per share) in 1993.
FISCAL 1993 COMPARED TO FISCAL 1992
Sales for the year ended June 30, 1993 totaled $233,052,000, a
decline of $12,328,000 (5%) from 1992. Sales decreased $24,515,000
(16%) at Sparton Electronics. This decrease reflected the declining
level of U.S. Government defense-related sales. Sparton Electronics
commercial sales expanded, but not at a sufficient level to offset
the decline in U.S. Government revenues. Sales for 1993 at the
Canadian unit declined compared to the level achieved in 1992.
Revenues at Sparton Technology decreased 33% due to reduced
government and contract manufacturing sales. In the third quarter of
1993, Sparton Technology was notified that it was not awarded a
major add-on contract for U.S. Postal Service equipment which
had been anticipated. The customer, a prime contractor to the U.S.
Postal Service, was not selected for an award. The Automotive and
Industrial Products segment continued to expand with an aggregate
sales increase of $21,160,000 (33%)
20
<PAGE> 23
in 1993 compared to the prior year. This increase reflects both
increased customer demand as well as new product shipments.
The Company reported income from operations of $11,016,000 in 1993
compared to $12,465,000 in 1992. Sparton Electronics operated
profitably, but below the level achieved in 1992. Margins continued
to be adversely impacted by increased costs associated with delays
in the production schedule and increased costs of materials. The
Canadian unit operated at a loss in 1993. Sparton Technology
reported a loss in 1993 compared to profitable operations the prior
year as sales volume was significantly lower than anticipated. The
previously mentioned loss of an anticipated U.S. Postal Service
related contract has resulted in staff reductions at this unit. The
Automotive and Industrial Products segment had profitable operations
of $2,233,000 in 1993 compared to a loss of $1,800,000 in 1992.
While improvements were realized at all three units, aggregate
automotive margins remained below desired levels due to the
inability to adjust prices primarily because of competitive
pressures.
Interest expense decreased $471,000 in 1993 to $602,000 due to lower
average borrowings and lower interest rates. Average borrowings
decreased approximately $4,000,000 to $11,700,000 in 1993. Other
income declined $188,000 to $229,000. After provision for applicable
income taxes, the Company reported net income of $6,638,000 ($.85
per share) in 1993 compared to $7,968,000 ($1.02 per share) in 1992.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of cash and equivalents has historically been
from operations. Short-term credit facilities are used to provide
liquidity. The Company anticipates a change in the mix of its
capital resources as the volume of U.S. defense-related contract
work declines. Certain contracts, including many within the defense
operations of Sparton Electronics, provide for interim progress
billings based on costs incurred. These progress billings reduce the
amount of cash that would otherwise be required during the
performance of these contracts. As the volume of U.S.
defense-related contract work declines, so will the relative
importance of progress billings as a component of the Company's
aggregate capital resources. Unused amounts available under existing
credit facilities are the only immediate source of cash and
equivalents.
Cash flows used by operating activities were $10,610,000 in 1994
compared to cash flows provided of $7,760,000 in 1993 and
$11,077,000 in 1992. Primary causes of the 1994 cash flows used in
operating activities were operating losses, decreases in accounts
payable and increases in income taxes recoverable.
Cash flows used by investing activities were $6,817,000 in 1994,
$3,431,000 in 1993 and $2,701,000 in 1992. The Company's principal
investing activity was the purchase of property, plant and
equipment. As previously discussed, the Company purchased a
production facility in Hartford City, Indiana in order to expand its
automotive operations. The Company will continue to invest in
additional plant and equipment to accommodate additional automotive
business previously awarded.
Cash flows from financing activities were $16,580,000 in 1994
compared to cash flows used of $5,185,000 in 1993 and $8,180,000 in
1992. The increase in 1994 was due to the increase in the Company's
short-term borrowings to fund its operating and investing
activities. The Company maintains unsecured, informal lines of
credit currently totalling $26,500,000 with three separate banks.
At June 30, 1994, the Company had $42,205,000 in working capital. At
that date, there were no significant unusual contractual
commitments.
OTHER
The Company has been involved in an environmental clean-up effort at
Sparton Technology's Coors Road facility since 1983. Costs incurred
totalled $81,000 for 1994 compared to $196,000 last year. These
costs were charged against a reserve initiated in 1991 to cover
estimated future minimum costs. As of June 30, 1994, the remaining
reserve for future minimum costs totalled $663,000. The Company has
previously recovered all amounts available under insurance policies
concerning this clean-up effort. A remedial action plan has been
developed and submitted for approval but negotiations continue with
respect to such plan. In addition, the Company is involved in
several related issues with State of New Mexico environmental
agencies. Until these and other related issues are resolved,
management is unable to accurately assess what the ultimate costs
incurred may be. Management continues to work diligently in pursuing
these issues and believes that their ultimate resolution should not
have a material adverse effect on the Company's consolidated
financial statements.
The Company's sales of sonobuoys, principally to the U.S. Navy, have
declined dramatically from $151,024,000 in 1992 to $47,645,000 in
1994, 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 at
reduced levels. The Navy
21
<PAGE> 24
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
is funding development efforts to improve the detection capability
of current systems and to implement new detection systems for
planned deliveries starting in 1996. The Company is currently
developing certain of these new systems both individually and
jointly with a major competitor. At the present time, the Company is
uncertain as to the market potential of these new systems, and if it
would be the supplier of choice if these systems go to production.
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 same high level of
reserves of the U.S. Navy, the reductions in the international
market presently experienced and expected in the future should be
less severe. In response to this changing environment, the Company
has previously consolidated certain of its manufacturing facilities,
continues to reduce costs 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 on a worldwide basis.
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 impacts frequently occur. Investors should be aware
of this uncertainty and make their own independent evaluation.
------------------------------------------------------------------
DIRECTORS
[GROUP PHOTO]
THE SPARTON BOARD OF DIRECTORS ARE, LEFT TO RIGHT, BLAIR
H. THOMPSON, DAVID W. HOCKENBROCHT, JAMES N. DEBOER,
ROBERT J. KIRK, JOHN J. SMITH, LAWSON K. SMITH AND
MARSHALL V. NOECKER.
22
<PAGE> 25
DIRECTORS, OFFICERS & GENERAL MANAGERS
DIRECTORS
James N. DeBoer, Partner
Law Firm of Varnum, Riddering,
Schmidt and Howlett
Grand Rapids, Michigan
David W. Hockenbrocht, President
Sparton Corporation
*Robert J. Kirk, Financial Consultant
Toledo, Ohio
*Marshall V. Noecker, President
Noecker Group
Garden City, Michigan
John J. Smith, Chairman
Sparton Corporation
Lawson K. Smith, President
Sparton Engineered Products, Inc.-
Lake Odessa Group
Lake Odessa, Michigan
Blair H. Thompson, Retired
Vice President-Treasurer
Sparton Corporation
Jackson, Michigan
*Audit Committee
OFFICERS AND GENERAL MANAGERS
SPARTON CORPORATION
John J. Smith, Chairman and Chief Executive Officer
David W. Hockenbrocht, President and Chief Operating
Officer
Richard L. Langley, Vice President-Treasurer
Lawson K. Smith, Vice President-Secretary
Richard H. Nichols, Vice President, Assistant Secretary
R. Jan Appel, Vice President, General Counsel and
Assistant Secretary
Joseph S. Lerczak, Assistant Treasurer
ELECTRONICS
Douglas E. Johnson, Vice President-General Manager
Sparton Electronics (Assumed current assignment
July 1, 1994)
Mark W. Pickard, Vice President-General Manager
Sparton of Canada, Ltd.
Richard D. Mico, Vice President-General Manager
Sparton Technology, Inc.
AUTOMOTIVE & INDUSTRIAL PRODUCTS
Jerry R. Gause, Vice President-General Manager
Sparton Engineered Products, Inc.-
KPI Group
Gary A. White, Vice President-General Manager
Sparton Engineered Products, Inc.-
Lake Odessa Group
William C. Mirgain, Vice President-General Manager
Sparton Engineered Products, Inc.-
Flora Group (Assumed current assignment
July 18, 1994)
23
<PAGE> 26
BUSINESS SEGMENTS
ELECTRONICS
SPARTON ELECTRONICS
Administrative Office
Johnson Lake Rd.
DeLeon Springs, FL 32130
MANUFACTURING AND ENGINEERING SERVICES
Brooksville, FL
TECHNICAL CENTER
Jackson, MI
MANUFACTURING FACILITIES:
Jackson, MI
DeLeon Springs, FL (2 plants)
Brooksville, FL
WASHINGTON OFFICE
1215 Jefferson Davis Highway
Crystal Gateway III, Suite 306
Arlington, VA 22202
SPARTON OF CANADA, LTD.
99 Ash St.
London, Ontario N5Z 4V3
SPARTON TECHNOLOGY, INC.
Administrative Office
4901 Rockaway Blvd., S.E.
Rio Rancho, NM 87124
MANUFACTURING FACILITIES:
Albuquerque, NM
Deming, NM
Rio Rancho, NM
AUTOMOTIVE & INDUSTRIAL PRODUCTS
SPARTON ENGINEERED PRODUCTS, INC.
- - -FLORA GROUP
Administrative Office and Technical Center
Old U.S. Highway 50 W
Flora, IL 62839
MANUFACTURING FACILITIES:
Flora, IL
Grayville, IL (2 plants)
INTERNATIONAL SALES-ENGINEERING OFFICE
1000 John R Rd., Suite 202
Troy, MI 48083
SPARTON ENGINEERED PRODUCTS, INC.
- - -LAKE ODESSA GROUP
Administrative Office and Technical Center
2820 29th St., S.E.
Kentwood, MI 49512
MANUFACTURING FACILITIES:
Lake Odessa, MI
Gladwin, MI
SALES-ENGINEERING REPRESENTATIVES' OFFICE
2075 W. Big Beaver Rd., Suite 222
Troy, MI 48084
SPARTON ENGINEERED PRODUCTS, INC.
- - -KPI GROUP
Administrative and Sales Offices and Technical Center
427 N. Griffin St.
Grand Haven, MI 49417
MANUFACTURING FACILITIES:
Brownstown, IN
White Cloud, MI
Spring Lake, MI
Hartford City, IN
CORPORATE OFFICE
SPARTON CORPORATION
2400 E. Ganson St.
Jackson, MI 49202
Phones (517) 787-8600 / (800) 248-9579
Fax (517) 787-1822
24
<PAGE> 27
COMMON STOCK LISTING
New York Stock Exchange
TRANSFER AGENT/REGISTRAR
Society National Bank
P.O. Box 6477
Cleveland, OH 44101-1477
800-542-7792
NEW YORK TRANSFER FACILITY
Society Trust Company of New York
5 Hanover Square
10th Floor
New York, NY 10004
FORM 10-K AVAILABLE
A copy of Sparton Corporation's annual report on Form 10-K for the year ended
June 30, 1994, filed with the Securities and Exchange Commission, will be
furnished without charge to any shareowner upon written request to Richard L.
Langley, Vice President-Treasurer, Sparton Corporation, 2400 E. Ganson St.,
Jackson, MI 49202
NOTICE OF ANNUAL MEETING
The Annual Meeting of Sparton Corporation will be held at 10:00 a.m. on
Wednesday, October 26, 1994, in the Company offices, 2400 E. Ganson St.,
Jackson, Michigan.
It is Sparton Corporation's policy to afford equal employment opportunity to all
employees and qualified applicants for employment without regard to race,
religion, creed, color, sex, national origin, age, handicap or veteran status.
<PAGE> 1
<TABLE>
EXHIBIT 22
SPARTON CORPORATION
The Registrant, Sparton Corporation, an Ohio Corporation, had the following
subsidiaries at June 30, 1994:
<CAPTION>
Incorporated
Name In
- - ------------------------------------------------ ------------
<S> <C>
Domestic:
Sparton Engineered Products, Inc.-KPI Group Michigan
Sparton Engineered Products, Inc.-KPI Group Indiana
Sparton Engineered Products, Inc.-Lake
Odessa Group Michigan
Sparton Engineered Products, Inc.-Flora Group Illinois
Sparton Electronics Florida, Inc. Florida
Sparton Technology, Inc. New Mexico
Foreign:
Sparton of Canada, Limited Ontario, Canada
Sparton Electronics International Sales, Ltd. Barbados
</TABLE>
E-1
<PAGE> 1
EXHIBIT 23
SPARTON CORPORATION
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sparton Corporation of our report dated August 19, 1994, included in the
1994 Annual Report to Shareowners of Sparton Corporation and subsidiaries.
Our audits also included the financial statement schedules of Sparton
Corporation and subsidiaries listed in item 14. These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-43703) pertaining to the Sparton Corporation 1989 Stock Option
Plan of our report dated August 19, 1994, with respect to the consolidated
financial statements and schedules of Sparton Corporation and subsidiaries
included and/or incorporated by reference in this Annual Report (Form 10-K) for
the year ended June 30, 1994.
/s/ ERNST & YOUNG LLP
Toledo, Ohio
September 26, 1994
E-2
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-01-1993
<PERIOD-END> JUN-30-1994
<CASH> 1,713,718
<SECURITIES> 0
<RECEIVABLES> 32,036,179
<ALLOWANCES> 103,000
<INVENTORY> 45,835,914
<CURRENT-ASSETS> 84,507,920
<PP&E> 59,683,136
<DEPRECIATION> 38,529,178
<TOTAL-ASSETS> 108,721,940
<CURRENT-LIABILITIES> 42,303,379
<BONDS> 626,102
<COMMON> 9,764,213
0
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<OTHER-SE> 52,306,571
<TOTAL-LIABILITY-AND-EQUITY> 108,721,940
<SALES> 201,174,104
<TOTAL-REVENUES> 201,174,104
<CGS> 183,941,559
<TOTAL-COSTS> 207,980,551
<OTHER-EXPENSES> (471,312)
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<INTEREST-EXPENSE> 685,279
<INCOME-PRETAX> (7,020,414)
<INCOME-TAX> (2,121,000)
<INCOME-CONTINUING> (4,899,414)
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